Certain institutional, political and economic factors could be bringing an end to the 30-year fixed-rate mortgage, according to a blog by the self-proclaimed Mad Hedge Fund Trader, John Thomas, writing for Seeking Alpha.

Thomas points out that 30-year fixed-rate loans don’t exist anywhere else on the globe.

From the blog:

Banks in all other countries only offer floating-rate loans, where interest rates are adjusted monthly, quarterly, or annually to reflect the ebb and flow of the bond market. Thus, the homeowner assumes all the interest rate risk.

So if you borrow money to buy a house and interest rates remain unchanged or fall, then so does your monthly payment. If rates rise, then so does your monthly nut. If they rise a lot, then you are toast.

He also explains why the 30-year fixed-rate mortgage could be destroying banks, and that they only exist because of government-sponsored enterprises.

From the blog:

The 30-year fixed only exists thanks to a massive government subsidy. That comes in the form of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

They buy home mortgages from banks, securitize them, and sell them to end investors with a government guarantee. Thus the government took all the credit risk off of the banks and on to their own books. At the peak, the pair owned or guaranteed more than $5 trillion in debt.

And therein lies the problem.

When the 2008-2009 financial crisis came storming in, it didn't take long for many of the GSEs' home loans to default.

So what is his conclusion?

From the blog:

As long as the world remains in a deflationary funk, the prospects of a serious rate spike are extraordinarily low. The end result will be more risk for consumers, and less for the banks… and the government.

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