why not a nationally mandated 1st mortgage rate that's the same for everyone?

[dysfunctional press]

say 2% over prime, for instance...

here in illinois, ALL 1st mortgages by law have their due date as the first day of the month...
and it seems insane to me that the people of the lowest means are the ones usually given the HIGHEST interest rates...so- why not have a law that ALL first mortgages have the same interest rate, and one that is realistic and affordable? home ownership should be a goal for the country- it helps all the way around- it gives people and communities stability, and it helps the economy as people do home improvements, and buy things for their homes.

[Dora]

1. Excellent idea.

Really, a very good idea.

[Yael]

2. That wouldn't take into account risk

[dysfunctional press]

7. if people were given a rate that would make their loan affordable, they'd be less likely to default.

it seems nuts that the people who have the hardest time making the payment are charged the highest rates- it almost gaurantees that they'll end up defaulting on the loan.

[JerseygirlCT]

9. Exactly

This is punishing people who've worked hard to ensure a good credit rating, and leaving room for people who have chosen to be less careful to reap the benefits of the others.

People who are in need of assistance ought to have help, for sure. But I think it makes sense, business-wise and otherwise, for those who've carefully considered their ability to buy and have not misused credit in the past to benefit from that.

Higher rates can be an effective way to put the brakes on spending out of control. As an example, I know of a young couple who had to have the 500,000 house and the new cars, who are mortgaged to the hilt. One small thing goes wrong and they're screwed. Did they need the trophy house and the beemers? Yeah, not exactly. A smart lender would look at their situation and say, hmmm... ok, good jobs, but you're buying rich here, and charge them a higher rate, because the value of the collateral would be less.

First time buyers, buying modest homes that they can afford, ought to be helped by programs for them -- government programs included.

[David Zephyr]

13. Not so. Even people with great credit, struggle for down payments today and...

if they are looking to buy their first home, having a lower interest rate will help them with lower monthly payments after they've shelled out their savings to buy to home.

This is really only extending the G.I. loan idea to all first time buyers in the country.

I think it's a great idea and I'm long past the days of my first home buying, so I don't have a dog in this fight except that I see this as a very progressive and helpful concept.

[Kingshakabobo]

21. There are plenty of programs for people with good credit ratings...

.....to purchase with little or no money down. The first to come to mind is FHA - it's available to everyone. Fannie Mae and Freddie Mac have implemented their own programs to compete with FHA and, quite frankly, have beat the pants off the FHA programs.

Fannie Mae has a program called "My Community" for moderate income borrowers. A lot of the big lenders have several programs for moderate income borrowers or purchasers in "targeted/under-served" neighborhoods.

The TRICK is FINDING these programs. I work with the City of Chicago and their "City Mortgage" program that allows a below market rate and a 4% gift from the city of chicago for first time buyers or buyers in "target" areas. I'll tell you - I can't get the word out enough about this program. I picked up a customer the other day that had applied elsewhere and were ready to close at a high rate and no incentives. Luckily for them, their realtor mentioned the program. After being lied to, by their first lender, about the funds availability, the realtor put them in contact with me. They are receiving 100% financing, a 4% gift ($13k), a below market rate, reduced PMI insurance, free pre-purchase counseling by a neighborhood organization and job loss insurance included at no extra cost.

Sounds like a pretty good deal. They are out there.

BTW, I'm a mortgage banker.

[JerseygirlCT]

24. Extending a program to provide lower-cost mortgages is one thing

Dictating that ALL mortgages must be a certain rate is another.

I'm all for finding programs that carefully screen people and help find (and fund) lower mortgages for lower-income people.

I'm not for necessitating higher rates for people who have earned them through careful credit use and savings.

[Yael]

20. That is what Freddie Mac is for

FHA loans = first time home buyers.

It is a government program.

[JerseygirlCT]

25. Yes, just what I was thinking of... couldn't remember the program

name.

Expand that, by all means.

But blanket "solutions" that punish other people who've been careful and are deserving of good rates... I don't get that at all.

There's a good reason that mortgage rates are tied to credit history, purchase price, amount of down-payment, etc. I'm all for getting people into their own homes -- in most cases, renting is a loser and home-ownership is smart.

[liberalnurse]

3. That's the best idea

proposal I have heard in 8 years!!!

[artfan]

4. sounds good

until you think it through it would eliminate discrimination but not gouging. Because this plan does not take risk into account it would result in higher interest for all. Look at the history of credit card rates. When only people with excellent credit could get them the rates were much lower.

[nancyharris]

5. Most 30 year fixed mortgage rates

are currently BELOW the prime interest rate. Are you suggesting they be raised?

[dysfunctional press]

6. i used the 2% above prime as an arbitrary number...

but yes, some rates would likely rise, while others would fall, to get one uniform rate.

[midlife_mo_Jo]

12. So I purchase X amount of house at a five percent interest rate

and when interest rates go up to ten percent I lose my house because....why?

In the "interest" of fairness, we spread the misery and more people lose their homes?

Your heart is in the right place, but this wouldn't work.

[dysfunctional press]

14. it wouldn't be a variable rate.

it would be a 30-year(or 15 or whatever) fixed that's locked in for the life of the loan.

[midlife_mo_Jo]

16. but you said some rates would rise

I stand corrected. :)

[dysfunctional press]

18. i meant as opposed to the rate they might qualify for today...

the lowest rates available would probably rise, just as the highest rates would come down, by whatever formula is used to determine the one common rate.

[stirlingsliver]

26. But What If The National Mortgage Rate Went Up (Or Down) During the 15 or 30 Year Period?

But what would happen if the national mortgage rate went up during the period I have a 30-year fixed mortgage?

Wouldn't that mean that some people (those getting mortgages after the national rate went up) would be paying a higher interest rate than me?

And wouldn't that mean, then, that there would be severla different national mortgage rates, depending on when a person took one out?

And would't that mean that if the national rate fell lower than my 30-year fixed rate, I could re-finance to the lower national rate?

And, after I re-financed, if the national rate went up again, other people would have mortgages at a higher rate than me?

[TreasonousBastard]

8. Because it's price regulation, which...

historically has been a disaster whenever tried.

Marxist states were big on price controls, and where it's been used supplies tend to dry up after a while. Even now, look at the problem Iran is having with fixed gasoline prices. Mortgages are really no different than corn or gasoline as far as market forces go, and if the interest rate was fixed by law, far fewer mortgages would be available if interests rates rose.

The way around this, of course, is Federal subsidy of mortgage interest, and that only leads to more problems. And, if cheap mortgages are available to everyonwe, wouldn't that put pressure on housing prices to keep rising faster than they should?

There really is no completely fair answer, but the worst abuses should be fixed.

[The Inquisitive]

10. I'd imagine it would play out like this

Banks would immediately mathematically work out based on credit ratings who it would be profitable to give mortgages to at that fixed rate. The people with the lowest means would simply be rejected, as from the banks perspective, it would be self destructive to give them mortgages. Now what do you do? Legislate that banks have to give mortgages to anyone who applies?

[Kingshakabobo]

15. You hit the nail right on the head.

The OP fails to realize it is the risk based system, as well as private mortgage insurance, that allow MORE people access to homeownership. Money for home loans comes from the "secondary market" - investors investing in mortgage backed securities. Without the extra incentive for higher risk loans the investors simply won't provide the funds.

We already have something close to what the OP is proposing - it's called an FHA loan. FHA is "pretty much" a one-rate-fits-all deal but hey are sometimes more difficult to qualify for than a conventional risk based rate. That's why the FHA market share has shrunk to very low levels in recent years.

[David Zephyr]

11. Great idea. And here's another from California's former Governor Jerry Brown:

Allow rent to be written off one's taxes just as mortgage interest and property taxes are deductible.

That's revolutionary and just.

I like your idea for first time homeowners.

[dysfunctional press]

17. when i say 1st mortgage, i'm not referring to 1st time homeowners-

i'm saying 1st mortgage as opposed to the second or even third mortgages, and "home-equity" loans that people have on top of their "first" (primary) mortgage.

[SoCalDem]

23. There USED to be a renter's deduction, but that went away a long time ago

The personal exemption is supposed to address that, but these days, it hardly comes close..

[rucky]

19. There is such an option. It's called an FHA loan.

Fair Housing Admin (from HUD). It's been around for years to get more homebuyers into the market: no credit scores. you can even have declared bankrupcy, as long as you show you can afford the home you're buying based on your income. But then the subprimers went wild with their crazy-ass loan products - stated income, exploding ARMs, interest only, etc. FHA all but disappeared and people got reeled into these risky loans and bought more home than they could afford. But FHA is coming back as the viable and fair alternative again.

[Rosemary2205]

22. I have low means and a great rate both.

And my loan is owned by one of those so called "preditors" - Countrywide.

I have never topped 300% of the poverty level. But we've always lived well below our means the way our parents taught us. My home is small, in a safe but not the fanciest neighborhood. I bought within my means even though it meant limiting my choices on where I could live. I consider myself lower middle class but I suspect most on DU would consider me as "poor". If I can manage my money in such a way as to put 20% down on a house and qualify for a good rate (I'm at 5.03% apr) then there's no excuse why the middle class can't.

Too many people have eyes bigger than their wallet -- IMHO there's nothing wrong with penalizing them with a higher rate so the bank gets enough money up front to justify the risk of taking on the loan. -- and those making on time payments and good debt management for a few years after buying almost always can refi with a lower rate.

[JerseygirlCT]

27. Yes, exactly

Those higher rates are often intentional disincentives to people reaching beyond their means. They're more likely to default on the loans for that reason.

People really need to learn to save so that they can put enough down to get a decent rate. They also need to be reasonable about how much house they can afford. There have been far too many bright and shiny lures out there, enticing people into more house than they can afford. It's not smart for the buyers, and the lenders ought to have to deal with the result: default, bankruptcy, etc.

[Snarkoleptic]

28. How about flat auto and home insurance rates?

If someone has 10-tickets and 2-DUI's, how would you feel about having the same auto insurance rate that they do?
If someone burned their house down 3 times because they passed out drunk with food on the stove, how would you feel if they had the same homeowners insurace premium?
What if they'd insisted on smoking in bed and burned their house down over and over, how would you feel about rating then?
These are straw men, to be sure, but you get the idea.
If my next door neighbor was twice bankrupt and never paid his/her bills, should I subsidize their moral hazard with my mortgage rate?
I think not!
Personal accountability must be factored into the equation!
If you're a drunk driving, credit defaulting consumer, you should pay a higher rate than those who've behaved in a responsible manner.
IMHO

[AngryAmish]

29. Do you own a lot of rental property?

Because they would benefit most from this.

Follow the money.

[dysfunctional press]

32. no. we had one two-flat that we lived in, but we sold it to buy our current home.

nt

[tritsofme]

30. Then watch the supply of loanable money dry up

If companies can get a better rate of return on their money elsewhere, its illogical to stay in the mortgage business.

[soothsayer]

31. Why is usury even allowed?