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Federal Housing Administration to play expanded role



WASHINGTON - With some early signs that the housing market is stabilizing, HUD Secretary Shaun Donovan said today that President Obama's continuing efforts to "fix a financial system that's broken" meant that the Federal Housing Administration would play an increasingly larger role in mortgages.

"While we prefer to have the private market be more involved, we have asked . . . to expand our authority to provide $400 billion more for the FHA insurance program," Donovan said at a conference of real estate reporters and editors here.

If that happens, HUD will endorse 2.25 million mortgages in 2010, he said.

FHA's share of the mortgages originated in 2006, at the height of the housing boom, was less than 2 percent of the market. Today, it is 24 percent and growing, Donovan said.

The agency's "monetizing" the $8,000 income tax credit for qualified first-time home buyers - that is, turning it into down payments in some cases, closing costs in others - will translate into 160,000 sales by the time the credit ends Dec. 1, the National Association of Home Builders says.

The Obama administration's Making Home Affordable program is beginning to make progress in modifying or refinancing mortgages for troubled homeowners, Donovan said.

So far, 16 mortgage servicers have signed on to the voluntary program, representing 80 percent of the loans affected. More than 1 million homeowners have received information on the program so far, and about 20,000 mortgages are undergoing "trial" modification, he said.

None of these programs would be necessary, however, if the financial system and the government had been more accountable to consumers, Donovan said, and that is what the administration is trying to put into place from now on.

"The new plan announced by President Obama Wednesday is rooted in protection for consumers," he said. "Nowhere were consumers less protected than in mortgages."

The proposed Consumer Financial Protection Agency will be a federal regulator that "will look out for ordinary Americans," with broad authority not only to protect consumers, but also to come up better mortgage products, Donovan said.

The plan is to change laws to create a more transparent process for mortgage applications and approvals. Mortgage brokers and lenders will have to communicate with borrowers the kinds of risks these loans may involve, Donovan said.

In addition, there will be an effort to obtain quicker data about financial transactions, because "only with the latest information can consumers make informed choices," Donovan said.

"We will demand simplicity. Every borrower will first be offered a plain, vanilla mortgage with simple, understandable terms. Then, if they want a different kind of mortgage, they will be given that option."

Investors in securitized mortgages would have to hold at least 5 percent of the risk under the reform plan, so they can share it with lenders and consumers, he said. Mortgage brokers would be paid for their services over time rather than in one lump sum, depending on loan performance.

Prepayment penalties also would be eliminated.

"This is just one component of a robust plan to bring back credibility to the system," Donovan said.

"Collectively, all these efforts mean is this: HUD has never been more important to immediate and long-term success than today."

Contact real estate writer Alan J. Heavens at 215-854-2472 or