RACHEL MARTIN, HOST:
The affordable 15-year mortgage. It's a proposal that's just starting to get attention. And perhaps the most amazing thing - conservatives and liberals both like this idea. NPR's Chris Arnold explains how this new home loan concept came about - one that would help people own more of their house more quickly.
CHRIS ARNOLD, BYLINE: In the liberal corner, we have Bruce Marks. And you don't get much more liberal than that. Marks runs a housing nonprofit and calls himself, quote, "a nonviolent bank terrorist." He's marched onto bank CEOs' front lawns with hundreds of homeowners to protest foreclosures. And he likes to go on Fox News and get into yelling matches with conservatives.
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BRUCE MARKS: Get real my friend. Talk to these homeowners, they're human beings.
ARNOLD: But a few months ago, Bruce Marks was speaking on a panel.
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MARKS: I'm at a conference, I'm saying that the conservatives don't believe in providing assistance for low and moderate income people.
ARNOLD: And Ed Pinto, an economist from the decidedly conservative American Enterprise Institute, was speaking at the same conference.
ED PINTO: It's a conference called The Color of Wealth, and it was all about the fact that people of color have really been slammed in terms of wealth building by what's been going on in the housing market.
ARNOLD: And Pinto was saying something pretty provocative - that over the past 30 years, policies to promote homeownership backfired. He says they got too focused on making loans affordable instead of promoting loans that would build more actual ownership in a home. The favorite loan of most housing advocates - the 30-year-old fixed rate loan. Risking sacrilege at that conference, Pinto said it's a bad loan for most people.
PINTO: A 30-year loan just doesn't allow you to build wealth unless house prices happen to go up and up and up.
ARNOLD: That's because in the first, say, five or seven years of a 30-year loan, a huge percentage of your mortgage payment goes to pay interest, not to pay down the principal. So, in effect, you're just paying rent to the bank and the bank really owns the house.
PINTO: You basically become a renter with a mortgage.
ARNOLD: So Pinto said instead, we should figure out ways to let more Americans afford 15-year mortgages where you own a much bigger chunk of your house more quickly. And Bruce Marks, after thinking about it, decided that Pinto had a really good point. The two men had dinner, they kept talking, they started working together. And now they've launched a pilot project offering a new kind of 15-year mortgage. They call it the Wealth Building Home Loan. Bruce Marks.
MARKS: It is a game changer 'cause you're going from a debt model to an ownership model.
ARNOLD: Now when you get a mortgage, you can pay money upfront to lower the interest rate. That's called paying points. And for the loan pilot, Marks got Bank of America and Citibank to agree to offer an especially good interest rate reduction if you do this. Marks is offering this new loan through his nonprofit. It's called NACA. Kimberly Wright of Memphis, Tennessee, just closed on one of those 15-year loans and actually the interest rate she got, it's close zero percent.
KIMBERLY WRIGHT: Yeah, I really thought that it was unbelievable. I had to call my mortgage consultant and ask her was it really real? And she was like, yes baby, it's true.
ARNOLD: Wright works for a company that does embroidery work on uniforms and jackets and things like that. She says she makes less than $30,000 a year, has two teenage kids. And after going through the NACA homebuyer program, she's just bought the house for $82,000. Now instead of making a down payment, she used $5,000 up front to get that near zero percent rate. And that's what allowed her to do the 15-year loan instead of the 30-year loan.
WRIGHT: I chose the 15-year plan instead of the 30-year plan because I was able to buy my rate down much lower and then of course, I'll be through paying it off 15 years earlier.
ARNOLD: And with a near zero percent interest rate, nearly all of her $650 monthly payments will be going to pay off her principal. So she'll very quickly build an ownership stake in the house. Ed Pinto.
PINTO: The money is going literally directly from your left pocket to your right because you're in effect writing a check to yourself.
ARNOLD: Pinto acknowledges there is still a lot of work to do to figure how to make these loans available on a wider scale. And even then, it may take some convincing for homeowners, even though these new wealth builder loans are a very good deal in the long run, you pay a little bit more each month than you would on a traditional 30-year fixed-rate loan. So many people just might not go for that. Chris Arnold, NPR News.
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