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30 Year Fixed Rate Mortgage

New Threat for 30 Year Fixed Mortgage

A report was published from the housing commission of the BPC in February .Here it suggested that the role of the government should be reduced where the real estate business is concerned. The report states that maximum percentage of all mortgages of single family type is supported in anyway by a body with a federal affiliation. For example the FHA is one such body backing this kind of mortgage.

What Happens when Government does not Intervene?

With the suggestive report also came a warning that if the government completely withdraws its support from the housing then there could be a problem. The 30 year fixed rate mortgage would face a threat then. No doubt this popular home loan program will then face a loss.

The report says that government guarantees work in the secondary market. It ensures that the investors get paid if by chance the borrowers are at a default. This way maximum credit risk has been removed and the investors do not have to spend sleepless nights. The investors get attracted to these government backed plans only except few risks related to internal rate.

If the government guarantee is pulled out then there is less chance of financial institutions owned by private organizations putting their money on long term mortgages. If that might be the case they will consider the risk of both rate of interest and the credit. Long term mortgages or even loans with fixed term will be less accessible then. They might even raise the interest rate of mortgage loans to place themselves in a safe zone.

Government interference is not quite liked by everybody. Articles by Edward J.Pinto and Peter J.Wallison published by the Washington Times come with a word of warning. According to them the new mortgage rule brought in by the bureau of Consumer financial, is just one more measure by the government to maintain a low level of mortgage guarantee. This could trigger a mortgage meltdown that happened in the year 2007/2008.

Government is not to be Blamed Solely

The government was criticized and blamed to have been responsible for the credit crunch in 2008 by Pinto and Wallison. This might happen to another cause for the debacle .But the security of this market is mainly supported by mortgage. And so the role of the banking sector and the credit rating agencies here is equally important.

It is not totally true about the low underwriting standard that was pointed by Pinto and Wallison. Home loans of the FHA and VA category might give some flexibility on underwriting rules but many think lenders are still tough with these rules. Later the Patriot-News did a study about this problem that the borrowers continue to face. It has been seen that people with good credit record have even faced difficulty to fulfill the demands of the organizations for the processing of a refinance.

The mortgage lenders still continue to be very demanding like the pre-credit-crunch period. It was always hard to satisfy them. The government never pressurized them to sanction a loan to somebody against their will or who they thought to be risky.

Scenario in Canada and U.S.A

Nowadays it is difficult to come across a fixed-rate mortgage in a country where the government is not intervening in these types of issues. For instance in Canada when the rates face a low then mortgages with fixed rate is protected by anti-refinancing laws that charge you a penalty. The rates of Mortgage loans in Canada are also fixed for maximum 5-year tenure. This ensures protection for lenders when the rate of interest rises.

The United States however still has the locking option for the 30-year rate, outstanding housing affordability, mortgage rates that are too low, rise in home prices. It is probably the best time for buying or refinancing in the U.S.


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