An official of the Mortgage Bankers Association warned last week that the Federal Housing Administration could eventually be forced out of the mortgage insurance business if it doesn't modernize, and keep up with the competition.

John Robbins, who is in line to become MBA chairman in 2007, said the FHA is instrumental in providing financing for immigrant and minority home buyers, backing more loans to these so-called "underserved" borrowers than Fannie Mae and Freddie Mac combined.

But he told the Midwinter Housing Conference in Park City, Utah, that the agency has become "very difficult to do business with," and could wind up being a chapter in the housing history books if it doesn't keep up with the times.

But Angelo Mozilo, chairman of Countrywide Financial Corp., Calabasas, Calif., went further, saying the FHA is already on the verge of being unnecessary. The agency "is making itself irrelevant by forcing Fannie Mae and Freddie Mac to take a lot of their product," the outspoken former MBA president said.

Mr. Robbins, who is chairman of the American Mortgage Network, said that with the growing dominance of minority households, which tend to face serious affordability problems, the need for government-insured mortgages is more important than ever.

According to projections by the Harvard Joint Center for Housing Studies, minorities will be responsible for two-thirds of the growth in total households over the ten-year period between 2000 and 2010.

But the 80-year-old FHA already is key to the housing aspirations of minorities, according to the MBA's figures. Although its share of the mortgage market is only 3 percent, a third of its originations are to minorities vs. 18 percent for the conventional market.

In addition, the agency makes the same number of loans to minorities as the GSEs together. And it is responsible for half of all loans to borrowers who earn less than $50,000 a year.

Builder William Hudson of Brownsville, Texas, said government-insured financing is critical to his buyers, 90 percent of whom are low-income Hispanics. Without the FHA, he said, they'd be forced to pay higher rates in the subprime sector, or be forced out of the market altogether.

But Mr. Robbins pointed out that the agency is being "adversely selected" by originators, with the better loans going to private insurers and the FHA getting what's left.

"In that (the FHA) is not getting enough high quality loans to balance out the greater risk, it ultimately could be forced out of business" unless it shapes up, the future MBA president said.

The FHA has to "keep pace" with the rest of the mortgage market by investing in technology and human resources, and by becoming more innovative in terms of loan products, the industry spokesman told the conference.

The FHA "can be an incredibly important part of the housing finance system in the future," said Mr. Robbins, who placed the FHA reform at the top of MBA's list of key issues.

"We want them to be here, but they have to keep pace with the rest of the market to remain viable."