The House District Committee, meeting in emergency session, unanimously approved legislation yesterday to waive the normal congressional review of a new city law that would allow a mortgage interest ceiling of 15 percent to take effect immediately.
The committee took the action after hearing that the Carter administration strongly supports the waiver, which would not affect congressional review of other newly enacted city laws. The full House is expected to consider the proposal next Tuesday or Wednesday and the Senate later next week.
The committee acted in the wake of a mortgage money cutoff imposed in the District this week by both the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).
The two financial institutions buy mortgages from savings and loan associations and mortgage banking firms in the city, who, in turn, use the money from the sales to finance other mortgages.
Together, Fannie Mae and Freddie Mac supply about 11 percent of mortgage money here ($84.4 million in the first nine months this year) and constitute the single biggest source of loan money.
With the funding cutoff, lending institutions in the city have not only stopped making new loans, they have also delayed numerous loan settlements for prospective house buyers and further hobbled a local real estate industry already beset with scarce mortage money and record-high interest rates.
While not all lenders here sell their mortgages to Fannie Mae and Freddie Mac, almost all have stopped making loans due to the uncertainty created by their fund cutoff.
The two major lenders acted following a D.C. Superior Court decision by Judge George H. Revercomb, which challenged the city's practice of repeatedly using emergency powers to enact and extend legislation without congressional review.
Officials of both Fannie Mae and Freddie Mac voiced fears that Revercomb's ruling might be used to challenge the legality of recent loan agreements in the city -- loans made under a mortgage rate ceiling twice passed as emergency legislation by the City Council.
The Council this week finally passed permanent legislation setting a mortgage rate ceiling at 15 percent.
It is review of that legislation Congress is being asked to waive, so that lenders in the District can once again make loans unclouded by legal questions.
Stuart E. Eizenstat, President Carter's domestic affairs assistant, wrote Del. Walter E. Fauntroy (D-D.C.) that he was "deeply concerned" that questions raised by Revercomb's ruling "have virtually halted the flow of mortgage credit in the District.
"It is certainly important to District residents that they be able to buy and sell their homes on a normal, orderly basis, which in turn requires that secondary market institutions [like Fannie May and Freddie Mac] be in a position to purchase mortgages in the District," Eizenstat said.
Thomas J. Owen, president of Perpetual Federal Savings and Loan Association, the city's largest S&L, told the committee that prompt action is needed to waive the congressional review for fear that some recent borrowers might file "frivolous suits" contesting the validity of any rate higher than 11 percent, the previous "permanent" ceiling.
Nearly $1 billion worth of home mortgages are expected to be written this year in the District, but at the moment realtors say the are finding it harder and harder to make a buck.
Beau Bogan, a Capitol Hill realtor, said that the funding cutoffs forced postponement of eight loan settlements on properties with which his real estate agents had dealings.
Yet he and other realtors seemed resigned to the delays the funding situation has caused. "It's just one more problem we have to try to overcome," Bogan said, "We're not going to get panicked for a month because of an artificial situation."
Bogan and another Capitol Hill realtor, Brian Logan, said agents simply have to convince prospective buyers that the mortgage law problem will likely be solved soon and that a settlement on any house they decide to buy now would not likely occur for a month or more in any event.
"It's a matter of how the agent presents the situation, the agent's ability to motivate people to buy," Logan said.
Joseph Kaplan, manager of two Northwest Washington offices for the Colquitt-Carruthers realty firm, said the funding cutoffs, combined with high interest rates, have combined to sharply curtail home sales originating with his offices.
Charles Krogmann, manager of Shannon & Luchs' Wisconsin Avenue office, and others said they were optimistic that the mortgage law problem would be solved soon. in the meantime, Krogmann said he had seen no dropoff in calls about homes and noted that his office had increased its sales volume from $33 million to $37.7 million in the first 10 months of this year compared to the same period in 1978.