A recent report by the U.S. General Accounting Office highly critical of the costs and benefits of single-family mortgage revenue bonds is "often inaccurate, misleading and based on incomplete data," according to an analysis prepared by the Council of State Housing Agencies, the association that represents the providers of such tax-exempt financing.
The GAO report, issued last month, was prepared at the request of Senate Finance Committee Chairman Robert J. Dole (R-Kan.). The agency plans to issue a more complete study later this spring.
The GAO faulted mortgage revenue bonds on a number of points, concluding in general that the cost of such financing is much greater than the benefits it produces for loan recipients.
The bonds--sold by state and local agencies--are tax-exempt and thus carry interest rates several percentage points below market rates.
Most of the home buyers who used bond financing would have been able to purchase even without this interest rate subsidy, according to the GAO. "The subsidy they provide is generally too shallow to reach lower income beneficiaries," said William Gainer, the GAO's project director for the study.
The GAO faulted mortgage revenue bonds on a number of points, concluding in general that the cost of such financing is much greater than the benefits it produces for loan recipients. Speaking at a forum put on earlier this week by the National Housing Conference, he added, "Most of those who bought in 1982 probably could have bought without mortgage revenue bonds."
While primarily intended to assist moderate-income home purchasers, the bond program provided loans to users who had incomes "similar" to persons who bought residences using market-rate FHA financing, the GAO report stated.
Because investors who purchase the bonds pay no taxes on the interest they receive, the federal government gives up substantial potential income, the GAO said. The present value of that lost revenue amounts to more than $13,000 on an average loan of $43,000. The cash value of the interest-rate subsidy to home purchasers is only $50 per month, the agency stated in its April report.
Similar benefits could be provided much more cheaply through alternative forms of home buyer assistance, according to the GAO. Among these are taxable mortgage revenue bonds, annual home buyer tax credits and direct federal grants to mortgage lenders.
The GAO's conclusions were based on an analysis of more than 20,000 home loans made by 40 state and local agencies in the first nine months of 1982.
Many of the shortcomings of the GAO analysis are due to the time period the federal agency chose to study, according to the Council of State Housing Agencies.
During 1982, the tax-exempt interest rates reached unusually high levels. Faced with these conditions, stage agencies "were forced
A number of economic assumptions the GAO used in its analysis led to serious overstatements of the potential revenue loss to the national government, the council said. to choose between serving higher income borrowers or shutting down operations," the CSHA report states. Even then, the median income of bond borrowers--$23,243 in 1982--was $10,000 lower than that of FHA loan recipients.
The median income of tax-exempt bond borrowers was 96 percent of the national average last year. From 1978 through 1981, this median did not go above 85 percent of the national average, according to the council. "As interest rates return to more normal levels," their study affirms, "state agencies will be able to focus again on the lower income households which are their primary concern."
A number of economic assumptions the GAO used in its analysis led to serious overstatements of the potential revenue loss to the national government, the council said. The subsidy cost of tax-exempt financing, estimated by the GAO at over $13,000 per mortgage in 1982, could be as low as $3,200, it calculated.
The federal agency also underestimated the savings home purchasers had with tax-exempt financing, according to the CSHA. "The GAO overstated the actual interest rate on tax-exempt bonds," said council executive vice-president Thomas A. White, speaking at the National Housing Conference meeting. "The GAO assumed a 2 percent subsidy. You really had a 3 to 4 percent difference."
The GAO proposed alternatives to tax-exempt bonds would be more expensive, the council said in its report. Using "more realistic assumptions" than the GAO, the CSHA calculated the subsidy cost of mortgage revenue bonds as about one-third less than either taxable bonds, mortgage grants or tax credits.
The council also emphasized the role of tax-exempt revenue bonds in helping keep the real estate market alive in 1982 and the support such financing has from the bond sellers. "The state and local issuers are all behind this program," said White at this week's forum. "The federal government wants to protect us from ourselves."
Unless renewed by Congress, the authority for state and local agencies to sell tax-exempt bonds to finance single family houses will expire at the end of this year. In the Senate, the number of cosponsors for a bill extending the authority has climbed to 76. A similar measure in the House has 299 cosponsors, according to CSHA.