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Housing Secretary Jack Kemp announced plans to overhaul the loss-ridden Federal Housing Administration, including plans to ask a major accounting firm to test the financial soundness of mortgage-insurance programs for single-family housing.

Accountants would closely examine the General Insurance Fund, which includes the coinsurance, Title X and retirement service-centers programs; and the Mutual Mortgage Insurance Fund, which supports single-family home mortgages.

HUD has already suspended the coinsurance program, which is responsible for losses of more than $1 billion, and the retirement service-centers program. Mr. Kemp has also proposed the termination of the Title X program, where losses are expected to exceed $90 million.

Copyright Dow Jones & Company Inc Aug 2, 1989

WASHINGTON -- Housing Secretary Jack Kemp announced plans to overhaul the loss-ridden Federal Housing Administration, including plans to ask a major accounting firm to test the financial soundness of mortgage-insurance programs for single-family housing.

Accountants would closely examine the General Insurance Fund, which includes the coinsurance, Title X and retirement service-centers programs; and the Mutual Mortgage Insurance Fund, which supports single-family home mortgages.

These programs have been responsible for much of the $2 billion in estimated losses at the Department of Housing and Urban Development, which has been rocked by congressional and internal revelations of influence peddling, embezzlement, poor management and a lack of control over contractors.

HUD has already suspended the coinsurance program, which is responsible for losses of more than $1 billion, and the retirement service-centers program. Mr. Kemp has also proposed the termination of the Title X program, where losses are expected to exceed $90 million.

In the coinsurance program, the government and private companies jointly insure mortgages for multifamily housing, with the government responsible for most of the claims. The retirement-centers program provides mortgage insurance for housing developments for people over the age of 70, and the Title X program provides mortgage assistance for land development.

Although untouched so far by reports of scandal, the Mutual Mortgage Insurance Fund had a loss of $368 million in the fiscal year ended last September, the first deficit in its history. A HUD spokesman attributed the losses "to defaults in regions where the economy is slow."

Mr. Kemp laid out his "FHA for the 90s" plan in a letter to the Senate Subcommittee on Housing and Urban Affairs, which yesterday opened hearings into housing programs. He portrayed it as the first step beyond the "emergency actions" necessary to "stop the financial hemorrhaging" because of fraud and mismanagement.

Secretary Kemp outlined plans to revamp accounting and management practices, saying "FHA's technology and products are not current with today's changing housing and financial markets." The current accounting systems may have underestimated HUD's losses, he acknowledged.

The changes also include provisions to attack the fraud that has crippled several HUD programs. Mr. Kemp wants to contract with major accounting and auditing firms to step up monitoring of FHA programs, 90% of which depend on outside lenders. "HUD's practices should not make such abuse too easy and tempting," Mr. Kemp wrote.

Mr. Kemp also sought to reassure senators that the FHA wasn't seriously threatened by the scandals, but would remain a "cornerstone of America's national housing policy."

"The Bush administration is committed to safeguarding FHA's financial health and continue its success at no cost to the taxpayer," he wrote.

The FHA insures the mortgages of more than nine million borrowers, according to HUD.

Credit: Staff Reporter of The Wall Street Journal