Here's something to remember: When most of us buy a home, we're essentially getting help from the government in the form of Fannie Mae and Freddie Mac. They are two government-backed companies that subsidize and underwrite mortgages -- including one that is the bedrock of the real estate market, the 30-year fixed rate. That loan makes up a large part of the U.S mortgage market.
So when we talk about homeownership, we are essentially talking about the 30-year. Because most consumers have used this mortgage to get a home. Right now, Congress is trying to figure out whether it should still exist. Will it go away? Ilyce Glink, a personal finance expert and author, says she can't imagine that ever happening.
"I know that there's been talk about eliminating it, and truth be told, most Americans don't keep their mortgages for 30 years. The typical American household will keep a mortgage for usually somewhere between 5-7 years. But now that mortgage interest rates are near historic lows -- they're not quite at the historic low, but very close to it -- I think we're going to see these mortgages kept for a long time," says Glink.
The government is trying to wind down Fannie Mae and Freddie Mac, which could really change the mortgage picture out there because most of the new mortgages that have been taken out the last few years have been backed by the two government-backed companies. What could mortgages look like if Fannie and Freddie go private or have a diminished role?
"In its place is going to be a system that I think will look very much like Fannie Mae and Freddie Mac except going to be not Fannie Mae and Freddie Mac. What will end up happening is that private entities [will] step in and perform this secondary mortgage market function and it'll probably names that you name like Bank of America or Chase. The big banks are going to want a part of this," says Glink.
If you're thinking of buying a house and trying to figure out the financing end of it, what should you expect?
"I think what you'll see with whatever replaces Fannie Mae and Freddie Mac are additional charges and fees that are going to go into this. Ultimately that will fall to the buyers. So I think buyers will see mortgages that are going to be more expensive," says Glink. "The costs of mortgages is going to go up. We see interest rates already going up, that's making mortgages more expensive. And I think the fees associated with it are going to go up."
Glink says the super low interest rates we've seen the last few years are a direct result of the economy tanking, and the Federal Reserve buying mortgage-backed securities and other instruments to keep rates low. She says eventually the economy will improve and costs will go up.
In 5-10 years, what might the standard mortgage look like?
"I don't know that there's any way to know right now. But looking out 10 years, if I had to lay odds on it, I would say there will still be a 30-year mortgage. People will still be able to qualify, but they're going to have to qualify based on what they actually earn and can afford to repay," says Glink. "We went through a period where all you needed was a pulse and a good credit score and you could leverage up your income by 10 times. I think those days are gone."