Acting housing chief urges quick FHA reform

By Joanne Morrison

WASHINGTON (Reuters) - The acting U.S. housing secretary on Tuesday urged swift passage of legislation to expand the Federal Housing Administration's powers, calling it the most important next step in tackling the housing crisis.

Cautioning that any reforms to aid the housing and mortgage sector must not be in the form of a bailout, Roy Bernandi, deputy secretary of Housing and Urban Development, told a group of bankers in Washington that he opposed proposals being weighed in Congress.

His comments came as lawmakers were considering plans that could double the assets of the Federal Housing Administration (FHA), a federal mortgage guarantee program established in the wake of the Great Depression.

"There are some who want FHA to pick up all the potentially delinquent 2 million subprime loans. That would swamp FHA, capsize the boat," Bernandi said, referring to a measure that -- through a government mechanism -- would allow lenders to sell of auction off bad loans.

His comments came as the head of the U.S. House of Representatives Financial Services Committee said Congress should be able to send a package of housing and mortgage reform proposals to the White House by July 4.

"I think it's possible to do this," committee Chairman Barney Frank, a Massachusetts Democrat, told reporters on Tuesday at a separate banking conference here.

"We don't think taxpayers should pay for these bad loans," he said.

FHA is designed to help put owners in homes with less cost and less risk by providing a self-funded government guarantee. Bernandi said the program is designed to help stabilize the economy, operating within manageable, low-risk loans.

"It is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans," he said.

In order to ensure solvency and continued operation of FHA's single-family mortgage insurance fund, flexible risk-based premiums are necessary, both now and in the future, Bernandi said.

"Any bill must give FHA the tools needed to price for additional risk," he said..

Not all subprime loans should be insured, he cautioned, noting that such a move would double FHA's portfolio with high-risk loans.

"That would turn a viable, workable housing solution for some into a situation in which all hands drown," he said.

(Reporting By Joanne Morrison; Editing by Jonathan Oatis)