How Would Elimination Of 30 Year Fixed Rate Loans Affect Kansas City Home Buyers?

Checking The Pulse Of The Kansas City Real Estate Market

The other day a Realtor told me she didn’t care if Fannie Mae never backed another loan. Her argument was that Fannie Mae is backed by the government and government shouldn’t be meddling in the mortgage business. She added that the failed loans that Fannie Mae provided are a large reason for the downturn in the real estate market. There is some truth to that but the problems we’re faced with run deeper. But even if you agree 100% with this agent’s assessment, consider this… Fannie Mae is the major reason the majority of home loans were made during recent decades. Without Fannie Mae many Americans would not have a home and those who still would wouldn’t have mortgage loans as we know them today.

Without Fannie Mae, there would likely be no more 30 year fixes rate loans made. Why is this you ask? Because many private lenders aren’t willing to guarantee an interest rate for 30 months, much less 30 YEARS. And that’s exactly what Fannie Mae promotes. You go to your local bank to get a loan, your local bank runs a combination of you and your home through the Fannie Mae underwriting system and, if things look good, Fannie Mae will guarantee a 30 year fixed rate loan… and you get your loan. If interest rates jump from 5% to 10% over the coming years, there’s no worries because your interest rate is locked and guaranteed.

But if Fannie Mae wasn’t standing there to back the loan, do you think your local bank would lock and guarantee an interest rate for 30 years? Most banks wouldn’t do it when times were great, so most surely won’t do it today. What does all this mean to us as home buyers? If Fannie Mae goes out of business, the available loan types that our local lenders will make will be MUCH more conservative. Start thinking about 3 years ARMS which put the interest rate risk on you as the buyer and takes long-term interest rate risk off the banks making the loans. Yes, I’m talking about those same 3 year ARMS that caused tons of foreclosures when the interest rates starting re-setting in year 4.