Mortgage Daily Logo
mortgage news from industry experts

Greenspan Clarifies Fixed Rate Stance

Greenspan Clarifies Fixed Rate StanceFed chairman backtracks on ARM savings comments

March 4, 2004

By DARRELL DELAMAIDE

After making comments that suggested Americans can save tens of thousands of dollars by using an adjustable rate mortgage (ARM) instead of a fixed rate, the head of the Federal Reserve admitted he personally didn’t follow that advice.

Fed Chairman Alan Greenspan, often accused of talking out of both sides of his mouth, now wants to modify his recent remarks about the desirability of ARMs over fixed-rate. In a question and answer session at the Economic Club of New York earlier this week, Greenspan said he “probably spoke imprecisely” when he talked up the cost savings of ARMs in a speech to credit unions last week in Washington.

At that time he said “many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade.” Homeowners pay a lot of money for the option to refinance and for protection against increases in mortgage payments — anywhere from 0.5 percent to 1.2 percent extra, he said. The Fed chairman suggested consumers would benefit if lenders offered greater mortgage product alternatives.

This week Greenspan backtracked a bit. “I did not mean to disparage the 30-year self-amortizing mortgage,” he said. In his previous speech, he said, he had been focusing on a “narrow segment” of the market that might prefer an alternative to the 30-year fixed-rate, either variable rate or perhaps a variable maturity mortgage.

In New York this week, Greenspan went on to describe the 30-year mortgage as one of the U.S. market’s “great inventions.” While last week he said borrowers in other countries rejected the fixed-rate alternative because they found it too expensive, this week he suggested that many other countries would be “delighted” if they could shift some variable-rate mortgages to fixed-rate. The popularity of fixed-rate mortgages in this country, in spite of the premium it entails, demonstrates how significant risk aversion is for many individuals, he said. And the chairman confessed that he, too, had always opted for a long-term mortgage when he needed to borrow on real estate.

More than one-quarter of all loan applicants currently prefer ARMs, according to the Weekly Mortgage Application Survey released yesterday by the Mortgage Bankers Association of America.


Darrell Delamaide is a freelance journalist based in Washington, D.C. Recipient of a master’s degree from Columbia, he has held positions at Bloomberg, America Online, Institutional Investor and other news organizations.

email: DDelamaide@aol.com

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts

THE TRUSTED PROVIDER OF ACCURATE RATES AND FINANCIAL INFORMATION