Up to 2 Million Families Benefited from Loans to Purchase Their First Houses : Congress Panel Mulls Stricter Loan Programs

A powerful Congressional committee last week proposed radical changes to two government-linked housing programs that could make them far less attractive and much more costly to thousands of first-time buyers.

The draft of a bill in the tax-writing House Ways and Means Committee would require buyers who obtain low-interest loans under the programs to pay thousands of dollars to the government if they sell their home within five years after they first moved in.

Another possible change would make it much tougher for blue-collar workers to obtain the loans.

The two programs--mortgage revenue bonds (MRBs)and mortgage credit certificates (MCCs)--have helped as many as 2 million families nationwide buy homes since 1980, according to the National Assn. of Realtors.

In California, the programs are expected to help as many as 20,000 families achieve home ownership this year, realtors add.

“If these changes go through, they’ll have a serious impact on an awful lot of people,” said Joel Singer, chief economist of the California Assn. of Realtors. “And the people who live in high-cost housing markets like California are going to feel it worse than anybody else.”

For Higher Incomes

The surprising proposals came as the Ways and Means Committee was attempting to put together a package that would extend the two programs’ Dec. 31 expiration date.

Although majorities in both houses of Congress have indicated that they want an extension, the enabling legislation has been stalled in the committee over concerns that MRBs and MCCs cost the federal treasury too much money.

The programs have broad appeal to politicians and the general public, in part because their use isn’t confined to low-income home buyers.

For example, borrowers who use the California Housing Finance Agency’s low-interest, low-down payment program can earn up to $38,600 annually. Its average borrower earns $30,142.

The MRB program allows state and local housing agencies to sell a limited amount of tax-free bonds. Proceeds are used to make low-interest loans to people who need help buying a house.

Tax-Exempt Bonds

As an alternative, those agencies can issue mortgage-credit certificates to first-time buyers. Buyers who obtain an MCC are entitled to a credit against their federal tax bill--a break that typically gives them about $2,000 a year more to put toward their annual housing expenses at virtually no cost to local and state governments.

But one of the surprise proposals introduced last week would require borrowers who use the programs to reimburse the government for its help if they sell within five years after buying.

Another proposal would effectively lower the maximum amount of money a family could earn each year and remain eligible for the programs. As a result, many moderate- and middle-income people who qualify under today’s guidelines would be considered too wealthy for help under the new limits.

The proposed changes and a reluctance by some Congressmen to extend the programs have been prompted, in part, by concerns that the tax-exempt status of the bonds issued to finance the programs effectively robs the Treasury of millions that it would otherwise collect if the bonds were taxable.

Critics also say the programs are just too expensive when the government is running massive budget deficits. And even if the programs merit extensions, some say, they should be targeted only toward low- and moderate-income buyers and exclude the middle-income people who currently qualify.

Raise Other Taxes

But lawmakers, realtors and others who support the revenue bond and credit certificate programs look at the issue differently. They point out that MRBs and MCCs--unlike most other government-linked housing programs--don’t require any direct federal outlays.

They also dispute the government’s estimates of how much money the programs prevent the Treasury from collecting each year. Supporters argue that the people who use the programs to buy homes generate millions of dollars in property taxes each year, and millions more in sales taxes on household items, such as appliances and furniture.

They also contend that the programs have created tens of thousands of new jobs in construction and related fields, which raises more revenue through payroll and income taxes.

The Ways and Means committee had been expected to vote on the extension of the two programs at least three times in the past two weeks, but each time ran into delays.

Another vote was scheduled for last Thursday.

Even if the committee approves an extension of the two programs--with or without the new, stricter provisions--supporters fret that the full House and the Senate will not have time to reconcile their likely differences and approve the extension before the programs expire on Dec. 31.

Lawmakers are already grappling with hundreds of other proposals, and the logjam will undoubtedly grow: Legislators will take two weeks off in July for Independence Day and political conventions, three weeks for the summer recess beginning in mid-August, and then adjourn for the year in early October.

“The clock is ticking,” said Karney Hodge, executive director of the California Housing Finance Agency. “Between breaks, the elections, budget deficits and all the other bills, the bond extension could easily get lost in the shuffle.”

Ironically, says Hodge, the battle over extending the program comes at a time when affordable housing is only now “emerging as a full-blown national priority” of the Reagan Administration and Congress.

The use of such bonds to ease housing problems was urged in a report recently published by a housing task force appointed by President Reagan. “And the programs often lead to the type of public/private partnerships that the President and (many)Congressmen feel are needed to solve the affordability crisis,” Hodge said.

“We’re hearing all this rhetoric on the federal level about housing affordability, and now some of the same lawmakers who are crying about the problem are thinking about kicking this program in the tail.”