The Federal Home Loan Bank Board yesterday proposed more liberal mortgage loan terms -- including 40-year notes -- calculated to help first-time buyers, the elderly and even speculators.
In addition, it issued proposed regulations granting the financially troubled savings and loan associations the power to make consumer loans and take other steps to compete more fully with commercial banks.
Specifically, savings and loan associations and savings banks would be able to:
Make more mortgages with a downpayment of 5 percent or 10 percent. Private mortgage insurance and escrow payments would be required only on loans with less than a 10 percent downpayment and on lower amounts than in the past. Moreover, the buyer is not required to occupy the house, a boon for investors. Some restrictions, however, remain on short-term loans used for exchanges of property, such as "bridge" loans (short-term loans given to people buying one house and selling another).
Remove all dollar limits on residential real estate loans. The previous limit was $75,000 with a 5 percent downpayment. This charge would benefit young purchasers who don't have enough money for a large downpayment but who have relatively high incomes.
Make second mortgages. Older persons who have accumulated a lot of equity in their homes, parents financing children's college education, persons buying cooperative apartments and buyers seeking so-called wrap-around mortgages will all find this change to their advantage.
Extend the loan term from the current 30-year maximum to 40 years. Bridge and other short-term loans would be extended to five years.
Other proposals would liberalize the downpayment requirements on multifamily housing, making such investments easier for developers; eliminate the present maximum of $15,000 for home-improvement loans; and allow savings and loans with available funds to make mortgages in other states where money is short.
If the FHLBB gives them final approval, the regulations would go into effect during the fall. Thrifts recently were allowed to start issuing credit cards, and on Jan. 1 the vast majority of them will offer checking-with-interest (NOW, or negotiable-order-of-withdrawal) accounts.
Edwin B. Brooks Jr., president of the U.S. League of Savings Associations, hailed the mortgage loan changes and declared they would "go a long way toward bringing home ownership back within the reach of first-time buyers."
Savings and loans currently hold nearly half of all the outstanding mortgages in the country. FHLBB Chairman Jay Janis yesterday predicted they would continue to do so but only if they find new sources of funds.
He cited a study estimating that the $591 billion industry would get $42 billion less in deposits annually during the 1980s, because savers are putting their money into higher-interest-bearing investments.
To survive and prosper, Janis said, thrift institutions will have to trade in commercial paper, corporate debt securities, Eurodollars, passthrough securities and other such instruments.
The regulations proposed yesterday would enable the thrift institutions to put up to 20 percent of their assets in those instruments and also in consumer loans. Because unsecured loans for items like appliances and vacations carry a higher interest rate and a shorter term, they present less risk to thrift institutions than long-term mortgages in periods of high inflation.
Janis denied that these new powers will turn savings and loans into bank replicas. In the future, the distinction will hinge on banks offering full services to business while thrifts do the same for households, he said.
In the short term, Janis said savings and loans can expect a somewhat profitable year, not the loss he foresaw earlier. Mortgage rates will dip to 11 percent by the fourth quarter, he predicted.
The current wave of mergers, he added, should not be taken as symptomatic of deep problems within the industry but rather as a normal occurrence in a period of contraction. Small thrifts will survive, though only if they change to meet the competition, he said.