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.
Ginnie Mae President Theodore Tozer indicated that detractors of the long-term fixed-rate product, who point out that other industrialized countries have gotten along just fine without long term fixed-rate products, haven't been talking 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 told the opening session of the three-day conference, which is being held 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 ASR's sister publication National Mortgage News, GNMA insures roughly $1 trillion of mortgages, or about 10% of all U.S. housing debt.)
Tozer also said that considering the fragile nature of the current market, now is not the time to eliminate the 30-year loan from lenders' mortgage menus. "This is the worst time to do it," he said. "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 put 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. "The confidence and certainty (of a fixed rate loan) can't be beat."
Oppenheimer got to choose between a FRM and an ARM when he bought his first house. Even though the fixed loan came with a rate of 13.25%, he opted for the FRM over the lower cost ARM because he "wasn't sure he would have the income over time" to cover the possibility that the rate on the adjustable loan would move higher.
"ARMs have benefits, but they are a much riskier product," the Fannie Mae executive said, noting that FRMs have never accounted for less than 75% of mortgage originations. He also pointed out that ARMs have a "very different performance level" than fixed-rate loans, which have a delinquency rate of just a quarter of that of ARMs.