For FHA, a Huge Task and Uncertain Role

Part of the legislation under consideration on the House floor today is a provision that would reform the FHA. The Senate has passed a similar measure. The FHA hopes that when the two are reconciled, the final legislation would get rid of one-size-fits-all premiums and charge borrowers based on risk.

Agency officials also hope the legislation would ban popular seller-funded down-payment-assistance programs in which home sellers give money to charities, which help buyers make down payments.

This arrangement has led to an unacceptable level of defaults and foreclosures that the FHA can no longer sustain, said Brian Montgomery, the FHA's commissioner.

Without these changes, the FHA will be facing financial pressure next year, Montgomery said.

By law, the FHA must break even each year, meaning it must collect more in premiums than it pays to cover foreclosure-related losses. If at the start of a year the FHA estimates it cannot do that, then the Senate and House appropriations panels make up the shortfall using taxpayer money.

Because of the poor performance of seller-funded down-payment loans, the FHA may ask for $1.4 billion in appropriations for the fiscal year beginning Oct. 1 -- the first appropriation in its history.

At his FHA office, Montgomery said that the mortgage crisis could have been averted had Congress heeded his pleas to overhaul the FHA in 2006 so his agency could better compete with subprime rivals.

"I'm back here now trying to pick up the pieces, and they're telling me you're just not doing enough," he said. "It's a little disingenuous."

Staff writers Lori Montgomery and David S. Hilzenrath contributed to this report.