Lenders may continue to process applications for Federal Housing Administration-insured financing using a streamlined loan downpayment calculation until Sept. 30, when the two-year experiment with the simplified formula expires.

Had the Department of Housing and Urban Development not bowed to requests from two key congressmen, lenders would have reverted back to the older, more cumbersome computation, which would have meant that most FHA borrowers with loans above $125,000 would have had to make substantially higher downpayments.

Actually, lenders would have gone back to the old way before the Sept. 30 deadline because under the law, a certificate of insurance had to be issued prior to that date. Since it takes about 30 days after a loan is closed for insurance to be issued, the deadline was effectively Aug. 30, not Sept. 30.

Lenders might still be forced to use the old formula if federal lawmakers don't get their acts together by the end of the government's fiscal year. Unless Congress votes to extend or make permanent the streamlined formula it approved on a pilot basis two years ago, the FHA will be prohibited from accepting loans underwritten with the formula when the new fiscal year begins on Oct. 1.

After that date, lenders will have no choice but to once again use the old calculation. And in high cost areas, borrowers with FHA financing could be forced to come up with $3,000 or more in extra cash. Either that or forget about buying a home altogether.

The Mortgage Bankers Association estimates that as many as 200,000 families will be affected if Congress doesn't approve an extension. As many as 85,000 could be affected in California alone, MBA says.

The House has already voted to make the simplified computation permanent in an omnibus housing bill that has a little something for everybody. But similar legislation has not even been introduced in the Senate, which doesn't seem terribly interested in many of the measure's provisions.

If the Senate does not act, supporters of the streamlined downpayment formula will try to insert a provision to extend it for another year in the Senate appropriation bill for HUD. But they already failed in their attempt to stick the extension in the House appropriations measure.

What's strange about the situation, says MBA Vice President Howard Glaser, is that "everybody is for" the legislation. "It's part of the President's budget and it's in the House-passed bill. But because of the inertia, it could wind up going nowhere and we'll be in deep trouble come Oct. 1."

Because of the uncertainty, the MBA had been advising lenders to require borrowers to sign a disclosure statement at the time they apply for an FHA loan acknowledging there is a possibility the cash they need to close may increase and the amount they can borrow may decrease.

MBA members also were being told to calculate the loan amount under the old method as well as the streamlined one. That way, they'll be able to tell if the borrower will qualify if Congress fails to act. On a $150,000, the difference would be $2,175.

But making two calculations won't be necessary, at least not for 30-45 days, thanks to an agreement between HUD and New York legislators Rick Lazio, R, and John LaFalce, D. In a letter to FHA Commissioner William Apgar, the two lawmakers said it was always Congress's intention that as long as loans are closed by lenders by Sept. 30, it was okay to calculate the downpayment using the simpler formula.

But if Congress doesn't do something, it's will be out with the new and in with the old. And that's easier said than done. "I don't even remember the old way, it's been so long," says Patrick Bell, a Bowie, Md., mortgage broker.

Lenders, adds the MBA's Bud Carter, "have gotten used to the new calculation and programed it into their computers, so people must readjust their thinking. This is a big deal and it's just looming out there."

"It's chaos," says Donald Maiolatesi of Homestead USA in Southfield, Mich. "It's not just a matter of changing the calculation, but loans already in the pipeline may not get insured either. And then we'll have to call borrowers and tell them they need to come back with some more cash? Yea, right. That's as likely to happen as gas going down to 85 cents a gallon."