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ISCOVER
Staff Reporter
The US mortgage market is looking to Australia for guidance on how to structure loans in the wake of the credit crisis.
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According to a new report by the US Mortgage Bankers Association, US policymakers are beginning to question whether they should place new restrictions on types of loans that are considered risky and whether the market should continue to be dominated by fixed rate loans.
More than 95 per cent of mortgages are now fixed in the States, whereas the vast majority of mortgages in Australia are variable.
“What are the desirable features in a mortgage instrument? There is no easy answer to this question as it depends on whether viewed from the borrower’s or the lender / investor’s perspective,” the report read.
“Features attractive to borrowers may be costly or impossible for lenders to provide and in turn, features attractive to lenders may not be acceptable to borrowers. Though there is no perfect mortgage, the dominant instrument in any country represents a balance between borrower and lender / investor needs.
“Regulation may have an important influence if it bans or dictates certain features, and history too may play a role as an instrument that has been dominant in a market for a long period of time is familiar to both borrowers and lenders and may be difficult to dislodge.”
The US differs from most other developed mortgage markets.
Many US mortgages are non-recourse, allowing borrowers to walk away from their homes without further liability.
