Washington-area families with incomes as high as $41,600 could be able to get help in buying homes--with mortgages up to $89,500--if legislation overwhelmingly approved this week by the House goes into effect as written.
A Senate Banking Committee version of the bill is less generous and would provide mortgage-interest assistance to families with incomes as high as $37,000 in high-cost areas such as Washington.
The legislation, designed to give a large and quick boost to the housing industry and to create jobs in the current recession-ridden economy, would "buy down" interest rates for buyers of newly built houses by either 4 or 6 percentage points for five or seven years, at a potential savings of tens of thousands of dollars to the buyer over that period.
While the price of the house is not limited by either version, the amount of the subsidized mortgage is. In this House version, the ceiling is the same as the FHA limit, which in the Washington area is $89,500; in the Senate version, the mortgage can be as high as $77,625 in high-cost areas and the subsidy could be no more than $13,245 for the five years.
The full Senate is expected to take up the committee bill in the next few weeks. The two versions are similar enough that a conference to resolve differences should be easy, with some staff aides believeing it could be completed in one day.
In separate legislation, the House Banking Committee also approved another piece of anti-recession relief, this one for families that already own homes but fear they will lose them because they have lost their jobs and cannot meet the mortgage payments. This relief for homeowners facing foreclosure is less certain to make it all the way through Congress, however. The same proposal was defeated in an 8-to-7 vote in the Senate Banking Committee, but sponsors say they will bring the idea up again on the Senate floor where its political appeal may be enough to reverse the decision.
President Reagan has opposed the mortgage interest subsidy idea as too costly and may veto it, but it appears to have enough support on both sides of the Hill for an override. But if the president vetoed the foreclosure loans program as too expensive, an override would be more difficult.
Both House and Senate bills provide about $1 billion a year to bring mortgage interest rates down from the current FHA level, now 15 1/2 percent, to help as many as 450,000 families buy homes. In the Senate bill, the rate is bought down 4 percentage points for all who get approval, meaning at today's FHA rate the loan would carry an 11 1/2 percent rate for five years. After that it would go to the 15 1/2 percent level until the home was sold or refinanced.
In the House bill, it is either 4 or 6 percentage points depending on a family's income and the median income in the area. Persons with up to 115 percent of median, about $36,800 here, could have the rate bought down by 6 percentage points--or to 9 1/2 percent at today's rate--for seven years. Those with incomes up to 130 percent of median--about $41,600 in this area--could get a 4 percentage point subsidy for five years. In all cases, however, the purchaser would have to pay at least 25 percent of income toward monthly mortgage payments.
The money has to be paid back by the subsidized family when the home is sold or refinanced, but the expectation is that by that time there will be more than enough equity in the home to make the large repayment no problem.
The money would be allocated through the Government National Mortgage Association and would go to lenders according to a formula to be based on population and housing needs and declines in building permits in an area. It is unclear at this point just how much would be available in the Washington area, but persons who wanted to take advantage of the program would go to local lenders to apply for it, according to staff aides. The lenders would make their applications to Ginnie Mae based on the commitments for new loans they have from people who qualify under the program's restrictions.
The subsidy in both bills is for newly built homes only, but there is a major difference in how that is defined. In the Senate version, only homes on which construction began in April of this year or later would be eligible. In the House bill, construction could have begun as early as a year before enactment of the legislation, the idea being that builders should be able to use the program to sell off existing inventory before they start building again. The Senate side argues that this dilutes the jobs-creation aspect of the bill, however, and this issue remains to be resolved.
The emergency mortgage foreclosure bill approved in the House committee would provide $760 million for loans to 76,000 owners of conventionally financed homes for up to three years when they have defaulted on their mortgage because they have been laid off. This program also is geared to moderate-income owners, because it would be allowed only for persons whose original mortgage was no higher than the FHA level.
The Senate amendment is designed to provide up to $600 a month to some 100,000 unemployed homeowners for up to 21 months, and the aid would be recovered when the property was sold or refinanced.