Homeownership: Preserving the American Dream
by John C. Dugan, Comptroller of the Currency
Homeownership in the United States has reached record levels, with the U.S. Census Bureau estimating the homeownership rate at 69 percent in 2005. Moreover, although gaps persist, for the first time the homeownership rate among minorities exceeds 50 percent. Low interest rates, a strong housing market, and innovations in the mortgage lending business have all played a part.
First-time homebuyers are finding that owning a home offers many advantages in building wealth and providing the financial security of having a tangible asset against which to borrow to meet important needs. And homeowners are more likely to become involved and invested in their communities.
But there's a downside. Homebuyers are increasingly relying on non-traditional mortgage products such as "interest-only" mortgages and "payment-option" adjustable-rate mortgages (ARMs), which currently account for an estimated 19 percent of all outstanding mortgages, according to Bear, Stearns & Co., Inc. In fact, non-traditional mortgages represented an estimated 30 percent of all mortgage originations in 2005, according to Inside Mortgage Finance.
These kinds of mortgages expose borrowers to potentially significant cost increases when interest rates rise — and a recent industry analysis projected that $1.5 trillion in ARMs (including traditional ARMs) will reset over the next four years..