Aug. 25 (Bloomberg) -- A recovery in the U.S. housing market from the worst slump since the Depression is unlikely until ``well into 2009,'' Housing and Urban Development Secretary Steve Preston said today.

``I think we're right in the middle of it, and I think we have a ways to go before we start seeing a turnaround,'' Preston said today in an interview at the agency's Washington headquarters. ``We'll be well into 2009 before we see some real energy in this market.''

A slowdown in home sales and a drop in prices has contributed to record foreclosures as borrowers struggle to meet their monthly mortgage payments. Preston said a foreclosure- prevention law Congress passed last month also will be important in aiding mortgage-finance companies Fannie Mae and Freddie Mac, which are supporting most new mortgages.

U.S. banks repossessed almost three times as many U.S. homes in July as a year earlier and the number of properties at risk of foreclosure jumped 55 percent, California-based RealtyTrac Inc. said in an Aug. 14 report.

The surge in foreclosures is adding pressure on the market by building the inventory of homes being offered for sale, Preston, 48, said.

``We have to begin seeing the inventory of new homes begin to reduce so that we can see the buying activity begin to pull us out of the situation we're in,'' Preston said.

FHA Program

Congress last month enacted a law to stem foreclosures that creates a Federal Housing Administration program in HUD to insure as much as $300 billion in refinanced 30-year, fixed-rate mortgages for 400,000 struggling homeowners. The law lets the U.S. inject capital into Fannie and Freddie through stock purchases or government loans.

Preston deferred to the U.S. Treasury and Federal Housing Finance Agency, the new regulator of Fannie Mae and Freddie Mac, on whether the companies should be bailed out or nationalized.

``I don't know what the future holds for them,'' he said.

Preston said the regulator will have to decide whether to keep the companies' existing affordable-housing targets or revamp them now that they account for most of the loan market.

``Those two institutions have a much greater share of the market than they did a year or two ago,'' Preston said. ``And as a result, it's important for the new regulator to look at that broadened role as they craft a social mandate.''

`Critical Part'

The affordable-housing mission is ``a critical part'' of Fannie's and Freddie's role, and the new regulator ``should work hard to ensure that that role is maintained and fulfilled,'' Preston said.

Preston said he expects the new FHA program will be in effect by Oct. 1, the date set by Congress. Senior officials from HUD, the Treasury, the Federal Deposit Insurance Corp. and the Federal Reserve are setting program standards. FHA Commissioner Brian Montgomery represents HUD, Preston said.

Preston said ``it's possible'' he may propose other solutions to the housing crisis, without being specific.

``Many of the policy solutions are out there and working,'' he said. ``My guess is that you're going to see more fine-tuning of these programs to ensure that they're working, rather than large-scale change.''

Other programs include an industry-led effort called the Hope Now Alliance organized last year to help troubled homeowners modify their mortgages to make monthly payments more affordable.

A program HUD started a year ago called FHA Secure is also aimed at averting foreclosures by helping borrowers with adjustable-rate mortgages refinance into FHA-insured mortgages.

Preston, who was head of the U.S. Small Business Administration, in June replaced Alphonso Jackson, who quit amid a federal criminal probe into contracts awarded by the agency.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: August 25, 2008 16:39 EDT