Costs and Benefits of Single-Family Mortgage Revenue Bonds

In response to a congressional request, testimony was given concerning an upcoming GAO cost-effectiveness analysis of mortgage revenue bonds. GAO analyzed the loan activity of 40 State and local bond issuers that borrowed in the tax-exempt market between December 1981 and July 1982 to determine: (1) the extent to which low- and moderate-income homebuyers have been assisted by mortgage revenue bonds; (2) the effectiveness of Federal purchase price ceilings and locally imposed income ceilings in targeting program benefits; and (3) the economic efficiency of mortgage bonds in general. In addition, GAO compared the cost of the bond program to the cost of other subsidy options. GAO analysis indicated that mortgage bonds are very costly when compared with the benefits they provide to homebuyers. Direct household subsidies provided through grants or tax credits would be less costly while providing greater flexibility to State and local governments. If Congress wants to continue to provide such subsidies, GAO concluded that there are more economical ways to do so than with mortgage revenue bonds. GAO also believes that the subsidies should be limited to those first-time homebuyers who could not otherwise buy homes.