Tuesday, February 24, 2015

Mortgage meltdown brewing? Dick Bove; America is 90% 30 year fixed mortgages!!


Mortgage meltdown brewing? Dick Bove

No 30 year mortgages without Fannie and Freddie.
Housing prices will plummet if Fannie is closed.

89% of all mortgages in america are 30 YEAR FIXED!! Right from Freddie mac!

Affordable: First, the longer term means the principal is paid back (i.e., ‘amortized’) over a longer time period. That means the monthly payments are lower than on a 15-year mortgage, which is fundamental to making homeownership viable for first-time buyers in their early earning years. Just as it was for Baby Boomers, Gen-Y will rely heavily on the 30-year fixed-rate mortgage because the lower payments are more affordable and manageable when getting started. And with wages largely stagnant, or down, most Americans aren’t counting on a raise anytime soon.
Stable: Because the interest rate is fixed, the monthly principal and interest (P&I) payment is constant over the 30 years of the loan, insulating borrowers from payment shock.  In contrast, an ARM with a 30-year term will have variable P&I payments over the loan term. Many moderate- and middle-income homeowners prefer the certainty that comes with fixed P&I payments and are often ill suited to manage the interest-rate risk that comes with an ARM.  For example, those who took out ARMs during the peak years of the boom (2005-07) saw their P&I payments soar by as much as 165 percent – that’s an enormous increase in financial burden. Moreover, by avoiding payment shock and negative amortization, fixed-rate borrowers are less likely to fall behind on their payments, – a plus for investors too.


Fast forward to today, the 30-year fully amortizing fixed-rate mortgage is averaging about 4.5 percent—and is still by far the most popular mortgage product for America’s homebuyers. Nearly 90 percent of homebuyers chose it in the first half of 2013. Only 8 percent of homebuyers chose 15-year loans, 3 percent chose adjustable-rate mortgages (ARMs), and 1 percent chose loans with other terms.

Even more important is price stability!

30 year fixed brings price stability and does not wipe out whole communities and FAMILIES!!

NV AZ FL all hardest hit in 2008! All subprime Alt A ARM heavily invested loan areas!
It cant be a coincidence that before the takover of fannie and freddie the two had $78 billion dollars and today in DTA they have around that same amount in capital.


Figure 5: Enterprise Gains/Losses 2008 Through Q3:2011

Available Capital $ 78 Billion
Loss from Segments -$261 Billion
Initial Commitment Fees -$ 2 Billion
Total -$185 Billion 

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