The new president of the nation's organized home builders, Vondal S. Gravlee, has been working on a plan that might help 8.5 million more households qualify for Federal Housing Administration-backed mortgages on houses priced around the national median for new homes, $55,000.
"We need something to make it more feasible for young and middle-income people to buy houses and it appears that this is not the year to expect any new subsidies from the federal government," the Birmingham, Ala., builder said in an interview.
Gravlee has asked the staff of the National Association of Home Builders to work on this idea, which would require Congressional approval: Lower the required down payment on an FHA graduated payment loan to 5 percent and extend the time period for paying the loan back.
If a house cost $55,000, the down payment would be $2,250 -- lower than the current down payment of $4,200 for an FHA-backed house with a graduated payment mortgage. Figuring the interest rate on a $52,750 loan over 30 years at 10 percent (the FHA rate is 9 1/2 percent, plus 1/2 percent for servicing and insurance), the monthly payment normally would be $465 a month.
However, Gravlee is suggesting that, for the first two years, the payment be below the usual amortization rate, in fact only $332.81. Starting in the third year the payment would increase on an annual incremental basis of 6 percent -- until it reached $596.01 in the 12th year. That would be the payment thereafter.
"This is simply a means of holding the monthly payment down in the earlier years and paying more later," Gravlee said. He said he is also assuming that the value of a house would also increase by a minimum of 6 percent annually, lower than the average appreciation of new homes in the past decade.
Meanwhile, the buyers would actually have a negative equity in their houses -- in terms of the mortgage -- through the first nine years. But the loan would be solid, according to Gravelee, because the potential resale price would be increasing.
Gravelee said that by the end of the 15th year, a $55,000 house should be worth $131,810 -- on the basis of only 6 percent appreciation annually.
Of course, over the years the house might be sold, with the original mortgage paid off or assumed by a the buyer. In any case, Gravlee makes the assumption that the house always would be worth more than the unpaid financing against it.
A builder for half of his 60 years, Gravlee is regarded as a man with serious concerns about housing and the ability of Americans to own their own dwellings. He has also noted that new house sales and shopper traffic have declined in recent months and that housing starts are expected to fall off this year.
Gravlee agrees with the Carter ad-Gravlee agrees with the Carter administration that inflation is the nation's number one problem but fears that high interest rates will hurt home builders and frustrate their medium-income customers.
He said that his proposed longer graduated payment mortgage plan would enable families with $19,000-a-year incomes to qualify for loans on median-priced houses, whereas regular straight-line FHA mortgage financing would require incomes of $24,000.
To make his case for a more extended graduated payment mortgage, Gravlee asked the NAHB staff to make charts showing the payments in relation to the increasing value of a $55,000 house. He said that the plan will be submitted to federal housing officials and key lawmakers once the NAHB board approves it at the organization's convention in Las Vegas, which starts today.
Since the FHA graduated payment mortgage program was instituted several years ago, it has been chosen by increasing numbers of buyers who need to have lower-than-usual monthly payments to qualify for mortgage loans. But the down payment requirement now is 8 percent for those loans, compared with a lower percentage for straight-line FHA financing. The monthly payments for the latter is the same throughout the 30-year repayment term.
Traditionally, lenders have been reluctant to grant home loans with very low down payments unless the mortgages are insured by the government or a private agency. Monthly payments below the actual amount needed to pay off loans are regarded by lenders as somewhat risky because the borrowers tend to have too little stake in their houses.
Gravlee recognizes these facts of life but contends that there are many people who want houses but can't qualify for mortgages. He also cites federal statistics showing that home values rose 118 percent between 1966 and 1976.
Gravlee is convinced his idea will work without jeopardizing mortgage investment funds.