The Federal Housing Administration is planning a "major" advertising campaign in "selected markets" where the agency believes mortgage brokers may be guiding home buyers to more expensive non-prime loans.

The campaign is said to be an effort to secure a better deal for borrowers.

"We don't regulate mortgage rates, but subprime rates are outrageous, resulting in payments that are hundreds of dollars higher" than they would be with a government-insured mortgage, Vance Morris, the agency's director of Single-Family Project Development, said. "We can let people know that."

At the same time, the ad buy also could help shore up the sagging government-insured mortgage program. Once the first choice of borrowers who didn't measure up to conventional loan standards, the FHA is now often the last option suggested by lenders.

In the first half of 2004, government mortgages (including those guaranteed by the Veterans Administration) accounted for just a 6 percent of all originations, according to the latest figures from the Mortgage Bankers Association, whose members make the lion's share of government-backed mortgages. In last year's second half, the FHA/VA share slid further to just 5 percent of the total.

Actually, the venerable mortgage insurance program, which pioneered the 30-year fixed rate mortgage, has been losing market share over the past decade. But lately, the loss has been at "an alarming rate," reports Brian Collins of National Mortgage News, a trade publication.

According to NMN's calculations, the FHA's market share dropped to a mere 3.5 percent of the total at the end of fiscal 2004. And the trend is continuing. From Oct. 1 to Feb. 28, the first five months of fiscal ‘05, FHA loan endorsements were off 51.4 percent, compared to the same five-month period in FY ‘04.

The FHA hopes to win over borrowers by stressing "our rates are much lower than subprime and only slightly higher than conventional," Morris said at the National Association of Realtors' annual Midyear Legislative Meetings in Washington last week.

He also reported that the agency hopes to replace its multi-page appraisal form with a much shorter, half-page document by the first of the year that should speed processing along a faster track.

The ad campaign will tell would-be borrowers to specifically ask for an FHA loan because Uncle Sam thinks "it's better for you."

The ads also will emphasize the notion that consumers can be assured of getting "an honest appraisal" with a government-insured loan, Morris said, and that if borrowers get into trouble, "we will work with you to keep you in your home."

Joseph McCloskey, acting deputy assistant secretary for single-family housing, underlined that latter point to the Realtors, explaining that FHA loan servicers are "obligated" to work with borrowers who are having difficulty making their payments and are in danger of losing their homes.

FHA servicers "have to have your back during hard times," McCloskey told NAR's Federal Housing Policy Committee.

Regarding the new appraisal form, the current plan is to place the document into use no later than six months after it is unveiled, which probably will be in August, Morris told the committee.

Though the form is still in the draft stage, the latest version contains just three questions.

Morris said the FHA is working to streamline the form in response to complaints from lenders, who say there's "too much paper on our product." The effort is part of the agency's overall goal to be "totally paperless in five years."

FHA officials are comfortable in going to a shorter version because they now have the processes in place to monitor valuations more closely than ever, Morris told the NAR Committee.

"We used to review one in 10 appraisals," he said. "Now with risk-based software, we maybe look at a couple of thousand because we know the individuals who are causing stress in our programs."

With more than one million members, NAR is the nation's largest trade organization and one the most influential on Capital Hill. Nearly 8,500 agents, brokers and allied professionals attended the week-long meeting.