Swan song for 30-year loans?

WASHINGTON, March 4 (UPI) -- U.S. financial experts said the 30-year fixed-rate mortgage could, in time, become a thing of the past.

The all-but-ubiquitous 30-year home loan came into vogue in the 1950s and has been the preferred loan by millions, who enjoy lower monthly payments that do not change month to month compared with shorter-term loans with adjustable rates.

But two Washington banks -- the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association, Freddie Mac and Fannie Mae, respectively -- have required $135 billion in taxpayer funds to stay afloat since the financial crisis hit in 2008.

Freddie Mac and Fannie Mae have set the tone for mortgage lending by buying bundled loans, called securities.

As confidence in the housing market escalated before the financial crisis, the two mortgage giants approved of increasing numbers of subprime loans, which were mostly loans with adjustable rates that left borrowers with high payments as housing values began to fall.

The Obama administration and Washington Republicans want to wind down the banks. As such, the 30-year mortgage may fall by the wayside, The New York Times reported Friday.

Alex Pollock, former chief executive officer of the Federal Home Loan Bank of Chicago, said in the long run 30-year terms mean borrowers pay more to pay off a loan. In addition, adjustable-rate loan payments fell in recent years as interest rates dropped. Those with fixed-rate loans did not see that option, he said.

"One of the reasons that American housing finance is in such bad shape right now is the 30-year mortgage," he told the Times.

"I myself am eager to see whether there needs to be a (government) guarantee (on loans)," said Rep. Barney Frank, D-Mass., former chairman of the House Finance Committee.

Most in Washington believe Freddie Mac and Fannie Mae should be phased out slowly.

"That kind of a backstop that we have now, if it didn't exist, we would have had a much more severe recession and a much sharper fall in home values," said Michael Berman, chairman of the Mortgage Bankers Association.