Stable Home Loan Rates Seen for Year : But Economist Pegs Figure at More Than 13% Beyond 1986

The outlook for home buyers during the next year is one of stability for interest rates at under 13% even though the dollar will continue to fall.

That prediction came during the concluding session of the 72nd annual conference on the Mortgage Bankers Assn. here last week. It came in the wake of a good year for housing, real estate and home financing.

Lyle E. Gramley, newly named chief economist and senior vice president of the mortgage bankers group, said 1986 should be a rather stable period in the home-buying market but beyond 1986, his expectation is that rates inevitably will rise.

Inflation Fears

As a number of speakers who preceded him had indicated, Gramley, a former member of the Federal Reserve Board, said either a federal tax increase or cuts in various federal entitlement programs are necessary to stem the red ink flowing out of Washington.

“My greatest concern about the prospects for renewed inflation stems from the probable decline in the dollar’s value in international markets and the events that may accompany it.

“The United States has an enormous imbalance in its receipts and payments with the rest of the world. The current account deficit this year will probably be around $130 billion to $140 billion; in 1986 it may be still larger.

“The most important factor needed to restore reasonable balance to our external accounts is a decline in the exchange value of the dollar.”

Critique of Reagan Policies

Earlier, Thomas P. (Tip) O’Neill, speaker of the House, delivered the principal address to more than 7,000 mortgage bankers, devoting most of it to a critique of President Reagan’s refusal to cut entitlements or to support a tax increase.

President Reagan does not want to give in to Walter Mondale’s advocacy of a tax increase, O’Neill declared, but if a tax increase is to come about, President Reagan “will have to take the lead.” The Democratic Party’s Presidential candidate had urged and predicted that a tax increase was imperative to help the nation’s economy.

“The Mortgage Bankers Assn. supports revenue measures if they are accompanied by spending cuts. Unfortunately, the President does not agree with you. He persists in waiting for economic growth to eliminate the deficits despite the fact that the current recovery has been unable to stop the surging budget deficits.

“The Senate found out the hard way this summer that the President does not want to cut entitlements when he reversed himself twice on cuts in Social Security programs.

“Since the President is unwilling to cut defense, cut entitlements or raise taxes, prospects for further budget deficit reductions through spending cuts are not too good.

“If the President decides to raise revenues to reduce the deficit, then the House Democratic leadership would support new revenues as we did in 1982, 1983 and 1984.

“But we will not do it as we did in the past and then be attacked in the 1986 campaign as we were in 1984 for supporting bipartisan tax increases. In the case of new taxes, the President will have to take the lead,” O’Neill said.

A survey released at the convention showed that the proportion of American homeowners behind on their mortgage payments fell to the lowest level in a year.

The number of home loans entering the foreclosure process declined slightly from 0.24% of all loans in the first quarter of 1985 to 0.23% in the second quarter.

Lenders, though concerned with any mortgage payment, consider the 30 days late payment less serious because nearly seven of every 10 of these loan problems are resolved. Delinquency surveys by other groups do not track the one month late inventory.

“A combination of an improved employment picture and more intensive servicing of mortgage accounts appears to have played the key role in bringing down the delinquency level, according to Warren Lasko, executive vice president of the MBA. Nine of the 10 states with the lowest delinquency levels were in the eastern seaboard.

The lowest rate, in order, was in New Hampshire, Massachusetts, Maine, Delaware, Virginia, Rhode Island, North Carolina, Hawaii, New Jersey and Maryland.

The convention ended Wednesday.