FHA reform would help US subprime borrowers-lawmakers

WASHINGTON, April 19 (Reuters) - Subprime borrowers facing foreclosure could save their homes with help from a federal housing program now facing reform, the program's administrator and lawmakers said Thursday.

"We are on track to help 60,000 (subprime borrowers) this year. With this reform we can easily help 200,000 more," said Brian Montgomery, chief of the Federal Housing Administration, a depression-era program that insures low-income home buyers.

Between 1996 and the end of last year, the FHA's share of new mortgages slipped from 9.1 percent to just 1.8 percent as the subprime mortgage market grew.

Those subprime loans to borrowers with damaged credit were often easier and faster to secure than FHA loans.

On Thursday, lawmakers debated how best to reform the program and get back borrowers now in troubled subprime loans.

"Quickly reforming (FHA) will open up opportunities for people who have been thrown into the subprime market and find themselves in great difficulty now," said Rep. Maxine Waters, the California Democrat who heads the housing panel on the House Financial Services Committee.

By insuring loans on low-cost homes, the FHA helps borrowers get more affordable mortgage payments. Subprime lenders, on the other hand, charge higher rates for their loans.

Many subprime loans offer low interest rates early in the life of the loan but spike within a few years. That jump in rates has been blamed for increasing mortgage delinquencies and foreclosures.

"Clearly the FHA has a role to play in finding solutions to this country's rising foreclosure rate," said Illinois Rep. Judy Biggert who is the top-ranking Republican on the housing panel.

Montgomery said that his agency is weighing whether it can offer new mortgages terms to "delinquent borrowers who, before the reset, had good credit."

Federal law requires the FHA to calculate the costs of such a change, Montgomery said, and "we are doing that right now."

House Democrats and Republicans have each introduced a reform measure that would relax FHA downpayment demands and loosen the loan limits.

The Republican measure is identical to legislation that passed the House by a vote of 415 to 7 last summer but failed in the Senate.

Rep. Barney Frank, chairman of the House Financial Services Committee, has introduced his own bill would cut costs for borrowers at the lower tier of FHA loans.