The Federal Home Loan Bank Board yesterday approved alternate types of home financing for some states, including the controversial variable rate mortgages opposed by consumer groups.
FHLBB chairman Robert H. McKinney has been urging Congress since January to pass legislation allowing alternative mortgage instruments. But he said the board, which had been rebuffed in previous years by Congress, would not issue regulations without some form of sanction from Capitol Hill.
Federal Housing Administration commissioner Laurence Simons told Congress last week that the administration opposes authorizing alternative mortgages until it has completed a study of other regulations pertaining to interest ceilings paid by banks and savings and loan associations.
Variable rate mortgages would tie interest rates to a market index.
McKinney decided to go ahead and issue regulations permitting the variable rate mortgage and the roll-over mortgage, where the loan is renegotiated every five years, after the House Banking committee last week approved legislation authorizing federal savings and loan associations to offer these mortgages in order to meet competition from state charatered savings and loan associations.
Seventeen states now permit state chartered S&Ls to offer variable mortgages. The FHLBB, which regulates federally chartered S&Ls, would permit them to offer variables and roll-overs in these states. None of the three Washington area jurisdictions is among them.
Laws in another 13 states do not address the issue, so the FHLBB will grant authorization on a case by case basis "to preserve competitive balance." They will not be permitted in the other 20.
On the other hand, two other types of alternative mortgages will be permitted in all 50 states. These are the graduated payment mortgage, where the monthly payments start at a lower level, and the reverse annuity, where the homeowner receives monthly payments through an annuity based on accumulated equity in the house.
Besides stirring up Congress, McKinney said the proposed regulations were necessary and timely in view of the very strong mortgage demand. He is scheduled to defend his actions today at a meeting of the House Banking Committee, which approved the legislation last week by a slim 24-20 margin.
In theory the interest rate on variable rate mortgage goes down when market rates decrease. However, opponents say that in practice mortgage rates never go down, that they have risen steadily since the Depression. A low interest rate conventional mortgage in times of high interest rates is a homeowner defense against inflation. But financial institutions suffer when they hold low interest mortgages in periods of expensive money.
McKinney said variable rate mortgages allow the consumer a "freedom of choice."
Variable mortgages, which accommodate the lender, have gained poularity in California and S&-Ls are pushing to make the movement nationwide.
Interested parties will have 60 days to comment on the proposed regulations.