Hello, LOs!
Late last week, Ginnie Mae made a splash when they announced that they would soon introduce a new 40-year mortgage term for its issuers. Only modified loans with terms greater than 361 months and less than or equal to 480 months will be accepted, but there will be no loan amount restriction, Ginnie Mae said. The mortgage-bond giant said it expects the new pool to be available in October.
Obviously the Ginnie loans are still a relatively small piece of the overall mortgage pie in America, and there are higher rates of forbearance and delinquency than with Fannie & Freddie loans.
Loan officers had mixed reactions to the new 40-year term. One loan officer said she hoped the industry had "learned to be better than who we were 13 years ago."
"If there are investors who will buy these pools of loans, why would any lender or bank choose to not offer this as an option for borrowers in danger of default? Is it better to dismiss these homeowners, apologize for not having any assistance that can be offered, and wish them best of luck?"
Another LO called the policy nothing more than a "short-term fix," and said it is another sign that homeownership is a "lost dream" in America.
"Buying a house is not the same as owning a home, you don't 'own' it until it's paid off. Like a car, it can be repossessed until it's fully paid off, or you have enough cash available to pay the loan in full. If this wasn't true the president would not have renewed the foreclosure ban for another month," he said.
But it got me thinking – could this work with the GSEs, and more importantly, would the Biden administration try it?
I say this because the 30-year mortgage is relatively arbitrary. It's rooted in the housing crisis in the 1920s, when the typical mortgage was for three-to-five years with a variable interest rate. Payments only covered the interest and the balloon came at the end of that term. It led to defaults. Lots of them.
The New Deal in 1933 brought with it the Home Owners' Loan Corporation, shortly followed by the creation of the FHA, which insured mortgages and set underwriting standards. That's roughly when the 15-year mortgage came to be. It's lengthened over time from 20 years, to 25 years, to the 30-year mortgage we know today.
The Biden administration has been very consistent about its goal to increase homeownership, particularly to minorities. It could lower payments and spread risk over a longer period. Plus, the federal housing agencies now seem to be in lock step. So it makes me wonder – could they try to bring the 40-year mortgage to the GSEs at some point?
It's worth noting that Senior Mortgage Reporter Georgia Kromrei spoke to some servicers who were rather displeased with Ginnie Mae's 40-year-mortgage initiative. Several told her they didn't know what kind of investor appetite to expect. I imagine they would feel even more strongly about such a change to the GSEs.
So, lemme ask you, LOs: what do you think? What would be the pros and cons of a 40-year Fannie or Freddie mortgage? Reach out to me anonymously at jkleimann@housingwire.com.
James Kleimann
Managing Editor, HousingWire
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