Since the 1950's, American home buyers have relied on 30-year fixed rate home loans to finance the purchase of their vision of the American Dream. The mortgages varietal became a popular option among consumers thanks to the advent of government backed mortgage lenders Fannie Mae and Freddie Mac. Since the treasury department is working diligently on developing a course of action that would allow the government to back out of the agencies, 30-year mortgages may vanish from the landscape.
Future of 30-Year Fixed Rate Loans
Currently, there are three potential futures for Fannie Mae and Freddie Mac, and each of them has been designed to slowly reduce their lending activity and get the government out of the mortgage business. When that occurs, experts believe that 30-year fixed rate home mortgages will be changed from the most popular mortgage type to a luxury product (New York Times).
Both mortgage giants were developed to make mortgage loans readily available to the masses. For decades the companies effectively achieved that goal, but things became convoluted when the government agencies went public and became beholden to returning a profit for shareholders. That structure required the agencies to compete against private lenders and to do so, both Fannie and Freddie provided subprime loans to the highest risk borrowers. When borrowers started to default, the organizations started to crumble. To date, the government has spent $135 billion to clean up the mess and has prompted the government to get out of the mortgage business.
When they do, the New York Times predicts the homeloan industry will be altered and 30 year fixed rate loans will become scarce. Additionally, individuals fortunate enough to qualify for the loan type will be saddled with higher interest rates and "...urban and rural residents could see sharper increases than the coveted customers in the suburbs," (New York Times).
History of 30 Year Fixed Rate Loans
Mortgages were first introduced to the American landscape courtesy of the influx of immigrants in the 1900s. Until the 1940s, borrowers were required to make a 50 percent down payment in order to qualify for a five-year home mortgage. Once that time period elapsed, the borrowers either had to pay off the debt in full or refinance the loan.
A 1954 act of Congress made 30-year loan widely available and to this day the variety would not survive without government support. Private lenders and investors prefer adjustable rate mortgages as the rate of return can be significantly higher. The structure has allowed the nation to evolve from one of renting to home ownership. Prior to the creation of Fannie Mae, Freddie Mac and 30 year fixed rate loan opportunities, only four out of every 10 households owned the roof overhead. Now more than 34 million home mortgages and 47,205 multifamily projects have been issued, and the organizations (along with other government programs) dominate 90 percent of all new mortgage origination.
Current Status of 30-Year Fixed Rate Loans
Consumers who favor 30 year fixed rate loans over every other type of opportunity are encouraged to lock in opportunities now before it is too late. In 2010, predictions were made that low mortgage rates were set to vanish in 2011 and so far that has been the case. Mortgage Marvel, the industry's premiere mortgage rates origination tool tracks interest rates activity courtesy of their Mortgage Rate Trends tool, and since February 2011, mortgage rates have been holding steady above the 5 percent mark. This is a far cry from the historical low of 4.20 percent recorded on October 12, 2010.