The PATH Act Sustains the 30-Year Fixed Rate MortgagePosted by on July 15, 2013
Leaders of the Financial Services Committee have proposed the PATH Act – the Protecting American Taxpayers and Homeowners Act (.pdf) – to create a sustainable housing finance system for the 21st century. The proposal:
The biggest myth we are hearing about the PATH Act is that it will make the 30-year fixed rate mortgage disappear. The 30-year fixed rate mortgage will continue to exist. The PATH Act won’t change that.First of all, Fannie Mae and Freddie Mac have never made a 30-year fixed rate mortgage to a borrower. Or any mortgage for that matter. Fannie and Freddie were not lenders, they only bought loans made by others. The terms of a mortgage are up to the homebuyer and the lender, and phasing out these taxpayer-supported government giants will do nothing to limit financing options – in fact, the proposal is designed to create more opportunities for more choices, including the 30-year fixed rate loan.
Secondly, 30-year fixed rate mortgages existed before the financial crisis without a government guarantee and they are being made today without a government guarantee. As Peter Wallison, co-director of Financial Policy Studies at the American Enterprise Institute, has noted (.pdf):
Additionally, nothing in this proposal will change the ability of qualified borrowers to receive a 30-year fixed rate mortgage through the Federal Housing Administration.
And finally, is it really in the homebuyers’ best interest for the government to steer them into long term loans for homes they can’t afford to keep? As the acting director of the agency that oversees Fannie and Freddie, Ed DeMarco, explained in congressional testimony:
The 30-year fixed rate mortgage will continue. The PATH Act won’t change that. What will change is this: Washington won’t steer homebuyers into products that they do not want and that cost more than they want to spend, and all Americans will benefit from a sustainable housing finance system that offers more choices and opportunities.