HUD defends FHA at U.S. House hearing on mortgages

WASHINGTON Jan 9 (Reuters) - A senior U.S. housing official on Friday defended the performance of the Federal Housing Administration at a congressional hearing looking into questions raised in a magazine article about mortgage originators.

A Business Week story published in November said the FHA permitted the market for FHA-backed loans to be infiltrated by abusive mortgage originators from the collapsed, private-label subprime mortgage market.

Several lawmakers at the hearing, held by the House of Representatives Financial Services Committee, asked federal officials about the article.

The story, and others like it, "misrepresent a well-respected federal program that has provided untold benefits to millions of Americans," said Phillip Murray, deputy assistant secretary of the Housing and Urban Development Department.

Murray criticized comparisons of FHA-insured mortgage practices to those seen in the subprime market. "FHA-insured loans are neither high-cost nor high-risk for homeowners," he said.

But he added that he appreciated the chance provided by the controversy to ask Congress for more money to upgrade FHA's computer systems. "FHA data is stored on 35 separate legacy systems, which have been obsolete for nearly two decades," he said.

The FHA is a HUD unit that insures millions of mortgages, lowering costs for many homebuyers. Its volume of business fell sharply a few years ago as many lower income homeowners shifted to subprime mortgages. But FHA loans are popular again now that the subprime market has collapsed.

Recent federal initiatives to stabilize the housing market rely heavily on the FHA, causing some lawmakers to question whether it is up to the job. (Reporting by Kevin Drawbaugh)