The end of the 30 year mortgage?

Without Loan Giants, 30-Year Mortgage May Fade Away


How might home buying change if the federal government shuts down the housing finance giants Fannie Mae and Freddie Mac?

The 30-year fixed-rate mortgage loan, the steady favorite of American borrowers since the 1950s, could become a luxury product, housing experts on both sides of the political aisle say.

Interest rates would rise for most borrowers, but urban and rural residents could see sharper increases than the coveted customers in the suburbs.

Lenders could charge fees for popular features now taken for granted, like the ability to “lock in” an interest rate weeks or months before taking out a loan.

Life without Fannie and Freddie is the rare goal shared by the Obama administration and House Republicans, although it will not happen soon. Congress must agree on a plan, which could take years, and then the market must be weaned slowly from dependence on the companies and the financial backing they provide.

The reasons by now are well understood. Fannie and Freddie, created to increase the availability of mortgage loans, misused the government’s support to enrich shareholders and executives by backing millions of shoddy loans. Taxpayers so far have spent more than $135 billion on the cleanup.

The much more divisive question is whether the government should preserve the benefits that the companies provide to middle-class borrowers, including lower interest rates, lenient terms and the ability to get a mortgage even when banks are not making other kinds of loans.

Comment: Ending Fannie Mae and Freddie Mac would be a good thing. Years ago 15 and 20 year loans were the norm. A close family member in her mid-20's bought a home with a 15 year loan. We just paid off a 15 year loan ourselves. Cheap credit fueled the housing bubble. 6 years ago I was talking to a mortgage broker and he was telling me that he was selling 40 year mortgages ... my view then ... CRAZY

1 comment:

  1. Good riddance. I vividly remember the early/mid 1990s, when 100% loan to value (and even 125% if I remember correctly) mortgages became popular. I'd had very little financial training at the time, but it was one of those times when the obvious response is "well what could possibly go wrong if you owe more money than your house is worth?"--the very question making itself quite a "howler."


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