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Bush administration official warns against too-broad government housing intervention

Bush administration official warns against too-broad government housing intervention

A Bush administration official on Monday warned against overly broad government intervention to stem the U.S. housing crisis, arguing that lawmakers' proposed foreclosure prevention program would saddle taxpayers with too much risk.
The Federal Housing Administration, which guarantees loans made to borrowers with poor credit, could be weakened by a plan for the agency to back as much as $300 billion in new loans to help borrowers refinance into cheaper, fixed-rate mortgages, said commissioner Brian Montgomery.
"We are not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans," Montgomery said in a speech at the National Press Club.
But in an interview after the speech, Montgomery stopped short of a veto threat. He said the Bush administration is still reviewing a version of the legislation that passed a Senate panel last month with bipartisan support.
Mortgage industry consultant Howard Glaser said the housing bill has enough political momentum behind it to clear Congress and receive President George W. Bush's signature.
"Ultimately it will get done before the summer recess" in August, Glaser said.
The centerpiece of the measure would give cheaper, government-backed mortgages to up to 500,000 strapped borrowers. The bill also meets a long-standing Bush administration goal by tightening regulation of Fannie Mae and Freddie Mac. The two government-sponsored mortgage giants would finance a new affordable housing fund that would temporarily be used to pay for the foreclosure prevention program.
While the administration has been criticized for relying too heavily on private-sector solutions to the mortgage crisis, Montgomery defended the government's track record. The housing crisis would be "exponentially worse" without FHA programs, he said.
Montgomery also repeated earlier warnings _ made by former Housing and Urban Development Secretary Alphonso Jackson _ that the agency's finances are threatened by a program that allows nonprofit groups to aid borrowers with downpayments.
The Government Accountability Office, the investigative arm of Congress, warned in 2005 that such arrangements have higher delinquency rates. And the Internal Revenue Service has also been critical of the programs.
Through such programs, sellers give money to a charity, which aids borrowers with downpayments. However, critics say the charities benefit financially from the programs. Montgomery, who on Monday called the programs "circular financing schemes" said Monday that defaults on those mortgages are running at triple the rate of those made to borrowers who provide their own downpayments. FHA's typical downpayment requirement is 3 percent.
The Bush administration tried last fall to halt the program, but providers of downpayment assistance successfully challenged the government ban, winning a court decision in March. Montgomery said the agency again will try to ban such programs, characterizing the court's objections as procedural.
"Unless we take action to mitigate these losses, we will soon either have to shut down or rely on appropriations to operate," Montgomery warned. "Given these concerns, we cannot just stand by, we must make our case again."
The agency in May booked an additional $4.6 billion in losses for loans made between 1992 and 2007. That was mostly due to problems with the downpayment assistance program, which counts for one-third of the 4.8 million loans backed by FHA, Montgomery said.


Updated : 2021-03-04 10:46 GMT+08:00