Thursday, July 21, 2005

Get Ready for Forty Year Mortgages

This is getting ridiculous. Many in Congress are making absolutely no effort to stop Fannie and Freddie from adding gasoline to the hot housing market. Clearly, if Fannie and Freddie say they won’t buy 40 year mortgages, then there won’t be a market for them and banks won’t offer them. The President, Greenspan and some in Congress would like to reign in the GSE’s stupidity. Unfortunately, Fannie and Freddie are used as a slush fund by others in Congress to dole out low interest loans and grants to a few undeserving constituents, and as a result, these quasi-companies continue to distort real interest rates and ultimately the housing market.


“In major metropolitan markets, especially on the West and East coasts, the prospect of owning a home is fast slipping away for many people, including minorities, who already lag greatly in homeownership.

Harvard's Joint Center for Housing Studies points out in its "State of the Nation's Housing" report that until 2004, falling mortgage interest rates helped to keep homeownership affordable even as prices escalated. But with long-term rates flat year after year and short-term rates rising, people will find it more difficult to buy a home.

To combat the housing affordability problem, lenders have created alternative financing, everything from hybrid adjustable-rate mortgages to interest-only loans. This is, indeed, a new era in mortgage lending.

For example, expect to soon see the mass marketing of 40-year mortgages, thanks in part to a recent announcement by Fannie Mae that it will now buy such mortgages from lenders.”



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