Marketplace.org – Adriene Hill
In the wake of the housing market collapse of a few years ago, lawmakers in Washington are debating the future of Fannie Mae, Freddie Mac, and government involvement in the housing market. One issue is the 30-year fixed-rate mortgage, a loan U.S. homebuyers take for granted, but is decidedly uncommon in other countries. In thinking about the role of the 30-year mortgage, it helps to know how it got started.
As late as the 1920’s, someone taking out a mortgage to buy a house in the U.S. would most likely get a short-term balloon mortgage. Typical terms: 50 percent down, and five years to pay off the other 50 percent. At the end of the five years, it was common to re-finance into another five-year loan. Then came the Great Depression. Many banks failed, and surviving banks didn’t want to refinance these balloon mortgages. Banks foreclosed…
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