WASHINGTON — Before adjourning in early August, Congress gave the entire housing/mortgage industry a somewhat unexpected gift by rejecting the Reagan Administration proposal to impose new or increased "user fees" on federally backed mortgages.
Both the House and Senate approved a compromise package to end a seven-week impasse among conference committee members.
Budget Committee leaders in both houses of Congress reached a compromise to reduce the fiscal 1986 budget deficit by $50 billion. However, the housing and finance industries--and many potential home buyers across the nation--joined in a sigh of relief. Why?
Missing From Budget
The compromise budget does not call for the imposition of new or increased user fees for Fannie Mae, Freddie Mac, Ginnie Mae, FHA or VA mortgages. The proposed increases were almost unanimously blasted as being nothing more than a tax on homeownership.
The budget resolution does not contain any assumption of an increase in the present 1% VA home-loan mortgage fee, but there is a possibility that a $300-million saving assumption in the budget could require VA authorizing committees to seek an increase in the fee. On the positive side, the House Veterans Affairs Committee is on record as opposing any increase in the fee. Meanwhile, the House also approved an appropriation to cover VA mortgage default claims.
The budget package also assumes a 40% cutback in rural housing expenditures plus a $5.5 billion reduction by returning to tax-exempt financing for public housing. There's also a 20% cut in urban development action grants, a plan to help inner cities attract new industries. The UDAG theory has been rapped by Reagan people as too costly and essentially unproductive.
Before recessing, Congress also failed to act on the imputed-interest bill that would modify imputed-interest rules for seller-financed property sales. This makes the accounting to IRS cloudy for transactions where below-market interest rates are given to obtain a price higher than would be obtained at market rates. Another vote is expected later this year. Stop-gap legislation expired June 31, but a compromise was stalled in the Senate after objections were voiced by Sen. Howard Metzenbaum (D-Ohio).
Included in the unpassed compromise is a 9% test rate and imputed rate for transactions up to $2.8 million. A test and imputed rate of 100% of the applicable federal rate would apply to amounts over $2.8 million. Metzenbaum reportedly objected to deletion of a controversial provision that would have provided tax relief for elderly taxpayers who paid refundable entry fees to get into continuing health care facilities.
Resume in This Month
Other provisions of the unpassed compromise would extend the depreciation period on investment real estate from 18 to 19 years . . . allow qualified parties in deals of less than $2 million to use the cash method of accounting and, after 1989, index for inflation the $2 million and $2.8 million thresholds. When Congress convenes this month, this compromise package is expected to be voted favorably in the Senate and sent to the White House.
The nation's savings and loan industry, which has suffered from problems involving troubled institutions in several states, has its own controversy. As chairman of the Federal Home Loan Bank Board, Edward Gray oversees S&Ls and also the Federal Savings and Loan Insurance Corp., that insures qualified deposits of federal savings and loan institutions up to $100,000. Gray told the Senate Banking Committee that S & Ls should pay varying deposit insurance premiums based on the riskiness of their activities. Gray maintains that the current flat-fee method is unfair to well-run thrift institutions. Federal Deposit Insurance Corp. chairman William Isaac and Senate Banking Committee chairman Jake Garn (R-Utah) agree with Gray's position.
Gray also told the Senate that direct real estate investment by thrift institutions, such as S&Ls, are by far the greatest problems of troubled S&Ls.