Housing policy chief sees more challenges ahead

WASHINGTON (Reuters) - The current national housing crisis will continue to cause disruptions in the economy as interest rates increase on more mortgages and more home loans fail, the top U.S. housing policymaker said on Thursday.

"We know that much of this issue is still in front of us," Steve Preston, secretary of the Department of Housing and Urban Development, told a government housing conference.

"We are going to see a lot of (mortgage rate) resets coming our way over the next year. We also know that many people have lost equity in their home," he told the meeting sponsored by the Mortgage Bankers Association. "We all need to get creative to handle that challenge."

Preston, who was sworn-in June 6, is responsible for the Federal Housing Administration which is Washington's largest homebuyer-aid program. Lawmakers are now considering how to expand the FHA so that it can rescue more troubled borrowers who have missed payments and seen their properties lose value.

In the next two weeks, the United States Senate is expected to pass legislation that would create a $300 billion fund to refinance mortgages that are now headed toward foreclosure. A similar measure has already passed the House of Representatives.

Preston warned the mortgage industry to correct past lending abuses and help borrowers or face tough laws in the future.

"In the absence of that (self-correction), we may see Congress legislate a very well-intentioned solution which may have unintended consequences," he said.

(Written by Patrick Rucker; Editing by Editing by Diane Craft)