The No-No-Down

Are U.S. homeowners getting in over their heads on mortgage debt? At a meeting of the savings and mortgage division of the American Bankers Association in Manhattan last week, a group of the nation's top mortgage experts thought the answer was yes. Some bankers' facts were laid on the table by Homer J. Livingston, president of the A.B.A. and of the First National Bank of Chicago. The facts: 1) mortgage debt soared from $19 billion in 1945 to $75.6 billion at 1954's end, is still climbing, 2) the U.S. is building at the rate of 1,400,000 housing units this year, but forming only 600,000 new families; 3) Americans boosted their mortgage debt 14% last year, ten times their increase in take-home pay. Said Livingston: "Only in the Depression years of the 1930s . . . has such debt been so high in relation to this income."

The Other Side. Then the bankers heard an opposite view. George C. Smith, economist for the F. W. Dodge Corp., said that the low rate of new-family formation reflects the Depression's low birth rate, predicted that the new-family-formation rate will soon pick up and keep the demand for new housing at upwards 1,000,000 yearly for the next five years. Said Smith: "I would expect to find some local problems, some temporary gluts and vacancies . . . But I don't believe, and I can't find any other construction economist who believes, that we are facing a boom-and-bust situation in housing so long as the rest of the economy remains prosperous--as it apparently will remain."

While some of the bankers frowned over homebuyers' debts, giant Prudential Insurance Co. of America reported that its mortgage and real-estate investments had climbed $535 million during 1954 to top $5 billion (43.2% of Prudential assets). Prudential seemed unworried about the rate of U.S. building, expects to invest at least $1 billion in new mortgage loans this year.

The Soft Spot. Both builders and bankers agreed on the soft spot in the construction boom: the 100%, 30-year mortgages backed by the Government through the Veterans Administration. The no-down-payment terms were originally designed to help veterans during the critical postwar housing shortage, were expected to taper off as the shortage eased. But actually, no-down-payment loans have climbed from 8% of all VA-guaranteed loans in 1953 to more than a third by the end of last year. Almost 10% of the loans are the no-no-down-payment type; they even cover the $200-$300 closing costs. Thus many a buyer often has not paid a cent to purchase a home. Of the $18.7 billion outstanding home loans guaranteed by the VA, upwards of $7 billion are held by homeowners who paid little or nothing down.

To head off inflation in real estate many a banker (and privately, some Government officials) believes that VA mortgage terms should be tightened immediately, require at least 5% down and run no longer than 25 years. Housing inflation, said V. R. Steffensen, senior vice president of the First Security Bank of Utah, could damage not only homeowners and the construction industry but the entire economy.

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