Faced with strong opposition, the leadership of the House Ways and Means committee has abandoned its effort to outlaw tax exempt mortgage bonds for financing single family homes. Instead it has agreed to a compromise bill allowing the bonds to be used for low and moderate income detached housing.
A vote is scheduled for next Tuesday.
As revised by Reps. Al Ullman (D-Ore.) and Barber Conable (R-N.Y.), the legislation would consider the purchase price of a housing rather than a household's income as the factor determining elegibility for funds generated by these bonds.
To qualify, the price of a house could not exceed 70 percent of the median purchase price in the metropolitan area. However, if the house were in an area designated for rehabilitation by a federal agency, the purchase price could rise to 110 percent of the metropolitan area median. The national median in April 1979, was $67,000. In the Washington area it was $84,000 for existing homes.
This provision is intended to facilitate purchase by low and moderate income persons, although it would not preclude a wealthy individual from such a purchase provided other conditions were met. For example, the 110 percent includes rehab as well as purchase costs. The bill applies only to primary residences, meaning the purchaser has to live there. Another condition is that the mortgage must not have been a homeowner within the last three years.
Some government officials had originally sought to limit eligibility to first time home buyers, hence the compromise.
Until 1983, mortgage bonds must be general oblication bonds, backed by the full faith and credit of the issuer, instead of by mortgages as was the recent practice. Or the bonds must be approved by referendum or the state legislature. After that date, only general obligation bonds may be issued. One member, opposed to the Ullman Conable revision, called this clause "the kiss of death" for mortgage bonds.
Finally, the total amount of having bonds that could be issued each year in a state would be limited to 3 percent of all mortgages originated in that state the previous year. The Treasury, which opposed mortgage bonds for single family housing, estimated that if half of all housing were to be financed in this mannner, the drain on revenues would be $11 billion by 1984. A rough estimate of the drain caused by the revised version is $800 million by the same date.
The changes resulted from overwhelming opposition to the total ban on mortgage bonds (except for low income rental housing) proposed April 25. Scores of state and local officials as well as congressmen pleaded for the continuance of this popular form of financing, which enables purchasers to buy homes at interest rate 2 to 3 percent below current market rates.