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The original documents are located in Box 17, folder "Housing (2)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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
APR 8 1974
Received 4/10/75
THE WHITE HOUSE
4pm
4pm
WASHINGTON
April 7, 1975
MEMORANDUM FOR:
JAMES J. CANNON, III
L. WILLIAM SEIDMAN
THRU:
JOHN O. MARSH
MAX L. FRIEDERSDORF
in
FORD LIBRARY j GERALD
VERN LOEN
FROM:
DOUGLAS P. BENNETT
SUBJECT:
Housing Tax Credit ($2,000) Provision in the
Tax Reduction Act of 1975
Dr. Larry Woodworth, Chief of Staff of the Joint Tax Committee, Friday
advised me that both Chairmen Long and Ullman have been concerned that
the applicability of this provision may be retarded in a fashion contradictory
to the intent of the provision. Apparently, many new housing developments
and condominiums are priced in such a manner that the first few units are
sold as "loss leaders" so as to attract buyers and as sales pick up, the
prices of the housing units are increased so as to eventually reflect the
"true" sales prices.
Under the certification provision of the statute, the seller is required in the
face of civil and criminal penalties to certify that the particular unit is being
sold at the lowest price at which it has ever been offered. Obviously, the
above described practice would disqualify many of the housing units in the
current inventory thereby diminishing the sought-after effect of this provision.
Long and Ullman are considering issuing a joint statement suggesting that
this technical defect be corrected by minor amendment. The matter has
been discussed with the Treasury Department and, I understand, Secretary
Simon concurs with the amendatory approach as the defect cannot be re-
medied by Treasury regulations.
CC:
Secretary William E. Simon, Secretary Carla Hills, Honorable James
T. Lynn, Honorable James H. Cavanaugh, Honorable Tod Hullin
JMC: The attached has gone forward.
I did not send my cover note to you.
HUD Hurisury
p
THE WHITE HOUSE
WASHINGTON
April 11, 1975
MADAM SECRETARY:
The attached is forwarded
FORD LIBRARY & GERALD
per our recent conversation.
Please call if you have
any questions or if I can
be of assistance.
James M. Cannon
Attachment - HAND DELIVERED
VIA WH MESSENGER
9:30 a.m. 4/11/75.
Called Prior to sending.
Pension Memo"
RECEIVED
JAN 29 1976
CENTRAL FILES
U.S. DEPARTMENT * * * UNBAN OF HOUSING AND
THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D.C.. 20410
April 22, 1975
FORD & LIBRARY GERALD
Mr. James M. Cannon
Housends
Assistant to the President
for Domestic Affairs
The White House
Washington, D.C. 20500
235
Dear Jim:
The enclosed paper on Analysis of Proposals
for Stimulation of Housing Production is relevant,
but not determinative, of our pending issue regard-
ing $235,
I look forward to talking with you about both
questions.
Sincerely,
Carla Carla A. Hills
CAH:bp
Enclosure
CC: Mr. Tod R. Hullin
RECEIVED
CENTRAL FILES
DEPARTMENT
of
U.S.
*
HOUSING
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
C
AND
urban
WASHINGTON, D. C. 20410
OFFICE OF THE SECRETARY
IN REPLY REFER TO:
MEMORANDUM FOR:
James M. Cannon
Assistant to the President
for Domestic Affairs
GERALD FORD LIBRARY
FROM:
Carla A. Hills
Secretary of Housing
and Urban Development
SUBJECT:
Analysis of Proposals for Stimulation
of Housing Production
THE CRISIS IN THE HOUSING INDUSTRY
The housing industry is generally perceived as being in a period
of crisis. Last year, new housing starts were far below the over
2 million rate of the three preceding years. The first three
months of 1975 have not demonstrated an immediate likelihood of
recovery. January starts were at an annual rate of only 999,000,
and housing permits at a rate of 682,000. In February, the rate
of starts fell to 980,000 although the rate of permits for future
construction rose slightly to 714,000. In March, the starts
figure continued to fall to 980,000, a rate down 35% from a year
earlier, and second only to last December as the lowest since the
Government began collecting housing statistics in 1946. Permits
also dropped again, to 710,000, at an annual rate, off 49% from
the March 1974 rate and second only to January as the lowest on
record. (Chart A indicates the trends in starts and permits for
the past 4 quarters).
To date, our response to this problem has been to rely upon pre-
dictions that the housing picture will improve markedly toward
the latter part of 1975 and continue to improve throughout the
next two calendar years. Housing production is normally explained
CHART A
1,600
1,500
MONTHLY HOUSING STARTS
AND PERMITS
(In Thousands)
( 1,400
MARCH 1974 MARCH 1975
STARTS
PERMITS
1,300
PORD
1,200
1,100
1,000
FPI-MI- 10 X 10X 10 TO 1010 INCH
STH LINE SIM LINE ACCENTED. 101d HEAVY 101H MEAVY
900
800
700
March Apr - May June July Aug Sept Oct Nov Dec Jan Feb March
1974
1975
- 2 -
as a function of credit availability, mortgage interest rates and
consumer purchasing power. Savings inflows have recently increased
substantially, making credit more readily available. In addition,
interest rates have fallen over the past few months. As a result,
we have forecast starts at an annual rate of 1.6 to 1.7 million by
the end of this year. Total housing production for 1975, if these
forecasts are accurate, will be at approximately 1.4 million units.
(Chart B indicates both past and projected trends in housing starts
and mortgage rates).
The total projected housing production for 1975 of 1.4 million
units barely exceeds the dismal 1974 production level of 1.35
million units. Although the projected improvement in the housing
picture will reduce unemployment in the construction industry from
its current level of 15 percent, unemployment would still be 9 -
9.5 percent by year's end, a projected rate probably unacceptable
to either the industry or Congress. More importantly, the start
and permit figures for the first quarter of this year cast some
doubt on the optimism of even these projections. Even though
mortgage funds are widely available and interest rates are
declining, the housing industry remains severely depressed and
the expected upturn is not materializing.
Our forecasts of improvements in the housing industry were based
on econometric models which emphasize the relationship between
financial market trends and housing starts. These may be signifi-
cantly and adversely affected by one or all of the following con-
ditions:
1. Consumer Confidence. The estimated housing production for
next year is based primarily on the available home mort-
gage rates. The fact that savings and loan institutions
recently have experienced record inflows of funds and
mortgage rates have fallen but housing starts have not
risen dramatically, reflects, in part, a serious lack of
consumer confidence in the housing market. Consumer
decisions may be postponed because of uncertainty about
CHART B
(
Conventional
Housing - Starts and Mortgage New Home Mortgage
Starts (in millions)
Rates
Rates
-9
8
7
2.5
GERALD 1488817
2
6
5
.5
FILMI TUA 12301 INCH
VRI VRIVE ACCENTED, IDUNTITY
4
1
(
3
.5.
1969
1970
1971
1972
1973
1974
1975 (est.)
- 3 -
unemployment, energy availability, increases in
costs of living, or whether normal anticipation
about appreciation in home values will hold true
in an uncertain economic future. Lack of consumer
confidence may be the single greatest retardant to
the expected housing segment recovery.
2. Decreasing Disposable Personal Incomes. One of the
important factors in housing production is consumer
purchasing power, which has been undergoing a marked
decline (as indicated in Chart C).
3. Financing the Federal Deficit. If the Treasury
finances anticipated budget deficits in a manner
which competes with savings flow, disintermediation
can result with consequent high interest rates and
credit scarcity, and with such an upward pressure
on interest rates will come a downward trend in
housing starts. Also, to the extent that lenders
perceive a likelihood of renewed inflation, they
may be reluctant to make long-term mortgages at
the lower market rates upon which our projections
are based.
4. Unemployment. A continued high level of unemployment,
particularly in middle income segments of the popula-
tion who are traditionally the major consumers of
housing, will also affect the demand for new homes.
5. Foreclosures. It is expected that the percentage of
delinquent mortgage loans will increase as a result of
recent increases in unemployment. A substantial number
of foreclosed units on the market will have a depressing
effect on new home production, as was the case with
mobile homes last year.
6. The Inventory Problem and the Tax Credit. From 1972
to January of 1975, the inventory of new unsold
housing units fell only slightly from a record
high of 440,000 to 400,000, with an additional inven-
tory of 250,000 unsold condominium units. There is
CHART C
Per Capita Disposable Personal Income (in 1958 dollars)
(add 000)
Seasonally Adjusted Annual Rates
$
3
2.9
2.8
2.7
FORD LIBRARY & SERALD
2.6
2.5
I
II
III
IV
I
II
III
IV
1973
1974
- 4 -
some indication that this inventory is being
reduced as a result of the recently enacted
tax credit for purchases from the previously
unoccupied existing stock, but the tax credit
may also have siphoned off into this unsold
inventory what little immediate demand now
exists for new construction. Because con-
sumers will be shopping for those existing
units, to which the credit is applicable,
builders are likely to postpone beginning
any new construction until the large existing
stock is depleted.
PROPOSALS FOR FEDERAL ACTION TO STIMULATE HOUSING PRODUCTION
Congress is now considering several legislative proposals to
stimulate housing production and reduce unemployment in the
construction industry. These include:
1.
An Emergency Mortgage Interest Rate Subsidy. The House
has already approved H.R. 4485 which would authorize,
subject to appropriations, a direct Government subsidy
for interest on home mortgages. The Senate Committee
has reported out a similar bill. Both would provide
that, for the first three years of the mortgage, the
subsidy would be in an amount that would reduce interest
payments to 6%; in the fourth year, the subsidy would be
reduced by 25%; in the fifth year by 50%; in the sixth
by 75% and in the seventh it would be terminated. Addi-
tionally, the House bill would allow the borrower to
elect a permanent subsidy to reduce interest to 7% over
the life of the mortgage.
Families assisted could have incomes of up to 120% of the
median area income and covered dwellings could not have
an appraised value in excess of $38,000 (or $42,000 in
certain high cost areas) at the time of purchase. At
least 80% of homes affected by the House bill and between
70 and 90% of those covered by the Senate bill would have
to be newly constructed. A total of 400,000 mortgages
could be subsidized.
- 5 -
These proposals have several serious disadvantages. Both
House and Senate bills would permit a temporary subsidy
to 6% for a total of 400,000 units. The cost per mort-
gage for the first year would be $788, and the total dis-
counted cost per mortgage over the six-year period would
be $2,768. Thus, the first-year cost of the program would
be $300 million and the total cost over $1.1 billion.
(The House Committee estimated $1.35 billion). We project
that this program would result in a maximum of 25,000 addi-
tional new starts in 1975 at a cost per start of approxi-
mately $44,000.
The House bill would also provide the option of a per-
manent subsidy to 7%, at a cost per mortgage of $4,116.
A total 400,000 units could be covered at a total one-
shot cost to the Government of $1.65 billion. (The House
Committee estimated $1.4 billion). This program could be
expected to produce a maximum of 115,000 additional new
starts at a cost per start of $14,200. Costs of this
magnitude will require increased Federal borrowing which
could result in upward pressure on interest rates for all
other home purchasers.
LIBRARY
These proposals would also require the creation of a com-
plex administrative mechanism at HUD, resulting in a
delay in implementation. For example, involving HUD in
certifying the incomes of purchasers would result in
expensive case-by-case, labor intensive analysis of the
family situation of each eligible home purchaser.
Accordingly, the program might not be capable of pro-
viding the needed immediate incentive to housing produc-
tion.
Moreover, the phase-out of the 6% interest subsidy in
both bills may be a trap for unwary housing buyers,
possibly leading to foreclosures and inventory manage-
ment problems in future years.
Nor do these interest subsidy proposals guarantee any
quick recovery in the housing industry. As present
market trends demonstrate, there is no clear demonstra-
tion that a decrease in interest rates alone will be
- 6 -
sufficient to get the stalled industry producing at
full tilt once again.
2. Increased GNMA Tandem Authority. The Emergency Home
Purchase Assistance Act of 1974 gave the Secretary,
through GNMA, $7.75 billion in "tandem" authority.
This "tandem" program allowed GNMA to make commitments
to purchase and to purchase from lenders mortgages
written at a statutorily determined interest rate and
to sell these mortgages to FNMA or private investors
at auction, absorbing the difference between the pur-
chase and sale price as a subsidy. The use of this
authority is discretionary with the Secretary. Approxi-
mately $2.25 billion of "tandem" authority remains avail-
able.
Congressman Gary Brown has introduced legislation, with
Administration support, to extend the Secretary's dis-
cretionary "tandem" authority to $10 billion and, in a
subsequent bill, to $15 billion. His proposed legisla-
tion would also extend "tandem" authority to mortgages
on condominiums, co-ops and multi-family dwellings as
well as change the statutory interest rate formula to
the lesser of 7 1/2% or the unsubsidized FHA rate.
Factoring in the effect of points, a 7 1/2% "tandem"
mortgage would have an effective interest rate for the
homeowner over its 30 year term of 7.98%. Only 10% of
the authority may be used to purchase mortgages on
existing occupied dwellings.
Because of the shallow subsidy involved, and the flex-
ibility of the "tandem" authority as a device for
mitigating temporary shortages of mortgage funds or
high interest rates, the Administration has favored
this device as the optimal means of dealing with tem-
porary mortgage availability and interest problems.
An attempt by Congressman Brown to have his increased
"tandem" authority proposal substituted for the interest
subsidy provisions of H.R. 4485 was defeated by a vote of
126 to 242 in the House.
3. A Tax Credit for Purchase of a Residence. The Senate
Finance Committee's tax rebate bill contained a proposal
for granting a tax credit to anyone who purchased a new
or existing home during the remainder of the 1975 calendar
year. The tax credit was to be 5% of the purchase price
up to a maximum of $2,000. This provision did not sur-
vive in the final bill.
- 7 -
The tax rebate bill passed by Congress and signed by the
President did, however, contain a 5% (up to $2,000) tax
credit for the purchase of a home from the existing newly
constructed but previously unoccupied housing inventory.
These tax credit proposals do have one significant advan-
tage over the alternatives. A tax credit is simple and
inexpensive to administer because it utilizes the existing
income tax structure and reporting requirements.
4.
The Home Purchase Incentive Payment. Senator Brooke
introduced S. 948, providing for a $1,000 home purchase
incentive payment to be paid to the purchaser of a single-
family dwelling. The Senate Committee bill incorporates
the Brooke concept affording homeowners the option of a
$1,000 cash payment in lieu of the interest subsidy.
Like the subsidy provisions, the cash payment is avail-
able to families with incomes up to 120% of the area
median who buy houses costing less than $38,000 (or
$42,000 in high cost areas). Between 70 and 90% of the
covered dwellings must be newly constructed and a total
of only 400,000 payments are authorized.
A POLITICAL PROGNOSIS
Congress will pass an emergency housing measure by late Spring
and the Administration will be faced with a politically unpopular
option of vetoing that measure. The President would be in a
better position to oppose emergency housing legislation at that
time if he had previously offered an alternative to deal with the
perceived emergency situation. Such a measure could minimize
cost impacts and long-term disruptions to the financial markets
while still providing some meaningful stimulus to housing pro-
duction. A scaled-down version of the tax credit or a modifi-
cation of the incentive payment proposal would be such a
mechanism although there is no assurance that Congress would see
it as a substitute for a direct interest subsidy. Accordingly,
support for a tax credit or incentive payment proposal should be
combined with support for increased GNMA "tandem" authority,
- 8 -
giving the Secretary a standby tool to deal with the interest
rate problem. Administration support for and passage of such
a measure focusing on both consumer confidence and interest
rates, might ameliorate the pressure for more onerous and
expensive legislation and would make the President's decision
to veto such legislation more easily justifiable to the public.
At this point, it appears that the main retardant to housing
production is not interest rates but consumer confidence. More-
over, the Administration has already indicated its support for
increased standby GNMA "tandem" authority as the best means for
dealing with any interest rate problem. Thus, our focus now
should be on providing an immediate spur to consumer confidence,
as a means of revitalizing the ailing housing industry. There
are two reasonable alternatives to achieve that purpose.
1. An Alternative Tax Credit Proposal. Perhaps the least
offensive of the alternatives available to the Administra-
tion would be constructed as follows:
A tax credit of 5% of the purchase price of a home, up to
$1,500, would be available to any taxpayer on his 1975
income tax return, if the home were purchased between
March 13, 1975 and December 13, 1975. The credit would
only cover new residences (construction completed between
December 31, 1974 and January 1, 1976) to be used as a
principal place of residence, as defined by the tax code.
The proposal would cover condominiums and cooperatives.
The credit would be limited to families with an adjusted
gross joint income of no more than $20,000. Although
our proposal involves a $20,000 limit, an option worthy
of further consideration is a phasing out of the income
limitation as by dropping the 5% credit by 1%, at $1,000
intervals in income, finally phasing it out at $25,000.
This could ameliorate any perceived inequities to the
income gap.
To avoid speculation, a recapture provision should be
included to make the incentive payment a reduction from
the homeowner's basis in the property for purposes of
capital gains taxation when the house is sold.
- 9 -
If it is determined that the immediate availability of
the rebate would be either politically or economically
preferable, a provision could be included allowing the
credit to be carried back to the previous year's return.
In that case, a taxpayer could, merely by filing an
amended 1974 return, receive an immediate cash payment
of the credit, thereby emulating the immediacy feature
of Senator Brooke's proposal. We have, however, pro-
ceeded on the assumption that in order to prevent an
immediate drain on the Treasury no such carry back would
be permitted.
2. A Modified Incentive Payments Approach. Another way to
have a similar effect on housing starts is the cash
incentive payment incorporated in the Senate Committee's
omnibus housing bill. That scheme is quite similar in
effect to the Tax Credit proposal except that:
(a) It provides an immediate payment to the home
purchaser which he can use to defray settle-
ment costs or towards his down payment;
FORD & LIBRARY CERALD
(b) It requires a slightly more complex administra-
tive process because the extant Internal Revenue
system is not utilized; and
(c) There would be an immediate rather than a delayed
expenditure of Treasury funds.
Because of the immediate availability of the cash payment, this
program could produce more starts per dollar than a Tax Credit
plan.
The Brooke and Senate incentive payment plans, as now drafted,
have significant disadvantages from our perspective. First,
neither is focused exclusively on new homes. Second, the
administrative mechanism envisioned includes an income certifi-
cation in the Senate bill, and various regulatory decisions in
Senator Brooke's bill. These provisions would be expensive to
administer and would delay implementation, thus depriving us of
the immediate spur to start so badly needed now.
- 10 -
Properly constructed, an incentive payment system would work
roughly as follows:
1. It would be limited in application to new construction,
perhaps using a purchase price limitation such as that
in the proposed legislation ($38,000 or $42,000 in high
cost areas).
2. It would be limited to families with a gross adjusted
taxable income in 1974 of $20,000 subject to a regional
adjustment based on 1970 census based regional differences
in median incomes. Alternatively, the payment could be
phased out as the income level of recipient families went
from $20,000 to $25,000.
3. Whenever an eligible purchaser submitted to the Secretary
an application, including a seller's certification of (1)
the sales price, (2) the construction dates, and (3) com-
pliance with our minimum property standards along with
(i) a description of the property, (ii) a statement that
the house will be used as a principal residence, and (iii)
the necessary income data, the Secretary would issue to
the purchaser a voucher to be applied to the required
down payment or the closing costs or redeemed for cash by
the mortgagee at the time of closing. There would be
criminal penalties for false certifications.
4. The income certification could be done by merely requiring
submission of copies of the 1974 income tax returns for
each member of the eligible household.
5. A mortgagee would, in turn, be reimbursed the amount of
the voucher by the Treasury after the closing.
6. The houses covered should be limited to those on which
construction was begun after March 25, 1975, and com-
pleted before January 1, 1976, so that the program was
not duplicative of the already enacted tax credit and
would create an undiluted incentive for immediate housing
starts.
- 11 -
7. To avoid speculation, there should be a provision for
partial recapture of the incentive payment by making it
a reduction from the homeowner's basis in the property
for purposes of capital gains taxation when the house
was sold.
REASONS FOR SPECIFIC FEATURES OF THE TAX CREDIT OR INCENTIVE
PAYMENT PROPOSALS
1. Limiting Eligibility to New Construction. Although the
lack of liquidity for sales of existing homes that might
result from limiting a plan to new construction could
marginally affect the demand for new construction, the
Harvard-MIT group predicts a strikingly beneficial effect
on new starts resulting from excluding existing stock.
The incentive to purchase newly constructed homes is
significantly reduced by the coverage of existing dwellings
since much of the demand generated could be siphoned off
into the latter category of housing.
Moreover, removing existing stock substantially ameliorates
the potential inflationary effects of a proposal. For
example, a purchaser might well reduce the price of his
existing home in view of the effective reduction in the
cost of his new home resulting from the incentive payment
or credit, thereby creating a downward market pressure on
prices generally.
FORD LIBRARY
Lower or static prices in existing stock would have a
dampening effect on any tendency for the prices of new
housing to increase.
Existing but previously unoccupied stock already benefits
from the tax credit contained in the tax rebate legislation.
2. Income Limitations. An income limitation significantly
reduces Federal costs, while maintaining the stimulative
effect, by eliminating outlays to those upper income
families whose decision to purchase is far less likely to
be determined by the availability of a credit or incentive
payment. This modification also avoids the inequity
involved in giving a subsidy to home purchases by upper
income families.
- 12 -
ADVANTAGES OF THE MODIFIED INCENTIVE PAYMENT AND TAX CREDIT
OPTIONS
The tax credit and incentive payment approach have other
significant advantages over the interest subsidy alternatives
presently under consideration in Congress.
1. Administrative Simplicity. Because the tax credit is
implemented through the existing tax system rather than
requiring an entirely new HUD administrative mechanism,
the administrative costs are apt to be significantly less
than the alternatives. The incentive payment could also
be made relatively easy to administer.
2. Definite Phase-Out. A December 31, 1975, cut-off date
avoids the possibility of long-term cost impacts and
creates a deterrent to delaying home purchase decisions.
The one-year duration of the program may thus serve to
even out production levels between 1975 and 1976. There
would be an incentive for some of the housing production
which would otherwise occur in early 1976 to be moved
back into 1975, when the housing market is likely to be
in a recovery period. The proposal is not a long-term
solution to the cyclical nature of the housing industry
but merely a means of mitigating the effect of that
cycle over the next year, allowing for a more long-term
solution to be acted upon in the interim.
GERALD FORD CIBRARY
3. Inflationary Impact. Because of its limited duration and
exclusion of existing housing, the proposal is not apt
to have a significant inflationary impact on the housing
market.
COST EFFECTIVENESS
The cost effectiveness of the various alternatives is, perhaps,
best demonstrated by Chart D. We have run an incentive pay-
ment and Tax Credit proposal through an econometric model of
the housing market developed at the Harvard-MIT Joint Center
for Urban Studies. Because the model would not accommodate the
interest subsidy proposals without substantial modifications,
the figures for those proposals have been developed by our own
economists.
CHART D
Senate Temporary
House Permanent
$1000 Cash
$1500
Long
Interest Subsidy
Interest Subsidy
Payment
Tax Credit
Tax Credit
(6%)
(7%)
Additional Starts
352,000
319,500
65,500
25,000
115,000
Cost of Program
$840 million
$915 million
$3.5 billion
$1.35 billion
$1.65 billion
Cost Per Additional
$2,400
$2,864
$53,640
$44,000
$14,200
Start
Jobs Created
457,000
415,000
75,000
32,500
149,500
Average Cost per
Affected Dwelling
$1,000
$1,300
$1,600
$2,768
$4,116
- 13 -
The cost per start figures are misleading. First, our estimates
of the additional new starts are based on an econometric model
projection and any additional starts beyond those estimates
would be at a maximum revenue loss of $1,500 (for the tax credit)
or $1,000 (for the incentive payment), further reducing the
average cost per additional new start.
Second, the expenditure will benefit the housing industry not
only in stimulating additional new starts but also in terms of
the housing starts which would have occurred even without the tax
credit or incentive payment. For example, when a family which
intended to purchase a $20,000 home receives the benefit of
$1,000 credit or payment, it is quite likely that much of that
sum will be applied to increasing the quality or some other
aspect of the purchased home. The proposal creates an incentive
to devote the additional disposable income thus provided to
housing costs because, to some extent, additional dollars spent
on housing are subject to the 5% Government rebate. Accordingly,
significant additional revenues for the housing and related
industries can be expected as a result of the tax credit proposal,
above and beyond the additional starts projected.
BENEFITS OF AN ADMINISTRATION INITIATIVE
The overall cost for the tax credit is projected to be $915
million, and for the incentive payments $840 million. The addi-
tional housing starts produced by the tax credit, for example,
could, however, augment residential construction by $9.6 billion
for this year and would, probably, also increase the purchase of
furniture and major appliances by a significant amount, increasing
the GNP for the rest of 1975 by at least $9.75 billion. In terms
of Federal tax receipts, this could give the Government $1 billion
of increased revenues for the year. Each of these figures would
be slightly higher for the incentive payments proposal. There
may also be a significant reduction of unemployment in the con-
struction industry, which would, in turn, mean decreased unem-
ployment compensation payments for the rest of 1975. On a con-
servative estimate of 1.3 man-years per new start, over 415,000
additional jobs in the housing industry would be created by the
tax credit and 457,000 by the incentive payments. Accordingly,
FORD LIBRARY
- 14 -
the final cost to the Federal Government, if any, is apt to be
minimal. Balanced against that minimal cost are over 300,000
additional new housing starts for 1975 and, hopefully, a major
impetus to renewed consumer confidence in the housing market,
which is the ingredient SO clearly lacking today. The press has
indicated that the recently enacted tax credit for purchases
from existing inventory has been overwhelmingly successful in
getting consumers into the marketplace, suggesting that the tax
credit or incentive payment mechanism is, indeed, an effective
spark to consumer confidence.
CONCLUSION
We perceive the options available for responding to the pending
legislative proposals for stimulating housing production to be
as follows:
1. Resist all Congressional efforts to aid the depressed
housing industry;
2. Seek enactment of a tax credit for the purchase of a
newly constructed home; or
3. Join Senator Brooke in his support for a cash incentive
plan to encourage new construction, with modifications
to his proposal to suit our perceived needs; or
4. Do either 2 or 3, while at the same time seeking addi-
tional GNMA standby "tandem" authority.
For the reasons explained above, we recommend option 4. With a
tax credit or incentive payment as a spur to consumer confidence
and increased "tandem" authority available to deal with the prob-
lem of rising interest rates should that again appear to be a
significant retardant to housing production, we would expect a
resurgence of the housing industry which could lead the economy
generally into a period of recovery.
GERALD FORD LIBRARY
THE WHITE HOUSE
WASHINGTON
April 25, 1975
MEMORANDUM FOR
JIM CANNON
FROM
TOD HULLIN
h
SUBJECT
MEETING ON EMERGENCY HOUSING LEGISLATION
SATURDAY, APRIL 26, 1975
3:30 p.m. (60 minutes)
Roosevelt Room
Participants (List at Tab A)
PURPOSE: To discuss and determine the Administration position
in regard to pending emergency housing legislation
which will go to conference next week.
AGENDA:
Opening remarks - Jim Cannon
Discussion - led by Jim Cannon - of political
assessment and options
--
Secretary Hills
--
Director Lynn
--
Sol Mosher - Congressional assessment
- -
Vern Loen - Congressional assessment
--
Pat O'Donnell - Congressional assessment
Conclusion - Jim Cannon - statement of decision
or agreement to elevate issue to the President
BACKGROUND
By a vote of 64-26, the Senate approved a bill which combines
a foreclosure relief provision and an interest subsidy provision.
The House has passed similar legislation in two separate bills.
A House-Senate conference is scheduled for next week. Of the
two features, the foreclosure aspect of the legislation appears
overwhelmingly popular as evidenced by votes of 321-21 in the
House and 89-1 in the Senate.
The Senate version of the foreclosure legislation would provide
for $300 monthly payments by HUD on behalf of distressed
mortgagors for as long as 36 months. The House version provides
monthly payments up to $250 for as long as 24 months. These
mortgage payments are direct loans to the homeowner.
FORD LIBRARY s GERALD
RECEIVED
JAN 9 1976
CENTRAL FILES
- 2
The interest subsidy provision would lower the mortgage
interest rate for middle-income families to 6% for up
to the first three years of the mortgage with declining
subsidies ending in the sixth year. The Administration
has testified in opposition to each of these provisions.
Substantively, HUD and OMB may agree that the foreclosure
provision and the interest subsidy provision should be
vetoed. However, the question is how should these issues
be handled in the political arena, recognizing that the
Congress may force these provisions on the Administration
by overriding the President's veto.
HUD POSITION
There is broad Congressional support for a foreclosure
bill as "a vote for the unemployed". It is unlikely that
the Administration could sustain a veto of a bill which
includes a foreclosure provision.
HUD recommends that the Administration urge the House
conferees to consider the interest subsidy and foreclosure
provisions in separate bills. HUD appears to believe
that the House conferees will fight for the split if the
Administration offers to work with them to produce a
separate and acceptable foreclosure bill. If the provisions
are separated, the Congress would probably forward to the
President an interest subsidy bill on which a veto could be
sustained. The foreclosure bill would be considered at
a later time.
OMB POSITION
OMB strongly opposes each of these provisions. They
appear to believe that a veto could be sustained on a
bill which includes a foreclosure provision and appear
to be recommending that we take a hard line in opposition
to this legislation.
GERALD FORD LIBRARY
- -3-
QUESTIONS TO BE RESOLVED
1.
Can a veto be sustained on a bill which combines
foreclosure and interest subsidy provisions?
2.
Can a veto be sustained on a separate interest
subsidy bill?
3.
Can a veto be sustained on a separate foreclosure bill?
4.
Will the conference separate the foreclosure and interest
subsidy provisions?
5.
What is the budget impact of these measures?
6.
Would either of these measures constitute a new
spending program?
7.
Can the foreclosure provision be modified to make
it acceptable?
8.
Can the interest subsidy provision be modified to
make it acceptable?
FORD
GERALD ?
LIBRARY
ATTENDEES
SATURDAY, APRIL 26, 1975, 3:30 p.m., Roosevelt Room
HUD
Carla Hills, Secretary
James Mitchell, Under Secretary
Sol Mosher, Assistant Secretary for Legislative Affairs
Dan Kearney, President, Government National Mortgage Association
Bernie Carl, Special Assistant to the Secretary
OMB
James Lynn, Director
Paul O'Neill, Deputy Director
DOMESTIC COUNCIL
James Cannon, Executive Director
James Cavanaugh, Deputy Director
Tod Hullin, Associate Director
Andre Buckles, Staff Assistant
CONGRESSIONAL RELATIONS OFFICE
Vern Loen, Deputy Assistant for Legislative Affairs (House)
Pat O'Donnell, Special Assistant for Legislative Affairs (Senate)
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THE WHITE HOUSE
WASHINGTON
May 2, 1975
MEMORANDUM FOR
DIRECTOR LYNN
JACK MARSH
BILL SEIDMAN
MAX FRIEDERSDORF
FROM :
SUBJECT :
EMERGENCY JIM CANNON Juni HOUSING
LEGISLATION
Attached for your review, comment and recommendation
is a DRAFT memo to the President regarding the emergency
housing legislation.
I would appreciate receiving your comments and
recommendations by 12 noon on Monday, May 5.
Your cooperation will be greatly appreciated.
GERALD & FORD VIBRARY
THE WHITE HOUSE
WASHINGTON
May 2, 1975
MEMORANDUM FOR THE PRESIDENT
FROM
JIM CANNON
SUBJECT
EMERGENCY HOUSING LEGISLATION
PURPOSE
The purpose of this memorandum is for you to determine the
Administration position on the emergency housing legislation
which will go to conference on Wednesday, May 7.
BACKGROUND
The most objectionable provisions of the emergency housing
legislation which are considered likely to emerge from
conference are:
Estimated outlays
for FY '76 (millions)
-- a foreclosure relief program
$ 350-400
- - a mortgage interest subsidy program
300
- - a $1000 home purchase incentive
payment
300
The substance of these provisions is outlined at Tab A
The foreclosure aspect of the legislation appears overwhelmingly
popular as evidenced by votes of 321-21 in the House and 89-1 in
the Senate. The mortgage interest subsidy provision appears to
be less popular, having passed the House by 259-106.
ERALD GERALD R. FORD
-2-
The Senate bill included other objectionable features including:
-- a one-year extension of the Section 235 subsidized
housing authority;
-- an expanded and mandated "Tandem Plan" authority
(Cost: $50 million in outlays for FY '76);
- - a six-month delay in the implementation of flood
insurance sanctions.
It is not certain, however, that the House will accept these
provisions.
Speaking for the Administration, HUD Under Secretary Mitchell
has testified against all of these provisions on the grounds
that they are expensive and unnecessary. OMB recommends that
this legislation be vetoed on programmatic and budgetary grounds.
But the outlook at this point is that a veto based strictly on
programmatic and budgetary grounds would be overridden.
OPTIONS
1. Authorize HUD and OMB to indicate that they would recommend
that the President veto this legislation.
This option recommended by Max Friedersdorf
Approve
X
Disapprove
2. Authorize a hard Presidential veto signal on programmatic
and budgetary grounds.
This option recommended by
Approve
Disapprove
3. Authorize a hard Presidential veto signal on programmatic and
budgetary grounds and indicate a willingness to work with the
Congress to bring forth acceptable legislation including a fore-
closure provision, an expanded tandem plan, and an extension
of the flood insurance sanctions.
This option recommended by
Approve
Disapprove
in FORD
A foreclosure relief program. The House bill authorizes the
HUD Secretary to make repayable mortgage relief payments of up
to $250 per month on behalf of homebuyers whose income has
been substantially reduced. Homebuyers could qualify for
loans with a maximum 8% rate until July 1, 1976, and the
loans could continue through June 30, 1978. The bill carries
an authorization for $500 million.
The Senate-passed provision accepted most of the House bill
and increased the payments up to $300 per month for up to
36 months and increased the authorization to $750 million.
The Administration has opposed mortgage relief as being
unnecessary because:
The current foreclosure rate is very low (less than
half the foreclosure rate prevailing 10 years ago);
Increased mortgage delinquencies are not expected to
FORD
cause a major increase in foreclosures as lenders tend BERAL
to forebear; and moreover, the delinquency rate has
stabilized from February to March;
LIBRARY
The Federal government can cope with an increase in
foreclosures under existing law;
-- Foreclosure legislation is counterproductive because it
offsets the normal tendencies of lenders to forebear;
Serious administrative problems would be created for HUD
by requiring the Department to operate a direct loan
program for hundreds of thousands of families.
A mortgage interest subsidy program. This program authorizes
a direct mortgage interest subsidy that would reduce the
mortgage interest rate for middle-income families to 6% for
the first three years of the mortgage with declining subsidies
ending in the seventh year.
The Administration has opposed this initiative as unnecessary
because:
The first-year cost of the program would be $300 million,
and the total cost between $1.1 and $1.65 billion;
Costs of this magnitude will require increased Federal
borrowing which could result in upward pressure on
interest rates for all other home purchasers;
-2-
--
This proposal would also require the creation of a
complex administrative mechanism at HUD, resulting
in a delay in implementation;
The phase-out of the 6% interest subsidy in both bills
may be a trap for unwary housing buyers, possibly leading
to foreclosures and inventory management problems in
future years;
-- The interest subsidy proposal does not guarantee a quick
recovery in the housing industry. As present market
trends demonstrate, there is no clear demonstration that
a decrease in interest rates alone will be sufficient to
get the stalled industry producing at full tilt once
again.
The Home Purchase Incentive Program. This program provides for
a $1000 home purchase incentive payment to be paid to the
purchaser of a single family dwelling. As proposed, the $1000
payment would be in lieu of the mortgage interest subsidy.
The incentive program has been opposed as unnecessary because:
The first-year cost of the program would be $300 million;
Costs of this magnitude will require increased Federal
borrowing which could result in upward pressure on
interest rates for all other home purchasers;
This proposal would also require the creation of a
complex administrative mechanism at HUD, resulting
in a delay in implementation.
THE WHITE HOUSE
WASHINGTON
May 2, 1975
MEMORANDUM FOR
DIRECTOR LYNN
JACK MARSH
BILL SEIDMAN
MAX FRIEDERSDORF
FROM :
JIM CANNON
SUBJECT :
EMERGENCY HOUSING LEGISLATION
Attached for your review, comment and recommendation
is a DRAFT memo to the President regarding the emergency
housing legislation.
I would appreciate receiving your comments and
recommendations by 12 noon on Monday, May 5.
Your cooperation will be greatly appreciated.
ERALD
THE WHITE HOUSE
WASHINGTON
May 3, 1975
Dear Carla:
Attached for your review, comment and recommendation
is a draft memo to the President regarding the
emergency housing legislation.
I would appreciate receiving your comments and
recommendations by 12 moon Monday, May 5.
Your cooperation will be greatly appreciated.
Sincerely,
James M. Cannon
Assistant to the President
for Domestic Affairs
Honorable Carla Hills
The Secretary
Department of Housing
and Urban Development
GERALD FORD LIBRARY
Washington, D.C.
THE WHITE HOUSE
WASHINGTON
May 5, 1975
MEMORANDUM FOR THE PRESIDENT
FROM
JIM CANNON
SUBJECT
EMERGENCY HOUSING LEGISLATION
PURPOSE
The purpose of this memorandum is for you to determine the
Administration position on the emergency housing legislation
which will go to conference on Wednesday, May 7.
BACKGROUND
The most objectionable provisions of the emergency housing
legislation which are considered likely to emerge from
conference are:
Estimated outlays
for FY '76 (millions)
-- a foreclosure relief program
$ 350-400
- - a mortgage interest subsidy program
300
-- a $1000 home purchase incentive
payment
400
-- an extension of the Section 312
Rehabilitation loan program
100
Even though these programs are subject to appropriations, HUD
feels that all or most of the authorization would be appropriated
by the Congress and the Budget Control Act of 1974 would mandate
the expenditure of these funds.
The substance of these provisions is outlined at Tab A.
The foreclosure aspect of the legislation appears overwhelmingly
popular as evidenced by votes of 321-21 in the House and 89-1
in the Senate. HUD and OMB are working to produce a mortgage
foreclosure provision that would be acceptable to the
Administration.
FORD & LIBRARY GERALD
-2-
The mortgage interest subsidy provision appears to be less
popular, having passed the House by 259-106.
The Senate bill included other objectionable features including:
--
A one-year extension of the Section 235 subsidized
housing authority;
--
An expanded and mandated "Tandem Plan" authority
(Cost: $50 million in outlays for FY '76);
--
A six-month delay in the implementation of flood
insurance sanctions.
It is not certain, however, that the House will accept these
provisions.
Speaking for the Administration, HUD Under Secretary Mitchell has
testified against all of these provisions on the grounds that
they are expensive and unnecessary. OMB recommends that this
legislation be vetoed on programmatic and budgetary grounds.
But the outlook at this point is that a veto based strictly on
programmatic and budgetary grounds, without any willingness to
compromise, would be overridden. Regardless of veto threats by
the Administration, HUD feels that it is certain that a "bad bill"
will emerge from conference and that the question is how best to
marshall our forces to sustain the President's veto.
OPTIONS
1.
Authorize HUD and OMB to indicate that they would recommend
that the President veto this legislation.
This option recommended by Jim Cannon, Max Friedersdorf,
Jack Marsh, Bill Seidman.
Approve
Disapprove
2.
Authorize a hard Presidential veto signal on programmatic
and budgetary grounds.
This option recommended by no one.
Approve
Disapprove
GERALD LIBRARY FORD
3.
Authorize a hard Presidential veto signal on programmatic
and budgetary grounds and indicate a willingness to work
with the Congress to bring forth acceptable legislation
including a foreclosure provision, an expanded tandem plan,
and an extension of the flood insurance sanctions.
This option recommended by no one.
Approve
Disapprove
4.
Authorize HUD and OMB to indicate that they would recommend
that the President veto this legislation and at this time
authorize Secretary Hills to
-- indicate that the flood extension and tandem amendments
would probably be acceptable to the Administration;
- - explore ways of improving the foreclosure provision,
without making any commitment as to acceptability.
This option recommended by Secretary Hills and Director Lynn.
Approve
Disapprove
FORD & LIBRARY GERALD
A foreclosure relief program. The House bill authorizes the
HUD Secretary to make repayable mortgage relief payments of
up to $250 per month on behalf of homebuyers whose income
has been substantially reduced. Homebuyers could qualify for
loans with a maximum 8% rate until July 1, 1976, and the
loans could continue through June 30, 1978. The bill
carries an authorization for $500 million.
The Senate-passed provision accepted most of the House bill
and increased the payments up to $300 per month for up to
36 months and increased the authorization to $750 million.
The Administration has opposed mortgage relief as being
unnecessary because:
-- The current foreclosure rate is very low (less than
half the foreclosure rate prevailing 10 years ago)
-- Increased mortgage delinquencies are not expected to
cause a major increase in foreclosures as lenders tend
to forebear; and moreover, the delinquency rate has
stabilized from February to March;
-- The Federal government can cope with an increase in
foreclosures under existing law (Federally insured
or guaranteed mortgages only)
-- Foreclosure legislation is counterproductive because it
offsets the normal tendencies of lenders to forebear;
-- Serious administrative problems would be created for HUD
by requiring the Department to operate a direct loan
program for hundreds of thousands of families.
A mortgage interest subsidy program. This program authorizes
a direct mortgage interest subsidy that would reduce the
mortgage interest rate for middle-income families to 6% for
the first three years of the mortgage with declining subsidies
ending in the seventh year.
The Administration has opposed this initiative as unnecessary
because:
-- The first-year cost of the program would be $300 million,
and the total cost between $1.1 and $1.65 billion;
-- Costs of this magnitude will require increased Federal
borrowing which could result in upward pressure on
interest rates for all other home purchasers;
also require the creation of a
complex administrative mechanism at HUD, resulting
in a delay in implementation;
The phase-out of the 6% interest subsidy in both bills
may be a trap for unwary housing buyers, possibly leading
to foreclosures and inventory management problems in
future years;
-- It mandates expenditure of funds when certain conditions
are met;
-- Authority to subsidize mortgage interest rates is already
available under the "Emergency Home Purchase Assistance Act".
The Home Purchase Incentive Program. This program provides for
a $1000 home purchase incentive payment to be paid to the
purchaser of a single family dwelling. As proposed, the $1000
payment would be in lieu of the mortgage interest subsidy.
The incentive program has been opposed because:
-- The first-year cost of the program would be $300 million;
-- Costs of this magnitude will require increased Federal
borrowing which could result in upward pressure on interest
rates for all other home purchasers;
-- This proposal would also require the creation of a complex
administrative mechanism at HUD, resulting in a delay in
implementation;
-- Much of the subsidy would amount to a windfall for buyers
who would have purchased a home anyway, or would be captured
by the builder.
Section 312 Rehabilitation Loans. The legislation would extend
the 312 Rehabilitation Loan program until September 30, 1978,
beyond the current authorization date of August 22, 1975. A
$150 million program level would be authorized.
The extension has been opposed for the following reasons:
-- It would perpetuate a categorical grant program alongside
a block grant program, the Community Development Grant
program, intended to replace it.
- 3 -
- - A partial review of applications reveals that recipients
of community development block grants have already decided
to use $87 million of the fiscal year 1975 funds for
housing rehabilitation;
- - Study of the current program has indicated that the high
administrative costs make it an inefficient support for
rehabilitation;
-- Extension of the program would set precedent for
reactivating other categorical programs replaced by
the block grant program.
FORD i LIBRARY
THE WHITE HOUSE
WASHINGTON
May 5, 1975
MEMORANDUM FOR :
TOD HULLIN
FROM :
JIM CAVANAUGA
Please be sure the highlights of
this are included in the decision
memo for the President on this
subject -
Attachment - Lynn memo to the
President on Mortgage
Relief Legislation
FORD i LIBRARY GERALD
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
ACTION
WASHINGTON, D.C. 20503
MAY 3 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
JAMES
LYNN
SUBJECT:
Mortgage Relief Legislation
Background
Congressional Action
The House and the Senate have passed mortgage relief
legislation designed to avoid the possibility of
massive foreclosures and distress sales of homes.
The House passed a direct loan bill (H.R. 5398)
by a vote of 321-21. The Senate passed a similar
provision in Title V of an omnibus housing bill
(H.R. 4485) by a vote of 64-26. A conference date
has been scheduled for Monday, May 5.
Administration Position
The Administration has consistently opposed these
congressional initiatives for mortgage relief as
being unnecessary, counterproductive, and as being
administratively complex. Although mortgage
delinquencies have increased four-tenths of one per-
cent (from 1 to 1.4) between July 1974, and this
March, the current foreclosure rate is very low, 19
percent (less than half of what it was 10 years ago).
The potential budget threat of this legislation would
range from $500-$750 million.
HUD Proposal
Secretary Hills has recommended that the Administration
attempt to influence the conference action by proposing
a substitute mortgage relief bill and getting the
mortgage relief provisions of the Senate bill split off
from the other provisions. The substitute alternative
would establish a co-insurance program where HUD would
pay 90 percent of losses. The HUD proposal could add
$75-$100 million to the budget. Secretary Hills'
proposal would seem to have the following advantages
GERALD LISBARY FORD
2
and disadvantages:
Advantages
- The proposal would split off the most emotional
provision and increase possibilities for sustaining
a veto on the housing subsidy legislation;
- A co-insurance approach would weed out more poor
risks than a Government loan program and would re-
duce the budget outlay threat substantially;
- An insurance approach would reduce the adminis-
trative problems relative to direct loans;
- A veto position would be easier to justify to the
public after making this proposal.
Disadvantages
- The proposed program has the same significant
weaknesses as the congressional bills:
it is not needed;
it undercuts lender incentives.
- A proposal now would undercut a major segment of the
Administration's rationale for opposing the con-
gressional bills, and give away an option that might
be useful in sustaining a veto;
- Congress could accept the proposal, but make it 100%
insurance. We would then be worse off than with
the congressional proposals.
OMB Modified Proposal
OMB staff believe that the co-insurance approach proposed
by HUD is conceptually better than the congressional
initiatives both from a budgetary standpoint and adminis-
tratively. However, we believe HUD's proposal should be
modified to improve the actuarial soundness and thereby
further reduce the potential liability to the Federal
Government. In an attempt to make this co-insurance actu-
arially sound, OMB would make the following modifications
to the proposal:
GERALD FORD LIBRARY
1. The combined amount of the mortgage and these
loans would be limited to 90 percent of the
property's appraised value.
2. The proposed initial premium of two percent would
be increased to four percent by adding a one-
fourth percent annual premium for eight years.
Mr. Daniel Kearney, President, Government National
Mortgage Association, has indicated informally that he
agrees that the OMB modifications would improve the
soundness of the HUD proposal. We estimate that these
modifications would reduce the budget threat of the
co-insurance proposal.
Alternatives
1. Take no action to influence conference action.
2. Approve Secretary Hills' proposal and attempt to
negotiate changes in the final bill.
3. Take no action now and pursue the OMB modified
proposal as a fallback position in a veto
sustaining strategy.
Recommendation
I recommend that we continue to oppose the enactment of
any mortgage relief legislation and take no action now.
However, as a fallback position, within a veto sustaining
strategy, I would favor submitting the OMB modified pro-
posal over the Secretary's proposal.
Decision:
Alternative #1
Alternative #2
Alternative #3
GERALD FORD LIBRARY
FYI
THE WHITE HOUSE
WASHINGTON
May 5, 1975
1:24 p.m.
JMC:
Tod Hullin called to report to you
that Carla Hills called him this
morning regarding her position on
the Emergency Housing Legislation
memo we sent her on Sat.
What she would like to do is go
with the "bad bill strategy" and
at the same time, behind the scenes,
try to work in our "acceptable"
legislation at the last minute.
She will not send a memo, but feels
her phone call to Tod Hullin suffices.
Tod further wanted you to know that
O'Neill and Lynn are asking for time
to see the President this afternoon
You would be asked to attend that
meeting but as of now no time has
been allotted.
Tod Hullin can sit in this meeting
with you if you SO desire. He will
call as soon as a time is determined.
p
GERAL PURD