The nation's lengthy romance with the long-term, fixed rate mortgage is breaking up and the jilted suitors -- American home buyers -- are telling the Federal Home Loan Bank Board, regulator of federally chartered savings and loan associations, that they are hurt and chagrined.
There have been signs that the near idyllic relationship was becoming flawed with the advent of the variable rate and graduated payment mortgages, ostensibly designed to make initial home buying easier but at the same time giving the lender a tenuous hedge against future inflation.
Now comes the renegoiated rate -- or rollover -- mortgage, a frank admission that with double-digit inflation apparently here to stay, even more drastic action must be taken if a universal system of home financing is to survive.
During the comment period on its proposal to allow the renegotiated rate, the bank board received nearly 2,000 letters about the plan. And not unexpectedly, public response was almost unanimously negative, with individuals expressing fear of rising rates that would increase the costs of paying off their mortgages.
The bank board has proposed authorization of the new loan instrument for its 2,000 member savings and loan associations. Many state-chartered S&L's already are offering the rollover mortgage and presumably S&L's not affiliated with bank board would follow suit if the measure is adopted. Nationally, the savings and loan industry is the dominant originator of single-family mortgages.
The FHLBB proposal would permit its members to issue short-term mortgage loans of three to five years that are secured by long-term mortgages for up to 30 years. Under an agreed-upon national index, the lender could raise -- or lower -- the interest rate 1/2 percent annually, at the time of each rollover. A maximum change of 5 percent in the interest would be permitted over the life of the mortgage.
In addition, the proposal would permit all federally insured S&L's and mutual savings banks the option of eliminating all previously-offered loan arrangements and tender only the rollover terms.
Nearly the entire S&L industry backs the proposal, along with most of the major building finance-trade associations. Many S&Ls have fervently told the bank board that the measure may be the sole means of keeping their organizations in business.
The consensus of their arguments was that it is no longer possible to borrow short and lend long, that they simply can no longer pay for savings while limited to loan rates that do not pay interest necessary to attract and maintain these savings.
But the S&Ls' rationale doesn't appeal to homeowners and potential home buyers who wrote the bank board. Few accepted the premise that the lending industry is in trouble and none expressed confidence that renegotiated interest rates would drop.
A Boston woman noted that in her area, "the banks are always opening new offices and their furniture is a lot better than I have." A Minnesota retiree stated: "In my lifetime the only trend in interest rates has been up."
From South Holland, Ill.: "In the lending field there is inherent and expected risk. . . . Government action to remove and lessen risks is wholly unwarranted."
One of the common complaints was expressed by a writer from Chipley, Fla., who said: "This is just another way for the bankers to squeeze more interest out of the home buyer."
A Green Valley, Ariz., man echoed her sentiment by writing: "Having gotten their foot in the door, these so-called bankers and other lending institutions will be in the driver's seat."
Many persons were dissatisfied with even their present loan terms.
A Tacoma, Wash., homeowner said: "I will pay back $86,000 on my $27,000 home at current rates." A Minnesotan argued that "you really can't expect that people that are supporting four or five and looking at $400 to $500 mortgage payments to pity the poor banks. We will personally pay our mortgage company $85,410 on a $25,400 mortgage. I just can't see where they are losing money."
Many letters expressed a pervading fear that they would lose their homes under any rate arrangement which permitted escalation.
A San Diegoan wrote: "If I had bought my house under this plan a few years ago, I'd be foreclosed by now." An Ormand, Fla., retiree said that "if the new type of mortgage was in force and my interest rate increased to 14 percent, I could not make it on my fixed income."
A Carson City Nevadan summed it up for the embattled borrowers: "Either you think the public is stupid or you are conniving ways to cheat us out of our money. It's criminal the way the government thinks of different ways to rob the American public. Since you asked for my opinion, I'm saying it stinks!"
The bank board expects to summarize the comments shortly and act on the proposal "as expeditiously as possible," a spokesman said.