The Federal Home Loan Bank Board this week authorized several more changes in mortgage regulations to give borrowers additional options and lenders increased flexibility.
The first combines the graduated-payment and adjustable-rate principals so that young, upwardly mobile buyers get a break on the front end while savings and loans are protected against upswings in interest rates. Called the graduated payment adjustable mortgage loan, it will go into effect next Wednesday.
The initial monthly payments can be lower than needed to pay off the loan, provided the payments are adjusted within 10 years to do so. Payments must also be adjusted at five-year intervals thereafter, to amortize the loan at the current rate. As in regular adjustable rate mortgages, the lender pegs the interest rate changes to an index. Instead of increasing monthly payments, the homeowner may have the option of extending the term of the loan of 40 years or adding the unpaid interest to the principal.
Another change affecting primarily older homeowners would drop requirements that reverse annuity mortgage plans be reviewed by the board and that lenders offer refinancing when the loan is due. Both proposals, on which the board has asked for comment, would benefit the lender.
A reverse annuity mortgage pays the homeowner a monthly payment based on how much equity he or she has in the house. The money is used to buy an annuity for the homeowner. The balance of the loan is due at maturity or at the death of the homeowner, whichever comes first.
A third change concerns balloon payment mortgages, on which the borrower pays only interest for the life of the loan. When it is due, the homeowner either pays the entire principal or refinances at prevailing rates. This type of mortgage is often used by affluent people and/or speculators. The board proposed to allow S&Ls to make balloons covering 95 percent of the sale price, up from 60 percent. That would reduce the down payment from 40 to 5 percent. Also, the term would be extended to 40 years from the current five-year limit. A 30-day comment period has been set.
On a related subject, the board last week announced rates for two of the different indices to which adjustable rate mortgages can be pegged. The average interest rate on mortgage loans during June was 14.40 percent. The next change will be announced about Aug. 12. The average costs of funds for federally insured savings and loan now stands at 9.11 percent. The next change, covering the six months ending June 30, 1981, will be announced in mid-September.