Where Are Mortgage Costs Headed?
by The KCM Crew on February 16, 2011

We have received many questions regarding the government's plans for limiting federal support of the mortgage process. We realize that there is much confusion and concern surrounding this issue. However, the KCM Crew does not get involved in discussing the possibilities of future legislation nor are we in the business of lobbying for certain outcomes. This will be a long, drawn-out process. However, since many have asked, here are the thoughts of others on the issue.

The Business Community

AnnaMaria Andriotis, writer for Market Watch:

"In the proposals were changes that will mean more expensive mortgages, with higher fees and, probably, higher interest rates, larger down payments and, in the near term, fewer lenders to choose from."

Mark Zandi, Chief Economist of Moody's Economics.com

"A private system would also likely mean the end of the 30-year fixed-rate mortgage as a mainstay of U.S. housing finance. A privatized U.S. market would come to resemble overseas markets, primarily offering adjustable-rate mortgages. Based on the experience overseas, the fixed-rate share in the U.S. would decline to an average of between 10% and 20% of the mortgage market compared with a historical average of closer to 75%. Reinforcing this likelihood are the limits placed on the use of prepayment penalties in the recently passed Dodd-Frank financial regulatory reform legislation. Adjustable-rate mortgages are not inherently bad loan products, but they do shift the risk of fluctuating interest rates onto homeowners. This would be a very significant adjustment for many U.S. homeowners who are not well equipped to handle such risk."

The Royal Bank of Scotland:

"The GSEs currently provide 95% of housing finance in the U.S.; any reductions of their involvement in supporting mortgages mean interest rates will have to go up to induce private lending."

Consumer Advocates

John Taylor, President and CEO of the National Community Reinvestment Coalition:

"Historically, working class people have had access to private sector capital in order to purchase a home, with guarantees by the government to ensure affordability. The administration's plan, by emphasis and omission, suggests that this country's commitment to ensuring homeownership for working families will be lessened."

Barry Zigas, Director of Housing Policy for Consumer Federation of America:

"These options would turn the mortgage system largely over to the Wall Street banks and investors whose irresponsible, unsafe and expensive mortgage products produced the financial crisis in the first place. It would be a classic case of putting the fox in charge of the hen house, but this time after the fox had already feasted on the flock once before."

Bottom Line
This will be a long, drawn-out process. Where it will wind-up is anyone's guess. We'll try our best to keep you informed.