Fixed rates require a lot of claptrack ...
If you're still there, we're taking a look at the latest mortgage "innovations" proposed by our "new/new" lending 'mavins" (have you looked up Luddites yet?) at the CU.
Asked a couple of questions along the way. You've indicated that you didn't know the U.S. was the only country still using the 30-year fixed mortgage, thought the American Dream of home ownership was a good idea and that tax payers guaranteeing mortgages for private companies (Fannie, Freddie, etc) couldn't be true. (It is!)
We talked about how these government "sponsored" enterprises (GSE's) were created out of the financial turmoil of the Great Depression [link], but then refused to die when the crisis had passed. They zombied!
The final "nail in the coffin" of fixed rate mortgages was the 1980 deregulation of savings rates. Prior to that time, believe or not, financial institutions were restricted by the federal government as to the savings rates they could pay.
Rates didn't change much and CD's and MMSAs didn't exist. With the advent of deregulation, market savings rates began fluctuating (and still do!) wildly and rose as high as 21%! 30-year fixed rate mortgages no longer made sense; the Savings and Loan institutions which held mostly fixed rate mortgage loans collapsed.
But as we know, zombies never die, so even more elaborate "work-arounds" (derivatives, hedging, securitization - you really don't want to go down these rabbit holes!) were created to try and preserve the 30-year fixed rate mortgage dinosaur. These innovations in finance - we were assured - made fixed rate mortgage lending a safe and sound investment.
That fairy tale was hyped and sold to the public and taxpayers, because billions of dollars and careers were at stake - still are! The bubble burst in 2008 and reality came home to roost - the mortgage market collapsed, Fannie and Freddie went broke, you and I as taxpayers picked up the trillion dollar tab.
Don't believe all that? Try looking up the 2008 financial panic [link] or just watch the movie "The Big Short" [link]! And the "new/new" now wants to reinvent and repeat this mortgage mistake at SECU?
Tomorrow we'll get off the history lessons and I'll show you why an ARM is better for you as a home buyer, for SECU savings members, and for the North Carolina economy.
😎 Enjoy "The Big Short"!
