Preservation of the housing industry’s “sacred cow” and immediate damage-control for the nation’s troubled thrift institutions should be priority items for the next President and the 101st Congress.
Those were urgent suggestions made here last week to 6,000 delegates attending the 75th annual convention of the Mortgage Bankers Assn. of America.
The sacred cow is the tax deductibility of home mortgage interest.
Incursions on such tax deductions have been suggested in Washington congressional circles as a means of trimming the federal deficit.
Deduction Change Opposed
The concern for scores of the nation’s savings and loan associations revolves around the probable $45-billion federal bailout needed to restore faith and solvency in the system in the wake of rapid deregulation, risky loans, bad management and economically depressed oil and energy-related areas.
The MBA’s newly installed president, Willard Gourley Jr. of Charlotte, N.C., said his group will oppose any change in the existing interest deduction process.
Current law, generally, allows people to borrow up to $1 million for a first and second home, and still write off all their interest payments.
‘Important Housing Issues’
David O. Maxwell, chairman and chief executive officer of the Federal National Mortgage Assn., cautioned the mortgage bankers that the tax deduction should not become a “bargaining chip” in dealing with Congress over a pending omnibus housing bill.
Lyle E. Gramley, chief economist for the MBA, forecast a steady, 2.5% growth rate in the economy, and said he expects no recession this year, but that interest rates may go up to 12% by mid-1989.
Drop in Housing Starts
Even so, he said a 12% interest rate would still be lower than the rate when the expansion period began in 1982.
He expects a 7% drop in housing starts, to 1.3 million units, in 1989. Resales should total about 3.25 million this year, and a little less in ’89 if interest rates rise to 12%.
Maxwell, discussing the plight of 30% of the nation’s thrifts, told the audience of mortgage brokers and bankers at the San Francisco Hilton:
“We really cannot expect the current situation in the primary mortgage market to improve until the Federal Savings and Loan Insurance Corp. crisis is solved. Even at the low end of current conjectures on the funds required to solve the FSLIC problem--the bank board’s recent upwardly revised estimated of $45 billion--the cost of clearing up the mess is formidable, indeed.
‘Greed and Fraud’
“And it must be said, whatever the solution, we cannot expect healthy thrifts to pay the bill for the mistakes, greed and fraud of the failed institutions. Most thrifts are healthy. We should keep them that way.
“The healthy thrifts did not create the problem. Much of it resulted from rapid deregulation, coupled with inadequate supervision at the federal and state levels. Indeed, it seems hard to believe that FSLIC-insured institutions, under state laws, could leverage that insurance into all sorts of risky enterprises.
“Now Chairman Danny Wall and his colleagues at the bank board are trying their best to control the damage, but their efforts under current legislation cannot possibly do the whole job.
“The new President and Congress must stop bankrupt thrifts from ‘poisoning the well’ any further . . .
“In fact, we must address the pressing issue of FSLIC crisis in the context of our overall need to develop a national housing policy. The plight of the homeless, of low-income Americans, of first-time home-buyers is growing. The mortgage interest deduction is under fire.”
Warren Lasko, MBA executive vice president, said, “We have just been through the absolute worst of times. Total mortgage lending in 1988 will be about $586 billion, down 11.5% from the 1986 level of $662 billion. The mortgage bankers’ share of 1988 business will be about $90 billion, down 37% from $143 billion in 1986.
“That record year, 1986, was in some respects the worst thing that could have happened for mortgage lending. Huge volumes of refinancings led us to open too many offices and pay too high salaries to employ too many people.
‘Painful Period of Shakeout’
“Now, higher interest rates and the end of the refinancing boom have left us with extraordinary excess capacity.”
But, Lasko continued, “For those who adapt, there will be plenty of business to go around. There is a need for about 1.5 million new housing units per year. This translates into well over 4 million new loans a year for the rest of the century.”
John M. Teutsch Jr. of Seattle, outgoing president of MBA, recounted the founding of the group and its first convention in New York City in 1914, which attracted 45 delegates. At that time, the average price of the American home was $4,000, the average annual salary was $850 and there was a 45% homeownership rate, he said.
In 1988, the median home price is $110,000 and the median family income is $20,000. The home ownership rate is 64.1% but that is down from the record high of 65.7% in 1980.