In a break with private mortgage insurers, the Los Angeles-based Western League of Savings Institutions has announced that it opposes plans to "radically restructure" the Federal Housing Administration.
In a March 15 letter to key lawmakers, the league said it was "troubled" by proposals to shift the FHA's program responsibilities to the Federal National Mortgage Association, the Federal Home Loan Mortgage Corp., and the private mortgage insurance companies.
"Without the FHA, there would be less competitive pressure on (the private mortgage insurance companies) to insure loans with small down payments, imperfect credit, or large debt-to-income ratios," wrote Lou Nevins, president of the Western League, which represents many of the nation's largest thrifts.
He added that his group was wary of increasing the market share of Fannie Mae and Freddie Mac as well.
"We do not believe that it is in the public interest to further increase the percentage of the residential housing market which is dependent upon the operation and managerial judgment of just two government-sponsored enterprises," Mr. Nevins added.
Under pressure from Congress, the administration has proposed to convert the FHA into a government-owned corporation, which would share risk with Fannie Mae and Freddie Mac, as well as the private insurance companies.
FHA critics in Congress and the private insurers support a more radical and quicker reorganization.
Suzanne C. Hutchinson, executive vice president of the Mortgage Insurance Companies of America, said she was "very surprised" by the letter.
Last year, the two trade groups worked together intensively to beat back the administration's proposal to expand the FHA program.
Ms. Hutchinson dismissed as "ridiculous" the notion that private insurers would be less innovative without competitive pressure from the government housing program.
She predicted that Mr. Nevins' letter would have little impact on the public debate.