Henry Cisneros, secretary of housing and urban development, told the House Budget Committee on Thursday that his agency wants to transform the FHA "from a slow-moving bureaucracy into a streamlined, market-driven, government-owned corporation."
As on previous occasions, Mr. Cisneros said a transformed Federal Housing Administration would rely more on partnerships to design risk- sharing products. The partners, he said, would include the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac), the Federal Home Loan banks, private mortgage insurers, and others
But testimony from two think tanks suggested two alternative directions for the single-family FHA program.
Ronald D. Utt of the conservative Heritage Foundation argued that the financially sound, single-family portfolio of the Federal Housing Administration be privatized, while the multifamily mortgages remain the federal government's obligation.
He noted there was a precedent for this in the late 1960s, when the assets of Fannie Mae, then a part of HUD, were similarly divided.
He suggested that the privatized FHA could be chartered as an independent government corporation similar to Fannie Mae, and with a mandate to serve households that would otherwise be neglected by the private sector.
By contrast, John C. Weicher of the Hudson Institute argued against both privatization and HUD's own proposal to convert FHA into a government-owned corporation.
Mr. Weicher said that past experience has shown that even when some degree of risk sharing is legislated, HUD can wind up taking the full loss.
"Who has the right to commit to full credit of the federal government," Mr. Weicher asked in prepared testimony.
"In my view, that commitment should remain a responsibility of the federal government, and not be given to private entities or other levels of government that will not have to bear the cost if they make mistakes."
In arguing against privatization, Mr. Weicher said FHA insurance should be targeted to lower-income families. He added that the moderate-income families it serves are not being reached by private insurers, Mr. Weicher said.
"If the government still intends to promote homeownership, FHA has a unique role," he said.
