To hear lenders tell it, the housing industry is lurching along the road to financial ruin.
High prices. High interest rates. Economic uncertainty. Anemic passbook savings. It all adds up to such a sorry state of affairs, many grumble, that even the few brave souls still in the market for a home loan right now are hard-pressed to find any money to borrow.
Many declare that things can only get worse. Consumer savings available for home loans trail by a long way the nation's demand for mortgage loans, they note. According to one authority, the shortfall will approximate $50 billion every year from now until 1990, and perhaps beyond.
Where will all of that money come from? An economic rebirth of the sort President Reagan promises would certainly help restore order to the housing finance business.
Short of that, the industry says it can only pray for a lifeline from pension funds and the general public.
Neither group is a stranger to real estate investments. Individual investors have been buying second-trust deeds and government securities backed by residential mortgages for years.
Likewise, pension funds have invested in mortgages. At the end of 1979, they collectively held $15.2 billion in mortgages, according to statistics compiled by the Mortgage Bankers Association of America.
But a large share of those investments are in commercial real estate. And though $15.2 billion sounds enormous, that figure represents only 2.5 percent of the money in private and public pension funds.
So, through a variety of new mortgage funds and other creative-investment vehicles, the industry hopes to tap the funds of far more -- and smaller -- savers and funnel a much larger share of the pension funds' assets into housing investments.
The extra money would be used to satisfy the public's $200 billion annual appetite for home loans.
In 1979, banks and savings and loans provided more than 75 percent of all new home loans and analysts expect them to continue to be a major factor in the business.
Nonetheless, the focus currently is on other sources of mortgage funds. Giant brokerage houses like Merrill Lynch and Co. are expected to play a bigger role. So are large real estate companies such as Coldwell Banker and even corporations such as Sears Roebuck and Co., whose Seraco Group subsidiary is already deeply involved in the mortgage banking business in California.
"But "if you want to know who has the substantial sums of money to finance the homes of Mr. and Mrs. America; it isn't the thrift institutions, it isn't the insurance companies, it's the pension funds," said Claude M. Ballard Jr., a pension fund manager for Prudential Life Insurance Co. m
Without question, the nation's 6,000-plus pension funds have more than enough money -- collectively, an estimated $600 billion to invest. They are growing at a compounded annual rate of 11 percent.
In other words, the funds will double in size within seven years, making about $1.2 trillion available for investment.
But how much of that huge sum will be made available to the housing industry is anybody's guess at the moment. Lenders have been clamoring for more pension fund money for 20 years with only marginal success.
What makes them more optimistic now is the emergence of a whole host of less-rigid mortgages that they hope will entice pension funds as well as spur business for traditional lenders.
"The refrain is always the same at every industry seminar you go to," said Jerome Grossman, a member of the Oppenheimer and Co. investment banking firm. "Pension funds are going to be the savior.
"The trouble is, the pension funds are never represented. I have to believe they're asking why they should have to be the savior when nobody else is willing to be." Grossman said.
Pension fund managers couldn't agree more. "People definitely have lost sight of the fact that pension fund managers above everything else have to make an adequate yield" on their investments, said W. J. (Jim) Smith, manager of the nation's largest pension fund, the California Public Employees Retirement System.
Residential mortgages, though generally regarded as safe investments, historically have been largely ignored by pension funds for two reasons. They are not as readily marketable as stocks and bonds and they have provided largely unsatisfactory returns to investors because of their long-term, fixed-rate nature.
Moreover, mortgages "require much greater time and work" than stocks or bonds, said John Lyons, president of the Iron Workers Union and chairman of the AFL-CIO's Committee on Pension Fund Investments. "You can't just by them and forget about them," he said. "You have to hire experts to watch over them."
There are signs, however, that the historically conservative funds are beginning to commit a greater percentage of their stock-and-bond portfolios to mortgages with unconventional provisions and to mortgage-backed securities. In recent months:
Union pension funds around the country have begun reevaluating their portfolios to add investments that will help union workers as well as retirees. pSome have bought home mortgages and other housing investments with variable interest rates, shared-equity concepts or other provisions that help the funds keep up with inflation.
Some large corporate pension funds are reviewing a new unconventional mortgage developed by Oppenheimer and Co. Through the Equity Participation Mortgage, they could lend money to would-be homebuyers below the going interest rate in return for a share in the mortgaged property's equity.
Prudential Life Insurance Co., a large manager of pension funds, has developed a mortgage fund through which pension funds could invest in residential or commercial mortgages. Although the details aren't worked out yet, Prudential said an "inflation-sensitive" provision will be built in to make the fund attractive to return-conscious pension fund managers.
Public employe pension funds in Texas, Alabama, New York and Massachusetts have committed a combined total of $590 million to mortgages and mortgage-backed certificates. In Alabama, half of the public employe pension fund's $900 million in assets are in Alabama-originated mortgage-backed certificates.
By buying existing mortgages on millions of Americans' homes, pension funds are performing a mighty service: providing desperately needed cash to mortgage lenders so new homebuyers can get home loans.
Insurance companies were heavily involved in this area about three years ago but pulled back because of money problems of their own. Now, some suggest that even savings and loans eventually will take a back seat to pension funds in this end of the business.
Pressure from the hard-pressed housing industry as well as new kinds of creative mortgages that don't tie pension funds down to a fixed-rate, long-term commitment may at long last lure pension funds into the housing-finance business in a big way, some investment bankers and pension-fund analysts predict.
The equity-participation mortgage, for example, "is the closest the real-estate industry has come to giving the pension funds something they want," said David Bowerman, vice president of Money Market Directories Inc., a Charlottesville, Va.-based publisher that follows pension funds.
Variable-rate mortgages also seem an especially "ideal investment for pension funds because they offer security of principle and they protect beneficiaries against the ravages of inflation," said Ken Levanthal, a Los Angeles-based financial adviser to the real estate industry.
Mortgage bankers are actively soliciting pension fund money. They are undertaking this task with "so much zeal," said one manager of a large pension fund "that you'd think we were in the social engineering business instead of simply trying to make sure our retirees have money to live on." The solicitor's request in this case was for 20 percent of the fund's assets, up from the present 2 percent invested in mortgages.
Another big source of housing funds will be the general public, money specialists predict.
It is only a matter of months, some say, before individuals will be able to invest as little as $1,000 in certificates backed by mortgages or perhaps even in equity-participation mortgage funds.