The 30 year mortgage has been the most popular choice for as long as I can remember.For many people, the cash flow is the most important thing, and 30 year mortgages give you the lowest monthly payment. But there are some people who are not in favor of continuing the 30 year mortgage.

February 14th, the Senate Banking Committee is going to hear from Mark Calabria, who has been nominated to become the next Federal Housing Finance Agency (FHFA) director. Assuming he replaces current director Mel Watt, some worry the very well-liked and widely used 30-year fixed mortgage may cease to exist.

The basis for that argument is he might unwind Fannie and Freddie, which back the majority of 30-year mortgages out there. They’re able to play “middleman” as the WSJ puts it, by linking the loans with outside investors who are willing to take on the risks associated with a three-decade long fixed-rate loan.

But if Calabria gets elected and decides that he doesn’t want the government to purchase 30-year fixed mortgages anymore, he could direct Fannie and Freddie to stop buying or backing such loans. This could make the mortgage market a lot less liquid for home loans with 30-year fixed terms, thereby pushing them to extinction or greatly increasing their price.

If fewer investors are willing to buy them from originating lenders, they might only be offered by portfolio lenders that hold onto them until payoff or maturity.

A Shift to ARMs?

As a result, these few lenders could demand a higher interest rate in return, which could make 30-year fixed mortgages a lot less competitive. It could also lower home prices in the process if financing got more expensive across the board.

The spread between the 30-year fixed and 5/1 ARM has ranged from just 0.27% to as much as 1.30% since Freddie Mac began tracking it in 2005. In other words, there was a time when you could lock in an interest rate for a full three decades that was a mere quarter-percent higher than a loan with an interest rate fixed for just five years.

This really illustrates the investor appetite for long-term fixed-rate mortgages thanks to that government backing.

If you are getting ready to purchase property, why not call Ruth Schoenheer, and get her advice? Ruth Schoenherr is a mortgage broker who will help you find home loans in the Clearwater, Palm Harbor, Largo, Safety Harbor, St Petersburg and Tampa Bay area. For more information, go to her web site at www.ClearwaterMortgageBroker.net or call at 727 447-2418.