As the debate warms up about the future of housing finance, panelists at the Mortgage Bankers Association's annual secondary market conference were unanimous in their endorsement of the 30-year fixed-rate mortgage.
Theodore Tozer, president of the Government National Mortgage Association, said that detractors of the product, who point out that other industrialized countries have gotten along just fine without long-term fixed-rate products, haven't been speaking to the same people he has.
"It's interesting that we're talking about phasing out the 30-year mortgage when other countries wish they had it," Tozer said Monday during the opening session of the conference in New York. "Other countries are envious of our 30-year mortgage."
Ginnie Mae has been instrumental in leveraging its government guarantee to keep funds from foreign investors flowing into the domestic housing market. (According to figures compiled by National Mortgage News, Ginnie insures roughly $1 trillion of mortgages, or about 10% of all U.S. housing debt.)
Given the fragile state of the market, removing the 30-year loan from lenders' menus would be a bad move now, Tozer said. "This is the worst time to do it. To shift risk to the consumer in today's world would exacerbate delinquencies. In today's interest rate environment, things can only go up."
Kevin Neylan, a senior vice president at the Federal Home Loan Bank of New York, said the future of the housing market would be "very uncertain" without the 30-year loan.
Although "you could make a case that some borrowers would be better off" with a less expensive adjustable-rate product, Neylan said, "most consumers seem to be risk-averse." He also said that while some of the smaller lenders served by the Federal Home Loan Bank System might opt to retain their fixed-rate products on their balance sheets, it wouldn't be enough to support the demand.
"Consumers should have a choice," added Fannie Mae's Zach Oppenheimer. "ARMs have benefits, but they are a much riskier product," Oppenheimer said, noting that fixed-rate loans have a delinquency rate of just a quarter of that of ARMs.
