Good Riddance 30-Year Fixed Mortgage? Not So Fast...
J. Wallison's recent article in the Wall Street Journal on government support in the residential housing market, "What's So Special About the 30-Year
Mortgage?", is an interesting academic exercise but it has no relevance to
the reality of the U.S. housing market.
it is true that, for many years over the life of a 30-year loan, most of the
payments go toward interest payments and not principal, if we were to remove the tax
deductibility of the interest paid (regardless of the term of amortization) as
some have suggested, we would remove another 33% of value from the American homeowner,
based on the marginal rate at the Federal level of 28% and the average State
and local tax rate of 5%.
the backstop of federal protection for the 30-year loan to reduce the
amortization of loans purchased and/or insured by the GSE/FHA/VA from 30 years
to 20 years would change the monthly amortization expense by $1.21 per month
per thousand, so a $100,000 loan would increase the payment by $121.00, thereby
disqualifying a large segment of the population from qualifying.
constricting a market where the previously unassailable asset of home equity
has lost an average of 38 percent since the downturn began would have a ripple
effect on quality of life throughout our communities nationwide.
would destroy reverse mortgage programs that fund long term security for our
senior population. It would devastate the revenue of local governments,
who will be forced to raise the rate on real estate taxes to meet the decrease
could result in thousands of abandoned properties and tax sales with no buyers.
Local government budgets would be underfunded. The largest recipient of those
tax dollars is education, which would be hit hard requiring layoffs of
teachers, deferrals of facilities' maintenance, and the inability to pay for bonds
to fund new facilities.
Governments would find it impossible to support citizen requirements at the
same level as today for basic services: Trash collection, street maintenance,
police protection, fire protection, and/or public transportation support.
the backstop will remain and we will be better for it.