When new cars cost $5,000 consumers took our two or three year car loans. Now they are commonly a five to seven year commitment. Likewise mortgages, which, four decades ago were amortized over 20 years, then 25 years, and now commonly 30 years, may soon have a new standard: 40 year home loans.

After test marketing a 40 year mortgage for some months, Fannie Mae announced last week that it will begin purchasing them. The Corporation acknowledged that changes in "housing market affordability and requests from (our) lender partners" led to the decision to extend the maximum loan term on certain loan products.



Fannie will now purchase 40 year fixed-rate mortgages and 40-year hybrid adjustable rate mortgages (ARMS) with initial fixed periods of three, five, seven, or ten years. Not included in the new purchase standards are biweekly mortgage products, loans secured by manufactured housing, loan to value ratios greater than 95%; and ARMS with initial fixed rate periods shorter than three years (including the popular 1-year ARM) or with any subsequent adjustment period greater or less than one year. Also on the no-fly list are negative amortization loans.

Forty-year mortgage loans are not new, they have been tried, even promoted in years past and some lenders have continued to write them in special circumstances. When test marketing began a few months ago a number of mortgage pundits soundly denounced them because of the greater interest costs over the life of the loan. Conversely, however, the much lower monthly payment may make the 40-year a good choice for homeowners who have a limited time-frame in which they will own the home or keep the loan. Regardless, with Fannie opening its part of the secondary market to them, look for mortgage companies, banks, and brokers to start strongly marketing various 40-year loan products to consumers.