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Home Ownership - Meeting with Secretary Hills, September 9, 1976

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The original documents are located in Box 17, folder "Home Ownership - Meeting with Secretary Hills, September 9, 1976" of the James M. Cannon Files at the Gerald R. Ford Presidential Library. Copyright Notice The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United States of America his copyrights in all of his unpublished writings in National Archives collections. Works prepared by U.S. Government employees as part of their official duties are in the public domain. The copyrights to materials written by other individuals or organizations are presumed to remain with them. If you think any of the information displayed in the PDF is subject to a valid copyright claim, please contact the Gerald R. Ford Presidential Library. Digitized from Box 17 of the James M. Cannon Files at the Gerald R. Ford Presidential Library MEETING WITH SECRETARY HILLS Thursday, September 9, 1976 4:30 p.m. Situation Room Re: Housing Alternatives FORD LIBRARY j GERALD Several fundamental questions must be answered regarding a Presidential homeownership initiative. Two important ones are: 1. Are the cost of dowkpayment or the amount of monthly interest payments the main impediments to expanded homeownership? states -- Poll surveys in 2 sectors indicate the former but additional data from other states will be developed by the middle of next week. 2. Should a new homeownership program benefit all homeowners or people purchasing a home for the first time? Current tax laws and government mortgage insurance tend to aid more affluent homeowners. Perhaps a new program should only aid those who want entry into homeownership. LIBRARY FORD BERALD 1. FORMAT: HOMEONNERSHIP OPPORTUNITIES FOR MIDDLE AMERICA (HOMA) BROCK-ASHLEY GRADUATED PAYMENT/FIXED RATE MORTGAGE TAX EXEMPT SAVINGS DOWNPAYMENT VOUCHER/GRANT FEDER Both This program would provide a tax credit to purchasers of first homes. new and existing homes would be eligible. There would be a maximum GNMA would pay 2% interest on the mortgage initially, and any Initial mortgage payments would be reduced and later payments Contribution made to, and interest earned on, a savings account $1,000 cash payment to buyer Federa mortgage lesser of limit of $38,000. The amount of the tax credit would be the additional interest due to the variable rate provisions. This increased at set rate of increase. Increasing mortgage would be deductible from taxable income if the savings in that second at the (1) the difference between payments to principal and interest would accumulate with interest in the borrower's GNMA Loan payments should better match rising incomes. This mitigates account are used for downpayment by first time home purchasers. principal current market rate (9% assumed in this analysis) and payments to account which is to be repaid when the house is sold or by initial income constraints on homeownership. Limits would be $20,000 income, $10,000 total savings, $2,500 interest and interest at 60 or (2) the difference between principal and arrangement with GNMA. per year in addition to savings. out at 9% and 20% of the family's income. This program would phase at about the $18,000 income level. 2. Number of 1.33 million Families 1.7 million 1.5 million Assisted: 1.5 million families 1.46 million 1.55 3. Subsidy per Family: The average subsidy par family in the first year of about $500 and of about $650 over the life of the loan. There is no direct subsidy involved in the program. There NONE $1,000 NONE are, however, indirect costs involved in all direct loan $2,500 programs. 4. Number of 230,000 Incremental Purchaser The GNMA loan would reduce monthly payments enough such that 80,000 (under constraint than loan to value ratio cannot 75 100,000 60,000 90,00 per Year: 250,000 to 300,000 additional families would be able to afford exceed 100%) a $35,000 house without spending more than 25% of their income Raises loan-to-value from .86 to .89 Based on in-house Lower on housing. The GNMA loan would reduce current costs but research, this would increase housing demand by 60,000 home increase total costs because the GNMA loan must be repaid units per year. be with accumulated interest. Thus, there may be market resistance to this program, since it substantially reduces or eliminates homeownership equity accumulation, one of the primary perceived benefits of homeownership. 5. First Year About $665 million Outlays: The average GNMA loan would be about $500 after one year. If NONE $938 million $1.4 billion NONE 1.7 million loans were issued, total lending under the program would reach $850 million. 6. Total Costs: Assuming 7% growth rate in normal income, the $14,000 family would $1.7 billion over the period of subsidy for each year's assisted families. Total lending for the first year participants will reach about NONE Year 1: $938M year All costs are borne in the first year a family is a NONE phase out in years and higher income families would phase out sconer. $5 billion after 5 years. Lending to participants entering Year 2: $1.88B year subsidy recipient. in years 2-5 will be about $10 billion. As currently conceived, Year 3: $2.86B year total lending under the program will increast at an exponential Years 4-8: $3.75B rate. In theory, however, all of these outlays would be recovered as recipients ultimately repaid their GNMA loans. 7. Cost per Incremental (First Year) $2,900 ($665 million divided by 230,000) (First Year) Purchaser: (Total) There are no direct costs to the government, (First Year) NONE (First Year) $37,500 to 50,000 (First Year) $23,000 (Firs $7,391 ($1.7 billion divided by 230,000 incremental purchasers) but in terms of budget impact, total lending (Total) would be about $2,800 per incremental purchaser (Total) NONE (Total) $37,500 to 50,000 (Total) $23,000 (Tota in the first year. After 25 years, GNMA would have lent about $250,000 per incremental first year purchaser. 8. Risk to the Government: Essentially no default risk since FHA insurance is not required. There is a particularly high risk of default associated with Increased FHA default risk NONE NONE A sig second mortgages such as the GNMA loan which may be higher incre than the original principal of the first mortgage, by the rate time it becomes due. 9. Ease of Administration If inexpensive assistance is provided as a tax credit, administration is extremely but costs uncontrollable If the assistance is provided GNMA would have to become a mortgage originator and servicer FHA underwriting. FHA will finance some this year (Section 245) Run through tax system; so minimal administrative cost Would impose significant operational capacity to administer Requi hence direct subsidies, administration is complex, but the number of recipients, by or would have to pay mortgage bankers to provide this service. the program (e.g., would have to certify incomes of participants the costs, can be controlled. ($20,000 income limit), and if constraints such as requiring purchase of decent safe and sanitary housing were imposed, would have to verify that constraints were met.) 10. Other Problems: The homeowner's real equity in the home is substantially reduced Lender resistance due to increased default risk and Creation of new tax loophole with a large constituency. Equal subsidy would be paid to families of different wealth. Amor by the GNMA second lien. His mobility also is reduced because reduced cash flow. Slow implementation, most recipients will take several years 8 he must repay the loan if he sells his home. Given the potential to accumulate enough in their downpayment account to make May have slight inflationary impact on price of housing since high exponential growth rate of total lending under the program, the a purchase. Also, deduction amount need not correlate with subsidy reduces purchase price. indirect cost of additional interest on all Treasury borrowing housing expenditures. is likely to be substantial. Finally, GNMA could become large holder of single family homes if default rates are as high as may be reasonably expected. IMPACT on Typical $15,000 Income Monthly reduced mortgage payment reduced by $36, from $286 to $250, in first year; Family Buying a by $15 in second year. No impact after second year. Monthly mortgage payment reduced by $44, from $286 to $242, in Monthly mortgage payment reduced by $75, from $286 to $211, in Downpayment effectively reduced by $1,000, from $4,000 to Lowers downpayment by $1,000 from $4,000 to $3,000. Redu $39,000 House with each year. Total mortgage debt increases continually, by over first year; payment rises by 3 percent per year over the mortgage $3,000, through tax saving. mont $35,000 Mortgage: $5,500 per year. term. SAVINGS DOWNPAYMENT VOUCHER/GRANT FEDERAL GUARANTEE OF DOWNPAYMENT REDUCE FHA DOWNPAYMENT REQUIREMENT made to, and interest earned on, a savings account fuctible from taxable income if the savings in that $1,000 cash payment to buyer Federal guarantee of loan for one half of downpayment. This Legislative change to reduce downpayment required for FHA insurance used for a downpayment by first time home purchasers. second loan would be secured by a second lien. Current Option 1 be $20,000 income, $10,000 total savings, $2,500 addition to savings. 3% for up to $25,000 3% for up to $25,000 10% for $25,000 $35,000 5% for $25,000 $40,000 20% for $35,000 $45,000 10% for $40,000 $50,000 20% for $50,000 $60,000 families 1.46 million 1.55 million 275,000 (expected FHA volume plus incremental purchases) $1,000 NONE NONE 60,000 90,000 140,000 20,000 Raises loan-to-value from .86 to .89 Based on in-house Lowers downpayment required at purchase but raises total price of Reduces downpayment requirement for FHA only by an average of 3%. research, this would increase housing demand by 60,000 home if the second lien is amortized at mortgage rate which will units per year. be in excess of rate of inflation. $1.4 billion NONE NONE $938M year All costs are borne in the first year a family is a NONE NONE $1.88B year subsidy recipient. $2.86B year $3.75B $37,500 to 50,000 (First Year) $23,000 (First Year) NONE (First Year: ) MOME $37,500 to 50,000 (Total) $23,000 (Total) NONE (Total) NONE NONE A significant increase in foreclosure rates. For example, by An increase in foreclosure rate. Losses should be covered by the increasing loan-value ratio by 8 percent (.86 to .93) foreclosure .5% premium. rate would be increased by 11 percent. (elasticity of 1.4). system; SO minimal administrative cost Would impose significant operational capacity to administer Requires HUD processing at time of guarantee and management in Simple change in FHA processing. Larger volume of FHA insurance the program (e.g., would have to certify incomes of participants the event of foreclosure. would increase work load. ($20,000 income limit), and if constraints such as requiring purchase of decent safe and sanitary housing were imposed, would have to verify that constraints were met.) new tax loophole with a large constituency. Equal subsidy would be paid to families of different wealth. Amortizing second lien will require a higher income Requires legislative change. Has greatest effect on homes in excess tation, most recipients will take several years to support loan (e.g., a higher monthly payment because of the of $30,000. Could result in FHA becoming more competitive with enough in their downpayment account to make May have slight inflationary impact on price of housing since higher mortgage amount). private mortgage insurance. Also, deduction amount need not correlate with litures. subsidy reduces purchase price. ffectively reduced by $1,000, from $4,000 to Lowers downpayment by $1,000 from $4,000 to $3,000. Reduces downpayment by $2,000, from $4,000 to $2,000; raises Could lower downpayment by up to $2,500, from $4,000 to $1,500. tax saving. monthly payment by $20, from $286 to $306. 1. FORMAT: HOMEOMNERSHIP OPPORTUNITIES FOR MIDDLE AMERICA (HOMA) BROCK-ASHLEY GRADUATED PAYMENT/FIXED RATE MORTGAGE TAX EXEMPT SAVINGS DOWNPAYMENT VOUCHER/GRANT FEDEI mortgage lesser of limit of $38,000. The amount of the tax credit would be the Both new and existing homes would be eligible. There would be a maximum This program would provide a tax credit to purchasers of first homes. GNMA would pay 2% interest on the mortgage initially, and any Initial mortgage payments would be reduced and later payments Contribution made to, and interest earned on, a savings account $1,000 cash payment to buyer additional interest due to the variable rate provisions. This would be deductible from taxable income if the savings in that GERALD Feder increased at set rate of increase. Increasing mortgage secor at the (1) the difference between payments to principal and interest would accumulate with interest in the borrower's GNMA loan payments should better match rising incomes. This mitigates account are used for downpayment by first time home purchasers. principal current and market rate (9% assumed in this analysis) and payments to account which is to be repaid when the house is sold OK by initial income constraints on homeownership. Limits would be $20,000 income, $10,000 total savings, $2,500 interest interest at 6% or (2) the difference between principal and arrangement with GNMA. per year in addition to savings. out at 9% and 20% of the family's income. This program would phase at about the $18,000 income level. 2. Number: of 1.33 million Families 1.7 million Assisted: 1.5 million 1.5 million families 1.46 million 1.55 3. Subsidy par Family: about $650 over the life of the loan. The average subsidy par family in the first year of about $500 and of There is no direct subsidy involved in the program. There NONE $1,000 NONE are, however, indirect costs involved in all direct loan $2,500 programs. 4. Number of 230,000 Incremental Purchaser The GNMA loan would reduce monthly payments enough such that 80,000 (under constraint than loan to value ratio cannot 75 100,000 60,000 90,00 par Year: 250,000 to 300,000 additional families would be able to afford exceed 100%) a $35,000 house without spending more than 25% of their income Raises loan-to-valus from .86 to .89 Based on in-house Lower: on housing. The GNMA loan would reduce current costs but research, this would increase housing demand by 60,000 home increase total costs because the GNMA loan must be repaid units per year. be in with accumulated interest. Thus, there may be market resistance to this program, since it substantially reduces OK eliminates equity accumulation, one of the primary perceived benefits of homeownership. 5. First Year About $665 million Outlays: The average GNMA loan would be about $500 after one year. If NONE $938 million $1.4 billion NONE 1.7 million loans ware issued, total lending under the program would reach $850 million. 6. Total Costs: Assuming $1.7 billion over the period of subsidy for each year's assisted families. 70 growth rate in normal income, the $14,000 family would Total lending for the first year participants will reach about NONE Year 1: $938M year All costs are borne in the first year a family is a NONE phase out in 5 years and higher income families would phase out sconer. $5 billion after 5 years. Lending to participants entering Year 2: $1.88B year subsidy recipient. in years 2-5 will be about $10 billion. As currently conceived, Year 3: $2.86B year total lending under the program will increast at an exponential Years 4-8: $3.75B rate. In theory, however, all of these outlays would be recovered as recipients ultimately repaid their GNMA loans. 7. Cost per Incremental (First Year) $2,900 ($665 million divided by 230,000) (First Year) Purchaser: There are no direct costs to the government, (First Year) NONE (First Year) $37,500 to 50,000 (First Year) $23,000 (First (Total) $7,391 ($1.7 billion divided by 230,000 incremental purchasers) but in terms of budget impact, total lending (Total) would be about $2,800 per incremental purchaser (Total) NONE (Total) $37,500 to 50,000 (Total) $23,000 (Total in the first year. After 25 years, GNMA would have lent about $250,000 per incremental first year purchaser. 8. Risk to the Government: Essentially no default risk since FHA insurance is not required. There is a particularly high risk of default associated with Increased FHA default risk NONE NONE A sign second mortgages such as the GNMA loan which may be higher increa than the original principal of the first mortgage, by the rate time it becomes due. 9. Ease of Administration: direct but costs uncontrollable. If the assistance is provided inexpensive If assistance is provided as a tax credit, administration is extremely GNMA would have to become a mortgage originator and servicer FHA underwriting. FHA will finance some this year (Section 245) Run through tax system; so minimal administrative cost Would impose significant operational capacity to administer Requir hence subsidies, administration is complex, but the number of recipients, by or would have to pay mortgage bankers to provide this service. the program (e.g., would have to certify incomes of participants the costs, can be controlled. ($20,000 income limit), and if constraints such as requiring purchase of decent safe and sanitary housing were imposed, would have to verify that constraints were met.) 10. Other Problems: The homeowner's real equity in the home is substantially reduced Lender resistance due to increased default risk and Creation of a new tax loophole with a large constituency. Equal subsidy would be paid to families of different wealth. Amort: by the GNMA second lien. His mobility also is reduced because reduced cash flow. Slow implementation, most recipients will take several years to sup he must repay the loan if he sells his home. Given the potential to accumulate enough in their downpayment account to make May have slight inflationary impact on price of housing since higher exponential growth rate of total lending under the program, the a purchase. Also, deduction amount need not correlate with subsidy reduces purchase price. indirect cost of additional interest on all Treasury borrowing housing expenditures. is likely to be substantial. Finally, GNMA could become a large holder of single family homes if default rates are as high as may be reasonably expected. IMPACT on Typical $15,000 Income Monthly reduced mortgage payment reduced by $36, from $286 to $250, in first year; Family Buying a by $15 in second year. No impact after second year. Monthly mortgage payment reduced by $44, from $286 to $242, in Monthly mortgage payment reduced by $75, from $286 to $211, in Downpayment effectively reduced by $1,000, from $4,000 to Lowers downpayment by $1,000 from $4,000 to $3,000. Reduc $39,000 House with each year. Total mortgage debt increases continually, by over first year; payment rises by 3 percent per year over the mortgage $3,000, through tax saving. month $35,000 Mortgage: $5,500 per year. term. LIBRARY FORD DOWNPAYMENT VOUCHER/GRANT FEDERAL GUARANTEE OF DOWNPAYMENT REDUCE FHA DOWNPAYMENT REQUIREMENT est earned on, a savings account e income if the savings in that $1,000 cash payment to buyer 9ERALD Federal guarantee of loan for one half of downpayment. This Legislative change to reduce downpayment required for FHA insurance ent by first time home purchasers. second loan would be secured by a second lien. Current Option $10,000 total savings, $2,500 3% for up to $25,000 3% for up to $25,000 10% for $25,000 $35,000 5% for $25,000 $40,000 20% for $35,000 $45,000 10% for $40,000 $50,000 20% for $50,000 $60,000 1.46 million 1.55 million 275,000 (expected FML volume plus incremental purchases) $1,000 NONE NONE 60,000 90,000 - 140,000 20,000 Raises loan-to-value from .86 to .89 Based on in-house Lowers downpayment. required at purchase but raises total price of Reduces downpayment requirement for FHA only by an average of 3%. research, this would increase housing demand by 60,000 home if the second lien is amortized at mortgage rate which will units per year. be in excess of rate of inflation. $1.4 billion NONE NONE All costs are borne in the first year a family is a NONE NONE subsidy recipient. (First Year) $23,000 (First Year) NONE (Pirst Year ) MOME (Total) $23,000 (Total) NONE (Total) NONE NONE A significant increase in foreclosure rates. For example, by An increase in foreolosure rate. Losses should be covered by the increasing loan-value ratio by 8 percent (.86 to .93) foreclosure .5% premium. rate would be increased by 11 percent. (elasticity of 1.4). administrative cost Would impose significant operational capacity to administer Requires HUD processing at time of guarantee and management in Simple change in FMA processing. Larger molume of PHA insurance the program (e.g., would have to certify incomes of participants the event of foreclosure. would increase work load. ($20,000 income limit), and if constraints such as requiring purchase of docunt once and samitary housing vace imposed, would have to verify that constraints were met.) a large constituency. Equal subsidy would be paid to families of different wealth. Amortizing second lien will require a higher income Requires legislative change. Has greatest effect on homes in encase will take several years to support loan (e.g., a higher monthly payment because of the of $30,000. Could result in FHA becomting more competitive with mpayment account to make need May have slight inflationary impact on price of housing since higher mortgage amount). private mortgage insurance. not correlate with subsidy reduces purchase price. $1,000, from $4,000 to Lowers downpayment by $1,000 from $4,000 to $3,000. Reduces downpayment by $2,000, from $4,000 to $2,000; raises Could lower dompayment by up to $2,500, from $4,000 to $1,500. monthly payment by $20, from $286 to $306.

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This file contains material regarding President Ford's housing proposal.

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    "ocrText": "The original documents are located in Box 17, folder \"Home Ownership - Meeting with\nSecretary Hills, September 9, 1976\" of the James M. Cannon Files at the Gerald R. Ford\nPresidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 17 of the James M. Cannon Files at the Gerald R. Ford Presidential Library\nMEETING WITH SECRETARY HILLS\nThursday, September 9, 1976\n4:30 p.m.\nSituation Room\nRe: Housing Alternatives\nFORD LIBRARY j GERALD\nSeveral fundamental questions must be answered regarding a\nPresidential homeownership initiative. Two important ones\nare:\n1. Are the cost of dowkpayment or the amount of monthly\ninterest payments the main impediments to expanded\nhomeownership?\nstates\n-- Poll surveys in 2 sectors indicate the former\nbut additional data from other states will be\ndeveloped by the middle of next week.\n2.\nShould a new homeownership program benefit all\nhomeowners or people purchasing a home for the\nfirst time? Current tax laws and government mortgage\ninsurance tend to aid more affluent homeowners.\nPerhaps a new program should only aid those who\nwant entry into homeownership.\nLIBRARY FORD BERALD\n1.\nFORMAT:\nHOMEONNERSHIP OPPORTUNITIES FOR MIDDLE AMERICA (HOMA)\nBROCK-ASHLEY\nGRADUATED PAYMENT/FIXED RATE MORTGAGE\nTAX EXEMPT SAVINGS\nDOWNPAYMENT VOUCHER/GRANT\nFEDER\nBoth This program would provide a tax credit to purchasers of first homes.\nnew and existing homes would be eligible. There would be a maximum\nGNMA would pay 2% interest on the mortgage initially, and any\nInitial mortgage payments would be reduced and later payments\nContribution made to, and interest earned on, a savings account\n$1,000 cash payment to buyer\nFedera\nmortgage lesser of limit of $38,000. The amount of the tax credit would be the\nadditional interest due to the variable rate provisions.\nThis\nincreased at set rate of increase. Increasing mortgage\nwould be deductible from taxable income if the savings in that\nsecond\nat the (1) the difference between payments to principal and interest\nwould accumulate with interest in the borrower's GNMA Loan\npayments should better match rising incomes. This mitigates\naccount are used for downpayment by first time home purchasers.\nprincipal current market rate (9% assumed in this analysis) and payments to\naccount which is to be repaid when the house is sold or by\ninitial income constraints on homeownership.\nLimits would be $20,000 income, $10,000 total savings, $2,500\ninterest and interest at 60 or (2) the difference between principal and\narrangement with GNMA.\nper year in addition to savings.\nout at 9% and 20% of the family's income. This program would phase\nat about the $18,000 income level.\n2.\nNumber of\n1.33 million\nFamilies\n1.7 million\n1.5 million\nAssisted:\n1.5 million families\n1.46 million\n1.55\n3.\nSubsidy per\nFamily:\nThe average subsidy par family in the first year of about $500 and of\nabout $650 over the life of the loan.\nThere is no direct subsidy involved in the program. There\nNONE\n$1,000\nNONE\nare, however, indirect costs involved in all direct loan\n$2,500\nprograms.\n4.\nNumber of\n230,000\nIncremental\nPurchaser\nThe GNMA loan would reduce monthly payments enough such that\n80,000 (under constraint than loan to value ratio cannot\n75 100,000\n60,000\n90,00\nper Year:\n250,000 to 300,000 additional families would be able to afford\nexceed 100%)\na $35,000 house without spending more than 25% of their income\nRaises loan-to-value from .86 to .89 Based on in-house\nLower\non housing. The GNMA loan would reduce current costs but\nresearch, this would increase housing demand by 60,000\nhome\nincrease total costs because the GNMA loan must be repaid\nunits per year.\nbe\nwith accumulated interest. Thus, there may be market resistance\nto this program, since it substantially reduces or eliminates\nhomeownership equity accumulation, one of the primary perceived\nbenefits of homeownership.\n5.\nFirst Year\nAbout $665 million\nOutlays:\nThe average GNMA loan would be about $500 after one year. If\nNONE\n$938 million\n$1.4 billion\nNONE\n1.7 million loans were issued, total lending under the program\nwould reach $850 million.\n6. Total Costs:\nAssuming 7% growth rate in normal income, the $14,000 family would\n$1.7 billion over the period of subsidy for each year's assisted families.\nTotal lending for the first year participants will reach about\nNONE\nYear 1:\n$938M year\nAll costs are borne in the first year a family is a\nNONE\nphase out in years and higher income families would phase out sconer.\n$5 billion after 5 years. Lending to participants entering\nYear 2:\n$1.88B year\nsubsidy recipient.\nin years 2-5 will be about $10 billion. As currently conceived,\nYear 3:\n$2.86B year\ntotal lending under the program will increast at an exponential\nYears 4-8:\n$3.75B\nrate. In theory, however, all of these outlays would be\nrecovered as recipients ultimately repaid their GNMA loans.\n7. Cost per\nIncremental\n(First Year) $2,900 ($665 million divided by 230,000)\n(First Year)\nPurchaser:\n(Total)\nThere are no direct costs to the government,\n(First Year) NONE\n(First Year) $37,500 to 50,000\n(First Year) $23,000\n(Firs\n$7,391 ($1.7 billion divided by 230,000 incremental purchasers)\nbut in terms of budget impact, total lending\n(Total)\nwould be about $2,800 per incremental purchaser\n(Total)\nNONE\n(Total)\n$37,500 to 50,000\n(Total)\n$23,000\n(Tota\nin the first year. After 25 years, GNMA would\nhave lent about $250,000 per incremental first\nyear purchaser.\n8. Risk to the\nGovernment:\nEssentially no default risk since FHA insurance is not required.\nThere is a particularly high risk of default associated with\nIncreased FHA default risk\nNONE\nNONE\nA sig\nsecond mortgages such as the GNMA loan which may be higher\nincre\nthan the original principal of the first mortgage, by the\nrate\ntime it becomes due.\n9. Ease of\nAdministration\nIf inexpensive assistance is provided as a tax credit, administration is extremely\nbut costs uncontrollable If the assistance is provided\nGNMA would have to become a mortgage originator and servicer\nFHA underwriting. FHA will finance some this year (Section 245)\nRun through tax system; so minimal administrative cost\nWould impose significant operational capacity to administer\nRequi\nhence direct subsidies, administration is complex, but the number of recipients, by\nor would have to pay mortgage bankers to provide this service.\nthe program (e.g., would have to certify incomes of participants\nthe\ncosts, can be controlled.\n($20,000 income limit), and if constraints such as requiring\npurchase of decent safe and sanitary housing were imposed,\nwould have to verify that constraints were met.)\n10. Other\nProblems:\nThe homeowner's real equity in the home is substantially reduced\nLender resistance due to increased default risk and\nCreation of new tax loophole with a large constituency.\nEqual subsidy would be paid to families of different wealth.\nAmor\nby the GNMA second lien. His mobility also is reduced because\nreduced cash flow.\nSlow implementation, most recipients will take several years\n8\nhe must repay the loan if he sells his home. Given the potential\nto accumulate enough in their downpayment account to make\nMay have slight inflationary impact on price of housing since\nhigh\nexponential growth rate of total lending under the program, the\na purchase. Also, deduction amount need not correlate with\nsubsidy reduces purchase price.\nindirect cost of additional interest on all Treasury borrowing\nhousing expenditures.\nis likely to be substantial. Finally, GNMA could become large\nholder of single family homes if default rates are as high as may\nbe reasonably expected.\nIMPACT on Typical\n$15,000 Income\nMonthly reduced mortgage payment reduced by $36, from $286 to $250, in first year;\nFamily Buying a\nby $15 in second year. No impact after second year.\nMonthly mortgage payment reduced by $44, from $286 to $242, in\nMonthly mortgage payment reduced by $75, from $286 to $211, in\nDownpayment effectively reduced by $1,000, from $4,000 to\nLowers downpayment by $1,000 from $4,000 to $3,000.\nRedu\n$39,000 House with\neach year. Total mortgage debt increases continually, by over\nfirst year; payment rises by 3 percent per year over the mortgage\n$3,000, through tax saving.\nmont\n$35,000 Mortgage:\n$5,500 per year.\nterm.\nSAVINGS\nDOWNPAYMENT VOUCHER/GRANT\nFEDERAL GUARANTEE OF DOWNPAYMENT\nREDUCE FHA DOWNPAYMENT REQUIREMENT\nmade to, and interest earned on, a savings account\nfuctible from taxable income if the savings in that\n$1,000 cash payment to buyer\nFederal guarantee of loan for one half of downpayment. This\nLegislative change to reduce downpayment required for FHA insurance\nused for a downpayment by first time home purchasers.\nsecond loan would be secured by a second lien.\nCurrent\nOption\n1\nbe $20,000 income, $10,000 total savings, $2,500\naddition to savings.\n3% for up to $25,000\n3% for up to $25,000\n10% for $25,000 $35,000\n5% for $25,000 $40,000\n20% for $35,000 $45,000\n10% for $40,000 $50,000\n20% for $50,000 $60,000\nfamilies\n1.46 million\n1.55 million\n275,000 (expected FHA volume plus incremental purchases)\n$1,000\nNONE\nNONE\n60,000\n90,000 140,000\n20,000\nRaises loan-to-value from .86 to .89 Based on in-house\nLowers downpayment required at purchase but raises total price of\nReduces downpayment requirement for FHA only by an average of 3%.\nresearch, this would increase housing demand by 60,000\nhome if the second lien is amortized at mortgage rate which will\nunits per year.\nbe in excess of rate of inflation.\n$1.4 billion\nNONE\nNONE\n$938M year\nAll costs are borne in the first year a family is a\nNONE\nNONE\n$1.88B year\nsubsidy recipient.\n$2.86B year\n$3.75B\n$37,500 to 50,000\n(First Year) $23,000\n(First Year) NONE\n(First Year: ) MOME\n$37,500 to 50,000\n(Total)\n$23,000\n(Total)\nNONE\n(Total)\nNONE\nNONE\nA significant increase in foreclosure rates. For example, by\nAn increase in foreclosure rate. Losses should be covered by the\nincreasing loan-value ratio by 8 percent (.86 to .93) foreclosure\n.5% premium.\nrate would be increased by 11 percent. (elasticity of 1.4).\nsystem; SO minimal administrative cost\nWould impose significant operational capacity to administer\nRequires HUD processing at time of guarantee and management in\nSimple change in FHA processing. Larger volume of FHA insurance\nthe program (e.g., would have to certify incomes of participants\nthe event of foreclosure.\nwould increase work load.\n($20,000 income limit), and if constraints such as requiring\npurchase of decent safe and sanitary housing were imposed,\nwould have to verify that constraints were met.)\nnew tax loophole with a large constituency.\nEqual subsidy would be paid to families of different wealth.\nAmortizing second lien will require a higher income\nRequires legislative change. Has greatest effect on homes in excess\ntation, most recipients will take several years\nto support loan (e.g., a higher monthly payment because of the\nof $30,000. Could result in FHA becoming more competitive with\nenough in their downpayment account to make\nMay have slight inflationary impact on price of housing since\nhigher mortgage amount).\nprivate mortgage insurance.\nAlso, deduction amount need not correlate with\nlitures.\nsubsidy reduces purchase price.\nffectively reduced by $1,000, from $4,000 to\nLowers downpayment by $1,000 from $4,000 to $3,000.\nReduces downpayment by $2,000, from $4,000 to $2,000; raises\nCould lower downpayment by up to $2,500, from $4,000 to $1,500.\ntax saving.\nmonthly payment by $20, from $286 to $306.\n1. FORMAT:\nHOMEOMNERSHIP OPPORTUNITIES FOR MIDDLE AMERICA (HOMA)\nBROCK-ASHLEY\nGRADUATED PAYMENT/FIXED RATE MORTGAGE\nTAX EXEMPT SAVINGS\nDOWNPAYMENT VOUCHER/GRANT\nFEDEI\nmortgage lesser of limit of $38,000. The amount of the tax credit would be the\nBoth new and existing homes would be eligible. There would be a maximum\nThis program would provide a tax credit to purchasers of first homes.\nGNMA would pay 2% interest on the mortgage initially, and any\nInitial mortgage payments would be reduced and later payments\nContribution made to, and interest earned on, a savings account\n$1,000 cash payment to buyer\nadditional interest due to the variable rate provisions. This\nwould be deductible from taxable income if the savings in that\nGERALD\nFeder\nincreased at set rate of increase. Increasing mortgage\nsecor\nat the (1) the difference between payments to principal and interest\nwould accumulate with interest in the borrower's GNMA loan\npayments should better match rising incomes. This mitigates\naccount are used for downpayment by first time home purchasers.\nprincipal current and market rate (9% assumed in this analysis) and payments to\naccount which is to be repaid when the house is sold OK by\ninitial income constraints on homeownership.\nLimits would be $20,000 income, $10,000 total savings, $2,500\ninterest interest at 6% or (2) the difference between principal and\narrangement with GNMA.\nper year in addition to savings.\nout at 9% and 20% of the family's income. This program would phase\nat about the $18,000 income level.\n2. Number: of\n1.33 million\nFamilies\n1.7 million\nAssisted:\n1.5 million\n1.5 million families\n1.46 million\n1.55\n3.\nSubsidy par\nFamily:\nabout $650 over the life of the loan.\nThe average subsidy par family in the first year of about $500 and of\nThere is no direct subsidy involved in the program. There\nNONE\n$1,000\nNONE\nare, however, indirect costs involved in all direct loan\n$2,500\nprograms.\n4. Number of\n230,000\nIncremental\nPurchaser\nThe GNMA loan would reduce monthly payments enough such that\n80,000 (under constraint than loan to value ratio cannot\n75 100,000\n60,000\n90,00\npar Year:\n250,000 to 300,000 additional families would be able to afford\nexceed 100%)\na $35,000 house without spending more than 25% of their income\nRaises loan-to-valus from .86 to .89 Based on in-house\nLower:\non housing. The GNMA loan would reduce current costs but\nresearch, this would increase housing demand by 60,000\nhome\nincrease total costs because the GNMA loan must be repaid\nunits per year.\nbe in\nwith accumulated interest. Thus, there may be market resistance\nto this program, since it substantially reduces OK eliminates\nequity accumulation, one of the primary perceived\nbenefits of homeownership.\n5.\nFirst Year\nAbout $665 million\nOutlays:\nThe average GNMA loan would be about $500 after one year. If\nNONE\n$938 million\n$1.4 billion\nNONE\n1.7 million loans ware issued, total lending under the program\nwould reach $850 million.\n6. Total Costs:\nAssuming $1.7 billion over the period of subsidy for each year's assisted families.\n70 growth rate in normal income, the $14,000 family would\nTotal lending for the first year participants will reach about\nNONE\nYear 1:\n$938M year\nAll costs are borne in the first year a family is a\nNONE\nphase out in 5 years and higher income families would phase out sconer.\n$5 billion after 5 years. Lending to participants entering\nYear 2:\n$1.88B year\nsubsidy recipient.\nin years 2-5 will be about $10 billion. As currently conceived,\nYear 3:\n$2.86B year\ntotal lending under the program will increast at an exponential\nYears 4-8:\n$3.75B\nrate. In theory, however, all of these outlays would be\nrecovered as recipients ultimately repaid their GNMA loans.\n7.\nCost per\nIncremental\n(First Year) $2,900 ($665 million divided by 230,000)\n(First Year)\nPurchaser:\nThere are no direct costs to the government,\n(First Year) NONE\n(First Year) $37,500 to 50,000\n(First Year) $23,000\n(First\n(Total)\n$7,391 ($1.7 billion divided by 230,000 incremental purchasers)\nbut in terms of budget impact, total lending\n(Total)\nwould be about $2,800 per incremental purchaser\n(Total)\nNONE\n(Total)\n$37,500 to 50,000\n(Total)\n$23,000\n(Total\nin the first year. After 25 years, GNMA would\nhave lent about $250,000 per incremental first\nyear purchaser.\n8. Risk to the\nGovernment:\nEssentially no default risk since FHA insurance is not required.\nThere is a particularly high risk of default associated with\nIncreased FHA default risk\nNONE\nNONE\nA sign\nsecond mortgages such as the GNMA loan which may be higher\nincrea\nthan the original principal of the first mortgage, by the\nrate\ntime it becomes due.\n9. Ease of\nAdministration:\ndirect but costs uncontrollable. If the assistance is provided\ninexpensive If assistance is provided as a tax credit, administration is extremely\nGNMA would have to become a mortgage originator and servicer\nFHA underwriting. FHA will finance some this year (Section 245)\nRun through tax system; so minimal administrative cost\nWould impose significant operational capacity to administer\nRequir\nhence subsidies, administration is complex, but the number of recipients, by\nor would have to pay mortgage bankers to provide this service.\nthe program (e.g., would have to certify incomes of participants\nthe\ncosts, can be controlled.\n($20,000 income limit), and if constraints such as requiring\npurchase of decent safe and sanitary housing were imposed,\nwould have to verify that constraints were met.)\n10. Other\nProblems:\nThe homeowner's real equity in the home is substantially reduced\nLender resistance due to increased default risk and\nCreation of a new tax loophole with a large constituency.\nEqual subsidy would be paid to families of different wealth.\nAmort:\nby the GNMA second lien. His mobility also is reduced because\nreduced cash flow.\nSlow implementation, most recipients will take several years\nto sup\nhe must repay the loan if he sells his home. Given the potential\nto accumulate enough in their downpayment account to make\nMay have slight inflationary impact on price of housing since\nhigher\nexponential growth rate of total lending under the program, the\na purchase. Also, deduction amount need not correlate with\nsubsidy reduces purchase price.\nindirect cost of additional interest on all Treasury borrowing\nhousing expenditures.\nis likely to be substantial. Finally, GNMA could become a large\nholder of single family homes if default rates are as high as may\nbe reasonably expected.\nIMPACT on Typical\n$15,000 Income\nMonthly reduced mortgage payment reduced by $36, from $286 to $250, in first year;\nFamily Buying a\nby $15 in second year. No impact after second year.\nMonthly mortgage payment reduced by $44, from $286 to $242, in\nMonthly mortgage payment reduced by $75, from $286 to $211, in\nDownpayment effectively reduced by $1,000, from $4,000 to\nLowers downpayment by $1,000 from $4,000 to $3,000.\nReduc\n$39,000 House with\neach year. Total mortgage debt increases continually, by over\nfirst year; payment rises by 3 percent per year over the mortgage\n$3,000, through tax saving.\nmonth\n$35,000 Mortgage:\n$5,500 per year.\nterm.\nLIBRARY\nFORD\nDOWNPAYMENT VOUCHER/GRANT\nFEDERAL GUARANTEE OF DOWNPAYMENT\nREDUCE FHA DOWNPAYMENT REQUIREMENT\nest earned on, a savings account\ne income if the savings in that\n$1,000 cash payment to buyer\n9ERALD\nFederal guarantee of loan for one half of downpayment. This\nLegislative change to reduce downpayment required for FHA insurance\nent by first time home purchasers.\nsecond loan would be secured by a second lien.\nCurrent\nOption\n$10,000 total savings, $2,500\n3% for up to $25,000\n3% for up to $25,000\n10% for $25,000 $35,000\n5% for $25,000 $40,000\n20% for $35,000 $45,000\n10% for $40,000 $50,000\n20% for $50,000 $60,000\n1.46 million\n1.55 million\n275,000 (expected FML volume plus incremental purchases)\n$1,000\nNONE\nNONE\n60,000\n90,000 - 140,000\n20,000\nRaises loan-to-value from .86 to .89 Based on in-house\nLowers downpayment. required at purchase but raises total price of\nReduces downpayment requirement for FHA only by an average of 3%.\nresearch, this would increase housing demand by 60,000\nhome if the second lien is amortized at mortgage rate which will\nunits per year.\nbe in excess of rate of inflation.\n$1.4 billion\nNONE\nNONE\nAll costs are borne in the first year a family is a\nNONE\nNONE\nsubsidy recipient.\n(First Year) $23,000\n(First Year) NONE\n(Pirst Year ) MOME\n(Total)\n$23,000\n(Total)\nNONE\n(Total)\nNONE\nNONE\nA significant increase in foreclosure rates. For example, by\nAn increase in foreolosure rate. Losses should be covered by the\nincreasing loan-value ratio by 8 percent (.86 to .93) foreclosure\n.5% premium.\nrate would be increased by 11 percent. (elasticity of 1.4).\nadministrative cost\nWould impose significant operational capacity to administer\nRequires HUD processing at time of guarantee and management in\nSimple change in FMA processing. Larger molume of PHA insurance\nthe program (e.g., would have to certify incomes of participants\nthe event of foreclosure.\nwould increase work load.\n($20,000 income limit), and if constraints such as requiring\npurchase of docunt once and samitary housing vace imposed,\nwould have to verify that constraints were met.)\na large constituency.\nEqual subsidy would be paid to families of different wealth.\nAmortizing second lien will require a higher income\nRequires legislative change. Has greatest effect on homes in encase\nwill take several years\nto support loan (e.g., a higher monthly payment because of the\nof $30,000. Could result in FHA becomting more competitive with\nmpayment account to make\nneed\nMay have slight inflationary impact on price of housing since\nhigher mortgage amount).\nprivate mortgage insurance.\nnot\ncorrelate\nwith\nsubsidy reduces purchase price.\n$1,000,\nfrom\n$4,000\nto\nLowers downpayment by $1,000 from $4,000 to $3,000.\nReduces downpayment by $2,000, from $4,000 to $2,000; raises\nCould lower dompayment by up to $2,500, from $4,000 to $1,500.\nmonthly payment by $20, from $286 to $306."
}