Organization like Fannie Mae and Freddie Mac have costs the taxpayers over $134 billion. Congress and the US Treasury want to put them down quickly, but economists worry about what will happen to the 30-year fixed-rate mortgages which has been the dominant means of financing home in the U.S.
“In testimony before Congress this week, Treasury Secretary Timothy Geithner said that lowering the government’s involvement in the mortgage markets would almost certainly restrict the supply of 30-year fixed-rate mortgages, while increasing their costs. But it’s no sure thing that the mortgages will even continue to exist in the way most Americans know them.”
The difference between a 15- and 30-year mortgage on a $300,000 loan is well over $600 per month. This is a substantial amount that may prevent the middle class from buying homes. This may also threaten the economic health of cities.
Larger cities have enjoyed new growth since the start of the 30 year mortgage because young professionals are buying houses there along with families that previously had moved out to the suburbs. They eat and drink in local restaurants, and keep small businesses on the neighborhood level going. But these same homebuyers may have a hard time making house payments with a 15-year mortgage. These middle class buyers may move out to the suburbs where they can buy a home. Cities become neighborhoods full of the working poor that can’t afford to buy a home.