Death To The 30-Year, Fixed-Rate Mortgage? Talks Of Reforming Fannie Mae And Freddie Mac

Have you ever heard about a 30-year car loan? How about a 30-year furniture financing payment?

Of course there is no such thing as a 30-year loan for a car or furniture. People will normally purchase new things sometime during those 30 years, and no bank is willing to go into such a risky venture.

But this is exactly what we have when it comes to home mortgages. The 30-year, fixed rate mortgage has become almost the backbone of the mortgage financing market, enticing people who want to live out the Great American Dream of a one-story house with a white picket fence and 2.5 kids into seeking such a reality. The United States is the only country in the world to have such a fixed rate with a long mortgage term.

Yet this loan option may soon change.

Reforming Fannie Mae And Freddie Mac

To stop the government budget hemorrhaging and to bring some stability to lending practices, the Bipartisan Policy Center think tank has suggested a reform to both Fannie Mae and Freddie Mac. This reform involves selling off assets from these government-owned organizations to the private sector. Instead of offering mortgage loans and purchasing mortgage-backed securities, the government would instead become a public guarantor of mortgages.

Much in the same way as the SBA, FHA and VA gives government backing to lenders in case someone defaults on a loan, Fannie Mae and Freddie Mac would do the same by taking away the risk of loan defaults by the public. They will ensure that the lender is reimbursed for the unpaid mortgage loan through charged fees.

So what does this mean when it comes to the 30-year, fixed rate mortgage?

This is still up for debate. The Bipartisan Policy Center would like there to be no government role in the matter, which would result in the end of the 30-year, fixed rate mortgage. As it is now, lenders don’t like the idea of a mortgage loan that doesn’t allow an adjustment to interest rates for such a long span of time. It’s too risky of an investment. So for lenders to offer such a loan product, they must tack on a premium to cover their risk.

In the coming future, the real estate lending market may change. Home buyers should be prepared for what changes come to make smart financial choices.

Contact Avis Lending For Mortgage Financing

When it comes to needing the most current real estate information and mortgage products, people should seek out the experts. Avis Lending offers the highest quality mortgage services whether you are looking for a loan, need refinancing of an existing loan, or you would like to learn more about the mortgage industry. Give us a call at 888-455-2847 or visit our website to browse the mortgage products we offer.

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