Tens of thousands of first-time home buyers around the country can finally breath a sigh of relief about 1984 mortgage rates.
It's now virtually certain that Congress not only will allow continuation of cut-rate "housing-bond" programs, but will add a new option of tax-credit certificates to aid consumers.
Mortgage rates for as many as 150,000 home buyers next year--one of three first-time purchasers--could be kept in the 10 percent range or lower as a result. That's the upshot of one of last week's hectic closed-door debates on Capitol Hill over a 1983 tax bill.
When the House Ways and Means Committee reported out legislation preserving the popular housing bonds and tacked on a new "mortgage-credit certificate" plan toboot, it sent a strong political message to the Reagan White House: The 1983 tax bill will raise federal revenues and plug a few loopholes in the tax code. But it won't do so at the expense of the most vulnerable segment of the American home-buying market, the modest-income family that wants a chance to own a house, rather than rent an apartment ad infinitum.
Although the president never got involved in the bond brouhaha personally, his Treasury Department--and even the Department of Housing and Urban Development--have fought tooth and nail for the past year to kill the tax-exempt-housing concept.
The effort flopped.
The bonds, legally a form of municipal financing, are issued by state and local governments to attract investors' dollars into capital pools aimed at first-time purchasers. Because interest on the bonds is exempt from federal taxation, they carry significantly lower rates--and produce home mortgages 2 to 3 percentage points cheaper than those generally available in the marketplace.
(When you read about droves of buyers camping out overnight at lenders' doorsteps in order to get 9 and 10 percent loans, the mortgages almost invariably are financed by tax-exempt bonds. In many communities they account for more than half of all purchases by first-timers.)
The Treasury doesn't like housing bonds because they cost the federal government money--as much as $300 million a year, according to estimates prepared by budget officials. Proponents of the bonds, however, call those estimates hogwash. They calculate that the loans actually are net revenue producers for Uncle Sam because they help sell tens of thousands of dwellings a year to people who otherwise would be frozen out of the market.
The ripple effects of these purchases--roughly 50,000 mortgages worth $8 billion--put thousands of people to work in construction, manufacturing and other key industries.
Although the final details of the 1984 housing-bond plans won't be nailed down until Congress passes its major tax legislation sometime in the next several weeks, the inclusion of the new tax-credit certificate option seems assured. Originally proposed by Senate Finance Committee Chairman Robert Dole (R-Kan.), the House version of the plan would work like this:
States or localities could decide to put a portion (or all) of their tax-exempt housing-bond issuing authority into "mortgage-credit certificates." The certificates would be distributed through local lending institutions to qualified modest-income buyers who apply for and obtain conventional mortgages at prevailing market rates.
The borrowers would get a nonrefundable federal-credit certificate allowing them to subtract a percentage of their interest payments--say 15 or 20 percent--right off the bottom line of their annual federal tax bill. They also would get to take the regular deductions for interest and property taxes, less the amount of the credit.