FM Commentary

Consumers Should Have the Option to Select a Fixed-Rate Mortgage

When I bought my first home, I had to choose between a fixed-rate or adjustable-rate mortgage. I chose a fixed-rate mortgage, even though it came with a 13.25 percent interest rate at the time. I wasn't sure if I’d have the income to cover the cost of the mortgage if rates went up. I liked the security of knowing what my payments were going to be over time.

The confidence and certainty of a fixed-rate mortgage is appealing for many Americans.

• The fixed-rate mortgage has been a staple of mortgage lending since the 1930s when it was created to help the country get through the Great Depression.
• Since 1990, such loans have never accounted for less than 75 percent of single-family mortgages outstanding.
• In 2010, 93 percent of Americans with 30-year fixed-rate mortgages said they were satisfied with their mortgages versus 76 percent with hybrid adjustable-rate mortgages (ARMs) and 68 percent for those with ARMs, according to a Fannie Mae survey.
• The MBA reported earlier this year that about 87 percent of borrowers who were in the process of buying a home planned to choose a 30-year fixed-rate loan.
• The delinquency rate for prime fixed-rate mortgage loans was approximately a third of the rate of adjustable-rate mortgages, as of the second quarter of this year.

At Fannie Mae, we see the positive relationship between the fixed-rate mortgage and sustainable homeownership. Our experience shows that loans with stable payments, combined with more borrower equity in the property and higher FICO credit scores, perform better than loans with payments that may adjust over time, higher original loan-to-value ratios, lower FICO credit scores, and Alt-A underwriting. In fact, fully amortizing, fixed-rate mortgages make up 95 percent of the loans we’ve purchased or guaranteed since 2009, according to our most recent 10-Q filing.

It not only makes good business sense to support the fixed-rate mortgage option, it can make sense for families. It provides peace of mind. Families know exactly what their monthly principal and interest payment is going to be, and for how long it’ll remain that amount. They’re protected from interest rate swings. When rates go up, they continue to pay the same fixed rate on their mortgage. When rates go down, they can look to refinance into lower payments. Families can plan for these payments and for their savings.

This is why consumers should have home financing choices that include the 30-year, fixed rate mortgage – and we will continue to work with our customers to help ensure that this remains the case.

Zach Oppenheimer
Senior Vice President
Customer Engagement

October 20, 2011