Home Ownership:

Limiting Mortgage Assistance Provided to Owners With High-Income Growth

RCED-90-117: Published: Sep 26, 1990. Publicly Released: Sep 26, 1990.

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Pursuant to a legislative requirement, GAO provided information on provisions for qualified mortgage bond and mortgage credit certificate assistance, focusing on the recapture mechanism.

GAO found that: (1) many assisted owners will use a higher recapture rate than the interest-rate reduction they received when computing their recapture amount, since most assisted owners had a mortgage interest reduction that was different from the recapture formula's assumed percentage point reduction; (2) because the recapture amount is phased out between the sixth and tenth years, owners with large income increases or those who receive assistance the longest will have their recapture amounts reduced and eventually eliminated; (3) buyers could receive mortgage bond assistance even if they were able to afford housing payments on a comparable market-rate loan without assistance; (4) half of the assisted households may have been able to afford the same home with a market-rate fixed-rate mortgage; and (5) one alternative to the recapture mechanism would be to increase an owner's monthly principal payment and interest when the owner's income has increased sufficiently to afford those payments, but this approach would require housing agencies or their agents to periodically reexamine owners' income and would result in a more complex and costly program administration.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress has completed legislative action.

    Matter: If Congress desires to retain the existing recapture framework, it could improve equity of treatment between owners by providing that the recapture amount be based on the actual benefit received, rather than a uniform rate. For the qualified mortgage bond program, this could be accomplished by basing the rate of recapture on the actual before-tax housing payment reduction realized by the owner over the period of ownership. For the mortgage credit certificate program, the recapture could be based on the amount of the tax credit actually taken.

  2. Status: Closed - Not Implemented

    Comments: Congress has completed legislative action.

    Matter: If Congress decides to retain the existing recapture framework and to have the recapture amount better reflect the total amount of benefit received from owners with rapid income growth, it may wish to consider eliminating the phaseout of the recapture amount after year 5. If, however, Congress wishes to limit overall recapture liability, it could provide for a lesser recapture rate for years 6 and beyond, or cap the recapture amount at the amount determined after year 5, subject to other current adjustments.

  3. Status: Closed - Not Implemented

    Comments: Congress has completed legislative action.

    Matter: If Congress wants to improve the targeting of those who initially receive qualified mortgage bond loans and mortgage credit certificates, it could require that they be provided only to those who cannot obtain a market-rate loan with comparable terms.

  4. Status: Closed - Not Implemented

    Comments: Congress has completed legislative action.

    Matter: If Congress decides to replace the existing recapture approach with one that will terminate assistance to recipients who experience rapid income growth and, as a result, can afford housing payments on a market-rate loan of comparable terms, it may wish to enact a roll-over approach that does not require external refinancing.

 

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