Streams

30-Year Fixed Rate: Yea or Nay

Wednesday, April 13, 2011

David Min, associate director for financial markets policy at the Center for American Progress, and Michael Lea, director of the Corky McMillin Center for Real Estate College of Business Administration San Diego State University and the former chief economist at Freddie Mac, debate whether the 30-year fixed rate mortgage should be preserved or become a thing of the past.

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Comments [19]

I disagree with David (as well as the BL guest Michael Lea) 100%, and I am generally liberal, though perhaps not as staunchly as David.
It should be harder for people to use their home as an ATM, but it already is - now. Regulation of the whole loan approval process, and good enforcement of that regulation, is the answer, not doing away with the 30 year fixed rate.

I also think his breaking down the issue along an urban vs. suburban fault line is largely beside the point. Urban condo-owners (the numbers of which have been growing in NYC over the last 15-20 years) get the same tax break on their mortgage interest as suburban house-dwellers. The inefficiencies of suburban housing are naturally penalized by such things as higher utility bills, higher property taxes, reliance on cars, etc. These expenses are all factored into housing prices. Sure, most people don't stay in their homes for 30 years, but the fact that they can means the home is a solid investment. If you do away with the 30-year fixed rate mortgage you are introducing an instability into the value of all residential real estate, both urban and suburban, that will affect anyone anywhere trying to own, or keep, their own home. Essentially, all residential property values will fall sharply, leading to depressed neighborhoods and disrepair. What is needed is proper regulation of loans, not messing with what has been the bedrock of economic security for generations of Americans.

Apr. 13 2011 12:08 PM
Henry from Katonah

The 30 year mortgage is not a great deal for banks?
Think back to the first time you had it explained that the owner pays off mostly interest in the first 20 years and principal only in the last 10 years.
Do you have friends who are doing refinances and are taking out new 30 year mortgages? Do they never expect to pay off their principal ?
Phase out the mortgage deduction from income tax ( a separate issue ) but keep the 30 yr fixed !

Apr. 13 2011 11:38 AM
Tony from Manhattan

My cousin who lives in Graz, Switzerland, just outside Geneva got a 150 year mortgage at about 2 to 3%

Apr. 13 2011 11:35 AM
Carl from NewJersey

don't renters benefit from these mertgages because the home/apartment owner has one?

Apr. 13 2011 11:29 AM
MC from NYC

In NYC most properties require a 20% down payment, whereas the home buyers elsewhere didn't (no down payments) and over-leveraged with a adjustable rate mortgage. It's the over-leverage, adjustable rate, and excessive property flipping that brought down the market

Apr. 13 2011 11:29 AM
jawbone

This has been making the rounds lately:

Remember when teachers, public employees, Planned Parenthood, and PBS crashed the stock market, wiped out half of our 401Ks, took billions in TARP money and trillions out the back door of the Fed, spilled oil in the Gulf of Mexico, gave themselves billions in bonuses, and paid no taxes? Yeah, me neither. Re-post if you can't remember either.

Apr. 13 2011 11:27 AM
sean from brooklyn

Other countries have health care. They don't have to worry about going into bankruptcy due to their health.

Apr. 13 2011 11:24 AM
Jim Malone from Scarsdale, NY

So a friend asks me to look over what happened to him when he was denied modification from 2200 to 1400 a month because he had the same 12500 in savings account at denial date that he had at initiation date.

Wells Fargo (WF) first notice is 5/7/09 indicating that if he is having financial difficulties there is something that can be done.

He completes enclosed worksheet and submits.

Wells Fargo acknowledges application for assistance on 6/8/09

Making Home Affordable notice is recieved 7/13/09.

He sends first "hardship letter" (HL) with "financial status" (FS) 9/30/09

Another HL and FS sent 10/30/09

WF 10/29/09 notice rejects for lack of information, he telephones and faxes prior mailing and is reinstated

WF sends another financial worksheet as in 5/9/09 correspondence which is completed again and submitted 11/16/09

Another HS and FS sent 11/23/09

WF 12/12/09 notice rejects for lack of information, he telephones and faxes prior mailings and is reinstated

Another HS and FS sent 11/23/09

12/22/09 notice of entry into Home Affordable Modification Trial Period Plan.

Completes Freddie Mac Borrower Financial Information with Home Affordable Modification Program Hardship Affidavit as instructed 12/24/09

Does his "counseling" over the internet.

Unmodified mortgage is current as of 12/31/09

Signs Home Affordable Modification Program Loan Trial Period effective 2/1/10 on 12/28/09

1/1/10 10% Paycut and additional contribution of $75.00 a week for health insurance

Remits all trial payments, HS and FS timely until July when he is terminated for too much cash in bank, same 12,500 as he has reported since beginning.

8/1/10 notice of default issued for the payment shortage under trial period of difference between original $2,200 and $1,400 plus August payment.

8/17/10 he writes a letter pleading to be reinstated.

Meridian Home Mortgage sends him notice with all amounts submitted during trial period indicating he can refinance up to 85% of appraised value at 4.5 30yr fixed or 4.25 15 year fixed.

Refi is exhibited by paying off first and second mortage with $10,000 extra cash back to him or could help extinguish the $17,000 in credit card debt.

All amounts are exact to prior WF submissions.

Both payments are $1,000+ less than current mortgage and credit card monthly payments.

He and I call Meridian and ask if they are related to Wells Fargo in any way.

Am told emphatically "No", Amounts come from credit agencies.

Ask what closing costs for origination fees and points would approximate and told about $12,000 which can be added into mortgage balance up to the 85% limit of appraised value with checks being written at closing for balance over loan limit.

2005 Wells Fargo SEC 10K filing Exhibit 21 lists Meridian Home Mortgage as a subsidiary!

Notice of accelerated foreclosure effective 9/1/10 if default not cured received after refi offer.

He's in Chapter 13 still trying.

Apr. 13 2011 11:24 AM
Susan

What if the 30 yr fixed is more affordable to you, versus a 15 year?

Apr. 13 2011 11:23 AM
jawbone

C'mon, in an oligarchy of the Uberwealthy, THEY are supposed to do the owning. The peons are there to pay them never ending rents.

It's kind of a feudal thing, y'know?

So, yes, doing away with the 30-year fixed mortgage enhances that game plan.

Hey, since the top 1% have garnered most of the wealth increase in recent years, and white working men's wages are actually lower in real dollars than they were in 1970, looks like this country no longer wants any appearance of egality.

As Warren Buffett observed, there is (was?) a class war and the rich have won it.

Apr. 13 2011 11:22 AM
jgarbuz from Queens

In Israel, you had to have 2 to 4 CO-SIGNORS to get a mortgage on an apartment. And you can't simply walk away from a mortgage, and skip out of the country, because your co-signors (usually family, in laws, friends) will pay regardless. The bank or gov't does not want your empty apartment.

And when I lived there in the 1980s, there were no mortgages for private houses (villas), You had to lease ( or buy) a plot of land, and then build on it at your own expense. For many couples it took them 20 years to gradually pay to get their house built, and moved in only at age 45 or so. But at least was paid off when they retired.

Apr. 13 2011 11:22 AM

All housing should be affordable.

Also not everyone wants to own and we should embrace that by creating affordable housing in all areas.

Why should my husband travel 3 hours or more a day to get to work? Just because there is very little affordable housing near his place of work.

Apr. 13 2011 11:21 AM

Brian:

You ask "Why should the taxpayer assume the risk for 30 year mortgages?"

These types of tyrannies replace the irrational thievery of nature with the rational thievery of the government (and its beneficiaries).

Apr. 13 2011 11:20 AM
Jim Malone

30 year, fix all delinquent ones by terming to 50 year with 5% rate. Banks collect instead of writing off. Homeowner sells in 10 20 years and bank gets paid principal.

Apr. 13 2011 11:20 AM
jgarbuz from Queens

I agree that the US should start REDUCING tax subsidies for private house owners, and start helping out renters and apartment owners. That will reduce energy imports and CO2 emissions, and waste in general. It will also reduce illegal immigration as the construction industry shifts to apartment building rather than private home building.

Apr. 13 2011 11:17 AM
Fishmael from NYC

So, for us New Yorkers.... how relevant is this? how many NYCer's have mortgages?... why is there no federal subsidy or comparable benefit to assist renters (and I don't mean section 8, but something of benefit to all renters)?

Thanks....

Apr. 13 2011 11:12 AM
Phil from Park Slope

My sense is that home prices are linked closely to the monthly mortgage payment buyers can reasonably expect to get. If this type of mortgage is eliminated, will it have an effect on home prices across the board, and will that affect the number of current homeowners who are underwater?

Apr. 13 2011 11:11 AM
David

I am about as staunchly liberal politically as it is possible to be. But the 30-year mortgage should absolutely be done away with, for a few reasons:

The savings rate in the United States is absolutely abysmal, and making it more expensive for people to buy homes can only help to reverse that trend.

It's absurd that urban residents are essentially subsidizing inefficient, resource-intensive, suburban living. (The mortgage interest deduction is another egregious offense on this count.) We should be investing more in our cities.

Living in a home should be a luxury, and there no reason for us as a country to make luxury widely available.

Apr. 13 2011 11:06 AM
jgarbuz from Queens

After WWII, the US wanted to make sure that it wouldn't drift back into Depression, and to create lots of work for returning GIs. And so the US created tax deductions as well as Freddy Mac to insure low interest mortgages, to create the construction boom and the suburbanization process. Those was different times. Land and energy was cheap and plentiful. TImes have changed. We should be re-urbanizing and de-suburbanizing. The US should be subsidizing rentals and modest condos, not McMansions.

Apr. 13 2011 11:06 AM

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