
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, June 7, 1990                   TAG: 9006070083
SECTION: BUSINESS                    PAGE: C6   EDITION: METRO 
SOURCE: The Washington Post
DATELINE: WASHINGTON                                LENGTH: Medium

FHA FUND IN DANGER

The General Accounting Office and representatives of a private accounting firm hired by the Department of Housing and Urban Development told a Senate subcommittee Wednesday that the government's main home-loan-insurance program has been forced to the brink of collapse by declining real-estate values and risky underwriting.

Reports released Wednesday by both the GAO and the Price Waterhouse accounting firm predict dire times ahead for the Federal Housing Administration's mutual mortgage-insurance fund, which, by conservative estimates, is expected to lose $208 million during 1990.

Less optimistic forecasts of economic conditions, the Price Waterhouse accountants said, make it "reasonably possible" that 1990 losses could total as much as $667 million.

"Plainly speaking, FHA was mismanaged," said Housing and Urban Development Secretary Jack Kemp. "It was backing risky loans on the cheap."

Members of the Senate Banking, Housing and Urban Affairs subcommittee on housing, which heard testimony Wednesday on longstanding problems with FHA programs, said the continuing downward slide could contribute to more significant problems in the future, on a par with the multibillion-dollar savings and loan bailout.

"If FHA reforms are needed, then let's get them out on the table as quickly as possible so we can deal with it in a manner that . . . will prevent the debacle that we have seen relating to the S&Ls," said Sen. Alfonse M. D'Amato, R-N.Y.

Senators, who were not briefed on the Price Waterhouse report before its release, warned Kemp not to "sugarcoat" its findings. The FHA is a part of HUD.

"Let us remind everyone that FHA has an explicit guarantee by the federal government," said Sen. Jake Garn, R-Utah. "Any losses incurred by FHA must be covered by the federal government. That means the taxpayers."

The GAO's John Ols predicted that risks in the FHA program could lead to "enormous costs over the life of the new insurance" that will be written in coming years. If homes appreciate at a rate of less than 4 percent per year, he said, the fund is unlikely to survive without government support.

Kemp said the FHA fund "is not now actuarially sound." But aides said he has been reviewing the Price Waterhouse study for several weeks, and he arrived at Wednesday's hearing armed with proposals he predicted would improve the fund's standing.

Kemp has proposed increasing the amount of money FHA borrowers pay for closing costs, which are now part of the financed mortgage; assessing a 0.5 percent "risk premium" on loans made with down payments of less than 10 percent; and limiting the cap placed on mortgages.

by CNB