New study shows moreAmericans prefer predictability of a fixed-rate level payment over adjustable rate mortgages
WASHINGTON, DC – A white paper released today by the Homeownership Alliance explains how the fixed-rate mortgage that has made homeownership possible for millions of Americans since the 1930s continues to hold sway over adjustable rate mortgages. The white paper, Mortgage Finance Innovation and the Achievement of Homeownership: The Role of the Fixed Rate Mortgage, was written by Stuart Gabriel, Ph.D. Director of the University of Southern California (USC) Lusk Center for Real Estate (www.usc.edu/lusk)color>.
“The fixed-rate mortgage is a cornerstone of the U.S. housing finance system and has been instrumental to the accrual of wealth on the part of many households.The low interest rates of the past two years have increasingly lured consumers seeking a predictable payment in an uncertain economy,” said Gabriel.
Gabriel’s current research focuses on mortgage prepayment and default risk, urban housing and labor markets, population mobility and the quality-of-life, and rental housing market adjustment mechanisms. Gabriel has published extensively on these and other topics of real estate finance and urban and regional economics.
Gabriel’s white paper describes the introduction of and evolution in fixed-rate mortgage finance, giving particular attention to the federal policy initiatives and consumer benefits associated with the widespread proliferation of the fixed-rate mortgage.Introduced into U.S. mortgage markets by the Federal Housing Administration during the Great Depression, fixed-rate mortgages were designed by the government to increase homeownership.
The prevailing instrument of U.S. mortgage finance prior to the creation of the fixed-rate mortgage was a balloon loan which required the repayment of principal in its entirety at the end of 10 years.
“The fixed-rate mortgage has had a significant impact on the increase in homeownership in the U.S.We’re at an all-time high of 68 percent largely as a result of government policies that produced the fixed rate mortgage and the secondary market,” said Rick Davis, president of the Homeownership Alliance.
The secondary market is a market in which banks and other primary mortgage lenders can sell the mortgages they originate to other investors through a process of mortgage securitization. This resale of residential mortgages allows more investors to finance mortgages and allows banks and other lenders to diversify their credit risk. The secondary market provides liquidity for primary lenders.
The USCLuskCenter for Real Estate seeks to advance real estate knowledge, inform business practice, and address timely issues that affect the real estate industry, the urban economy, and public policy. The LuskCenter produces relevant and timely real estate research, supports educational programs for students and executives, and convenes professional forums that bring together academics, students, business executives, and community leaders.For more information on the LuskCenter for Real Estate, go towww.usc.edu/lusk.
To download the white paper by Stuart Gabriel on the fixed rate mortgage, go to www.homeownershipalliance.com.
Based in Washington, D.C., the Homeownership Alliance is a coalition of more than a dozen organizations committed to ensuring support for the American housing system.Members include Consumer Federation of America, The Council of Insurance Agents & Brokers, The Enterprise Foundation, Fannie Mae, Freddie Mac, Habitat for Humanity International, Independent Community Bankers of America, Independent Insurance Agents & Brokers of America, Local Initiatives Support Corporation, National Association of Hispanic Real Estate Professionals, National Association of Home Builders, National Association of Mortgage Brokers, National Association of Real Estate Brokers, National Association of Realtors®, World Floor Covering Association, National Bankers Association, National Council of La Raza, and National Urban League.