Goodbye 40 year mortgages and good riddance. Yes after talking about a potential bust in the housing market it is good to see our government is now doing something about it. Now really it isn’t a significant change. After all you can still get a 35 year mortgage after Oct 15, 2008, which still creates a huge interest bill for you (but huge profit for the bank).
The more significant change is requiring 5% down payment instead of just 0%. Perhaps someone woke up and realized that maybe, just maybe, we should make potential home owners prove they have some excess cash flow and can save for a house prior to buying one. This will be the change that drags down the market as first time home buyers will have to sit on their hands for a few years to save a down payment.
Yet as good as these changes are they still don’t really deal with all the people that already have a 40 year mortgage with no money down. Now assuming they are like most people who take 5 year fix rate mortgages at some time in the last two years. That would mean if we have higher interest rates around 2012 to 2013 we could see a bit of a problem. At least in the in term we know the bubble can only get so big.