94th Congress, 1st Session House Document No. 94-199

VETO OF THE EMERGENCY HOUSING ACT OF 1975

MESSAGE

FR1OM

THE PRESIDENT OF THE UNITED STATES VETOING

H.R. 4485, AN ACT TO PROVIDE FOR GREATER HOMEOWNERSHIP OPPORTUNITIES FOR MIDDLE-INCOME FAMILIES

AND TO ENCOURAGE MORE EFFICIENT USE OF LAND AND

ENERGY RESOURCES

JUNE 24, 1975.-Message and accompanying act ordered to be printed

as a House Document

U.S. GOVERNMENT PRINTING OFFICE

38-0110 WASHINGTON : 1975

94th Congress, 1st Session House Document No. 94-199
To te Home of Representatives:

I am today returning, without my approval, H.R. 4485, the proposed

Emergency Housing Act of 1975.

After careful examination of this bill and its provisions, it is my con- sidered judgment that H.R. 4485, due to its cost, ineffectiveness, and

delayed stimulus, would damage the housing industry and damage the

economy.

This Administration is committed to a prompt recovery of the housing industry and to getting the construction workers back to workwhich are crucial elements in our overall economic recovery. To reaffirm my commitment to such prompt recovery and my support of the existing Federal mortgage assistance program, I am today

directing the release of the remaining $2 billion in these funds and

requesting Congress to authorize another $7.75 billion in this assist- ance for housing. I will also support a workable plan to prevent mortgage foreclosures for home-owners who are out of work.

But H.R. 4485 is not acceptable for these reasons: It could not be implemented without substantial delay, and

probably would actually provide a disincentive to some home purchases. Consequently it would delay for months putting construction workers back to work.

It is in some respects inequitable. In some areas of the country, families with $25,000 of income could qualify for benefits, while

in other areas of the country, families with $6,000 of income

could not qualify. The levels of mortgage subsidies (down to 6% in some cases) would give some buyers an excessive benefit at the taxpayers'

expense.

For the modest benefits that might come in housing, this bill is

too expensive-over $1 billion in additional Federal expenditures

in FY 76, and more in years to come. This bill's provisions for the protection of homeowners who are presently unemployed or under-employed due to our economic conditiQns, and who face foreclosure on their homes, though well intentioned, unnecessarily place the Federal Government in the retail loanmaking business as a sole means of relief. Depository institutions

have a stake in avoiding foreclosures and should be active participants in any such mortgage payment relief program. I believe there is a better way both to stimulate jobs in construction and to provide standby protection for homeowners who may be

threatened by foreclosure:

1. To add impetus to the industry's recovery and to put the

building trades back to work, I am today directing the Secretary of Housing and Urban Development to make available, immediately, under existing, law, $2 billion previously authorized for

mortgage purchase assistance.

(M)
IV

We know this program works, and this action will make new mortgage money available immediately from thrift institutions

and other lenders. But since the mortgages the Federal Government purchasers can be later resold, the cost to the Federal Government is relatively low-$60 million for FY 76.

2. To continue this effective trandem authority program, I propose that Congress extend this program beyond its expiration

date in October, and to expand it to cover conventionally financed

multi-family housing, including condominiums. In addition. I

request authorization from Congress to put $7.75 billion more into this program to insure financing is available if needed to sus- tain the recovery of the housing industry. 3. To protect homeowners against foreclosure, I commend

the efforts of the sponsors of legislation recently introduced in the

Congress that would confer standby authority on the Secretary of Housing and Urban Development to make mortgage payment relief loans or to co-insure lenders who refrain from foreclosing on homeowners who are temporarily out of work. We

want to preserve the good relationship between the homeowner

and the bank or other institution which holds his mortgage- and at the same time provide some fiscal protection to the lender

who assists a homeowner.

While there continue to be many problems in the housing industry, and while there is far too much unemployment among housing construction workers, there are clear signs of recovery in this vital

part of the American economy. During the current calendar year, funds needed for mortgage loans

have been flowing into savings institutions at record levels-$19.7 billion net during the first five months of this year alone, nearly quadruple the level of the same period last year. With this flow of

funds, interest rates have fallen substantially from their peaks of

last summer. Meanwhile, the government has been providing unprecedented

support to the housing industry. Since last October, the Government

National Mortgage Association has committed to purchase nearly $9 billion in conventional, FHA and VA mortgages with interest

rates down to 73/4 percent. And this March, a tax credit for unsold new homes was enacted into law.

There are now strong indications that new home construction and

sales are responding to these actions. New home sales increased 25

percent in April, the largest increase in 12 years. Home building permits climbed 24 percent in April and an additional 9 percent in

May. Also in May, housing starts-which represent not only new homes but new jobs-rose sharply. These favorable trends, however, do not mean that we have over- come our problem in housing. To the contrary, the level of home con- struction is still too low, and I fully agree with those who believe that a swift recovery in housing is a prime objective of national economic

policy. We must accelerate the improvement in housing that now appears

to be coming about.
My action today to commit $2 billion for mortgage purchase assistance under the Emergency Home Purchase Assistance Act of 1974

will exhaust the current authorization under that Act. In proposing

that this Act be extended, broadened to multifamily housing, and

expanded by $7.75 billion, I am affirming that we have a tried and

tested mechanism for supplementing and reinforcing housing

construction.

Unfortunately, while H.R. 4485 does contain the multifamily

amendment I have recommended, it fails to extend the current law,

increase its authorization or effect any other improvements. Worse,

it would authorize a variety of new and untried subsidies, including

provisions for mortgages with mandated 6 and 7 percent interest

rates and $1,000 down-payment grants. Since there appears to have

been no consensus in favor of any one of these new subsidies, the bill

adopts all of them in the hope that something will work.

The full implementation of these new subsidies, together with other

provisions of the bill, would add over $1 billion to the fiscal 1976

deficit and ultimately cost more than $2 billion. An addition to the

budget of this magnitude to benefit a few home-buyers is inequitable

as well as costly.

It is most important to housing that we maintain a firm line against

ill-considered spending that adds to the growing deficit and necessitates

Federal government borrowing which tends to drive up interest rates

and depress housing construction. I believe that budgetary restraint

is a key element in our effort to instill the kind of consumer confidence

in the future that is essential to a vigorous housing market.

Proponents of H.R. 4485 have argued that the budgetary costs of

this bill would be outweighed by stimulating an upturn in housing

starts, jobs and tax revenues. But critical defects in the bill concerning

its relative cost, impact, timing and long-term implications will prevent

it from achieving these objectives.

First, ehe levels of subsidy provided are excessively deep and costly.

Under H.R. 4485, mortgages would be heavily subsidized so that they

could bear lower interest rates than any previously available to other

home-owners during the last ten years. These deep subsidies would require substantial Federal outlays. Moreover, experience demonstrates

that a strong and healthy housing industry can be maintained without

the deep subsidies contained in this bill.

Second, the bill would not work as intended even if it could be immediately implemented. Although supporters of H.R. 4485 have

claimed that it would produce hundreds of thousands of additional

housing units, evaluation by HUD and OMB does not suggest that the

bill would have any impact of this magnitude or that the units produced would necessarily be additional to those that would be produced

in the absence of such large subsidies. Those most likely to be influenced

to buy under the bill would be families near the top of the eligibility

range. These same families would be most apt to buy even without

subsidy assistance on the scale proposed.

Third, because the bill could not be immediately implemented, it

would actually impede an early recovery in housing starts. The subsidies which would be authorized include new approaches that have
never been tried before. To make this assistance available, it would

not only be necessary to secure appropriations and write regulations,

but also to prepare a variety of new forms, establish procedures and

familiarize government, lender and builder personnel throughout the

country with them. Even given top priority, months could be required

before implementation is completed. Thus, H.R. 4485-far from helping during the coming months-would actually inhibit home purchases

among those eligible for assistance, since these families would understandably want to wait until the subsidies become available.

Fourth, the bill has long-term impacts and implications that are

inappropriate and undesirable for an "emergency" measure. One of

the subsidy options included in the bill would require home-owners

with 6 percent interest rate mortgages to make increasing monthly

payments in the future, up to the full payments that would be required

at current market interest rates. I believe there will almost certainly

be intense pressures for relief against these phase-up provisions in

years to come-and thus for a continuation of the deep subsidies this

option involves. Moreover, even if this approach works as intended, it

would require substantial government outlays in future years when

the economy may be operating at full capacity with inflationary forces

at or approaching their peaks.

Fifth, the subsidy provisions of H.R. 4485 pose substantial problems

of equity among those who would and would not be eligible for the

relatively large subsidies provided. As the bill is written, substantial

subsidies would be made available to families within a given income

group. Other families with similar or even less income would receive no

subsidy at all and would be expected to pay full market rate mortgages.

These discrepancies would be very sharp and hard to justify. In some

areas, it would permit families with incomes well over $25,000 to

qualify while, in other areas, families with incomes as low as $6,000

would be ineligible.

Sixth, H.R. 4485 would make a number of undesirable changes in

our housing and community development laws. For example, the bill

would extend the homeownership program authorized under Section

235 of the National Housing Act. It would also extend and expand the

program of subsidized government rehabilitation loans authorized

under Section 312 of the Housing Act of 1964. These provisions would

reverse decisions the Congress itself enacted last year after one of the

most extensive reviews of Federal housing policy ever conducted. Also

objectionable are the provisions which would divert funds from the

new leased housing program, and establish special rules for certain

State agency housing projects assisted under Section 236 of the National Housing Act.

Finally, the foreclosure provision of H.R. 4485 is too limited in its

mechanism for providing relief. This provision reflects the concern

that mortgage foreclosures may soar during the recession. To date, no

such trend has developed because private lenders have been cooperating

with home-owners through forebearance and common sense arrangements. In fact, foreclosures rates have remained stable-actually, at a

level lower than that experienced during the mid-1960s.

Nonetheless, I can appreciate the desire of Congress to enact legislation, and I will support legislation which would protect home-owners
VII

from loss of their homes due to temporary economic hardship and

which recognizes the provisions of such relief is both a matter of con- cem for the federal government and the depository institutions or

other mortgagees involved.

Good housing is one of our greatest national assets, and our objective was and is to assist in the recovery of the housing construction industry

and to help get the building trades workers back to their productive

and meaningful skills. I shall be glad to work with the Congress toward this objective. ths c GERALD R. FoD.

THE WiTE HousE, June. 24,1975.