Get rid of the 30-year mortgage

 Residential Mortgage  Comments Off on Get rid of the 30-year mortgage
Sep 252019

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By G. Steven Bray

Get rid of the 30-year mortgage? So says Ed Pinto, a resident fellow and the co-director of the Center on Housing Markets and Finance at the American Enterprise Institute (AEI). In a recently posted article, Mr. Pinto argues that a 30-year term greatly increases the risk of foreclosure and has led to higher home prices for entry-level homes.

He cites statistics showing that foreclosure rates were almost zero during the 1950’s (prior to the advent of the 30-year mortgage) and that a 30-year loan is about twice as risky as a 20-year loan. He also notes that in the 50’s the median price of a home was roughly two-times median income. Today, the ratio is over 3.5.

Mr. Pinto’s arguments are thought-provoking, but I’m not sure the proposal, elimination of the 30-year mortgage, is reasonable. A 30-year term results in a lower monthly payment, making it possible for someone to purchase a higher-priced home than if she used a 20-year mortgage.

The issue of risk in my mind comes down to a question of public policy.

  • If 30-year loan rates reflect the higher associated risk of foreclosure, should that be acceptable?
  • If as a society we’re not willing to accept any risk of foreclosure, then are we willing to accept a higher interest rate (or government subsidy) to internalize the costs associated with supporting those who lose their homes?

Finally, Mr. Pinto argues that the 30-year mortgage has made entry-level homes less affordable. I’m not buying his correlation. While it makes economic sense that a lower monthly payment would lead to more demand for homes pushing prices up, the market would correct for that by creating supply to meet the demand. Moreover, there are too many other factors that could explain the fact that entry-level home prices have increased more quickly than move-up home prices, such as mortgage programs that target and subsidize first-time homebuyers.

Recovering from damaged credit – Part 2

 Credit Scoring  Comments Off on Recovering from damaged credit – Part 2
Apr 162015

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By G. Steven Bray

Yesterday, we discussed the need to reestablish lines of credit after financial hardship. You may have a tough time getting a major bank credit card with damaged credit, but there are other options.

If you have some savings, consider a secured credit card. This is a major credit card, like Visa or MasterCard, with the credit limit typically limited to the amount of your savings. That’s fine because the credit limit isn’t terribly important. What is important is that you use the card at least occasionally and keep the balance paid on time.

If you’re planning an appliance or furniture purchase, ask if the store has a credit program. Typically, these loans allow you to pay off the purchase over a fixed term.

If you need a car, a number of creditors specialize in car loans to folks with damaged credit.

Finally, even if you can’t get a major credit card, you might qualify for a department store or gas company credit card.

To qualify you for a mortgage, I want to see at least two or three accounts that have been active for at least 12 months.

And, here’s the most important advice I can give you. Make all your payments on time if you want your credit scores to improve.

Recovering from damaged credit

 Credit Scoring  Comments Off on Recovering from damaged credit
Apr 152015

For more information, please contact me at (512) 261-1542 or

By G. Steven Bray

You don’t have to let financial hardship define your credit future. Too often, I see folks who experience a bankruptcy, foreclosure, or just financial hard times give up on credit because the hardship trashes their credit scores. I will grant you that it can be difficult to qualify for a home purchase after one of these credit disasters, but if you’re proactive, you can qualify in only a couple years.

First, understand that the bad credit isn’t going to magically disappear. Yes, there are companies that specialize in cleaning up bad credit for a fee, but they can’t make legitimate negative information go away. If you’ve experienced a bankruptcy or foreclosure, it’s improbable anyone can unring that bell.

Instead of trying to rewrite history, your job is to offset the bad credit with good credit. To that end, it’s important that you reestablish lines of credit. You may have a tough time getting a major bank credit card, but there are other options.

We’ll discuss those in tomorrow’s Star Bits.

Protecting military from foreclosure

 Regulations, Residential Mortgage  Comments Off on Protecting military from foreclosure
Feb 252015

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By G. Steven Bray

Those fighting for our country need to know the Servicemembers’ Civil Relief Act (SCRA). This law provides some important financial protections for our military.

One of those protections was set to expire at the end of last year, but Congress extended it to make it permanent. The measure prohibits lenders from foreclosing for one year following the servicemember’s return from active duty. The measure is particularly important to reservists and National Guard members who have to give up full-time jobs to honor their commitments to our country. One important point: The service member must have taken out the mortgage prior to starting active duty.

I’ve provided a link to information about the Act at the end of my blog.

Click here to visit the the Veteran’s Administration’s Web page about the SCRA.