In the 1960s, Americans got a glimpse of 2062, courtesy of the animated prime-time series "The Jetsons." George, Jane, Judy and Elroy were the epitome of the nation's futuristic utopia. Their middle-class lifestyle was funded by George's job as a computer engineer which provided the family with the means to live in a high-rise condo, complete with video conferencing, robotic maid and talking dog. While the series never addressed how they purchased their home, chances are it was done with a mortgage of the future.
Mortgages have been an instrumental tool for American home buyers since the turn of the century. The first crop of home loans required huge down payments of 50 percent, loan terms of only five years and the need to refinance or risk default. That changed when the government got involved in the real estate industry as a way to prop up the country hit by the Great Depression and evolved again in 1954 when Congress passed an act that made 30-year fixed rate mortgages widely available. Thanks to the recent mortgage meltdown, revisions are happening again and will alter the future of home buying. It is more than likely that the Jetsons would have had to follow these rules to acquire their accommodations.
The Jetsons Needed a Huge Down Payment
At the turn of the millennium, home buyers were able to secure properties with little or no down payment, however, the Jetsons (or future home buyers) would not have that option. The collapse of the mortgage industry has laid the groundwork for future reform and has already prompted banks to require larger down payment amounts so home buyers will share the risk associated with home ownership.
The Dodd–Frank Wall Street Reform and Consumer Protection Act signed into law by President Barack Obama on July 21, 2010 is providing the foundation for the changes. While the details regarding changes to the mortgage industry are still being worked out, industry insiders expect that a 20 to 30 percent down payment may become the norm of the very near future.
The potential change is backed by research conducted by the Federal Reserve Bank of Saint Louis, Missouri. They conducted a study showing that buyers who made smaller down payments had greater odds of mortgage default during "unfavorable economic circumstances, such as a housing market slowdown or job loss,"(2009). Since many banks have experienced those losses first hand, financial institutions have already begun to demand larger down payments.
Higher Interest Rates Means Less Shopping For Jane
George's job had enough expendable income for Jane to pursue her passion for fashion at "Mooning Dales." However, the higher mortgage rates would surely eat up that extra cash. Experts have accurately predicted that low mortgage rates were going to vanish in 2011 and by 2062 they may not exist at all.
Mortgage rates have been artificially low for a while. The levels were first set circa 2006 as lenders "...failed to price in enough of a cushion to account for the kind of steep price declines that have occurred," (Yahoo.com). After the bubble burst, the Federal Reserve Board kept interest rates low as a way to stimulate consumer spending. The level cannot last forever as those low rates are being funded with taxpayer money.
The government is currently discussing the future of both Fannie Mae and Freddie Mac, both of which account for the majority of all new home mortgage origination. Privatizing (both hybrid and fully privatized) of the mortgage industry is just one of the methods being considered and that switch will put lenders at a greater risk for loss (as opposed to the government). Higher interest rates is one way they will minimize the chances they take in regards to loaning money.
One of the systems being discussed is insurance against catastrophic losses, similar to how the FDIC insures banks (Yahoo.com). Research conducted by Moody's Analytics calculated that a hybrid system could raise mortgage rates by approximately 30 basis points (0.3 percentage points) and a fully private system could up the ante by .120 basis points (1.2 percentage points) (Yahoo.com). A fraction of a mortgage point can represent thousands of dollars in additional expenses
The Jetsons Had an Adjustable Rate Mortgage
Fixed rate mortgages are the most popular finance option for home buyers as the option allows consumers to stick to a set budget courtesy of predictable monthly payments. Despite the popularity of the financial products, lenders are not thrilled with that variety as consumers can always refinance at a lower rate, but banks have to adhere to the financial agreement for the entire contracted loan length.
Instead, lenders favor adjustable rate loans as they can increase profits courtesy of rate adjustments. Additional adjustable rate loans put more of the financial risk directly on homeowners. Once the mortgage system features a stronger privatization component, adjustable rate loans will become the new norm and one that the Jetsons and future home buyers would have to deal with.
