Wednesday, March 23, 2011

The End of 30-year fixed-rate mortgage?

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.

2 comments:

  1. So what exactly is the government trying to accomplish and how?

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  2. I think the government is trying to regulate what mortgage companies are allowed to do. The housing market was a mess because of programs that helped people who couldn't afford to own a home, get credit to buy one. When they couldn't keep up the payments, they just walked away from their homes and mortgages and the banks were stuck with them. When this happens alot, the prices on these home decreases which changes the whole real estate market. Other people who have been making their mortgage payments suffer because the value of their property goes down. Then sometimes they owe more on their house than it is worth. Some of these people choose to walk away from their responsibilities also and the banks lose more money again. I think the government is trying to keep people from buying houses they can't afford.

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