Home financing "sick," needs private capital: FHA

NEW YORK (Reuters) - Financing for U.S. housing still lacks private capital, a sign of a “very sick system,” said David Stevens, Federal Housing Administration commissioner, told a Mortgage Bankers Association convention on Monday.

Home purchase loans in the first quarter through the FHA, which require a lower downpayment than competitors, surpassed those done through government-controlled Fannie Mae and Freddie Mac combined, he said, citing a third-party study.

Without a 20-percent downpayment, “it’s very difficult to find a solution with private capital,” Stevens said. “We need to find a way to bring private capital back to the market.”

The study conducted by Potomac Partners found that Fannie Mae and Freddie Mac helped borrowers finance $46 billion of home purchases in the first three months of the year. FHA insured more than $52 billion of home loans in that time.

“Let’s be real. It’s still a government-financed market,” Stevens said.

FHA guaranteed 1.9 million loans last year, up from 1.1 million in 2008 and 465,000 the prior year.

Stevens said he doubted the system would heal quickly, but stabilizing home prices and applying stepped-up efforts to remedy loans for responsible borrowers who are under water would go a long way in steadying the U.S. housing market.

Reporting by Lynn Adler and Al Yoon; Editing by Padraic Cassidy