Evening star., 1961-06-15
Experiment in Housino

The administration comedies that
the idea Of no-down- payment, 40-year
mortgages is frankly an experiment"
which might or might not help to pro-
vide housing for low-middle income
families. This provision, in the Senate
the other day, generated most of the
heat that swirled around the $61-billion
administration housing bill. While it
survived, 1t was modified, and we
believe it should be subjected to still
more scrutiny in the House.
In the Senate, opposition to the no
down-payment plan was led by liberal,
Senator Gore of Tennessee, who seemed
surprised to find himself in the voting
company of Senator Capehart But as
Senator Gore remarked, it is not neceS-
sary to leap overheard" in order to be
liberal or progressive. And he made it
clear that he thought one would have
to leap overheard to support the 40
year, 100 per cent ent-guaran-
teed mortgages.
The intention of the proposal is
clear and simple: To provide a low
monthly payment, so that people with
low incomes can afford to buy homes.
The rationale, further, Is that once this
market is created, homes in profusion
will be built within the $4,000 cost
limit of the program. According to the
Federal Housing Administration, the
total monthly payment on a $4,000
home at 5H per cent interest under this
plan would be $4990; at 5k per cent
interest, the amount would rise only to
$51.60.
But the problem, as Senators Gore,
Monroney, Long and several others
pointed out, is not entirely what the
buyer would pay, but what he would get
for his money. According to an FILA
study cited by Senator Long, for
example, the man who bought $4,000
house under the 40-year, no-down-pay-
ment plan would have total equity
after 20 years Of $312-"not even enough
to pay someone to get the house off his
hands"
Nor, as Senator Gore pointed out,
is the situation meaSurably changed by
the moderate down-payment provisions
which were worked out by administra-
tion leaders in order to salvage the pro-
posal in the Senate. Assume, for
example, that man makes $500 down
payment on $4,000 house, as required
by the Senate bill. According to Senator
Gore, his equity" (the difference
between the estimated value of the
home and the remaining debit would
progress like this:
Beginning with the 18th year, there would
be book equity Of approximately $500. Then
the equity declines as q result Of reduced
value Of the home through the 18th year.
In the 18th year, the book equity would
be $3.50. Skipping to the 18th year, it would
be $3.50.
This is after a little $4,000 house has
suffered the weather and the wear for 19
years. The man who owned the house, If he
were still there, would have book equity of
some $500. Meanwhile, the 2O-year compost
ton shingles might have deteriorated the
water heater might have run its course; there
might be some plumbing trouble. Indeed, the
owner might be far better off to seek to
purchase another house. The 40-year pro-
vision is utterly impractical
So, too, 1t seems to us. The diff
Guilty, Of course, is that no one else has
come forth with workable alternative
to the dire private-houSing problems of
those In the $4,000-$6 900 annual income
bracket. For in free market there is
not a great deal that can be ac-
complished short of outright subsidy
except in the areas of the mortgage
term or the interest rate. Because of
this fact, it will be as hard for the
House to defeat the plan as it was for
the Senate, especially on a two-year
experimental" basis. Possibly, how
ever, there can be further changes that
would result in closer approach to the
traditional values of home ownership