FIRMS CUT BACK ON LENDING; INSURED MORTGAGES NEARING LEGAL LIMIT.

Byline: Jonathan Tower Bloomberg News

The nation's biggest residential lenders have pared back or stopped offering some kinds of adjustable rate mortgages amid concern the Federal Housing Administration's funds for insuring these loans will soon dry up.

Calabasas-based Countrywide Credit Industries Inc., along with other industry leaders - Norwest Mortgage Corp., Chase Manhattan Mortgage Corp., Fleet Mortgage Corp., HomeSide Inc. and First Nationwide Mortgage Corp. - have halted or slashed production of the FHA adjustable-rate mortgages, officials at the companies said.

All Ginnie Mae, or Government National Mortgage Association, adjustable-rate mortgages - which account for more than one-fifth of the $275 billion adjustable-rate mortgage bond market - are backed by FHA loans.

FHA, a unit of the Department of Housing and Urban Development, guarantees mortgages to help protect lenders from loss if homeowners default. The guarantees allow the mortgage-makers to extend more loans, and at lower rates.

The recent flurry of mortgage refinancings has driven the FHA to guarantee loans at a faster pace in recent months and come close to its legal limit for such guarantees.

A HUD field office in Reno, Nev., sent a letter to lenders March 3, notifying them that the agency had ``endorsed approximately 60 percent of our total allowable number of ARM loans'' for the year already. ``It is anticipated that the statutory limit will be reached by April.''

The letter also recommends that ``all ARM loans currently in process be closed and submitted for insurance as soon as possible.''

The letter, obtained by Bloomberg News, was addressed to ``All Approved Mortgagees'' and written by Sharon Atwell, director of HUD's single-family unit in Reno.

HUD spokesman Victor Lambert in Washington said he wasn't aware of the letter and declined to comment on the possible shortage of loans.

Countrywide spokeswoman Jumana Bauwens said some divisions of the company still are accepting FHA adjustable-rate mortgages, while others have slowed.

First Nationwide still accepts these loans from its correspondents, though only if the correspondents have applied for guarantees and commit to repurchasing the loans if the guarantees don't come through, said John Jukoski, vice president.

Lenders might ask Congress to raise the FHA's limit for this year. The Mortgage Bankers Association of America, which is representing the lenders, also is asking the FHA to waive certain rules that make it harder or riskier for lenders to submit loans for FHA insurance once 60 days pass after origination.