Plans are in the works to dismantle Fannie Mae and Freddie Mac, and that could mean that what many Americans had assumed came fourth after “life, liberty and the pursuit of happiness,” the 30-year mortgage, could be on the outs.
Without the government-provided backstop of the American Dream, costs are going to rise for borrowers. Many investors are no longer willing to make such a long-term bet as the 30-year mortgage and would rather loans with adjustable rates. This might sound odd but n other countries, 30-year mortgages are not the norm. They only became widespread in America after Congress passed an act in 1954.
Besides the term of loans coming into question, we might also see being able to “lock in” a rate becoming a luxury. Lenders used to be able to make that promise thanks to Fannie and Freddie because they had already gotten investors to buy in. But without the two big F’s, locking in a rate might become something that homeowners have to pay extra to get. Or, that option might be only available to the best-qualified borrowers.
The question is, are Americans really ready to pay the price for cutting down on moral hazard in the mortgage market?