A Crunch on first mortgages

A major new problem is emerging for families seeking a mortgage loan to finance the purchase of a home. In some areas, it is not a question of finding a lending institution that will offer a mortgage loan at the lowest interest rate. Rather, it's a matter of finding a lender that will offer any first mortgage loan on a house.

Some savings-and-loan associations are pulling back from making any new first mortgage (or trust deed) fixed-rate loans on residential property and are becoming more active in making short-term second mortgage loans.

The reason is simple. Lenders need higher yields and more protection against rollercoast costs of money if they are to survive in this volatile decade of the 1980s. The nation's largest S&L, Home Savings and Loan Association in California, has announced it will sharply reduce its first mortgage activity and will beef up second mortgage activity.

"We aren't about to back into long-term lending in real estate until we get some kind of ability to meet variable costs," says Richard Deihl, president of Home Savings.

Other S&L giants in California have announced similar intentions -- to reduce their portfolio of long-term first mortgage loans in favor of short-term second mortgages.

"This is just the beginning," reports Dean Cannon, executive vice-president of the California Savings and Loan League.

"You're going to see it happening in other parts for the country, too," he adds.

"It won't make sense to make (first mortgage) home loans any more until you have a truly flexible mortgage instrument."

Roland Bernard, president-elect of the US League of Savings Associations, makes this flat prediction: "Today's volatile interestrate environment has demonstrated that in the future flexible-rate mortgages are absolutely essential."

The good news is that those needed flexible loan instruments are being created and developed.

Home buyers soon will be able to select from a supermarket of home-loan offerings. They will be able to pick a plan most suited to their individual needs, often with the help and counsel of their broker.

While the reluctance of lenders of offer new first mortgage loans is becoming a problem in some areas, the negative impact of increasing interest rates is being felt by home buyers and sellers everywhere.

The high interest rates move the goal of home ownerships far beyond the reach of most buyers. And it's tough on sellers who face a greatly reduced market of prospective buyers. It's also creating a gigantic problem for business firms that want to relocate personnel.

High mortgage interest rates, in fact, were listed as the biggest single probelm now facing corporate personnel directors, according to a survey by the research department of Relocation Resources Inc.

Generally, workers resist making a move if it means they must pay a substantially higher interest rate to acquire a home in a new community. To compensate for the higher cost, most corporations now offer special incentives to motivate personnel to go along with requested transfers.

The company will sometimes pay the difference in interest payments for several years (usually two to five years), or the salary of the transferee is increased to adjust for the higher cost of housing.

The ability to buy a home remains a toppriority consideration and desire for most American families. This strong motivating force will directly affect key decisions made not only by the government, but by political and corporate leaders during the decade.