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40-year home mortgage joins optionsby David SmithAs house prices and interest rates continue to rise, the lending industry aims to see that home buying isnt dampened. With the backing of Fannie Mae beginning today, 40-year mortgage loans have joined a proliferation of products to make homeownership more attainable. Jim Carroll, owner of The Carroll Mortgage Group in Little Rock, said there are 150 to 200 loan products from which buyers can choose. Many are variations of the traditional 30-year mortgage with a fixed interest rate, but some are breaking long-standing barriers such as loans that require no money down or drop the requirement for mortgage insurance. "It was gospel," Carroll said, that mortgage insurance was required until the borrower had paid off 20 percent of the loan. "Well, the gospel has been changed now," Carroll said. Sandy Cutts, a spokesman for Fannie Mae, the nations largest provider of mortgage loans, said, "Home-price appreciation, particularly in certain parts of the country like the West Coast, is starting to put home ownership out of the hands of average Americans." The average home price in central Arkansas in April increased to more than $140,000 from about $135,000 a year earlier. Arvest Bank Group Inc. thus far is one of only a few Arkansas banks to offer a 40-year mortgage, a program it began on May 22. But more banks and mortgage lenders will begin providing the longer-term loan this week, since governmentsponsored Fannie Mae will start buying the product from lending institutions. Some see a downside to some of the financing options. Debt counselors believe the 40-year mortgage and other loans are another way to keep Americans in debt. The 40-year mortgage is "a temptation to want to get into a house that may be beyond your capability or need," said Jack Gibbs, media coordinator for Crown Financial Ministries of Gainesville, Ga. Crown is a nonprofit Christian organization that counsels millions of individuals nationally and internationally on financial matters, Gibbs said. Just considering a 40-year mortgage because of the small difference in monthly payments may be a sign that a borrower "is getting in over [his] head," said Michael McAuliffe, president of Chicago-based Family Credit Counseling Service. And some fear Fannie Mae and Freddie Mac, another mortgage finance company, themselves may be getting in over their heads. The Bush administration has recommended that they shrink their $1.5 trillion investment portfolios. A bill in the U.S. House of Representatives would give a new regulator the power to make the Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Loan Mortgage Corp., which is Freddie Mac, buy or sell assets that are determined to affect the financial soundness of the companies. Federal Reserve Chairman Alan Greenspan also has said the mortgage companies debt could be risky for financial markets. Still, the loan options do have their attraction. The interest rate on an interest-only mortgage may be the same as on a 30-year mortgage, but since no principal is paid on the loan, the monthly rates are about $160 less on a $150,000 loan and about $330 less on a $300,000 loan. No down payment is needed on a 100 percent financed mortgage. The interest rate and the monthly payment are only slightly higher than on a 30-year mortgage with down payment. Russ and Barbara Hobby of Conway recently sold their home and purchased a larger house that listed for about $275,000. The Hobbys got a no-money-down loan with Arvest at 6 percent interest instead of 5.5 percent for a loan with a down payment, Russ Hobby said. The monthly payment is higher, but the Hobbys wanted to use the money saved from making a down payment to buy furniture for their new home. Russ Hobby isnt concerned that housing prices may fall, leaving him owing more on his home than it is worth, he said. Hobby said he thinks buying a home "is a safer investment than investing in the stock market." Some believe a housing bubble is possible, which, upon bursting, would see home prices fall after years of appreciation. But much of the speculation about a decline in prices centers on homes on the East and West coasts and in Texas, Carroll said. Carroll doesnt believe that it is likely in Arkansas, where, he said, there is still a sellers market and people most often get the price they want for their homes. "What seems to be one of the elements of concern about a housing bubble is speculation," Carroll said. "People start buying houses because they want to speculate on the value, thinking it will go up in six months or a year. I havent heard a lot of that here, although there are a lot more investor purchases of homes than in the past." Though Fannie Maes endorsement could change things, as of Tuesday no has one opted for Arvests 40-year loan, said Eric Cullum, mortgage loan manager for Arvest in central Arkansas. The four-decade loans do not have a significantly lower monthly payment than a 30-year loan, especially for smaller mortgages. The best way for home buyers to approach the financing of a house is first to talk with a lender to determine how much they can afford before looking at houses, said Jay Brinkmann, a financial economist with the Mortgage Bankers Association. "That way they can say what their financial circumstances are and find out what the risks are," Brinkmann said. Too often, Brinkmann said, "home buyers are falling in love with a particular home" and then rushing to their lender to figure out a way to finance it. Cutts said the 40-year mortgage probably will appeal to first-time home buyers, who often are concerned about making monthly payments more manageable. "We recognize it will not be right for everyone," Cutts said. Arkansas lenders arent expecting the 40-year mortgage to be overwhelmingly popular. "My estimation is that it will have a little impact, but not a whole lot," Carroll said. "Other solutions are just as good if not better." But the popularity of the 40-year mortgage is booming at one bank in the Boston area. Hingham Savings Institution in Hingham, Mass., has made 115 such loans in the past year, totaling about $38 million, said Michael Sinclair, an executive vice president. Hingham Savings markets its 40-year mortgage as a "20-20" loan. The banks 40-year mortgage maintains a fixed-interest rate for the first 20 years, and the rate becomes variable after that. "We wanted to develop a product that meets the needs of the marketplace," Sinclair said. "It was becoming more difficult for our customers to afford to purchase a house or step up to larger homes." Hingham Savings keeps its mortgage loans and does not sell them to other lenders, Sinclair said. The bank has made 40-year loans on houses as big as $3 million, Sinclair said. Both Gibbs and McAuliffe, the financial consultants, said the ideal situation is for people to focus on getting out of debt instead of piling on more debt with longer mortgages or interest-only loans. "Our approach is for people to get debt-free," Gibbs said. "Christ was specific about how we are supposed to help the poor. If a person is debt-free, they can help the needy and disadvantaged." Article Reprinted Courtesy of The Arkansas Democrat Gazette 
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