There is a political time bomb for home buyers and owners that's quietly ticking away on Capitol Hill.
It's called the All Savers certificate, and it will probably blow up some time this summer. Where the fallout rests could be vitally important to your ability to buy or sell a home with reasonable financing during the next several years.
It could, for example, help create a new generation of tax incentives for savings deposits, with strict, enforceable requirements that the deposits produce new mortgages at discounted rates for home buyers.
Or it could lead to an abrupt phaseout of the tax-exempt savings certificate concept, with dire consequences for the thrift institutions that originate a large chunk of this country's housing loans.
Here's what's shaping up and what it could mean to you:
The All Savers certificate is part of the grab bag of tax bonanza programs stuffed into last year's Economic Recovery Tax Act.
On the surface the All Savers concept appears to be straightforward. Banks, savings and loans, and other lenders can offer a new one-year certificate beginning last October. The interest on the certificates is tax-exempt up to a limit of $1,000 for individuals and $2,000 for couples. Three-quarters of the net new money attracted into these certificates is to be invested by the lenders in home mortgages or farm loans.
Banks and S&Ls, which had pushed for months to get the certificates into the big tax bill, predicted they'd attract as much as $250 billion with the new vehicle. They put together aggressive ad campaigns early last fall, aimed directly at pulling consumers' dollars out of the money market mutual funds.
For their part, Realtors and builders who had twisted congress member's arms to ensure that home buyers and sellers benefited directly from the tax subsidies talked confidently of large increases in sales volume by the spring of 1982. They calculated that with lower-cost, tax-subsidized savers' dollars flowing in, lenders would be able to knock two or three percentage points off conventional mortgage rates.
Both sets of expectations turned out to be dead wrong.
At the end of February, investments in All Savers certificates were still under $45 billion, and growing only minimally month to month. A Federal Reserve Board analysis of the inflows concluded that most of the certificate deposits came not from money-market funds or higher rates of savings by consumers. Rather, said the Fed, the certificates represented shifts of dollars within lenders' own existing accounts--such as from passbook savings and six-month certificates of deposit.
Fed officials said they could come up with no hard data on how much money was invested in new, local mortgages as a result of the All Savers certificates, but a staff member conceded in an interview that the amount has been "infinitesimal. It's been almost impossible to track, but I think the program has been a farce on that score."
Since the S&Ls and banks are free under law to invest in high-yielding, mortgage-backed securities originating outside their lending areas, the All Savers program has no mechanism for ensuring that depositors' dollars helped out new home buyers or builders--or anyone in their communities at all.
Nor has there been any requirement that the lower-cost funds obtained through All Savers (the current rate is 10.6 percent) be passed along to borrowers in the form of discounted mortgage rates. Lenders are free to charge lower rates on home loans--and a noteworthy handful have initiated such programs--but most have continued with business as usual.
(Probably the best example of an S&L's creative use of the certificate has been in St. Louis. Roosevelt Federal Savings and Loan Association, one of the city's largest lenders, takes its new All Savers dollars and puts them into 13 1/2 percent "replacement" mortgages of up to $100,000 for buyers of homes it financed in prior years. The tax-exempt All Savers money, in effect, has helped subsidize hundreds of new buyers in St. Louis since last fall, and not coincidentally helped Roosevelt Federal get rid of hundreds of old mortgages carrying rates of 7 to 11 percent.)
Congressmen and senators who supported All Savers because of the housing tie-in now say they're disappointed with the way lenders have handled the program. Some of them are even talking of killing the All Savers certificate this year--possibly even before it expires by statute in December.
Rep. Fortney H. Stark (D-Colo.), who heads a key subcommittee of the tax-writing Ways and Means Committee, says he will strongly oppose extension of the All Savers in its present form. He's working on legislation that would be tied more directly and reliably to housing aid for introduction later this session.
Other leaders on Capitol Hill are looking to tax credits, tax-exempt individual housing accounts ('a la individual retirement accounts) and direct mortgage-rate subsidies as replacements for All Savers. They're also considering creating a "targeted" All Savers certificate with mandatory guidelines on investments in local mortgages.
Out of the ashes of the original All Savers concept, in short, could come a longer-term program that will truly produce lower interest rates for buyers.