Posting note: I had been working on this post for several days as I normally do. Today I am posting this column earlier than planned because it seems I am not the only one seeing this change coming since at least 2 other columns have opinion pieces on this concept today.
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If you have a 30 year mortgage in a few years you will likely have something new home owners at that time who get a mortgage can not obtain. . Yes, you read that right 30 year mortgages are likely a dinosaur soon to be extinct.
There is general agreement now that the government backed mortgage insurers, Fannie Mae and Freddie Mac, are soon to be gone.
Even the Obama administration see this experiment in mortgage securities as a disaster. These agencies were created many years ago to push home ownership in America and did so by basically insuring the risky mortgages lending institutions made. As time went on they added more and more types mortgages until almost every mortgage in the country was insured by the government. In the past couple of decades that included the now famous subprime market.
I joined President Clinton and President Bush in the belief that it more people participated in home ownership then more people would have reason to be civic and own part of the American Dream. Well we all were wrong. The simple fact is some people need to be renters. Some people just frankly can not handle the responsibility of home ownership. Yes, there were some people pushed into mortgages by lenders, but even then it showed that those people should not have even been in the position to discuss a mortgage. When the housing industry got overbuilt due to the government's desire to push home ownership to the max number of people the housing industry finally collapsed due mainly to overbuilding. Add in the undertow of people defaulting on loans and you have a burst bubble.
When the housing industry crashed a couple years ago the government was left holding billions and billions of now defunct and foreclosed homes. It has become clear to even the most jaded person that the government's melding in the housing market has been a failure. So now it looks like Obama and Congress are headed towards ending much of this relationship with housing. No one know exactly how this will happen and who will do the insuring when the agencies end, if anyone. But one thing is for sure lending institutions will be holding and servicing more mortgages they originate now and that is a good thing. Let the banks and lending institutions hold the risk not the government or in truth the taxpayers.
One thing that will likely happen with this changing of the mortgage landscape will be the demise of 30 year mortgages. I do not know this for certain, but I believe I have read that the 30 year variety was not the norm many decades ago and only came to past due to the government insurance programs. Now with lending institutions holding the risk and basically self insuring I would expect they do not want to be on the hook for 30 years. Maybe 20 years, or more likely 15 years. Many home buyers have learned that with lower interest rates and shorter payoffs the monthly payment for a 15 year loan is not that much higher anyway. Also, with much stricter lending practices and requirements for real down payments if will not be higher anyway. Just less mortgages and home owners. Of course once this comes to past and borrowers get used to 15 year loans as the norm, people will adjust and have down payments and monthly budgets to accommodate the changes. Truth be know America, home buyers, lending institutions, and the government will be better off in the long term
Full disclosure, I am in the market for a home loan, a 15 year loan to be precise.
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