Government-backed 6% home mortgages?

Real Estate Weekly, Dec 4, 1991

Government-backed 6% home mortgages?

A leading New York-based real estate consultant has called on the Bush administration to adopt a government-supported, six-percent mortgage for first-time homebuyers tied to a "better-time-in-life payback."

Under the unusual mortgage plan, the difference between the artificially-created rate and the actual mortgage rate at time of purchase would be repaid to the lender when the house is sold, notes Ric Katz, president of Pinnacle Marketing & Resources, Inc. In addition, he adds, the gap could be reduced during the life of the mortgage as the buyer's income increases.

Admitting that his plan contains some risks, Katz nevertheless urged its consideration to get a moribund housing market moving again.

"We're sitting by doing nothing while first-time homebuyers are continually squeezed out of that all-important first chip in the housing game," said Katz. "If strong methods are needed to help them by bringing home-financing into the 21st Century, let's adopt them now, while we have something left to salvage."

Katz envisages a 30-year maximum on the reduced mortgage payments, and a $150,000 ceiling on what can be financed. When the home is sold at any time during the life of the mortgage, he adds, the gap must be made up immediately. In addition, as the mortgage holder's income goes up, preset levels automatically trigger increased mortgage payments, creating a safety valve of sorts for the lender by steadily reducing the deferred portion of the mortgage.

"Everyone must take that extra step to make the plan work," Katz noted. "The buyer must accept a smaller profit after the resale of the home. The lender must wait until the loan matures or the house is sold before realizing most of the interest. And the governmental agency lacking the program must be prepared to make up the difference if the home doesn't realize its full value and still leaves a gap in the mortgage repayment schedule after sale."

The Federal Government should be willing to grant such assurances, noted Katz, because of its history of strong commitment to housing.

"Such programs as the Veterans Administration and the Federal Housing Administration also contained some risk at the outset," he says. "But they were instituted to provide opportunities for home ownership to those who sorely needed them.

"Now, that need is present again. And we can accomplish our goals with a program where the risk is really minimal; under the |better-time-in-life-payback' plan, if the house only appreciates only three per cent annually over the life of the mortgage, everyone will benefit."