FHA chief backs plan for loans

The Federal Housing Administration has endorsed a plan that would refinance home loans even for borrowers who have seen their property decrease in value, a senior government official is expected to say today.

The agency is prepared to underwrite loans that have dropped in value if the lender will first erase a share of the existing loan, according to the prepared remarks of FHA Commissioner Brian Montgomery.

Democratic members of Congress have called for the expansion of the FHA so that the agency can underwrite a large share of failing loans but Montgomery does not go that far, according to a draft of his remarks.

“I really want to stress this last point . . . the financial solvency of the fund must not be compromised,” Montgomery says in the remarks, emphasizing that the fund has always been self-funding and should not take on undue risk or be fundamentally altered.

Montgomery is scheduled to testify before the House Financial Services Committee, which is considering legislation that would open the door to troubled borrowers if their original lender were to agree to erase at least 15% of the original loan amount.