What Is Going to Happen to House Values? Will the 30 Year Mortgage Go Away?

How Will The Fear of the 30 Year Loan Demise Affect You?

Will you get any 30 year loan knowing about this warning?

  • Yes I think Fannie and Freddie will always be with us.
  • No I think Fannie and Freddie will be unwound.
  • Doesn't matter as I can't afford to buy a house with or without a 30 year loan.
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Warning: Paul Miller Reports 30 Year Mortgage May Go Away

Paul Miller, an analyst who follows Fannie Mae and Freddie Mac said on 6/16/2010 that the 30 year mortgage will go away without the two GSE's continuing to guarantee loans. This interview with Mr. Miller was conducted on Bloomberg TV. This is a major issue for people wanting to buy a house. If you buy a house where ponzi loans have been the norm, and the government's debt is too great, this could cause Fannie and Freddie to cease their loan guarantees. Mr. Miller simply states that without the guarantees, private banks will refuse to write these mortgages that have existed since the Great Depression and were set up because of these guarantees.

I have written before on this subject, warning of the demise of the 30 year loan, sort of as a common sense approach to what is happening in the financial world. Many viewed me as a flake on the issue, even in my own family. You have people like Fox News and others rightly concerned about the cost of Fannie and Freddie. You have them even giving false information as to the causes of the housing crisis, as if Fannie and Freddie were the ones initiating liar loans and the like. I have explained exactly how the financial crisis was formulated here.

But to have a man at the center of analysis of the GSE's saying that the 30 year fixed mortgage may go away is a major warning. Why would anyone want to be in a 30 year mortgage of any kind, because if this sort of loan went away, these people would not be able to sell their houses for a price that would likely cover the cost of the loan. If the 30 year loan goes away, the chances of people walking away from the loans will increase to almost a certainty. Yet the government is continuing to put people into loans they cannot afford. 3 percent down loans are not affordable.

People need to put 20 percent down or simply not buy. Better yet, people should buy a manufactured house or a house with cash and live beneath their means in these times of turmoil. My concern is that we have had years of inflation of house prices, and in bubble areas the demise of the 30 year loan will be devastating. I would not imprison myself with a 30 year loan under this cloud of uncertainty.

However, I do think that the big banks will get their way and get permanent guarantees on all mortgages, so down the road there could be another housing bubble as I have explained in this article about Wells Fargo's attack on taxpayers.

I suppose, based on Wells Fargo's threats, that you could gamble, buy a house with a mortgage, and try to sell on the upside of the new bubble. However, be aware that if you got out after a crash, it is always safer to default and walk away from a non recourse loan, and one that has no second mortgage or helocs attached.

If the credit crisis continues, the IMF will come in and clean things up their way.

Update: The original intent of Fannie and Freddie was to guarantee loans in time of economic need and turn off the guarantees when prosperity was reestablished. However, investors apparently want a system where they have no risk whatsoever when they are investing. In other words, they never want the loan guarantees abolished. Basel 3 apparently wants to accommodate this fear, to the detriment of our nation. This of course causes three potential problems:

1. Because everyone knows that the government will guarantee the loans, the lending community will take advantage of that government guarantee. There will be easy money reckless loans made. We could end up with weird perpetual mortgages and hundred year mortgages if easy money flows again.

2. If this indeed happens, there could be a bubble and then a crash of house prices, which would result in not only citizens losing out, but the taxpayer being on the hook for all these loans.

3. Congress could never take the loan guarantee away, as the banks would be into the GSE's with too big of an investment. The banks would have leverage over congress and be able to dictate the rules. See link above about Basel 3.

4. War and nefarious activities can be the result of securitization being a means of raising revenue for governments, until it causes a crash.

5. I advocate the shunning of the 30 year mortgage as a means of fighting back against the bankster cartel and the threats and extortion coming from the cartel. If you can buy with cash, live beneath your means, pay a good amount down, then buy using credit sparingly or not at all. Otherwise, rent and invest the rest. The big bankers who are able to lie at Basel 2 and Basel 3, still can produce shadow bankers who can lend in a way that encourages you buy too much house, that you put yourselves in financial jeopardy. And this is what these bankers want. The more dependent on debt that you are, the more power they have over you. There is no other way of exerting this much power over the populace than through the mortgage concept. Other bubbles have been blown, but the one which traps the most people is the blowing of mortgage bubbles and subsequent real estate crashes.

6. Will Foreclosuregate slow the world effort to securitize? If so this would be a good development. Teach your children to avoid easy money credit. You never know when the ponzi's will end and when you will be caught with property that is worthless.


Don't Think The IMF Couldn't Do in The USA What They Did to Argentina

Peter Schiff and the 30 year mortgage

Peter Schiff has predicted the demise of Fannie and Freddie. I am not sure why he is happy about this need for them to go away as private bankers are threatening the existence of the 30 year mortgages, if they take over the business. Even a privatization of mortgages will still require the Bernanke "backstop", meaning, when push comes to shove, taxpayers will be the guarantor of all the loans. Schiff won't get what he wants if this happens.

If Fannie and Freddie continue to exist we should never let Basel 3 permit private banks to buy their bonds en masse as is the plan. This will result in guaranteed bailouts of bad loans forever. This must not be allowed to happen. So, I share Schiff's concern that Fannie and Freddie actually helped puff up the the cost of housing over time. When Fannie Mae was set up in the Great Depression, my parents were able to purchase a house for next to nothing. But Fannie has existed since 1937, and during that time there have been incentives for houses to inflate in value. Tax credits and just the guaranteeing of loans by Fannie made it possible for a long path of fairly easy money, culminating in the mother of all easy money, liar loans. All this financial magic inflated housing prices to the point where they became more and more bloated. Easy money offset this rise in values.

But prior to the Great Depression, people had to put 20 percent down, and then refinance their mortgages every 3 to 5 years. While we may not be headed back to those days, without Fannie and Freddie we could see the sort of thing that happens elsewhere in the world, 15 year mortgages with a balloon payment funded by investment on the part of the homeowner. Or we could see the worst case scenario, where in Argentina you have to pay a substantial down for existing homes. A new program was instituted with high interest rates and a 20 year loan for houses up to 300,000 pesos. So the poor get a break but that is not how things are for the higher classes. After the default of 2001 in the Latin American country, people are putting money in mattresses and there are issues with the breakdown of lending as this dreadful blog brings to light.

While we hope that we are not Argentina, certainly this scenario could hit the USA because default happens when people don't pay to buy your bonds because they lose confidence in the government. The government then, is caught between a rock and a hard place. The government needs Fannie and Freddie to guarantee loans, but the government cannot afford Fannie and Freddie because of the bailouts and guarantees that investors are requiring as being necessary as people walk away from their loans.

But what the government does or needs is not the greatest concern to you. What you do and how you act on this information is of the greatest concern. Are you willing to risk the consequences of being trapped in a 30 year loan where you may have that option not even available to potential buyers of your house down the road? These are things you have to weigh before buying the American dream with anything other than cash.

If you see that I have made a case here that the stock market and financial planning of the world elite amount to manipulation, then you should be very careful about committing to enslavement at the hands of these people. I don't know if Fannie and Freddie can survive without securitization. Yet, I don't want securitization as it creates massive moral hazard.

Max Kaiser on Greece Credit Crisis. Must See Video

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Comments 17 comments

OpinionDuck profile image

OpinionDuck 6 years ago

I think it is more important that the requirements of affording a loan of any duration should be brought back to the standards of prudent banking.

The criteria should be the twenty percent you mention plus the ability to make the payments for the loan. This should include taxes, and insurance as well as utilities etc.

Your hub didn't mention what would replace the thirty year loan.

I have a hub on the fully amotized thirty year loan.

This is the best loan but it is still a scam when you cannot transfer it to a buyer. The due on sale clause really took the big selling benefit away.

Thanks


Hello, hello, profile image

Hello, hello, 6 years ago from London, UK

Thank you for your informative hub.


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

Well, that is the problem, Duck, as to what would replace the 30 year loan. It would not be as affordable, that is for sure. Unless it was replaced by perpetual loans where you never actually own the property as proposed for Australia by ING, I don't know what else would work. That would only really work in a massive bubble, which Australia has of course.

Hello, thanks for stopping by.


OpinionDuck profile image

OpinionDuck 6 years ago

bg

It is called an interest only loan.

That is basically what the fully amortized thirty year loan is for the first ten years.

Essentially, it is paying rent with a tax deduction for the mortgage payment interest.


ethel smith profile image

ethel smith 6 years ago from Kingston-Upon-Hull

Nearly to the end of mortgage, thankfully


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

True Opinion Duck, but Miller is talking about the demise of the fixed loan, meaning it will be very difficult for average Joe to own and pay off a house. If he does, it will be hard to sell if the mortgage goes away.

Ethel, good for you!


HomeBuyerHelp 6 years ago

bgmall,

This is a very good article hub. Thank you for sharing it. Keep it up!


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

Thanks, there are a lot of issues going forward.


amillar profile image

amillar 6 years ago from Scotland, UK

I find your hubs fascinating; I have a lot to learn.


Amanda Severn profile image

Amanda Severn 6 years ago from UK

Now is not a good time for anyone to be getting in over their heads financially. Here in the UK average home prices fell between ten and twenty per cent when the financial crisis hit. At the moment they are beginning to nudge up because of short supply, but historically they are seen as still being way too high. All these things go in cycles, and the question for us to contemplate here in the UK, is that if the first-time buyer still cannot get his foot on the first rung of the housing ladder, then how can current price levels be sustained? I imagine the issues must be similar for you in the USA.


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

As my son the MBA says, it is not likely that the 30 year will go away. But rates will be higher and credit harder to get. Add a couple of things: First, they are talking about this more and more on CNBC. If it is something that is not likely, then why are they talking about it? Second, the banks really want to keep the property and just have you pay interest. Hence the concept of the perpetual loan which ING was going to unfold in Australia, and the 255 year mortgage in China.


kazeemjames01 profile image

kazeemjames01 6 years ago

Though provoking, mind blowing.

Thanks for sharing


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

Thanks Kazeem. At the very least, interest rates would go up. Now the government wants to get rid of the GSE's but still make a guarantee. That will keep rates lower, but unfortunately, any guarantee will keep the taxpayer on the hook. America as a nation has to decide if we can afford the 30 year mortgage which must be guaranteed or investors won't buy them.


Tom Cornett profile image

Tom Cornett 6 years ago from Ohio

I have noticed more land contracts being offered and lease to own situations. Hopefully...somehow...the market will change for the better.


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

Land contracts are a disaster for mainstreet. There can never be any equity because the deed is not transferred until the note is paid in full. I would avoid this type of loan like the plague, Tom.


AZ Lender 4 years ago

I am a private lender. In general I require 20% down, and the notes I write are for 15 or 20 years, though I have two notes on my books that are for longer than 20 years. Two out of a few dozen. The detriment to the borrower is that the monthly payment is about 14% higher for a 20-year loan than for a 30-year loan (though the percentage difference rises as the interest rate falls). The main advantage to me of writing 20-year notes is that 1/8 of the loan is amortized in the first 5 years, as opposed to a 30-year note, where only 5% of the loan is amortized in the first five years. Thus, I am somewhat protected against a further deterioration of prices. Correspondingly, people borrowing from me are assuming for themselves the risk of a further decline in house prices. For these people to end up underwater, house prices would have to decline by a further 30% over the next five years, or a further 40% over the next eight years. It could happen, but it's definitely not what I expect. At the moment, I am charging (fixed) 8% interest on loans secured by conventional houses; typically, my borrowers cannot qualify for bank loans, but at some later time, when they can qualify at the bank, they will prepay me and go to the bank for a cheaper loan.


bgamall profile image

bgamall 4 years ago from Las Vegas, Nevada Author

Exactly AZ. If the 30 year mortgage goes away there will be either your way which most cannot afford, or a continual rolling over of morgages subject to the whims of the interest rate markets every 3-5 years.

What chaos.

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