Bills Would Help Many Buy Homes : Low-Interest Loans, Homeowner IRA Among Measures Before Congress

Mortgages with a 6% interest rate for first-time home buyers, use of a tax-advantaged savings account and IRA for a down payment and wider availability of low-interest FHA loans are some of the highlights of nearly a dozen bills being considered in Congress.

Some of the proposals have already been introduced, while others are expected to be submitted later this month. All could face an uphill battle, as lawmakers try to cope with a variety of other pressing issues and struggles to cut federal spending.

Despite these pressures, some housing experts are optimistic that Congress this year will approve legislation aimed at easing the nation’s affordable-housing problems.

“This could be Congress’ ‘Year of Housing,’ ” said Don Campbell, staff director of the Senate Housing and Urban Affairs subcommittee and chief housing aide to Sen. Alan Cranston (D-Calif.).

“Some of these proposals are going to cost money, but I think the nation’s housing problems have gotten bad enough that some (lawmakers) are ready to do something about it in a big way,” Campbell said.

Sweeping Legislation

While housing advocates are pleased that so many bills have been introduced early in the legislative session, they’re still waiting for what some simply call “The Big One”--The National Affordable Housing Act.

The measure, which may be introduced later this week by Cranston and Sen. Alfonse D’Amato (R-N.Y.), could be the most sweeping housing legislation proposed in a decade.

The bill would enhance incentives for builders and investors who provide low- and moderate-income housing, and also would provide incentives to encourage more state and local governments to improve housing programs in their area.

For example, the federal government could provide seed money that local agencies would loan to neighborhood developers, or could guarantee loans to builders who produce low- and moderate-income housing.

The bill--which reflects nearly two years of exhaustive studies and hearings--would also make low-down payment FHA loans widely available to buyers in high-cost housing states such as California.

Taxpayers would be allowed to use money in their individual retirement accounts to purchase a house and could also put up to $2,000 a year in the tax-deferred accounts to save for a down payment.

Many parts of the Cranston-D’Amato legislation overlap other Senate proposals. It is expected that most of the other housing-related bills will be merged into the Cranston-D’Amato plan to form an omnibus bill “that will deal with housing in a comprehensive, big-picture manner,” said Floyd Williams, a lobbyist for the National Assn. of Home Builders.

Key provisions of the major proposals now on Capitol Hill would:

* Make the FHA program viable in all areas.

Most FHA loans are 30-year, fixed-rate mortgages that require a down payment of about 5%. Since the FHA guarantees the mortgage, lenders are more willing to make a loan to borrowers who have a small down payment or would have trouble qualifying for a conventional mortgage.

But the FHA cannot insure loans of more than $101,250, making the program of little use in Southern California and other high-cost housing areas, where much larger loans are needed to buy a house. Only 9% of all California buyers last year used an FHA loan, less than half the nationwide average.

A bill authored by Rep. David Price (D-N.C.) would alter the program so the FHA could make loans on properties whose purchase price did not exceed 95% of the median price of homes in the area.

For example, if the area’s median price is $240,000--as it is in Orange County--a buyer could purchase a house for $228,000 and still be eligible for an FHA loan.

Price’s bill also would allow first-time buyers to get an FHA loan with a 3% down payment. In addition, it would permit the FHA to insure adjustable-rate mortgages whose interest rates can move up or down two percentage points a year. Currently, the agency can only insure loans with rates that can move just one point each year--loans that are difficult to find.

A similar bill has already been introduced in the Senate, and similar changes will be included the Cranston-D’Amato bill. Higher FHA limits have drawn support from powerful realty and banking trade groups, and little opposition from others.

Housing experts say chances of approving such changes to the FHA program are good, in part because it would not cost the Treasury any money. That’s because a one-time insurance premium that FHA borrowers pay funds the program.

“Any bill that would help more people afford to buy a home without costing the government any more money is going to look very attractive,” said Paul Feldman, Price’s legislative director.

More than 50 representatives have already agreed to co-sponsor Price’s bill, Feldman added, and about a dozen are co-sponsoring the companion bill in the Senate. “And we haven’t even started aggressively pushing yet,” he said.

* Use of IRA money for down payments.

A number of proposals would allow home buyers to use money in their individual retirement accounts, 401k savings plans or other pension plans as a down payment on a home. Now, such money can only be invested in bank certificates of deposits, stocks and bonds, and a handful of other items.

Under the Cranston-D’Amato plan, up to $10,000 in retirement savings could be used to purchase a house. The money would be considered an investment--just like a bank certificate of deposit--so the buyer would not have to pay a stiff withdrawal penalty.

The bill also would allow taxpayers to put up to $2,000 a year in the tax-free accounts to save for a down payment.

A bill in the House of Representatives is less generous. Authored by Rep. Gerald Kleczka (D-Wis.), it would allow first-time buyers to withdraw up to $5,000 from their retirement accounts to purchase a home.

The director of the National Assn. of Realtors’ housing and community development committee, Peter Morgan, said the trade group “supports the concept of letting people use their IRA savings to buy their first home.”

But NAR has yet to endorse any specific proposal in the House or Senate, he said, in part because realtors “want to wait until all the proposals have been submitted so we can pick the most appropriate ones.”

However, some experts say realtors are lukewarm about Kleczka’s bill, and that the measure could perish if it does not get the realtors’ support.

Realtors’ biggest concern about the bill appears to be a “recapture” provision that would require taxes on the IRA withdrawal to be repaid over the 10-year period following the sale of the house.

The Kleczka bill “would make you pay back tax benefits after you’ve sold your home,” said a lobbyist from another trade group.

“The realtors say that would set a bad precedent--that the next thing you know, Congress would pass some law that makes you pay back the deductions you took for your mortgage-interest payments,” he said.

* Low-rate loans for first-time buyers.

The most ambitious bill on this front is authored by Rep. Henry B. Gonzalez (D-Tex.), new chairman of the influential Banking, Finance and Urban Affairs Committee.

Gonzalez’s bill would establish a “National Housing Trust” that would provide a federal subsidy to first-time home buyers. The subsidies would effectively reduce the interest rate on a borrower’s 30-year loan to 6%.

Gonzalez believes the trust could open the door to millions of people shut out of the housing market, and most housing analysts agree. Yet those same analysts say the bill has a tough road ahead, in part because some budget-conscious lawmakers don’t like the proposal’s $2-billion-a-year cost.

Some experts also say the proposed trust has several flaws. One is that there is now no ceiling on the size of the subsidy: The cost of the program could soar if interest rates skyrocket, because it would cost the government more to keep the homeowners’ loans at 6%.

Similar to Kleczka’s IRA bill, Gonzalez’s bill also has a “recapture” provision that would require a borrower to pay back the subsidies when the home is eventually sold--a condition that limits the bill’s appeal to some real estate trade groups.

While most of these bills have broad-based support, some housing experts doubt that they’ll be approved in the current legislative session.

“Working out a budget and solving the FSLIC (Federal Savings & Loan Insurance Corp.) crisis are probably going to be higher priorities,” said builder lobbyist Williams.

“Even if you could finish those two jobs by summer, you’d have the July 4 recess and then the August recess.” The session is slated to end in October, which would leave little time to complete a big housing package.

Added NAR’s Morgan: “I don’t think the chance of Congress passing a comprehensive bill this year is very likely--there’s just so much else to do. If it’s going to get passed, it’ll probably be in 1990.”

Cranston aide Don Campbell disagrees.

“Sen. Cranston is really going to push his bill. A lot depends on momentum, and I think it’s building,” he said.

Campbell also notes that Jack Kemp, the new secretary of Housing and Urban Development, has said he wants to begin working to solve the nation’s housing problems immediately. Many of the concepts in the Cranston-D’Amato bill and other proposals may please Kemp, who believes that the best way for the government to solve the housing crisis is to offer incentives to spur more private-sector involvement.