The Federal Home Loan Bank Board, which regulates the savings and loan industry, urged Congress yesterday to approve three new types of home mortgages, one of which would permit smaller payments in the early years of the loan and larger payments later on.
That would help younger persons to buy a first house while their incomes are low.
Another mortgage proposed by the bank board would allow the interest that lenders charge home buyers to go up and down as other interest rates fluctuate. This variable-rate mortgage, which has been sought by the industry for years, would help keep associations from running out of money during times of high interest rates.
But the variable-rate mortgage has been opposed by Congress, under heavy pressure from labor unions and consumer groups.
Congress worries that such a mortgage would hurt consumers who would find their monthly mortgage payments going up during times of rising interest rates. The S&Ls would also have to lower interest rates - and therefore monthly payments - when other interest rates were falling.
Federal Home Loan Bank Board Chairman Robert H. McKinney - who is armed with a three-volume, 18-month study of "alternative mortgage instruments" to bolster his case - admitted yesterday that it will be "politically difficult" to get a variable rate mortgage past Congress.
But he told reporters such a mortgage is needed to keep mortgage credit flowing during periods of tight money. S&Ls lose deposits during periods of rising rates as investors withdraw their savings to put the funds in higher-yielding investments such as Treasury bills.
The third type of mortgage loan, called a reverse annuity mortgage, is designed to help older homeowners get back as income same of the equity they hava built up in their residences without having to sell their homes.
All three types of mortgage loans are being experimented with to some degree by different state chartered S&Ls, and the controversial variable rate loans now are being made frequently in California. Most S&Ls are federally chartered.
House and Senate sources said yesterday that the bank board will have the same degree of difficulty selling Congress on a variable-rate mortgage this year that it has had in the past.
"The only one of the three the S&Ls really want is the variable-rate mortgage," said one Senate source. "At the very least, senators want to watch the experiement in California through the next money crunch. Those who say the experiement has succeeded ignore the fact that interest rates have been steady for two to two and a half years."
Savings and loan associations make considerably more than half of the home mortgage loans in the United States each year. Last year S&Ls Joantd $115 billion to home buyers, a 40 per cent increase over 1976.
McKinney, a Naval Academy classmate of President Carter's who has headed the bank board since August, said that the standard, fixed-rate mortgage has not changed much since 1930. He said he expected that most future home loans would be of the same variety, in which the homeowner makes the same monthly payment for 20, 25 or 30 years.
However, McKinney argued, some alternative forms are needed to help special groups buy homes or put them to use for their benefit.
McKinney estimated that between 2 million and 2.5 million more families would be able to buy homes over the next several years if mortgages with smaller payments in the early years were available. The interest rate would remain the same over the life of the loan, only the size of the monthly payment would vary:
"This mortgage will permit persons with rising income expectations to buy a home earlier in their life than they can with the standard mortgage whose monthly payments areall the same," the bank board said.
How much the sine of the monthly payment could vary is unclear, especially if the borrower is expected to pay at least the interest on his borrowing each month.In the early years of a mortgage loan, nearly all of the payment is interest with very little targeted at reducing the outstanding balance.
The bank board chairman said that there has been much interest in the reverse annuity mortgage for older homeowners. There is nothing in the law today to prevent a homeowner from taking out another mortgages on his or her house and buying an annuity from a life insurance company to pay a fixed monthly income for five, 10 or more years.
But the bank board appears to be putting the reverse annuity, graduated payment and variable-rate mortgages together as a Package to induce Congress to approve all three, including the controversial variable-rate mortgage.
McKinney acknowledged that the bank board has the authority to issue regulations to permit federally chartered S&Ls to make all three types of mortgages and the board yesterday, only urged the concepts on Congress, not a specific set of proposals.
He said he would not issue regulations without some form of congressional sanction. Several years ago Congress blocked an attempt by the bank board to unilaterally write regulations to permit variable-rate mortgages.