Dr. Wachter's U.S. Mortgage Payment Index

Third Quarter, 2007

In a mortgage market environment where “credit crunch” and “mortgage meltdown” are two of the most resounding industry messages, many new homebuyers…and current homeowners…are left to wonder “Which mortgage makes sense for me?” To help clear the confusion, Dr. Susan M. Wachter, Professor of Real Estate and Finance at The Wharton School of the University of Pennsylvania, has issued her third quarterly report in partnership with Genworth. In it, Dr. Wachter compares current mortgage products and payment options, and suggests playing it safe with traditional home financing.

Q3: Despite Market Fluctuation, Availability and Use of Fixed-Rate Mortgages Remain Strong
As observers were talking about a “credit crunch” and “mortgage meltdown” in the second quarter of 2007, a remarkable development emerged: traditional home financing with a conforming (under $417,000) 30-year fixed-rate mortgage became not only more affordable, but also remained widely available—with little rate fluctuation from the previous quarter.

In Q2, more borrowers and lenders began using tried-and-true mortgages, which offer price stability and long-term security, rather than other types of adjustable- and teaser-rate mortgages. This is evidenced by an increase in fixed-rate mortgages (FRMs), a decrease in adjustable-rate mortgages (ARMs), and a big comeback of insured mortgages in the first half of the year.

View the entire Q3 Mortgage Payment Index. (pdf | 358kb)

Dr. Wachter’s Bottom Line:

1.	Fixed-rate mortgages remain affordable over the long term, whereas payments on adjustable-rate products are likely to spike and send borrowers into payment shock.
2.	While there is certainly a “credit crunch” for many Americans seeking non-traditional loans, tried-and-true financing with mortgage insurance is still available and is being widely sought by consumers, especially first-time buyers.

3.	Lenders are quickly dropping high-risk mortgages off their books and borrowers are opting for less risky loans—a trend I expect to continue as rates on adjustable-rate mortgages reset, foreclosures spread and regulators consider how to deal with the fallout from exotic mortgages.
4.	Low down payment borrowers should avoid piggyback mortgages, which can add risk. Instead, consider a single loan with mortgage insurance to keep monthly payments stable and affordable.

Dr. Wachter's U.S. Mortgage Payment Index

Dr. Wachter’s Bottom Line:

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