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This file contains material relating to President Ford's housing proposal.

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Home Ownership (1)
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Home Ownership (1)
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This file contains material relating to President Ford's housing proposal.
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The original documents are located in Box 17, folder "Home Ownership (1)" 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 Gerald Ford donated to the United States of America his copyrights in all of his unpublished writings in National Archives collections.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. [sept 1976/ Home owners Two two My goal is homeownership for every American family be that wants to own its own home and is willing to work for it. There are three principal barriers to the got new achieve ment of this goal, and I intend to deal with each of them. The most important barrier, of course, is high interest rates. My economic policies, including tight control of unnecessary Federal spending will bring have interest rates down. new The second important barrier to home ownership downpayment requirements which often require for years um of working saving. For those families who have proved (fow they can hold a job and pay their bills, I shall ask Congress next year to change the FHA law to reduce downpayments by about one-third of what they are now. The third important barrier to homeownership, is the size of the monthly payments. To deal with this problem, I will order expanded use of existing authorities to lower payments in the early years of homeownership and gradually increase them as family income goes up. address Both pm / mh a on an a m your can FORD & LIBRARY GERALD Digitized from Box 17 of the James M. Cannon Files at the Gerald R. Ford Presidential Library My goal is a home for every American who wants to own his own house, and is willing to work for it. For the American families who want to own a home -- where the downpayment has been the principal barrier -- for those who have proved they can hold a job and pay their bills, I shall ask Congress next year to change the FHA law to reduce downpayment requirements. (Optional Descriptive Paragraph) Under my proposal, if you make $275 a downpayment for a good house would be lowered from about $1,750 to about $1,250. present Nutwork FORD & LIBRARY GERALD my du Christma tow wt w TA mm widd m was an when ww AM T 78 FAM. My goal is a home for every American who wants to own his own house, and is willing to work for it. For the American families who want to own a home -- where the downpayment has been the principal barrier --- for those who have proved they can hold a job and pay their bills, I shall ask Congress next year to change the FHA law to reduce downpayment requirements. (Optional Descriptive Paragraph) Under my proposal, if you make $275 a week, your downpayment for a good house would be lowered one-third, from about $1,750 to about $1,250. FORD & LIBRARY 934839 My goal is a home for every American who wants to own his own house, and is willing to work for it. For the American families who want to own a home -- where the downpayment has been the principal barrier -- for those who have proved they can hold a job and pay their bills, I shall ask Congress next year to change the FHA law to reduce downpayment requirements. (Optional Descriptive Paragraph) Under my proposal, if you make $275 a week, your downpayment for a good house would be lowered one-third, from about $1,750 to about $1,250. [sept.1976] INSERT PAGE 8 We must set goals and keep after them. My first goal is 2 million new permanent jobs every year. Can we do it? Yes. In the last 18 months we created more than 4 million new jobs. Today, there are more Americans at work -- 88 million of them -- than every before in our history. But there are still too many Americans out of work, and in particular, too many young Americans in our urban areas who cannot find a good job or get the training and experience they need to find a good job. Americans have long since recognized the wisdom of assuring that every high school graduate who is willing, able and qualified be provided the means of going to college. We have done so through grants, loans and scholarships. I am convinced that we can create a job scholarship program which will enable young people who choose not to go to college to get a job at which they can learn a trade, a skill, a craft or just plain good business sense. Such a program would make available a one-time veweher, not for salary costs, but for costs of on-the-job training. FORD & LIBRARY GERALD HOD indues Enat nt is the to AND None Booth 1. FORMAT: HOMEOWNERSHIP OPPORTUNITIES FOR MIDDLE AMERICA (HOMA) BROCK-ASHLEY GRADUATED PAYMENT/FIX 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 paym Both new and existing homes would be eligible. There would be a maximum additional interest due to the variable rate provisions. This increased at a set ra mortgage limit of $38,000. The amount of the tax credit would be the would accumulate with interest in the borrower's GNMA loan payments should bette lesser of (1) the difference between payments to principal and interest account which is to be repaid when the house is sold or by initial income constr at the current market rate (9% assumed in this analysis) and payments to arrangement with GNMA. principal and interest at 6% or (2) the difference between principal and interest at 9% and 20% of the family's income. This program would phase out at about the $18,000 income level. 2. Number of 1.33 million 1.7 million 1.5 million Families Assisted: 3. Subsidy per The average subsidy per family in the first year of about $500 and of There is no direct subsidy involved in the program. There NONE Family: about $650 over the life of the loan. are, however, indirect costs involved in all direct loan programs. 4. Number of 230,000 The GNMA loan would reduce monthly payments enough such that 80,000 (under constra: Incremental 250,000 to 300,000 additional families would be able to afford exceed 100%) Purchaser a $35,000 house without spending more than 25% of their income per Year: on housing. The GNMA loan would reduce current costs but increase total costs because the GNMA loan must be repaid with accumulated interest. Thus, there may be market resistance to this program, since it substantially reduces or eliminates a homeownership equity accumulation, one of the primary perceived benefits of homeownership. 5. First Year About $665 million The average GNMA loan would be about $500 after one year. If NONE Outlays: 1.7 million loans were issued, total lending under the program would reach $850 million. 6. Total Costs: $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 Assuming a 7% growth rate in normal income, the $14,000 family would $5 billion after 5 years. Lending to participants entering phase out in 5 years and higher income families would phase out sooner. in years 2-5 will be about $10 billion. As currently conceived, total lending under the program will increast at an exponential rate. In theory, however, all of these outlays would be recovered as recipients ultimately repaid their GNMA loans. 7. Cost per (First Year) - $2,900 ($665 million divided by 230,000) (First Year) - There are no direct costs to the government, (First Year) - NONE Incremental but in terms of budget impact, total lending Purchaser: (Total) - $7,391 ($1.7 billion divided by 230,000 incremental purchasers) (Total) - would be about $2,800 per incremental purchaser (Total) - NONE in the first year. After 25 years, GNMA would have lent about $250,000 per incremental first year purchaser. 8. Risk to the Essentially no default risk since FHA insurance is not required. There is a particularly high risk of default associated with Increased FHA default Government: second mortgages such as the GNMA loans which may be higher than the original principal of the first mortgage, by the time it becomes due. 4. Number of 230,000 The GNMA loan would reduce monthly payments enough such that 80,000 (under constraint tha Incremental 250,000 to 300,000 additional families would be able to afford exceed 100%) Purchaser a $35,000 house without spending more than 25% of their income per Year: on housing. The GNMA loan would reduce current costs but increase total costs because the GNMA loan must be repaid with accumulated interest. Thus, there may be market resistance to this program, since it substantially reduces or eliminates a homeownership equity accumulation, one of the primary perceived benefits of hameownership. 5. First Year About $665 million The average GNMA loan would be about $500 after one year. If NONE Outlays: 1.7 million loans were issued, total lending under the program would reach $850 million. 6. Total Costs: $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 Assuming a 7% growth rate in normal income, the $14,000 family would $5 billion after 5 years. Lending to participants entering phase out in 5 years and higher income families would phase out sooner. in years 2-5 will be about $10 billion. As currently conceived, total lending under the program will increast at an exponential rate. In theory, however, all of these outlays would be recovered as recipients ultimately repaid their GNMA loans. 7. Cost per (First Year) - $2,900 ($665 million divided by 230,000) (First Year) - There are no direct costs to the government, (First Year) - NONE Incremental but in terms of budget impact, total lending Purchaser: (Total) - $7,391 ($1.7 billion divided by 230,000 incremental purchasers) (Total) - would be about $2,800 per incremental purchaser (Total) - NONE in the first year. After 25 years, GNMA would have lent about $250,000 per incremental first year purchaser. 8. Risk to the Essentially no default risk since FHA insurance is not required. There is a particularly high risk of default associated with Increased FHA default risk Government: second mortgages such as the GNMA loans which may be higher than the original principal of the first mortgage, by the time it becomes due. 9. Ease of 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 Administration: inexpensive but costs uncontrollable. If the assistance is provided by or would have to pay mortgage bankers to provide this service. direct subsidies, administration is complex, but the number of recipients, hence costs, can be controlled. 10. Other The homeowner's real equity in the home is substantially reduced Lender resistance due to inc Problems: by the GNMA second lien. His mobility also is reduced because reduced cash flow. he must repay the loan if he sells his home. Given the potential exponential growth rate of total lending under the program, the indirect cost of additional interest on all Treasury borrowing 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 Monthly mortgage payment reduced by $36, from $286 to $250, in first year; Monthly mortgage payment reduced by $44, from $286 to $242, in Monthly mortgage payment re $15,000 Income reduced by $15 in second year. No impact after second year. each year. Total mortgage debt increases continually, by over first year; payment rises b Family Buying a $5,500 per year. term. $37,000 House with $35,000 Mortgage: Sevatu Brooke HUD ompore Acu (HUD) Broke oppose T/FIXED RATE MORTGAGE TAX EXEMPT SAVINGS DOWNPAYMENT VOUCHER/GRANT FEDERA payments would be reduced and later payments Contribution made to, and interest earned on, a savings account $1,000 cash payment to buyer Federa rate of increase. Increasing mortgage would be deductible from taxable income if the savings in that second better match rising incomes. This mitigates account are used for a downpayment by first time home purchasers. onstraints on homeownership. Limits would be $20,000 income, $10,000 total savings, $2,500 per year in addition to savings. 1.5 million families 1.46 million 1.55 m: $2,500 $1,000 NONE straint than loan to value ration cannot 75 100,000 60,000 90,000 Raises loan-to-value from .86 to .89 based on in-house Lowers research, this would increase housing demand by 60,000 home if units per year. be in e: $938 million $1.4 billion NONE Year 1: $938M a year All costs are borne in the first year a family is a NONE Year 2: $1.88B a year subsidy recipient. Year 3: $2.86B a year Years 4-8: $3.75B E (First Year) - $37,500 to 50,000 (First Year) - $23,000 (First Y E (Total) - $37,500 to 50,000 (Total) - $23,000 (Total) ult risk NONE NONE A signif increasi rate wou constraint than loan to value ration cannot 75 100,000 60,000 Raises loan-to-value from .86 to .89 based on in-house research, this would increase housing demand by 60,000 units per year. $938 million $1.4 billion Year 1: $938M a year All costs are borne in the first year a family is a Year 2: $1.88B a year subsidy recipient. Year 3: $2.86B a year Years 4-8: $3.75B NONE (First Year) - $37,500 to 50,000 (First Year) - $23,000 NONE (Total) - $37,500 to 50,000 (Total) - $23,000 default risk NONE NONE A r i riting. FHA will finance same this year (Section 245) Run through tax system; SO minimal administrative cost Would impose significant operational capacity to administer R the program (e.g., would have to certify incomes of participants et ($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.) istance 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. A sh flow. Slow implementation, most recipients will take several years to to accumulate enough in their downpayment account to make May have slight inflationary impact on price of housing since h a purchase. Also, deduction amount need not correlate with subsidy reduces purchase price. housing expenditures. tgage 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. Re payment rises by 3 percent per year over the mortgage $3,000, through tax saving. mc our FEDERAL GUARANTEE OF DOWNPAYMENT REDUCE FHA DOWNPAYMENT REQUIREMENT Federal guarantee of loan for one half of downpayment. This Legislative change to reduce downpayment required for FHA insurance second loan would be secured by a second lien. Current Option 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 1.55 million 275,000 (expected FHA volume plus incremental purchases) NONE NONE 90,000 - 140,000 20,000 Lowers downpayment required at purchase but raises total price of Reduces downpayment requirement for FHA only by an average of 3%. home if the second lien is amortized at mortgage rate which will be in excess of rate of inflation. NONE NONE NONE NONE (First Year) - NONE (First Year ) - NONE (Total) NONE (Total) - 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). 90,000 140,000 20,000 Lowers downpayment required at purchase but raises total price of Reduces downpayment requirement for FHA only by an average of 3%. home if the second lien is amortized at mortgage rate which will be in excess of rate of inflation. NONE NONE NONE NONE (First Year) - NONE (First Year ) - NONE (Total) NONE (Total) 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). Requires HUD processing at time of guarantee and management in Simple change in FHA processing. Larger volume of FHA insurance the event of foreclosure. would increase work load. pants Amortizing second life of mortgage will require a higher income Requires legislative change. Has greatest effect on homes in excess to support loan (e.g., a higher monthly payment because of the of $30,000. Could result in FHA becoming more competitive with higher mortgage amount). private mortgage insurance. 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. monthly payment by $20, from $282 to $302. 1. FORMAT: HOMEOWNERSHIP OPPORTUNITIES FOR MIDDLE AMERICA (HOMA) GRADUATED PAYMENT/FIXED RATE MORTGAGE FEDERAL GUARANTEE OF DOWN Initial mortgage payments would be reduced and later payments Federal guarantee of loan This program would provide a tax credit to purchasers of first homes. Both new and existing homes would be eligible. There would be a maximum increased at a set rate of increase. Increasing mortgage second loan would be secu mortgage limit of $38,000. The amount of the tax credit would be the payments should better match rising incomes. This mitigates lesser of (1) the difference between payments to principal and interest initial income constraints on homeownership. 305 22.83 at the current market rate (9% assumed in this analysis) and payments to principal and interest at 6% or (2) the difference between principal and interest at 9% and 20% of the family's income. This program would phase out at about the $18,000 income level. 305 1.55 million 2. Number of 1.33 million 1.5 million Families Assisted: NONE 3. Subsidy per The average subsidy per family in the first year of about $500 and of NONE Family: about $650 over the life of the loan. 1150 1280 average income assumed 15,800 4. Number of 40 $0,000 (under constraint than loan to value ration cannot 90,000 - 140,000 Incremental 250,000 HUD estimate exceed 100%) in first year, (with HUD changes.) Lowers downpayment requir Purchaser 100,000 in later years home if the second lien L. per Year: 103 2,000 OMB estimate for comparable subsidy under5.5% income Svowth. be in excess of rate of L. 52,000 OMB estimate for comparable subsidy under 7% income growth. 80,000 under eat earlier estimate, 670 NONE 5. First Year About $655 million NONE Outlays: 5.5% NONE 6. Total Costs: $1.8 billion over the period of subsidy for each year's assisted families. NONE Assuming a growth rate in normal income, the $14,000 family would phase out in 5 years and higher income families would phase out sooner. HUD estimate 700 670 5 7. Cost per (First Year) - $2,500 ($665 million divided by 230,000) (First Year) - NONE (First Year) - NONE Incremental 200 5 Purchaser: (Total) - $7,31 ($1.8 billion divided by 2$0,000 incremental purchaser NONE (Total) NONE (Total) OMB estimate (First Year) 12,300 6,500 ($680 million divided by 103,000) 12,800 for 52,000 units (Total) $17,400 ($1.8 billion divided by 103,000) 32,700 for 52,000 units 8. Risk to the Essentially no default risk since FHA insurance is not required. Increased FHA default risk A significant increase i Government: increasing loan-value ra rate would be increased (Section 245) 4. Number of $0,000 40 (under constraint than loan to value ration cannot 90,000 140,000 Incremental 250,000 HUID estimate exceed 100%) in First year, (with HUD changes.) Lowers downpayment required Purchaser 103 home if the second lien is per Year: 2,000 OMB estimate for comparable subsidy under5.5% income growth. 100,000 in later years be in excess of rate of ini 52,000 OMB estimate for comparable subsidy under 7% income Svonth, 80,000 under ed earlier estimate, 670 NONE 5. First Year About $655 million NONE Outlays: 5.5% NONE 6. Total Costs: $1.8 billion over the period of subsidy for each year's assisted families. NONE Assuming a growth rate in normal income, the $14,000 family would phase out in 5 years and higher income families would phase out sooner. HUD estimate 700 670 5 (First Year) - NONE 7. Cost per (First Year) - $2,800 ($665 million divided by 230,000) (First Year) NONE Incremental 200 5 (Total) NONE (Total) NONE Purchaser: (Total) - $7,391 ($1.8 billion divided by 2$0,000 incremental purchaser OMB estimate (First year) $16,500 ($685 million divided by 103,000) $ 12,800 for 52,000 units (Total) $17,480 ($1.8 billion divided by 103,000) 32,700 for 52,000 units $200 8. Risk to the Essentially no default risk since FHA insurance is not required. Increased FHA default risk A significant increase in increasing loan-value rati Government: rate would be increased by 9. Ease of If assistance is provided as a tax credit, administration is extremely FHA underwriting. FHA will finance same this year (Section 245) Requires HUD processing at the event of foreclosure. Administration: inexpensive but costs uncontrollable. If the assistance is provided by direct subsidies, administration is complex, but the number of recipients, hence costs, can be controlled. 10. Other Lender resistance due to increased default risk and Amortizing second life of Problems: to support loan (e.g., a h reduced cash flow. higher mortgage amount). IMPACT on Typical Monthly mortgage payment reduced by 836, from $ 306 to $250, in first year; $56 mortgage payment reduced by $75, from $286 to the $211, in Reduces downpayment by $2 $15,000 Income reduced by $15 in second year. No impact after second year. Monthly first year; payment rises by 3 percent per year over mortgage monthly payment by $20, f: Family Buying a $ 42 $28 in third year and $13 in fourth term. 40,000 000 House with $35,000 Mortgage: Year for a total tax credit oT $1,668 over four years with HUD changes, Monthly mortsase payment reduced by $37 from $284 to 38 $247 in first year. and by $30 to $254 in second year, (assumes, 6% PMI premium instead of usual 25% FEDERAL GUARANTEE OF DOWNPAYMENT REDUCE FHA DOWNPAYMENT REQUIREMENT Federal guarantee of loan for one half of downpayment. This Legislative change to reduce downpayment required for FHA insurance second loan would be secured by a second lien. Current Option 3% for up to $25,000 3% for up to 25,000 10% for $25,000 - $35,000 5% for $25,00 , - $40,000 20% for $35,000 - $45,000 10% for $40,0 0 - $50,000 20% for $50,000 - $60,000 1.55 million 275,000 (expected FHA volume plus incremental purchases) NONE NONE 90,000 - 140,000 20,000 Lowers downpayment required at purchase but raises total price of Reduces downpayment requirement for FHA only by an average of 3%. home if the second lien is amortized at mortgage rate which will be in excess of rate of inflation. NONE NONE NONE NONE (First Year) - NONE (First Year ) - NONE (Total) NONE (Total) 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). 20,000 Lowers downpayment required at purchase but raises total price of Reduces downpayment requirement for FHA only by an average of 3%. home if the second lien is amortized at mortgage rate which will be in excess of rate of inflation. NONE NONE NONE NONE (First Year) - NONE (First Year ) - NONE (Total) - NONE (Total) - 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). 245) Requires HUD processing at time of guarantee and management in Simple change in FHA processing. Larger volume of FHA insurance the event of foreclosure. would increase work load. Amortizing second life of mortgage will require a higher income Requires legislative change. Has greatest effect on homes in excess to support loan (e.g., a higher monthly payment because of the of $30,000. Could result in FHA becoming more competitive with higher mortgage amount). private mortgage insurance. in 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. rtgage monthly payment by $20, from $282 to $302. to [sept. 1976] My goal is homeownership for every American family that wants to own its own home and is willing to work for it. There are three principal barriers to the achieve- ment of this goal, and I intend to deal with each of them. The most important barrier, of course, is high interest rates. My economic policies, including tight control of unnecessary Federal spending, will bring interest rates down. The second important barrier to homeownership is downpayment requirements which often require years of saving. For those families who have proved they can hold a job and pay their bills, I shall ask Congress next year to change the FHA law to reduce downpayments by about one-third of what they are now. The third important barrier to homeownership, is the size of the monthly payments. To deal with this problem, I will order expanded use of existing authorities to lower payments in the early years of homeownership and gradually increase them as family income goes up. FORD is LIBRARY GERALD U { Sept. 1976] For the American families who want to own a home -- where the downpayment has been the principal barrier -- for those who have proved they can hold a job and pay their bills, I shall ask Congress next year to change the FHA law to reduce downpayment requirements. (Optional Descriptive Paragraph) Under my proposal, if you make $275 a week, your downpayment for a good house would be lowered one-third, from about $1,750 to about $1,250. FORD i LIBRARY GERALD [sept.1976] THE WHITE HOUSE WASHINGTON MEMORANDUM FOR: THE PRESIDENT FROM: JIM LYNN/JIM CANNON SUBJECT: Accelerated Homeownership Program ISSUE on August 27, you stated that one of the prime issues of the campaign that you intenoed to emphasize is an accelerated homeownership program. The purpose of this memoranaum is to brief you on tne options available to you. You snould know that there is some question about the need for a Government program to promote nomeownership. Home purchases are at a record level, and single-family starts are at longrun equilibrium. DISCUSSION An indivioual's decision to buy a nouse is affected by two iinancial consioerations: 1. Ability to save enough capital to aftoro a downpayment. 2. Ability to make monthly payments on interest ano principale Any expansion ot nomeownership would necessitate lowering HALD one of these two costs. Various Federal programs like FHA LIBRARY mortgage insurance, VA housing benefits, mortgage purchase by GNMA and FNMA, as well as others, currently serve to requce these costs. They serve either a nonoifterentiated group cf recipients like FHA programs or a special group like veterans. An ad-hoc task force comprised of HUD, OMB, and the Domestic Council nas reviewed the various possibilities of reaucing both downpayments and monthly mortgage payments, through such aevices as tax incentives, direct subsidies, and rederal underwriting ana guarantees. Much consigeration was given to limiting benefits to first homebuyers. The task force has aeterminea rour options (two affecting monthly mortgage payments and two aftecting downpayment) to be worthy of furtner consideration. because or many unknowns, the precise effects ot these policies 1S aifficult to predict. In the past, we have undertaken L some policies that have had dramatically different outcomes tnan expectea. This paper brietly describes four viable initiative options selected by the ad-noc task force with their advantages and disadvantages. It you aecide to go forward with one or more of these proposals, or a variant of them , the next question is our timing. The last section of this paper indi- cates tne advantages and disaovantages of timing options. PROGRAM OPTIONS Monthly Mortgage Payments 1. Tax creait (or airect subsidy) to reduce monthly payments of tirst nomebuyers to a 6 percent effective interest rate or to 20 percent of a persons income (wnich ever is nigher). This program would: -- have a maximum mortgage limit of $30,000. -- Phase out above the $18, UUU income level. -- Benefit 1.33 million families. -- Increase rirst nome purchases by between 50,000 and 250, UUU per year. -- Cost about 4665 million the first year, 31.3 million the secona year, and $1.9 billion per year for the lite of the program thereafter. --- Cost 36, 100 to $30, UUU per incremental purchaser. L. Graquated payments to reduce initial mortgage payments. Later payments would increase at a graouated rate to match rising incomes. (This program is already a demonstration program in some parts of the country.) The program would: --- Require acceptance by lending institutions and FHA unoerwriting. -- Benefit 1.5 million families. -- would require little or no budget outlays. -- Increase tirst nome purchases by between 20,000 ana 250, UUU per year. 3 DOWNPAYMENT 3. regeral guarantee of secona loan for one-halt of the down- payment on any mortgage, up to a maximum guarantee of 7-1/2 percent and $5,000. The program would: --- Require acceptance by lending institutions. -- Benetit 1.5 million families. -- Result in outlays for default of $300-500 million. -- Assist 40,000 to 140, 000 home purchasers. -- Cost $2,000 to $12,000 per incremental purchaser. 4. Reduce FHA downpayment requirement from -u- ($25,00 mortgage) to 50 percent ($50, UUU mortgage), and increase FHA mortgage limit to $60,000. This program would: -- Assist 275, UUU to 1.0 million families. -- Increase nomeownership by 10,000 to 140, UUU per year. -- Have no outlay effect. The rollowing are the most important auvantages ano disaovant- ages of each of the options: 1. monthly payment subsidy (tax credit or airect). Pros Accelerates homeownership for first nomebuyers, usually young moderate-income families with growing incomes. Assures recipients continuea capacity to support mortgages until they reach an $18, 000 income level. Phases out the subsidy with normal income growth, with tew families as subsidy recipients for more than 3 to 5 years. Aios a lower income level than other alternatives. FORD i LIBRARY GENALD Cons Substantial outlays will be required. Some tamilies may not experience income growth and thus coula be recipients of the program for a consiueraple period of time. May be criticized as welfare for the well-to-ao ($14, 000 to $18, UUU income). There are many unknowns as to the number of home- buyers benefited (estimated range of 52, UUU to 250, 000 for the first year) with implied costs ranging irom >6, 100 to $30, 000 per incremental purchaser. will either warp the tax system or require considerable aoministration. Coula be viewea as inequitable by recent first nome purchasers and by renters who pay full taxes while new nome buyers have up to luu% tax reduction. 2. Graquated payment/tixed-rate mortgage. Pros Accelerates opportunity for homeownership for those with expectations ot rising income by providing lower payments in early years of the mortgage. Involves no direct subsiaies. FHA is already tinancing some graquated payment mortgages. Cons Requires higher (at least i percent) downpayment to avoia outstanding balance exceeding house price (negative equity), so cannot be combined with a downpayment option. Increased default risk since, auring early years of mortgage, amount owea could exceed original principal amount. Requires agreement with and cooperation from lenders. 5 Some consumers will be wary if uncertain about their tuture income growtn. will probably require FHA insurance, another impeaiment to lender and consumer acceptance, as well as an aaditional workload buraen and risk to HUD. 3. Federal guarantee of downpayment. Pros Suostantially reduces equity required. Does not depend on FHA. Can be compinea with other subsidies. Can be limited to first home purchasers. Cons Requires higher monthly payment. Requires cooperation/agreement with traditional lengers. can Le criticized as favoring midale-income families. 4. Reduce FHA downpayment and extena mortgage limit. Pros Substantially reauces equity required for homes over $40, 000. Can be combinea with other subsidies. FMA may aemonstrate viability of lower downpayment to private mortgage insurers. Lowest cost and lowest risk to the Government compared with other options. cons will not reach many tamilies unless FHA processing 1S substantially improved. FORD is LIBRARY GERALD Can be criticized tor benefiting mainly micale- income tamilies. will partially compete with private mortgage insurers. OTHER CONSIDERATIONS Another question to be considered is the timing of the release of your accelerated homeownership program. Congress goes out of session on October 2. It is conceivable that submission of new legislation by your Administration or even a concrete proposal might be seized upon by the Congress to quickly pass a nousing bill that would embarrass your Auministra- tion. Even if this aoes not happen, there is sure to be criticism of your proposal, outlining its inconsistency with past Auministration opposition to congressional proposals for accelerated homeownership. Another consideration is that there are several contingent questions regarding tne above options that will require some time to aevelop answers. They include: 1. Acquiring more data from polling on whetner monthly payments and/or downpayments are the most signiticant impeaiments to homebuying. 2. Determining if FHA underwriting can De improved ano made more eiticient to make it acceptable to builders. S. Retining estimates of the number of incremental purchasers Lor each program. 4. Determining what terms lengers will require for non-FHA mortgages. These questions snoula be resolved by the end of September. Rie: Home Ownership OFFICE OF MANAGEMENT AND BUDGET ROUTE SLIP Mr. Lynn May Take necessary action TO Approval or signature Comment Prepare reply Discuss with me For your information See remarks below FROM Dan L. McGurk Sept. 7, 1976 DATE REMARKS OMB proposal: would innean ceiling FORD i LIBRARY GERALD on FHA loan and lower the downpayment. Hills has not seen this but will be buifed on it this afternoon. We don't want to disun this specific document the A.M. p.m. OMB REV FORM 4 AUG 70 090718 Lyun May President Ford and Home Ownership Background The biggest impediment to more Americans owning their own home today is inflation. Inflation not only drives up the cost of building new homes, but also increases the interest rates that all new homebuyers must pay on their mortgages, and reduces the availability of mortgage credit. President Ford has sought to reduce inflation through sound economic policies and by resisting -- and vetoing, where necessary -- Congressional legislation that would have re- quired large increases in Federal spending. As the rate of inflation has declined, funds available for home purchases have soared: net savings flows into thrift institutions have risen from less than $2 billion in all of 1974 to over $22 billion in the first six months of 1976. In addition, President Ford's leadership has brought this country out of the worst recession in forty years. The recovery has increased personal income substantially, thereby adding to the number of American families who qualify as worthy credit risks to buy a home. In the long run, increased disposable income is fundamental to increased home ownership. As a result, the rate of housing starts for single family homes have increased 57% between December 1974 and July 1976; and the index of home sales volume has increased 44% in about the same period. FORD is LIBRARY GERALD 2 Direct Assistance Since President Ford took office, his Administration: Released tandem authority of $8 billion to assist the purchase of over 225,000 homes at below market interest rates. Released budget authority of $7.9 billion to assist over 200,000 homebuyers through homeownership subsidy (section 235). Assisted in $130 billion of mortgage acquisition for over 1.1 million homes through insurance and mortgage guarantees. Signed several bills extending and expanding mortgage insurance, mortgage purchase authority, mortgage limits and reducing downpayment requirements for insured loans. Proposed the Financial Institutions Act, which would improve the financial mechanisms to make more mortgage funds available and smooth out credit cycles. Expanded Homeownership Plan America is much more a country of homeowners than any other nation in the world. One of the reasons for that is the Federal Housing Authority which has for years facilitated home- ownership through mortgage insurance. The time has come to take another forward step in helping more Americans own their own home. FORD i LIBRARY GERALD 3 NO The President is submitting legislation to increase the size of mortgages that the FHA will guarantee, and to drastically sharphy, reduce the downpayment required to qualify for FHA insurance. The downpayment will be reduced by between 20 and 50%, thereby expanding significantly drastically the number of Americans who can utilize FHA insurance to buy a home. It is estimated that under this bold program about additional families will be able to qualify for FHA home insurance for appropriate quality of houses where they have the income stability but have been unable to save up a down- payment in these inflationary times. Coupled with continued pressure to moderate inflation, this plan will permit a greatly expanded segment of lower and middle America to enjoy the benefits of homeownership. Reducing downpayment requirements under section 203 (b) of the Housing Act could increase the number of defaults significantly, and thereby be costly to the Treasury. On the other hand, President Ford has great faith in America, and in the recovery and anti-inflation policies of his Administration. In conjunction with these sound economic programs, he is con- fident that the mortgage insurance premium charged by FHA will adequantly cover the anticipated losses. Only if he is unsuccessful in convincing Congress to assist him in reducing FORD & LIBRARY GERALD 4 inflation and aiding a strong and long-lasting recovery will there be any increased losses. The advantage of extending the benefits of homeownership to millions more Americans is worth the risk. MARKET OPINION RESEARCH September 8, 1976 MEMORANDUM TO: Alan Greenspan FROM: Bob Teeter SUBJECT: ISSUE PROPOSALS My suggestion that we look at a program to make homeownership easier comes from the following conclusions: First of all, there are no overriding issues that are affecting the President' support. Virtually all voting decisions are related to the voter's perception of the candidate, and the issues the President chooses to talk about and what he says about them are the means by which he can affect his perception. I have suggested that we take three or four of his past proposals, re-package them in more political terms, and then try to focus on them. Crime, catastrophic health insurance and national defense should be included on this list along with foreig affairs. for Secondly, the President is currently seen as being strongly reducing inflation by holding down government spending. This is a key element of his current support and whatever we do with any other issue should not contradict or diminish this. Moreover, I think we should consider using vetoes aggressive} as a major plus and we are testing this possibility in a national poll this week end. Thirdly, I think there is a need for us to come up with at least one major proposal where the President is seen as being for something that will help peopl not just opposed to other proposals. It should be something designed to appeal to younger (18-34) and younger middle-aged (35-44) non-college educated voters, particularly those with family incomes between $7,500 and $20,000. Almost none of these people are Republicans, but well over half are available to a given Republican candidate in any election. If we aim at the under 35 group, the issu should not be one that deals with taxes or government spending as this group pa) few taxes, are not very aware of those they do pay, and don't see inflation as 1 major problem older voters do. Two possibilities I think we should look at are a program to promote homeowner- ship among young families and/or a program to assist families in providing college, or some type of post secondary education, for their children. GERALD FORD (IBRAR) MARKET OPINION RESEARCH Alan Greenspan Page 2 September 8, 1976 A homeownership proposal should be aimed at the 18-30 year olds with family incomes under $15,000, most of whom have no post secondary education. This type of proposal also would have an advantage in that it could be sold as a job creation program and one that would help to stimulate an important segment of the economy. The evidence available seems to indicate that the down payment, rather than the monthly payment, is the problem for most of these people. We are addressing this question in our national poll this week- end. A proposal to help middle income families send their children to college (possi- bly a tax deduction for college tuition) would have the advantage of appealing to a group that is somewhat older, more sure to vote, and of appealing to what always has been a strong middle class value. Education appears to be re-emergin as an important priority for families after several years of being down in the polls. Most people think that education is the means for upward social mobility in our society. Attached is some background data on homeownership and attitudes toward it as measured in surveys of registered voters. Please note the difference between voters under 30 to 35 and the rest of the electorate in terms of current home- ownership, its importance as a goal, and the government's responsibility to do something about it. In each case, this group's interest is about double that of the total electorate. I realize that you have some severe budget and policy restrictions but I still think we need to explore these two and possibly some other ideas that would appe to this younger, non-Republican segment of the electorate. I think we need some thing of this type to go with in the September 20 to October 5 period. Also, it is important to remember that we are not looking at issues where there is any tremendous demand in the polls, but rather something that can affect the Preside perception. FORD GERALD MARKET OPINION RESEARCH Profile of Home Ownership Nearly three-fourths (73%) of the American electorate own their own homes. As might well expect, there is a trend of increasing home ownership by age with this pattern tending to level out above the age of thirty-five. Among voters of the 18-24 age range, their housing pattern is nearly evenly divided between owning a home (48%) and renting (46%). Voters aged 25-34 are somewhat more often home-owners (65%) although they have not yet reached the average level of home ownership. The distribution of home ownership across all age groups is fairly even at 17% or 18% with the exception of the 18-24 year old voters who comprise a lower 12% of all homeowners. Over half (58%) of all renters are between the age of 18 and 35, with renting declining as one grows older although it takes a slight jump up beyond the age of sixty-five. Other differences in home ownership patterns are worth noting. Whites (75% own homes) are more often home-owners than blacks (51%) and voters who are Jewish (62% home ownership) are less likely to own homes than their Protestant (75% home ownership) or Catholic (74% home ownership) counterparts. The most important variable to defining a profile of the home owner is total family income. Below $10,000 yearly family income, only slightly more than one-half of the voters own their own homes while over $10,000, the home ownership rate jumps quickly, to 73% for voters whose total family income range from $10,000 to $15,000 and 88% for voters whose family income exceeds $15,000 a year. GERALD FORD MARKET OPINION RESEARCH Are you a home-owner or do you rent? December 1975 U.S. National Home-owner Renter Don't Know Total 100% 100% 100% Age 18-24 years 12 33 64 25-34 years 17 25 5 35-44 years 18 13 9 45-54 years 18 10 -- 55-64 years 17 8 --- Over 65 18 11 18 Income 0-$4,999 11 23 50 $5,000-$9,999 21 41 33 $10,000-$14,999 27 20 -- Over $15,000 39 14 16 Education Less than high school 28 33 22 High school 37 36 33 Some college 18 18 44 College graduate/Post- graduate 17 12 -- Religion Catholic 29 27 32 Protestant 60 54 55 Jewish 3 5 -- Union Membership Union household 32 27 18 Non-union household 67 71 77 Race White 92 79 100 Black 8 21 -- Sex Male 51 47 50 Female 49 53 50 Number of Cases (1090) (390) ( 22) FORD & GERALO LIBRARY MARKET OPINION RESEARCH Are you a home-owner or do you rent? December 1975 U.S. National Home Total Owner Renter Total 100% 73 26 1 Age T8-24 years 100% 48 46 5 25-34 years 100% 65 35 : 35-44 years 100% 78 21 1 45-54 years 100% 83 17 -- 55-64 years 100% 86 14 -- 65 and Over 100% 81 17 2 Income 0-$4,999 100% 54 42 2 $5,000-$9,999 100% 57 71 1 $10,000-$14,999 100% 73 27 -- Over $15,000 100% 88 11 : Education Less Than High School 100% 69 30 1 High School 100% 73 26 1 Some College 100% 71 26 2 College Grad/Post-Graduate 100% 79 21 : Religion Catholic 100% 74 24 2 Protestant 100% 75 24 1 Jewish 100% 62 36 - Union Membership Union household 100% 76 23 1 Non-union household 100% 71 27 2 Race White 100% 75 23 2 Black 100% 51 49 - Sex Male 100% 74 25 1 Female FOR 100% 71 27 1 & GERALD MARKET OPINION RESEARCH When held constant for levels of income, age loses much of its power as a main determinant of home ownership. Voters under the age of thirty- five whose family income exceeds $15,000 own homes nearly as often as those voters from thirty-five to fifty-four. Above the age of fifty-four, the distribution of home ownership is more evenly balanced across income levels. Age is an important predictor of home ownership in serving as a surrogate for the availability of sufficient funds to purchase one's own home. Young people, in trying to establish themselves usually do not enjoy sufficient yearly income so that they may immediately purchase a home. Rather, the years between 18 and 35 are most often spent saving money for a home and building one's income to a level which would make the purchase of a home financially feasible. Education, in being highly correlated as the income displays a similar pattern of home ownership. Renters more often have less than a high school education which can keep them constrained to the lower income levels. FORD LIBRARY & GERALD MARKET OPINION RESEARCH Profile of Home-owners and Renters by Age, Income and Education Home-owners Renters Under $5,000- $10,000- Over # of Under $5,000- $10,000- Over # of Total $5,000 $9,999 $14,999 $15,000 Cases $5,000 $9,999 $14,999 $15,000 Cases Age 18-24 years 100% 7 20 24 40 (117) 22 51 16 11 (120) 25-34 years 100% 1 12 37 49 (164) 7 36 38 17 ( 88) 35-44 years 100% 1 13 34 51 (175) 20 41 16 23 ( 44) 45-54 years 100% 4 16 30 50 (170) 23 37 27 13 ( 30) 55-64 years 100% 16 30 19 32 (165) 39 39 4 18 ( 28) Over 65 100% 38 36 16 10 (160) 67 22 5 8 ( 36) Home-owners Renters Less Less Than Than High High Some Gra- # of High High Some Gra- # of Total School School College duate Cases School School College duate Cases Age 18-24 years 100% 17 38 38 5 (134) 83 40 21 5 (129) 25-34 years 100% 8 40 24 29 (177) 12 40 24 25 ( 95) 35-44 years 100% 16 42 20 22 (189) 33 42 12 13 ( 52) 45-54 years 100% 26 42 15 15 (194) 33 41 21 3 ( 39) 55-64 years 100% 40 36 8 14 (185) 58 16 6 19 ( 31) GERAL Over 65 100% 53 24 10 13 (190) 61 20 12 7 ( 41) LIBRARY MARKET OPINION RESEARCH Importance of Owning Your Own Home When presented with a list of ten personal needs and goals, having your own home/buying a new home" is mentioned by 11% of the electorate as one of the three most important to the, following "personal health" and "having a closer relationship to God." It was more often indicated by those under the age of thirty-five who are also less likely to own their own homes. This goal is nearly equally often mentioned by voters of all educational strata, all religions of union membership and non- union membership status and of both sexes. The only other difference exists in the racial variable as 18% of the blacks designate "owning your own home/buying a new home" as important to 11% of the whites. MARKET OPINION RESEARCH December, 1974 #4796 U.S. National Here's a list of some personal needs, hopes and goals that other people have mentioned to us. Which is most important, second most important, third most important?* Having Your Own Home/ Buying a New Home Second Third Most Most Most Com- Im- Im- Im- Number Total bined portant portant portant of Cases Total 100% 11% 2% 4% 5% (2010) Age 17-20 years 100% 22 8 5 9 ( 114) 21-24 years 100% 18 4 7 7 ( 190) 25-29 years 100% 22 2 10 9 ( 230) 30-34 years 100% 11 3 2 7 ( 213) 35-44 years 100% 9 2 5 2 ( 303) 45-54 years 100% 5 1 3 2 ( 322) 55-64 years 100% 7 2 4 2 ( 281) Over 65 100% 9 1 2 6 ( 347) Education Less than high school 100% 11 3 4 5 ( 607) High school 100% 13 2 5 5 ( 718) Some college 100% 11 3 4 5 ( 385) College graduate/Post- graduate 100% 10 1 5 4 ( 290) Union Membership Union household 100% 12 2 4 6 ( 657) Non-union household 100% 11 2 4 4 (1319) Religion Catholic 100% 10 1 4 5 ( 471) Protestant 100% 12 2 4 5 (1222) Jewish 100% 1 -- 1 -- ( 80) Race White 100% 11 2 4 5 (1752) Black 100% 18 5 7 5 ( 228) Sex Male 100% 13 2 5 BALD 6 (1002) Female 100% 10 2 4 A (1008) *The list included ten items of which "having your own home/buying a new home" ranked number nine in importance. MARKET OPINION RESEARCH Importance of Committing Government Action to the Goal of "Helping Young People Buy Their Own Homes" The goal of "helping young people buy their own homes" is one of some importance to the American voters, but not an immediate priority for government action. Voters over the age of thirty-five believe this to be nearly as important as those under thirty-five do. This fact indi- cating that while home ownership is more important as a personal goal to younger voters, the concept of government action to help those younger people reach their goal of owning a home is one which is just as well accepted by voters of all age levels. However, the importance of government action to the achievement of home ownership by young people varies by several major demographic groups. A patterned difference is revealed among educational levels such that voters who have less than a high school education are most likely to see this as a more important priority for the government than the voter who has completed a college education. This relationship may well be a func- tion of the differing income levels of the educational groups with the lower educated voters having fewer available funds to devote to the purchase of a home, thereby having greater need for government assistance. Blacks view this problem as a more important priority for government action which again should be related to the different income levels of these two groups. Unlike their Protestant and Jewish counterparts, Catholics exceed the average in the importance they assign to government action on this problem. GERALD December 1974 U.S. National How would you rate the importance of the following problem on a scale where 0 means the problem has very little importance and the government should work on many other problems first and 10 means the problem is of greatest importance and the government should take immediate action. Help Young People Buy Their First Home Little Greatest Importance/ Importance/ No Immediate Government Average* Number Action Action Ranking of Cases Total 15% 9% 6.28 (2010) Age 17-20 years 11 9 6.37 ( 114) 21-24 years 21 7 6.69 ( 190) 25-29 years 18 10 6.52 ( 230) 30-34 years 14 8 6.08 ( 213) 35-44 years 11 12 5.63 ( 303) 45-54 years 16 7 6.35 ( 322) 55-64 years 16 9 6.37 (281) Over 65 16 7 6.39 ( 347) Education Less than high school 20 7 6.88 ( 607) High school 19 8 6.52 ( 718) Some college 11 12 5.60 ( 385) College graduate/Post- graduate 4 9 5.35 ( 290) Union Membership Union household 19 7 6.57 ( 657) Non-union household 14 10 6.12 (1319) Religion Catholic 18 6 6.69 ( 471) Protestant 13 11 5.96 (1222) Jewish 5 10 5.73 ( 80) Race White 14 9 6.25 (1752) Black 27 6 7.28 ( 228) Sex Male 16 8 6.40 (1002) Female 15 10 6.16 (1008) *The list included thirteen problems of which "help young people buy their first home" ranked twelfth in importance. MARKET OPINION RESEARCH The Responsibility to Provide Better Housing By a slight plurality (32%), the voters of the United States designate the responsibility of providing better housing to the federal government. Other agencies which should take a major role include the state government (28%), the local government (21%) and private enterprise (15%). Although the assignment of responsibility for the solution of the problem is rela- tively even across the various institutions, that it should be a government rather than private enterprise function is abundantly clear. However for the voters under the age of thirty-five to whom "better housing" may well mean their own home and for the college-educated voters, the state government is designated as the one to maintain the major role in solving the problem. Again, the differences between the assignment of responsibility to the various institutions are slight. These young voters will need to be convinced that the federal government is the appropriate agency to help them with these problems, although a well-defined program should be able to accomplish that task as the selection of the state government as the helping agency was only slightly the more popular choice. MARKET OPINION RESEARCH U.S. National December, 1975 Who should have the major role in solving this problem -- the federal government, your state government, your local government, or a private agency or private enterprise? Provide Better Housing Private Agency/ Private Federal State Local En- Don't Numbe Total Govt. Govt. Govt. terprise Know of Cas Total 100% 32% 28% 21% 15% 6% (749) Age 18-24 years 100% 25 35 25 10 5 (140) 25-34 years 100% 28 38 13 14 4 (127) 35-44 years 100% 39 24 24 17 2 (128) 45-54 years 100% 34 25 18 18 5 (125) 55-64 years 100% 31 23 20 18 7 (109) 65 and over 100% 31 21 21 17 12 (121) Education Non-college 100% 34 27 20 13 7 (491) College 100% 26 30 23 21 4 (251) Union Membership Union 100% 34 26 25 12 4 (230) Non-union 100% 30 30 19 17 6 (507) Religion Protestant 100% 32 26 21 17 6 (452) Catholic 100% 33 32 19 13 4 (199) Jewish 100% 22 26 41 11 -- ( 27) Race White 100% 29 29 23 17 6 (668) Black 100% 56 20 11 17 5 ( 81, Sex Male 100% 35 28 19 17 3 (401) Female 100% 27 28 23 13 9 (349)