FHA chief warns against broad housing intervention

WASHINGTON -- A Bush administration official on Monday warned against overly broad government intervention to stem the housing crisis, arguing that lawmakers' 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.

The FHA "is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans," Montgomery said in remarks prepared for delivery at the National Press Club.

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 deals have higher delinquency rates.

The Bush administration tried last fall to halt the program, but nonprofit groups successfully challenged the government ban, winning a court decision in March. Montgomery said the agency again will try to ban such programs.

"Unless we take action to mitigate these losses, FHA 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."