Hello, LOs!
This week, we asked you to share your thoughts on two new ideas in the mortgage and federal policy space — and you didn't hold back.
Ginnie Mae is going to start offering pools of 40-year mortgages in October, Tim Glaze reported, and an academic wrote that running the mortgage market like a public utility could make it more equitable. Is that really such a good idea?
A 40-year term sounds good, but "too much money goes to front loaded interest," said one LO. Maybe it would be better to standardize all mortgage rates and, somehow, disentangle them from the national economy.
"It's extremely unfair that some people got [an] amazing rate in the 2% range, and a year or two down [the] road, people will be looking at 5%, on top of more expensive houses," the LO wrote.
One California-based LO said that tacking on another 10 years to the mortgage term is a quick-fix for lowering payments. But long term (like, 40 years), it could be self-defeating.
"History suggests that longer loan terms also contribute to home price appreciation, so at some point that lower monthly payment is no longer all that low," he said.
Another LO in California said that if investors are interested in buying 40-year mortgage pools, why not offer it?
"Is it really that much different than a 30 year loan from a securitization standpoint? It would certainly help more people qualify for a home loan," he said.
An LO in Arizona said he doesn't actually see a problem with the impact on home price appreciation. A longer term would lower payments and could help first-time buyers enter the market, even if a borrower didn't plan to hold the mortgage for 40 years.
"I liken this to the old Option ARMs. In the right circumstance, it is a great choice for a consumer," he said. "The key will be loan originators knowing how to properly advise borrowers, and of course, investors knowing full well their turnover rate is going to happen sooner than later."
Whatever the implications for investors, borrowers and originators, one Missouri LO told his team that they should be prepared for other agencies to roll out similar offerings. That would make sense, based on what I've been hearing about federal agencies coordinating on housing policy.
"I think once the program is under way, over time, there will be enormous pressure placed on the agencies to make the 40 year mortgage a standard product for all—remember, the administration wants more people in houses—the 40 year mortgage makes housing availability more accessible to much larger a
udience of home buyers," he wrote.
But, he pointed out, there have been few specifics about how the program will work. I'll be staying tuned on that front.
There was a little less enthusiasm for running the nation's housing finance apparatus as a public utility.
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