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Will the 30 Year Mortgage Go the Way of the Dodo Bird?
Posted By Ron On April 4, 2011 @ 1:00 AM In Mortgages,Personal Finance,Real Estate | Comments Disabled
Search for “end of the 30 year mortgage” on Google and you’ll get 12 million plus results. Apparently it’s in vogue to predict the demise of this bastion of homeownership in the US and much of it stems from the fact that Fannie Mae and Freddie Mac have stiffed taxpayers for over $134 billion … so far. Common sense certainly seems to have become extinct.
Those two mortgage … um, companies (?) … are they really even companies? …whatever, those two entities are the prime purchasers and re-packagers of 30 year mortgages and they are understandably on the Congressional chopping block. In testimony before Congress a few weeks ago, Treasury Secretary Tim Geithner admitted that reducing the government’s exposure in mortgage  markets would almost cause them to dry up or at least severely constrict their availability to consumers. Those that remained available would have much higher costs which would also be passed along to consumers. The question becomes: what would that cost actually be?
At any rate, what you and I think of as a “traditional” mortgage today will probably not be what our children or grandchildren think of as “traditional.” A 10 or 15 year mortgage  is probably what they will think of as normal.
At today’s rates, a homeowner who qualifies for a $300,000 mortgage will only be able to qualify for a $200,000 mortgage if 30 year mortgages become unavailable or too expensive.
With fewer customers able to afford the larger homes, smaller homes will become the norm . In the short-term, the demand for those smaller houses could drive their price up as well, only exacerbating the problem until builders can construct enough smaller homes to drive the price back down.