The American Mortgage in Historical and International Context

Abstract

The U.S. mortgage before the 1930s would be nearly unrecognizable today: it featured variable interest rates, high down payments and short maturities. The authors compare the form of U.S. home mortgages today with those in other countries. The U.S. mortgage provides many more options to borrowers than are commonly provided elsewhere: American homebuyers can choose whether to pay a fixed or floating rate of interest; they can lock in their interest rate in between the time they apply for the mortgage and the time they purchase their house; they can choose the time at which the mortgage rate resets; they can choose the term and the amortization period; they can prepay freely; and they can generally borrow against home equity freely. They can also obtain home mortgages at attractive terms with very low down payments. The authors discuss the nature of the U.S. government intervention in home mortgage markets that has led to the specific choices available to American homebuyers. They believe that the unique characteristics of the U.S. mortgage provide substantial benefits for American homeowners and the overall stability of the economy.

How Mortgage Finance Affects the Urban Landscape

“…However, their short-terms limit the value of this option. Mortgages in Denmark are also assumable (Green and Wachter, 2005).…”

Reregulating Fannie Mae and Freddie Mac

“…I believe that the FHA/GNMA combination provides a useful model because it represents a long-standing, stable, and successful program for supporting the homeownership goals of lower-income families; see Green and Wachter (2005). I begin with a brief summary of the FHA and GNMA programs.…”

An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and an Evaluation of the Policy Options for Reducing those Risks

“…Rather than being separately priced, the cost of the option is impounded into the mortgage interest rate at origination and varies based on expectations of future interest rates and house prices as well as borrower characteristics. 48 For a discussion and analysis of non-US mortgage markets, especially those in Europe, see International Union for Housing Finance (2001), Merrill Lynch (2003, Mercer Oliver Wyman and European Mortgage Federation (2003), and Green and Wachter (2005). 49 See Green and Wachter (2005), for example.…”

“…48 For a discussion and analysis of non-US mortgage markets, especially those in Europe, see International Union for Housing Finance (2001), Merrill Lynch (2003, Mercer Oliver Wyman and European Mortgage Federation (2003), and Green and Wachter (2005). 49 See Green and Wachter (2005), for example.…”

“…One argument is that their presence makes mortgage markets more equitable to borrowers by creating a situation where relatively lower-risk and higher-risk borrowers (up to some minimum credit quality cut-off point) are offered the same mortgage contract and hence pooled together (e.g., Green and Wachter, 2005). Of course, this implies the existence of an indirect income transfer from the lower-risk to the higher-risk households that may not be economically efficient or equitable to those incurring the transfer tax.…”