Is it curtains for the 30-year mortgage?
If the government stops subsidizing mortgages for the middle class, home loans could look a lot more like they do in other countries. That could mean the nation's favored mortgage could nearly disappear.
© Dana Hoff/Getty Images
After more than 40 years of subsidizing and boosting homeownership, the federal government is talking about backing away. The Obama administration wants to eliminate federal guarantees for home loans for all but creditworthy buyers "with modest incomes" who otherwise could not get a mortgage from a private lender, according to a report that the administration gave to Congress in February (PDF).
Change like that could make buying a mortgage more expensive. Americans' favorite home loan, the 30-year, fixed-rate mortgage, would lose ground against other mortgage types.
There's even talk that the popular 30-year loan could become extinct, though that's unlikely.
"There would definitely be fewer 30-year mortgages, but they would not disappear," says Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. He wrote the books "Taking Economics Seriously" and "False Profits: Recovering from the Bubble Economy."
It's all talk, at this point, about how to shrink, change or eliminate Fannie Mae and Freddie Mac, the two huge, government-run corporations that have kept costs low for middle-class homeowners by guaranteeing home loans.
Massive defaults by homeowners, along with management and accounting scandals at Fannie and Freddie, are costing taxpayers hundreds of billions of dollars. Even political rivals agree it's time for a new approach.
The debate among regulators, economists, politicians, consumer advocates and lobbyists could continue for years before Congress passes a plan, experts say. After that, any changes would be phased in slowly over many more years.
Meanwhile, homeowners may wonder how this change could affect mortgages today and in the long term.
What's happening to 30-year mortgages?
Today, 80% of all mortgages are 30-year, fixed-rate, "conventional" loans, Freddie Mac says. "Conventional" means Fannie and Freddie can guarantee them, as long as they're below a maximum amount, so they're cheaper. By spreading lower payments over decades, conventional loans are more expensive in the long run, but they've allowed many people to buy a home.
At the tail end of the housing boom in 2008, the conventional loan's market share dropped as low as 67%. But at least 80% to 90% of all mortgages since 1990 have been conventional, Freddie Mac says.
But if the government eliminates the guarantee for conventional mortgages, buyers might look at other loan types.
"Without the guarantee, I think long-term, fixed-rate mortgages will still exist, but they'll be higher priced, and there'd be less of them," says Michael Lea, director of The Corky McMillin Center for Real Estate at San Diego State University. "You wouldn't see 90%, but you'd see maybe 30%."
Mortgages haven't always been cheap and easy. Look at the 1920s.
"It was a prosperous period, but if you wanted a mortgage loan, you put 40% down and got an interest-only loan for 10 years. And then you refinanced it," says mortgage expert Jack Guttentag, author of "Mortgage Encyclopedia: An Authoritative Guide to Mortgage Programs, Practices, Prices and Pitfalls" and of the Mortgage Professor educational website for consumers.
In most other countries — where governments don't subsidize mortgages or where they do it differently than we do here — the 30-year mortgage is a rare bird. In Denmark, the exception, it comprises about half of all home loans.
"You don't need 30-year mortgages to have high rates of homeownership," Baker says. In the U.S., homeownership is 66.5%, down from a high of 69.2% in 2004, the Census Bureau says. But other countries do as well or better with different financing systems and different loan types, and many suffered less during the housing crash.
Lea cites these 2008 homeownership rates, for example:
- Ireland: 74.5%
- Australia and the United Kingdom: 70%
- Canada: 68.4%
- Japan: 61%
Emerging markets often have even higher rates of homeownership because they don't have well-developed rental markets, Lea says.
nice job (sic)
Ok obama, i see change, everywhere i look. you stupid f- , every thing i read about is changing for the worse. so the last 5 years we screw everyone out of thier job, they when they default on the morgage we say they shouldnt have bought in the first place, then we make it so hard for them to get thier lives back together.
ok dont worry, well say that the people spent irrisponsibly, well blame it on big tvs, that is where all thier debt came from. not as many people were irrisponsible with thier money as reported, most used credit for hospitol bills, dentist, groceries, ect. at least the people who got in the most trouble. 1k for a tv and alot of people were 15k in debt. dont think the tv was the biggest problem, but its an easy thing to target.
this is how they get thier feet wet with a new concept that will become the norm,, it will become very hard to own a home.
for the people who say save 20%? are you f in stupid? yea 20% when homes cost 30k and you made 30 k a year, like the mid 70s,, but now with median home prices in the mid 200s, and people averaging 50k a year? even people i know who have never been unemployed, never missed a payment, have great credit are at 48% on thier home payment.
Bottom line we need to start prouducing here in the us, and everyone needs to start making money again.
The idiot liberals voters will just vote in the next con man that promises them a free ride on the back of their neighbor that has a dime more than them and earned it by working.
Hudson 19. You are not including yourself in your sad story of where you are.
30k a year? what did you study for? where did the 100k go? obviously not researching where the jobs are and what they pay. Stop crying and get an education in what is in demand. then you can finally give your parents a break listening to your crying.
To think....the ultimate suckers are the Obama voters.
Let me borrow a phrase "We tried to tell ya'"
Seriously people, stop letting Obama think for you. There is no way he is going to let his rich buddies pay for your house. At best he'll stick it to the middle class, he isn't a poor guy off the streets, he's a rich Ivy Leaguer. He connected, and a heck of a lot smarter then you fools.
- Matt S. . . why is it that their are still people out in the world that think if you drop out of H.S. That we cant Become more then wel-fair? I am 33 a H.S. drop out. and i'd like to think i am pretty successful. . i'm not rick by all mean. but at age 33 i own a 4 plex, a 2nd rental home, and the current house i live in . . i bought my first home when i was 20. i worked hard very hard for it. i paid that house off within 5 years then upgraded. rented my first house out. at age 30 just 3 years ago i bought a 4 plex. my current job i make enough to live off and pay all my bill's and im only a Delivery Driver. and it pays. it pays well. and to think my friends that went to college for 4-6 years are currently unemployed. with student loans. . hate to tell ya its not always about a college degree. some people are driven to succeed. and i am one of them. i moved out of my parents at age 18 while in H.S. Not all drop outs are subject to amount to nothing. I may not be the smartest but you don't have to be to have good work ethic. .
I'm sick of old people posting that, " the younger generations have a sense of entitlement.”
Well….can you blame them ?! Can you blame the graduate who says “I’m $100,000 in the hole, living at home, and the best I can hope for is $30 K if I’m lucky. I played by the rules, I did everything I was “supposed to do.” I got the education; I gave up years of my life when I rather would’ve been outside playing. I read books that were poorly written because someone else thought I should. I put up with the fraud from the stores that sold me those books. I did hours upon hours of mindless tasks assigned by people of questionable wisdom. I followed all the rules and played it safe by listening to theories when I could’ve learned more by experimenting with my life and having real world experiences. I PUT UP WITH IT ALL AND YOU ARE DAMNED RIGHT I FEEL ENTITLED!!”
So I can’t blame you if you are out there job-hunting right now…if you’re feeling a little bit pissed off and lied to. Lied to by adults who continue this deal, this game, without questioning like a thinking person would. Lied to by colleges that made the game, told you the rules and then changed the rules (and costs) right in the middle of the game. Lied to or mislead by businesses who pretend they’re willing to pay a wage that would allow you to live independently with some dignity if you went through this deal. You old people who every election cycle pay lip-service to "doing something for the future, or doing something for our children." But every time the election is over you old people don't do jack for us. The system is broken. To you "entitled young people"...
If you feel just flat out pissed off and lied to… I feel ya, and you’re not alone. Keep your heads up!
We can only hope the 30 yr mortgage scam has reached its timely end. How many people have labored & labored only to pay for the same home 3 times during their lifetime?
Note to banksters....The y generation is onto it and will not follow blindly like the boomers. They have been taught that the game is rigged and more than 2% for any type mortgage is robbery with upfront loaded interest.
Game over & good riddance...now let the prices fall to where a 15 year term can handle it.
Matt S. who told you a kid out of college should be able to afford to buy a house. There is a 3rd option you seem to be avoiding... rent! Yes, rent and save for the 20% down and then you can buy a house. No one fresh out of college, with unpaid student loans and no money in the bank should be thinking of or allowed to buy a house. When I was fresh out of college no one my age even considered the prospect. It wasn't until we were in our 30's we even began to contemplate the possibility. Could it possibly be that the under 35 crowd believes they're entitled to things they haven't yet even worked for??... Every other generation had to work and save to buy a house, why should your generation be treated as something special? Oh and btw I'm 47.