Mortgage lenders across the country are already feeling the pinch of the government's new tight money policies.
And, as a result, home buyers now face the possibility of larger down-payment requirements -- probably at least 20 percent -- to satisfy money-short savings and loan associations. Down payments of 5 and 10 percent with private mortgage insurance have been common in recent years, when mortgage money was plentiful.
When the mortgage market tightens, the usual practice has been to seek refuge in federally insured or guaranteed FHA and VA mortgage loans. The ceiling on FHA-VA financing was recently boosted to 10 1/2 percent. However, the secondary market for FHA-Va loans is so soft that investors are willing to pay only about 90 percent of the face value of loans because the return of 10 1/2 percent is 1 to 1 1/2 percent below the general market.
In today's market, the FHA-VA loan is the most attractive financing for the home buyer who is eligible but sellers face the prospect of having to pay nine or 10 discount points on the face amount of the loans for the privilege of getting those below-market rates for their buyers. A point is equal to 1 percent of the mortgage loan.
Normally that additional cost to provide financing is added on the asking price. In the softening resale market, it is more likely that sellers will have to absorb those additional costs for qualified FHA-VA purchasers. That cost could now become as much as $4,500 on a house sold with a $50,000 mortgage.
Meanwhile, reliable housing and mortgage industry sources indicated this week that relief on discount points might be expected soon if the administration and the Department of Housing and Urban Development see fit to raise the FHA-VA ceiling to 11 1/2 percent. Under current conditions that would decrease the discount points to two or three, a number normally considered to be acceptable.
Ronald Weismiller, a mortgage executive with the Weaver Brothers firm, said that scant conventional money is a vailable to most mortgage bankers and that "there's a lot of mortgages already on the shelf, waiting to be sold in the secondary market to investors." He said that the recent Federal Reserve actions have "strangled credit" in the housing market because construction loans now are nearing the 16 percent range.
Mark J. Riedy, executive vice president of the national Mortgage Bankers Association, said, "We finally have the makings of a credit-availability pinch that is expected to stop the escalation in housing prices." He added that mortgage rates can be expected to increase for a while. He also said that more contracts will be written on the basis of financing being supplied "at market rate at the time of closing."
Aware of recent concersn about the state of the mortgage money market, Michael Sumichrast, chief economist of the National Association of Home Builders, reacted sharply: "I'm fed up with hysteria and irrational fears," he said. "But I am seriously concerned and am urging builders to sell their inventory, avoid speculation and postpone big projects that have not been started."
Sumichrast conceded that the mortgage crunch is real and will hurt both the real estate and home building industries. But, he added, "Home prices are certain to moderate."
It is generally agreed that it may take at least nine months for high lending rates to turn down but there is also some speculation that a rough money market crunch and a sharp decrease in demand for borrowing might shorten the time period for a turnaround by creating more incentive to say as buyer confidence decreases. Meanwhile, rates of 13 percent are already being quoted in California.
In the metropolitan Washington, where savings and loan associations have been experiencing outflows of funds to create mortgage-short situations, there is currently no concern about rises in mortgage rates colliding with mandated usury law ceilings. The District ceiling is at now 15 percent and there are none in Maryland and Virginia.