The House Ways and Means Committee this week approved a bill that would restrict the use of tax exempt mortage revenue bonds for single family housing to home buyers with low and moderate incomes.
The committee put a three year expiration date on their use and called for government studies to determine how efficient the bonds are in facilitacting home buying. The bill also offers special incentives to persons purchasing in blighted areas. And it allows those bond issues that were in the pipeline April 25 to proceed.
Until the committee announced a ban on new issues, tax exempt mortage revenue bonds were the fastest growing method of financing single family housing. They can provide mortgage financing two percentage points below market interest rates.
From virtuall zero in 1977 the sale of these bonds mushroomed to $1.6 billion in the first four months of this year. The Treasury estimated the tax exemption could cost the U.S some $11 billion in revenues by 1984. Worst of all, from the government's viewpoint, funds generated by the bonds were being used to finance luxury appartments for wealthy buyers.
The main provisions of the legislation are:
A five percent limit on the annual single family mortage market for tax exempt financing. Half of all the bond proceeds must go to people who earn under 90 percent of the median income.
A home buyer's income could not exceed 115 percent of the local median, nor could the mortgage exceed 80 percent of the average purchase price of a house in the area. The funds may not be used by anyone who has bought within three years.
In areas the government considers targeted for rehabilitation, the income limit would be raised to 104 percent and prior ownership does not count. If a state or city contains such blighted neighborhoods, a minimum of 20 and a maximum of 40 percent of the bond proceeds must be used there.
Three quarters of the mortages must be made to purchasers putting five percent down.
Tax exempt financing could be used for apartment buildings so long as 20 percent of the renters had incomes below 80 percent of the local median,
Under these restrictions up to $14 billion in bonds might be issued annually by 1984, the committee estimates.