30 Year Mortgage-Dinosaur or Luxury Item

Real Estate Agent with Keller Williams

There's been a lot of talk and speculation lately regarding the long term life expectancy of the 30 year mortgage. The impending mortgage insurance increase (coming in April) for an FHA loan coupled with the ongoing conversation about requiring a larger down payment (10% instead of the current 3.5%) could certainly lead one to believe that the government is serious about slowly phasing out Fannie Mae and Freddie Mac. The 30 year mortgage has been around for over 50 years and has been useful in developing the home ownership rates currently enjoyed in this country. But is 30 years too long and should all home financing now be the province of private lenders only without government guarantees? Many think so based on the recent government bailout that benefited the lenders that made shoddy loans, profited from those loans and then left the taxpayer to pick up the tab. If home mortgages were to be the domain of a purely privatized mortgage market , the 30 year loan might become a "luxury" item in the toolbox of private lenders where buyers would pay a premium for this particular loan product. This would have varying effects on different segments of the market but would certainly have a positive effect towards producing a healthier more stable housing market. Unfortunately, the impact would be felt greatest by first time home buyers, urban and rural residents but might drive us to be more fiscally responsible in the long run. In an era when the greatest transfer of wealth will go toward the smallest amount of the population  making home ownership more difficult for some segments of the population needs to be evaluated more carefully before allowing the market to become purely privatized. What do you think?

Check out the article below that goes into more detail about 30 year mortgages. The NY Times produced this article.



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Rob Lang
At Home Kansas / www.AskRobLang.com - Lawrence, KS
Local Expert in Lawrence Kansas Real Estate Homes

I think a lot of people take the 30 year mortgage for granted.  I know it has been useful for my clients.

Mar 08, 2011 08:34 AM #1
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

people forget that Fannie and freddie came about to provide liquidity, prior to that there was only FHA/VA or 20%++ down from the local bank, And every bank had different rates, different guidelines etc.. but they did have 30yr loans too.

FHA will remain a lower down payment loan, they just require higher down payments for low credit scores, I truly doubt we will see 10% down as a minimum for FHA, other than for clients with scores in the ugly range.

There is a lot of confusion as to what April will bring, Mostly higher rates!  thats is just about certain.  Towards the fall we will see reserve requirements of 5% for lenders. Which basically means you wil need $5,000 in assets for each 100k loan you write that is "not covered" which at this point means for FHA loans you dont need that, and large down conventionals you wont need it either. 

This again, may help push rates up since lenders will percieve this as risk and all loans are price based on risk today.

Mar 08, 2011 08:42 AM #2
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