30 Year Mortgage No More?

It appears that America's political parties have come to an agreement on at least one issue involved in our nation's economic crisis, Fannie Mae and Freddie Mac need to be eliminated. The two housing finance giants have become a source of shame for anyone involved with them because of the key role they have played in pushing our nation's economy over the edge.

When Fannie Mae first came onto the scene in 1938 as part of Roosevelt's New Deal, it basically increased the governments role in the American economy and had two advantages: the 30 year mortgage and the promise that if the mortgage went into default, the Treasury would back it up. Freddie Mac was introduced in 1970 and was basically only created for competition in the mortgage market. The basic reason for these loans was to increase the availability of mortgages. However, these favorite mortgage loans of all American borrowers since the 1950s could likely become a luxury.

Although it could take years for Congress to agree on a plan of action to slowly wean the market from the financial backing provided by the companies, the result of the changes are already being predicted. Urban and rural residents could see a significant rise in interest rates, but the coveted borrowers in the suburbs may not experience increased interest rates to the same extent. In addition to increased interest rates, fees would be attached to mortgage features that now come standard, like locking in an interest rate as long as months before actually taking out a mortgage loan.

According to experts, a 30 year mortgage loan will still be available through different outlets, however, will become more difficult to find and will no longer come with a guarantee from the federal government. However, real estate professor, Susan Wachter, says that a guarantee from the federal government is necessary to preserve a homogenous market. She says, "There needs to be a systemic way of preventing fragmentation. That's what we need a bulwark against. Because if there isn't, it will occur."

What is believed to be one of the biggest downfalls of Fannie and Freddie are the minimal requirements for down payments. Fannie and Freddie cited the reason for lowering the down payment standards as a way to help those citizens that wanted to become homeowners but had limited savings have an opportunity to invest in a home. More than two thirds of people who borrowed mortgage loans that were guaranteed from 1977 to 2005 had a down payment of less than 10 percent. The Obama administration says its hope is for the companies to demand at least 10 percent for down payments from now on.

More from this contributor:

http://www.associatedcontent.com/article/2610391/bailed_out_banks_continue_to_cut_small.html?cat=3

http://www.associatedcontent.com/article/2671615/obama_continues_to_focus_on_small_business.html?cat=3

http://www.associatedcontent.com/article/2526927/small_businesses_will_benefit_from.html?cat=3