Robert D. Horner, who resigned two years ago as chairman of Citicorp Mortgage, is back on the scene as chief executive of Chicago-based Hamilton, Carter, Smith Consulting.

At a June forum of the prestigious Housing Roundtable, he offered his views on the Federal Housing Administration's home-loan insurance program. Excerpts of his talk follow.

I want to lay out two possible alternatives.

First of all would be a narrowing of the focus of FHA - narrow the focus so that it truly supports homeownership for those people who have no other alternatives for homeownership, yet have a desire to own a home.

In doing that, I would suggest that we should focus the program on first-time homebuyers below a certain income cap, perhaps $50,000 in family income.

With that, I would lower the insurance premiums, and pay them over time instead of up front. I would also suggest a limit in terms of the lending caps.

None of these ideas are unique. But I would make one key point, and that is: We should acknowledge and understand that this program will not be self-funding.

If we choose this path, I think the government or the Congress has to recognize the fact that this program is going to cost some money.

No Free Lunch

Like many of our entitlement and subsidy programs, this is one that, if we choose to adopt it, has positive policy implications for the nation and for the economy.

But we have to understand there's no free lunch. You are asking this program to take risks that cannot be compensated for by insurance, and if you try to do that, you're going to destroy the program.

I think one of the major benefits of this is that you would have a broader range of credit characteristics within the borrowing pool.

You would have people with more down payment who would participate in the program to take advantage of the lower rates and lower insurance premiums.

I think within the income strata that we're talking about, those below $50,000 and within the median house price in a market, you would see not only a broadening of the credit, but probably an enhancement of the credit qualities that may offset some of the cost of the subsidy.

Now a second alternative of the vision would be to eliminate the program completely.

Letting the economically viable segments of the homeowner population be served by the market-oriented firms is certainly an alternative, and one that should be given serious consideration.

What we are seeing is that there is a continuation of an effort to force portfolio lenders to serve this market. That will help.

I don't think increasing premiums is going to do anything except make this situation worse than it is today.

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