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THE FEDERAL Housing Administration manages an excellent program that insures private mortgages for nearly 700,000 single-family homes each year. It's a boon for families of modest means that want to own their own homes.

That's the good news. The bad news is that this is another federal insurance program related to housing that has quietly slipped into financial trouble.

Secretary Jack Kemp of the U.S. Department of Housing and Urban Renewal told a Senate banking panel this month that this particular FHA insurance fund, according to an outside independent audit, was losing $350 million a year.

It still carried reserves of $2.6 billion, which suggests there is time to correct the problem. But those reserves totaled $8 billion only 11 years ago, Kemp said, and the fund could sink into insolvency by the end of the decade if not enough is done soon enough.

Does this sound familiar? A federal insurance program that's related to housing loses more and more money, gradually at first but then faster and faster until it has drained off the healthy reserves built up over prior years.

Washington ought to make a quick, sure resolution: The FHA program will not be allowed to deteriorate through neglect and political irresponsibility, as happened with the S&L scandal.

Although some details remain unresolved, Kemp told the senators, the Bush administration offers several basic improvements for consideration by Congress.

He referred to one fundamental standard that sounds prudent and comes from the independent auditors that studied the insurance fund: enlarge its capital base immediately to 1.25 percent of its total insurance exposure ($271 billion) and to 2 percent by the year 2000. Even if the administration and Congress quibble over how to achieve that, they ought to concur on the objective.

More specifically, the administration wants tighter rules for issuing mortgages. Kemp asked Congress to add another one-half of one percent assessment for FHA home-buyers who make down payments of less than 10 percent. To reduce defaults, he wants home-buyers to pay two-thirds of their closing costs in cash. He would keep the present $125,000 ceiling on mortgages in place, rather than raising it, in order to exclude wealthy applicants from the FHA program. He would continue to deny FHA mortgages on second homes.

Some of these tightened rules might, conceivably, reduce the number of mortgages approved each year to middle-income applicants. But they could shrink the 80,000 foreclosures handled by the program as well.

Washington should learn from the S&L crisis. It is better for everyone, and certainly for taxpayers, to act quickly to remedy weaknesses in these expensive insurance programs before they have snowballed to crisis proportions.

Some tightening of rules may pinch. But that could avoid a much more painful pinch later.

The S&L crisis got out of hand. The Reagan administration and Congress both closed their eyes to onrushing disaster.

Today, Kemp and the Bush administration are clearly warning Congress of a problem that could grow much worse. Now, not later, is the time to act. Decisively.

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