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A 40-year mortgage? This Fed official thinks it’s a good idea

Should the federal government start guaranteeing mortgages even longer than 30 years? Philadelphia Federal Reserve Chairman Patrick Harker thinks this could be a solution to an emerging problem in the housing finance ecosystem.

In a speech where Harker called on the central bank to act more aggressively in fighting inflation, he also focused on developments in the housing market.

“In general, the housing market is largely sound; if anything, it’s not meeting demand,” Harker said Tuesday.

A potential problem on the horizon, however, is the large number of Americans who are behind on their mortgage payments. And that’s where the 40-year mortgage can come in.

The Philadelphia Fed has been monitoring developments regarding mortgage forbearance. Early in the pandemic, lawmakers demanded that borrowers whose home loans were federally insured be allowed to suspend payments amid the economic turmoil. Through the CARES Act, lawmakers also established a moratorium on foreclosures. For loans not guaranteed by the federal government, private lenders largely adopted the same policies – although some shortcomings existed.

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