Who thought 30-year mortgages were a good thing?

2 Dec

Marketplace.org – Adriene Hill

In the wake of the housing market collapse of a few years ago, lawmakers in Washington are debating the future of Fannie Mae, Freddie Mac, and government involvement in the housing market. One issue is the 30-year fixed-rate mortgage, a loan U.S. homebuyers take for granted, but is decidedly uncommon in other countries. In thinking about the role of the 30-year mortgage, it helps to know how it got started.

As late as the 1920’s, someone taking out a mortgage to buy a house in the U.S. would most likely get a short-term balloon mortgage. Typical terms: 50 percent down, and five years to pay off the other 50 percent. At the end of the five years, it was common to re-finance into another five-year loan. Then came the Great Depression. Many banks failed, and surviving banks didn’t want to refinance these balloon mortgages. Banks foreclosed. Between 1931 and 1935, a quarter million people lost their homes each year.

President Franklin D. Roosevelt stepped in, explaining why the government shouldn’t just sit by: "Even before I was inaugurated, I came to the conclusion that such a policy was too much to ask the American people to bear. It involved not only a further loss of homes, farms, savings and wages, but also a loss of spiritual values — the loss of that sense of security for the present and the future so necessary to the peace and contentment of the individual and of his family."

To stabilize the economy, Roosevelt created federal agencies that form the basis of the housing market the United States has today. They provided mortgage insurance, established a secondary market for converted 1 million loans into long-term mortgages.

>> Read More: http://www.marketplace.org/topics/sustainability/who-thought-30-year-mortgages-were-good-thing

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One Response to “Who thought 30-year mortgages were a good thing?”

  1. judybraund December 4, 2013 at 6:37 pm #

    Reblogged this on Judy and Company.

    Like

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