Fixed-Rate Mortgages Allowing
Millions More to Become Homeowners
Press Release WASHINGTON, March 4 US Newswire- In the emerging
public debate over what type of mortgage products are best
for American consumers, the Homeownership Alliance today reiterated
the extraordinary value that thirty-year, fixed-rate prepayable
mortgages provide homeowners and the U.S. economy as a whole.
The Alliance which is a coalition of trade and professional
associations, consumer advocacy groups, and housing industry
organizations - commissions studies and white papers on a
broad range of housing issues. Over the past two years, the
Alliance has produced a volume of material that clearly demonstrates
and details the market-driven benefits of the thirty-year,
Among the benefits of this hugely popular mortgage product
are the following:
- Certainty on the size of their payment for up to three
decades, providing peace of mind and the ability to plan
to a financial future
- Ability to refinance and put money back into the economy
- Increased homeownership
"With the many financing alternatives available to consumers,
Americans still choose the fixed-rate mortgage. Fixed-rate
financing provides long-term financial security to homeowners
and it allows more Americans to own homes," said Rick
Davis, president of the Homeownership Alliance.
In a white paper released by the Alliance last year, Stuart
Gabriel wrote, "The fixed-rate mortgage is the cornerstone
of the U.S. housing finance system, putting millions on the
path to wealth." Gabriel, Director of the University
of Southern California Lusk Center for Real Estate, explained
in the Alliance white paper entitled Mortgage Finance Innovation
and the Achievement of Homeownership: The Role of the Fixed-Rate
Mortgage how the fixed-rate mortgage continues to hold sway
over adjustable rate mortgages.
"Arguably among the most profound of U.S. mortgage innovations
came long ago with the introduction of the level-payment fixed-
rate mortgage in the 1930s. That instrument has become a cornerstone
of the highly articulated U.S. housing finance system. Further,
the introduction of the long-term, level- payment mortgages,
together with standardization in underwriting and active secondary
market trading thereof, has resulted in substantial homeownership
gains among U.S. households," says Gabriel.
"The substantially longer term of the fixed-rate mortgage
enabled a lower monthly payment, in turn facilitating lower
payments-to-income ratios and hence higher levels of housing
affordability among moderate-income homebuyers," Gabriel
At an International Housing Forum sponsored by the Alliance
last year, a panel of experts agreed that the U.S. housing
finance system is unique with its fixed-rate mortgage and
the ability for consumers to refinance mortgage loans without
significant prepayment penalties or administrative costs.
At the forum Susan Woodward, founder of Sand Hill Econometrics,
said, "The fixed-rate mortgage that is prepayable is
very important to consumers. No other country gives a fixed
rate of mortgage and homeowners so much flexibility."
James Shilling, Ph.D., another panelist and the Professor
of Real Estate and Urban Land Economics at the University
of Wisconsin-Madison said "The ability to refinance for
lower interest rates is an important element of the U.S. system
as it allows consumers to take equity out of their home and
put it back into the economy."
In a recent Homeownership Alliance study, Safe at Home: The
New Role of Housing in the U.S. Economy, Todd Buchholz wrote,
"Homeowners locking into cheaper, fixed-rate mortgages
perceived a long-term benefit to their finances. Long-Term
changes have a far greater impact on consumer spending than
short-term changes such as temporary tax rebates." In
this study Buchholz, a former White House economic advisory
and author, observed "Housing has been a bulwark during
the economy's current downturn and will be key to its recovery.
This is a very different role than the housing sector played
in previous downturns and recessions."
Buchholz concluded, "A sophisticated, flexible and liquid
mortgage market inspired millions of Americans to refinance
their mortgages at lower rates, injecting billions of dollars
into the pockets of consumers."
In The Importance of the Secondary Mortgage Market to Homeowners
and Lenders, a staff paper published by the Alliance, the
benefits of the fixed-rate mortgage are clear:
Without the secondary mortgage market, the homeownership
landscape would be a much different place. The only financial
institutions originating mortgage loans would be so-called
portfolio lenders, those with the capacity to hold them permanently.
Mortgage interest rates would be higher, as would down-payment
requirements. And, low-down payment, 30-year, fixed-rate
mortgages, a fixture in today's U.S. housing market would
likely be considered a relic of the past.
"Homeownership has become the backbone of the U.S. economy
throughout the last decade. The thirty-year, fixed-rate prepayable
mortgage has become the financial foundation of the homeownership
economy. The homeownership rate is at an all time high of
68 percent and this is largely a result of the option of the
fixed-rate mortgage," concluded Davis.
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