Election-year politics and the rapidly intensifying recession in home building and financing are pushing the Carter administration and Congress toward new, multi-billion dollar relief for residential real estate.
Despite strong bipartisan sentiment for budget-cutting that stands in the way of almost any new spending initiatives, home buyers, mortgage lenders and builders are not going to be left unaided in this highly political spring of 1980.
The hard-pressed mortgage-lending industry, in particular, is certain to get help soon from its regulatory agency, the Federal Home Loan Bank Board. The assistance, much of it still on the drawing boards, could take the form of below-market interest rate "advances" or loans from the Federal Home Loan Bank system to federally chartered savings and loan associations.
The funds -- subsidized 2 to 3 percentage points below the prevailing cost of money by the bank system -- could be used for below-market-rate mortgage loans to home buyers, or to help lending institutions with their internal financial problems.
Lending institutions that put the funds into new home loans could pass along the bank board's subsidies to consumers -- offering, for example, 12 to 13 percent mortgage money in the midst of a 15 to 16 percent market.
If the bank board's low-rate advance program is large enough and attractive enough to lenders, tens of thousands of home buyers around the country could benefit this year and next. The last major lender-relief program of subsidized advances -- announced six years ago during the 1974 recession -- was for $4 billion.
This year's program could be smaller, sources indicate, but would include "targeting" mechanisms to make sure that areas of the country and lenders that need help the most get their proper share.
The bank board's relief package for mortgage lenders is likely to contain other items as well, including:
Issuance in the near future of the final regulations governing the proposed renegotiable "rollover" mortgages -- a form of adjustable-rate loan sought energetically by lenders. The new mortgage concept, open to all federaly chartered S&Ls, will permit readjustment of interest rates at predefined intervals of three to five years, thereby allowing lenders to protect themselves against inflation.
Interest rates to consumers are expected to be fractionally lower on renegotiable loans than on conventional fixed-rate loans.
Modifications to this basic plan -- for announcement later on in 1980 -- that would allow lenders to offer constant-payment, one- to five-year renewable home loans, with rates adjustable semi-annually.
Advocated by the California Savings and Loan League, the plan would hold consumers' monthly costs at a level payment amount during the mortgage, and permit "negative amortization," or temporary increases in debt, during the payoff term.
This would occur when interest rates jumped significantly, but charges to the consumer were deferred because of the guaranteed constant-payment feature of the mortgage.
Assistance to the home-buying market in some form by the Federal Home Loan Mortgage Corp., which could purchase below-market rate loans.
A series of technical steps aimed at strengthening S&Ls' financial positions, such as cutting reserve requirements and setting interest-rate ceilings on six-month money market certificates of deposit.
Congress and the White House are also looking hard at a $10 billion mortgage subsidy plan known as the "Brooke-Cranston" program. Currently before House and Senate committees and the object of a mass lobbying effort by home-building executives from around the United States, the Brooke-Cranston plan would involve government purchase of new and existing home mortgages carrying interest rates well below those prevailing in the market.
How low the rates would be, what price ranges of housing would be eligible for the rate subsidies, and how many consumers would be subsidized are among the details being debated in Congress. Five years ago, the same program was activated during the recession and ultimately helped support construction and sale of nearly 200,000 units. Its funds were crucial to the survival of some builders, and its net costs to the federal Treasury -- after consideration of tax revenues generated by the construction -- were negligible. c
The program awaits a signal from the White House, though, in the form of a $10 billion supplemental appropriations bill. With housing starts heading for what could be their lowest levels since 1946, and builders reporting bankruptcies and widespread construction labor layoffs, the White House is likely to find the political pressure to act irresistible.
Look for "Brooke-Cranston" mortgage money to flow -- manna from on high in a very lean year -- once the campaign gets into full gear.