Worry or False Flag: Is the Popular 30 Year Fixed Mortgage Loan Going Away?
The 30 year fixed mortgage has been a mainstay of home buyers for decades now, and for most people who don’t follow financial news or the markets it can be easy to believe it will be around forever. But is that true? While it’s not saying anything controversial to suggest this is the most well-known loan as far as terms and long-standing use, that doesn’t mean the model will stay viable forever.
Back in 2014 some fretting about the 30 year fixed mortgage because when Dick Bove made the attention gathering claim that the Fed’s decision to taper off purchasing mortgages would make those loans non-viable going on in the future. In other words, it might actually be curtains for this loan program – and that caught plenty of attention.
So Should We Kiss the 30-Year Fixed Mortgage Good-Bye?
There’s a lot of controversy over this idea. Seeing as how the terms and affordability of the 30 year fixed mortgage allowed home ownership to become so widespread, it’s kind of hard to imagine a modern lending world where this is not an option. Is this something to actually worry about, or is it just fear mongering and paranoia?
While only time will tell, it does seem that every few years speculation fires up about Fannie Mae & Freddie Mac. These agencies are government controlled and have been since the 2008 collapse. They have long been a necessary part of the economic process to back these loans and make them a viable option that banks are willing to embrace because of the backing that comes from those agencies. In other words, they play the “Middle Man” that allows the process to work smoothly.
However, Mark Calabria, the most recent nominee to become FHFA (Federal Housing Finance Agency) director may decide he doesn’t like government purchasing 30-year fixed mortgages. If the order comes to stop buying those loans, the un-doing of Fannie and Freddie could take place. These two organizations back the majority of all 30-year mortgages out there. When the market becomes far less liquid, the prices either shoot up or those type of loans will no longer be favored. This could push them to extinction over time.
This seems like a huge shift, and it would be, but it is very possible.
So If Not 30-Year, Then What?
If this happens then a likely spike in interest rates would make the current 30-year fixed mortgage loans far less competitive and thus far less appealing. Some think these massive shifts in interest rates or changes in interest could result in a shift to ARMs.
Without the stability and backing that Freddie & Fannie bring to the table, these don’t become the easy access good deals that homeowners have enjoyed in the past, and it makes them scarier investments.
If this situation was to play out, there’s a good chance that 5/1 ARM or 7/1 ARM loans would become about as attractive an option (or an even better option) than any new 30 year rate that would be made available. These could get even better if investment interest in 30-year fixed rate loans dried up after the changes. Banks won’t keep putting out loans that there’s no investment interest in.
While this would be a huge change, it is worth noting that the 30-year fixed mortgage is rare or a huge minority of home loans in many advanced economies like the UK, Ireland, the Netherlands, Canada, South Korea, and Spain. So other options are viable, even if the transition appears to be a bit rough at first glance.
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