Partners for "Piggyback"

To a greater degree than any other large segment of U.S. business, the housing industry depends for its health on a hefty and often erratic supply of credit. With good reason, many builders, lenders and manufacturers of building supplies blame Washington for the un even flow of mortgage money. And in last year's tight-money squeeze, they were so starved for funds that home-building fell to a nine-year low of 1,228,000 new nonfarm starts. Last week six major materials-making companies teamed up to try to reduce housing's dependence on federal credit and the vagaries of national economic policies.

Led by U.S. Plywood-Champion Pa pers, Inc., the manufacturers formed their own mortgage-finance company and announced its intention to offer 10%-down-payment loans without Government backing to buyers of homes priced as high as $40,000 or occasionally more. "There's an overwhelming need for this sort of thing," said Plywood-Champion President Gene C. Brewer. "Because of its fragmented nature, the industry is being manipulated at the will of agencies beyond its control--or even its advice. The time has come to help not only ourselves but our customers."

Modest Nest Egg. The new company, Home Capital Funds, Inc., will lend 15% of the price of a home, and such traditional mortgage sources as Metropolitan Life Insurance Co. and Minneapolis-based Investors Diversified Services will pick up another 75% to create a 90% loan. The arrangement is called "piggyback" financing because it avoids risky second mortgages, involves a single joint loan on each house. Brewer calls it "a virtual partnership" between lenders and manufacturers "to assure a continuous flow of money to buyers at rates and down payments they can afford."

Home Capital starts with a modest nest egg of $2,000,000 put up by Plywood-Champion, Andersen Corp., Armstrong Cork, Kaiser Industries, Masonite and Reynolds Metals. By borrowing as much as twelve times that amount from banks and other sources of capital--much as consumer-and auto-finance concerns do--Home Capital expects to be able to make loans on some 7,000 homes within 18 months. The money will go primarily to buyers of new, one-family homes through mortgage bankers across the U.S. With more capital and borrowing, Home Capital aims at financing 100,000 homes a year by 1972, will reduce its own risk by insuring the loans with Milwaukee-based Mortgage Guaranty Insurance Corp.

Ambitious though the goal may seem, piggyback mortgaging has already caught on in Canada, where Central Covenants, Ltd., formed on the initiative of Alcan Aluminium, Ltd., has arranged low-down-payment loans on some 7,000 homes since mid-1964. In the U.S., Weyerhaeuser and General

Electric offer somewhat similar financing plans on a limited scale.

The Tilt. Manufacturers have moved into mortgages partly because of investors' increasing distaste for Government-backed FHA and VA home loans. FHA loan terms in recent years have increasingly favored the cheap end of the market. With an FHA mortgage, a buyer need put down only $450 for a $15,000 house; for a $33,000 home, on the other hand, the agency insists on $5,950 cash--as against $3,300 under Home Capital's plan. For a $40,000 house, FHA demands a $12,950 down payment v. $4,000 under piggyback. Home Capital's loans will carry an extra i% interest rate above whatever the insurance company normally charges. On a 30-year, $30,000 loan, that will add about $5 to each monthly payment.

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