Here in the United States, 30 year fixed rate mortgages have been the only realistic means to home ownership for the middle class. They first began in the 1930s when the government stepped in to help stabilize the housing market during The Great Depression. B-flat, garden variety, 30 year fixed rate mortgages, taken out by responsible home buyers and written by honorable lenders, were not the cause of the contemporary mortgage crisis. Those responsible homeowners were, however, part of the collateral damage in as much as the values of their homes declined sharply. Now it seems as if all the responsible home buyers who wish to sell and buy a new home or get into the market for the first time, are about to get screwed out of the option of a 30 year fixed rate mortgage.
In a housing utopia we could all save for a few years and buy a home for cash - I said utopia! In an ideal world we could all afford a 15 year fixed rate mortgage. But with income stagnant and the buying power of the dollar diminished, the significantly lower monthly payment of the 30 year fixed rate mortgage is key to the equation. (For a $250,000 house, with 10% down, at a 5% interest rate, the monthly payment for a 30 year fixed is $1,208; for a 15 year fixed it’s $1,779 - a $571 difference.) But with the impending demise of the elder Fannie Mae and the younger Freddie Mac, 30 year mortgages could disappear and so too the dreams of home ownership for the middle class.
Paul McMorrow explains the problem in the Boston Globe and Binyamin Appelbaum explores it further in the New York Times.
Without a 30 year fixed from the Bailey Building and Loan Association, Mr. Martini and his family would not have been moving into their own home in Bailey Park. And George and Mary Bailey wouldn’t have been toasting them with “Bread: that this house may never know hunger; Salt: that life may always have flavor; Wine: that joy and prosperity may reign forever”. That was all from “It’s A Wonderful Life ”, but isn’t that exactly what we all want?