Montgomery County's new low-interest mortgage program is giving a tremendous boost to the resale market for houses priced under $59,000, according to brokers and sales agents.
The county's housing opportunities commission is offering loans with a maximum rate of 7 3/4 percent toindividuals and families with incomes well below the county household median of $31,500.
The loans carry a rate nearly 3 percentage points below the current rate for conventional mortgages and 1 3/4 percentage points below the ceiling for FHA-VA mortgages, so it is not surprising that participating lenders say they have been swamped with calls for information and brokers and agents say that prospective buyers are eager to enter the program.
Under the program, the county issued bonds under its general borrowing authority. Alex Brown & Sons and associates submitted the winning bid at an interest rate of 6.379 percent to provide the $50 million pool of funds for the mortgages. As a result of borrowing in the bond market, the county gets the funds far below the rate now prevalent in the long-term borrowing market.
Conventional loans now are in the 10 1/2 percent to 10 3/4 percent range. The FHA-VA rate ceiling now is 9 1/2 percent, but sellers have to pay discount points (now four to six points depending on the kind of loan) to bring the FHA-VA loan yield up to the market average.
The county's HOC loan program thus makes loans available to home buyers at lower rates, provides a margin to pay administrative costs and even makes some additional revenue available for persons needing aid in getting rental units, according to Nathaniel (Tad) Baldwin, chief of development planning for HOC and principal in-house architect for the new home loans.
Verex Assurance Inc. has underwritten the entire HOC loan program to satisfy lenders. But each buyer using a conventional loan program also will have t pay normal private mortgage insurance if the normal private mortgage insurance if the down payment is less than 25 percent of the total loan.
Prospective buyers are mostly those who could not qualify for home ownership financing uder market-rate programs.
More than 1,000 mortgages are likely to be available on single-family houses, town houses and condominium apartments in the first phase of the HOC program.
Generally, down payments, closing costs and private mortgage insurance (on conventional loans) or FHA mortgage insurance will be the same as for any similar 30-year-term loan. But the lower interest rate will reduce monthly payments by an average of between $29, and $82, enabling more buyers to meet lenders' standards.
Twenty-one approved lenders in the county will handle loans under the HOC program. Mortgages can be conventional (private, non-government-backed) or FHA or VA. Even the FHA graduated-payment mortgage loans with higher down payments but lower monthly payments in the early years will be in the program.
Although the Montgomery loan program is new to this area, similar plans have been used earlier in Chicago and Minneapolis. The Maryland Community Development Administration also has used bonds to provide mortgage money for a limited number of low-income buyers. But the Montgomery program was geared to serve a specific high-income area and thus set income limits ranging from $19,500 for a one-member household to a maximum of $27,500 for households of five or more persons.
About $2.5 billion in the new tax-exempt bonds will be issued this year for housing loans, Treasury official has estimated. Increased use of this kind of lending program has generated a protest by the U.S. League of Savings Associations, although some of its members are participating in programs here and elsewhere.
These tax-exempt loan sources keep money from the U.S. Treasury, commented the league's chief economist, Kenneth Thygerson. "Aside from their other faults, they soak up tax-exempt bond money that ought to be reserved for sewers and schools and other public building purposes," Thygerson said.
"One problem with these bonds is that by providing some small benefit to a few people, they result in price increases on homes," he continued. "People bid up the prices of houses because they can afford larger mortgages, and the result is that these bonds can inflate the whole housing market."
Thygerson estimated that the federal government may be losing $25 to $35 million in taxes for every $1 billion of bonds issued, but his view was countered by bond consultant Thomas Caine of New York City. Caine-Midgley Inc. was a fee consultant to the Montgomery HOC on its bond issue.
"These loans-and they are relatively few-will go to persons who were mostly ineligible for financing at high current market rates from savings and loan institutions. And the Montgomery County income and loan limits are certainly well below the medians," said Caine, adding that the Montgomery housing bond issue brought a rate lower than that of any other similar issue because of the high credit rating of the county and low rate of other mortgage foreclosures.
Meanwhile, Anitas Miller, a member of the Federal Home Loan Bank Board, which regulates S&Ls, has supported local bond programs.Miller told a league convention in February that the tax-exempt bond programs have proved to be cost effective in delivering housing finance services, while not depriving financial institutions (such as S&Ls) from maintaining both loan production and loan servicing.
As to the loss of federal tax revenue, Miller said that the local subsidy should be used "only to meet those housing finance needs that cannot be adequately addressed by other private-sector or governmental programs."
Shortly after hearing that view from Miller, the 4,400-member league voted to seek a congressional ban on using revenue bonds for house loan funds.
The Mortgage Bankers Association, several of whose members are participating in the Montgomery program, also reportedly is mounting opposition to the spread of this new home financing fund source.
Although public response to the mortgage program indicates a need by some prospective buyers in the county, only an estimated 37 percent of all houses resold in the county go for less than $59,000. In 1978, only 778 new houses and 3,820 existing houses were sold for less than $59,000. In fact, although most of the immediate interest is in loans to purchase existing houses, it is considered likely that the ongoing program will stimulate builders to produce more single-family houses, town houses and condominium apartments to sell for less than $59,000.
"But we need a free market in building, not one constricted by recurring sewer allocations in an aura of scarcity," said HOC's Baldwin. "If sewer connections are in short supply, it is only natural that builders will create higher-priced houses on which there is greater profit per unit."
Robert Becker, manager of the Kensington office of Colonial Mortgage Service Co., successful bidder for a commitment to handle $10 million (20 percent) of the total first HOC loan program, said the office has been "inundated" with phone calls from prospective buyers and real estate agents anxious to use the new financing.
"We're constantly on the phone. I just wish that the HOC had stuck to its original guidelines of not recycling and previous loan applications under the new program. People want to use the less-expensive program even it it means paying for a new credit report and application fee," Becker said.
Although most potential buyers planning to use the new program will make their financing arrangements through an individual real estate agent, builder or broker, all of them will be placing the special HOC loans with 21 participating lenders: James T. Barnes Mortgage Co., Century Mortgage Co. Inc., Citizens S&L, Colonial Mortgage Service Co., Community S&L, County Federal S&L, DFS Inc., Equitable S&L, Fidelity Bond & Mortgage, L.M. Gatti Mortgage, Government Services S&L, Guardian Federal S&L, ICM Mortgage, B.F. Saul Mortgage, Savings Bank of Baltimore, Standard Federal S&L, Steed Mortgage, Suburban Coastal, Unity Mortgage, Virignia Mortgage & Investment & Weaver Bros. CAPTION: Picture 1, moderate-priced houses such as these in the viers mill section of Wheaton are likely to be target of a new Montgomery loan program; Picture 2, Nathaniel Baldwin, designer of loan plan; Picture 3, Lenders listen to details of Montgomery mortgage plan at a recent seminarheld by housing officials. Photos by Margaret Thomas-The Washington Post