Mortgage pioneer Ranieri urges greater credit: report

NEW YORK (Reuters) - U.S. foreclosures could double without an expansion in housing credit from the current limited government-sponsored programs, mortgage veteran Lewis Ranieri said on Wednesday.

The overhang of inventory from foreclosures and expected foreclosures is at least four years' worth already, and the impact is challenging the status of housing as an investment, Ranieri said in an interview with CNBC television.

Ranieri's comments come just days after the Obama administration said it intended to transition the U.S. mortgage finance system from a government-dominated finance model to one that attracts more private capital. In doing so, the government plans on raising fees charged by Fannie Mae and Freddie Mac for guaranteeing mortgages.

"The issue is transition, but transition in the logical way, and don't be too tight right now when ... affordability is as great as it has ever been," Ranieri said.

Ranieri, who helped develop the market for private residential mortgage-backed securities three decades ago, said the "system will come apart at the seams" if the current state of tight credit isn't addressed and foreclosures are allowed to grow. One solution would be to set up programs to finance local investors who can absorb the foreclosure supply.

"This is the first time that the government -- in this kind of supply-demand imbalance, when we need the local people -- has no investor finance program," he said.

Ranieri has several investment ventures, including a firm that purchases distressed loans, according to sources.

The number of distressed sales, which include foreclosures and short sales, rose in January to 37 percent of all existing home sales, the highest in a year, the National Association of Realtors reported on Wednesday. Home prices declined to their lowest since April 2002, the NAR report said.

With the government dominating credit "you just keep the overhang going," Ranieri said. "Prices go down more, and more people get underwater and it becomes a vicious circle."

(Reporting by Al Yoon; editing by Leslie Adler)