Loan Help Is Anticipated for First-Time Buyers : Mortgages: Congress is considering ways to ease the rules so that more Americans could qualify for loans sponsored by the government.
Congress, concerned about young Americans who cannot afford to buy their first homes in high-cost areas, is considering nearly a score of bills to help them with purchases.
Although none is likely to be approved before the House and Senate recess at Thanksgiving, some probably will become law next year, according to congressional sources.
Some of the measures would authorize prospective buyers to establish special savings accounts or would liberalize Federal Housing Administration rules so that more people could qualify for government insurance. Lenders are more willing to make loans when they are backed by federal guarantees.
Other legislation would let buyers withdraw funds from their tax-deferred Individual Retirement Accounts and 401K savings plans to use for a down payment.
Several bills define first-time buyers as those who have not owned a home in the previous three years, and some place limits on the income of buyers who can use the assistance.
Legislation now before the House and the Senate would extend authorization of mortgage revenue bonds for three years.
One of the most effective vehicles for assisting first-time home buyers, these tax-exempt bonds provide low-interest-rate loans and help about 100,000 purchasers every year, said Richard Bourdon, a housing analyst with the Congressional Research Service. Congress may not approve the extension before the current law’s Dec. 31 expiration, but is likely to approve it early next year, he said.
The omnibus housing authorization bills being considered in the House and the Senate contain several provisions to aid first-time buyers.
The House bill would set up a trust fund to be used to hold down first-time buyers’ mortgage-interest rates to 6%.
To be eligible, prospective purchasers’ incomes could not exceed 115% of the median income in the area where they live. In addition, mortgages could not be higher than the maximum loan authorized by the FHA, now $101,250. And an owner who uses the trust fund must repay the government when the house is sold.
The Congressional Research Service estimates that the bill will cost the government $4 billion over fiscal years 1990 and 1991.
Senate sponsors of the National Affordable Housing Act are considering a plan to help prospective buyers save for a down payment, using a record of regular monthly deposits in a savings account to demonstrate their credit worthiness, according a staff aide of the housing and urban affairs subcommittee of the Senate Banking, Housing and Urban Affairs Committee.
Framers of the bill are considering whether to authorize the government to match funds deposited by savers.
The bill, sponsored by Sens. Alan Cranston (D-Calif.) and Alphonse D’Amato (R-N.Y.) also would liberalize FHA regulations to help first-time purchasers, according to the aide. A provision to allow very low down payments is being revised in light of a recent General Accounting Office report that the FHA single-family insurance fund lost $1.4 billion in fiscal 1988.
The aide said Senate sponsors “will come up with a proposal that will be consistent with the long-term safety of the FHA fund.”
The Cranston-D’Amato legislation also would permit first-time buyers to withdraw as much as $10,000 from IRAs and 401K savings plans.
Sens. Lloyd Bentsen (D-Texas) the finance committee chairman, and Donald W. Riegle, D-Mich., head of the Banking Committee, have introduced measures that would authorize first-time buyers to withdraw money from their IRAs.
Riegle’s legislation would make the withdrawals tax free, and Bentsen’s bill waives the 10% penalty imposed on savers who take out money before they reach age 59 1/2.
Rep. Tom Lantos (D-Calif.) also is sponsoring legislation to let prospective buyers use as much as $10,000 from their IRAs or retirement annuities for a first home.
Another bill would permit tax-free withdrawals of as much as $10,000 from IRA and pension plans to be used for buying a first home for the taxpayer or the taxpayer’s child.
The legislation, introduced by Rep. William Thomas (R-Calif.) has been referred to the House Ways and Means Committee.
Rep. Marcy Kaptur (D-Ohio) recently introduced a bill to establish seven-year savings plans for first-time buyers and authorize the government to match the money the prospective purchasers put into the accounts. After the purchase, the buyer would have to repay the government, with interest, over the life of the mortgage. Kaptur said the bill would help half a million Americans buy homes if it becomes law and would cost the government about $240 million over 30 years.
Prospective buyers with incomes of as much as 120% of the median income in the states where they live would be eligible for the savings program, with federal contributions pegged to a saver’s income and ranging from $4 to $1.50 for every dollar saved by eligible buyers.
Savers also would earn 5% interest on their accounts, and could use the money for a down payment, closing costs or to reduce their mortgage-interest rate.
Under a bill sponsored by Rep. William O. Lipinski (D-Ill.), first-time buyers could contribute $2,000 a year for 10 years to a savings account for a down payment on a home. Interest earned on the account would be tax free.
Lipinski proposes to pay for the bill by lowering the mortgage-interest tax deduction to cover loans of as much as $500,000 from the current $1 million ceiling, and cutting the deduction for interest on home-equity loans from $100,000 loans to $75,000.
“We don’t think people who can afford a $1 million house need the full interest deduction,” said H. Keith Lesnick, Lipinski’s chief legislative assistant. Many other Americans would like to buy homes but are “just priced out of the market,” he said.
Sen. John F. Kerry (D-Mass.) is backing legislation that would guarantee first-time buyers the money needed for a down payment after they have contributed regularly to a savings account for a required period.
If a prospective purchaser decides, for example, that he wants to buy a house that costs $50,000 and estimates that he will be able to save enough money for the down payment within five years, the Department of Housing and Urban Development then would be required to estimate how much the price of the house would rise during the savings period and tell the buyer how much he will need to contribute to the savings account.
If at the end of the five years the amount in the savings account is not enough to make the down payment, the government would make up the difference. Kerry hopes to have his bill incorporated into the Cranston-D’Amato housing authorization bill, said Nancy Smith, a legislative aide on Kerry’s staff.
