Massachusetts lenders might not be so quick to jump on the bandwagon of new long-term products such as the 50-year mortgage that some California mortgage companies recently have started to offer. That’s because, according to local lenders, recent experiments with 40-year mortgage products have failed to garner much traction on the East Coast.

For the most part, while still relatively new, the 40-year mortgage has proved to be a bust in the Bay State. The length of the loan term is too daunting for fiscally conservative Bay State homebuyers who have aspirations of paying off their mortgages before retirement, according to a number of local lenders.

Many local mortgage firms began adding 40-year mortgages to their product offerings during the past two years with hopes that the lengthy amortization period, which results in lower monthly payments for borrowers, would be attractive to homebuyers in the high-priced Massachusetts real estate market. The concept previously had caught on in California, where housing also is pricey.

But according to some Massachusetts lenders, 40-year loans do not lower monthly payments enough to make the product attractive to most borrowers.

Sushil Tuli, president of Leader Mortgage Co. in Arlington, found out the hard way that 40-year mortgages weren’t right for his customers. Leader Mortgage spent three weeks marketing 40-year mortgages last year. The advertisements Leader ran in newspapers did spark some interest and inquiries by prospective borrowers, but in the end there were no takers.

Tuli said he understands why borrowers shied away from 40-year mortgages. After doing the math, borrowers realized the savings really weren’t significant. Part of the problem, Tuli said, is that while the length of the loan does lower monthly payments for the borrower, fixed-rate 40-year mortgages also carry a higher rate of interest than their more conventional 30-year counterparts, cutting into the savings.

“They got priced higher than the 30-year mortgage,” Tuli said.

Although Leader still makes 40-mortgages available to its customers, the company is no longer actively marketing the product. Tuli said there are other products that achieve what people would want from a 40-year mortgage. He said the general aim of 40-year mortgages is to lower monthly payments, but option ARMs (adjustable-rate mortgages) or interest-only loans produce bigger initial savings for borrowers.

Tuli said the 40-year mortgage may just be ahead of its time, at least in the local market, and may yet find its niche.

The product also offers a particular challenge to mortgage brokers, who must price a 40-year loan to be saleable on the secondary market. He said if banks offered 40-year mortgages with the intention of keeping them in their loan portfolios, they could give their customers essentially the same interest rate they charge for 30-year loans, vastly increasing the potential monthly savings and usefulness of the product. However, Tuli, who is also the president of Leader Bank, said there is no plan to keep such loans on his bank’s portfolio any time in the near future.

Jim Jones, founder and president of First Wellesley Consulting Group, a management consulting firm specializing in the financial services and real estate finance industries, said holding onto very long-term loans can be risky for financial institutions. He said if interest rates rise more than expected, a bank could even lose money on the deal.

Jones said he doesn’t believe there is enough demand in the area to have many mortgage bankers considering adding 40-year mortgages to their portfolios, even though, in the current slumping mortgage market, many lenders are scrambling to find new niche products to bolster the bottom line.

“I want my mortgage to go the other way. I want it shorter,” said James Dougherty, executive director of the Massachusetts Mortgage Association. “You are dealing with conventional wisdom. [A 40-year mortgage] doesn’t seem attractive because it is longer.”

Jones and Dougherty both said the New England mindset is pretty conservative and the idea of owning a home, paid off in full, is still part of the American dream in the region. A 40-year mortgage doesn’t fit well into that goal.

Conversely, even for those borrowers who aren’t thinking that far ahead, the short-term monthly payment savings realized by a 40-year mortgage aren’t enough to make the product stand out as a viable option.

“New Englanders want to own a house quick. People are motivated to get a mortgage product based on what it will do for them,” said Jones. “[A 40-year mortgage] simply doesn’t reduce the monthly payments enough. Savvy people that try to get the biggest house with the biggest mortgage and the smallest monthly payments are going to look at other options” such as adjustable-rate mortgages that begin with lower interest rates.

Whatever the reason, area borrowers haven’t immediately been receptive to 40-year loans.

“The New England mindset generally is adverse to a 40- or 50-year mortgage. I think New England will continue to resist a 40-year mortgage,” said Jones. “They are more popular in California where people want to do anything they can to minimize their loan payments so they can spend their income on other things like a better car or vacations.”

New to California is the 50-year mortgage, which some lenders have begun offering in recent months. The 50-year mortgages are being offered as adjustable-rate loans, so borrowers may still see their payments go up. Still, the new loans are considered by many industry experts to be safer for consumers than interest-only loans. With the median sales price of homes in California approaching $550,000, a variety of creative mortgages are being offered to help prospective homeowners stretch their buying power.

‘Scary’ Story
In fact, 40-year mortgages are flourishing on the West Coast, said Bob Visini, vice president of marketing for San Francisco-based LoanPerformance, a subsidiary of First American Real Estate Solutions, which tracks mortgage trends. The company reports 40-year mortgages slowly have been gaining in popularity on a national scale. So far in 2006, they account for 1.36 percent of all mortgages issued and 2.4 percent of total mortgage dollar volume in the country. Five years ago, 40-year mortgages made up only 0.01 percent of total loan volume nationally. The 30-year, fixed-rate mortgage remains the top choice for borrowers. Of all the home loans originated in 2006, 94.71 percent have been 30-year mortgages, according to statistics provided by LoanPerformance.

Although the number of 40-year mortgages in Massachusetts rose from 17 in 2004 to 248 last year, the number is miniscule compared with the 19,726 40-year loans originated in California in 2005.

Freddie Mac announced last week it is expanding its line of 40-year mortgages by adding new versions of the long mortgage through its Home Possible program, which is designed to assist low- to moderate-income households reach the goal of homeownership.

“This is just the beginning of a robust product strategy designed to give lenders a highly flexible array of 40-year products so more customers can better match their homebuying ambitions with their financial circumstances,” James Cotton, vice president of mortgage sourcing at Freddie Mac, said in introducing the new loans.

The rates for the new Freddie Mac products have not been set, and many area lenders still question how valuable the concept of a 40-year mortgage really is.

Rick Fedele, president and founder of Boston-based Summit Mortgage, said that Massachusetts is not the ideal place for such long-term loan products.

“There are so many better products out there. We’re trying to do the right thing, and this doesn’t seem to be it,” said Fedele. “We would like to push people the other way. We have been pushing the word to go to a shorter-term mortgage over the last 10 years.”

Fedele said he believes long-term mortgage products often receive a lot of attention simply because they are new. But new isn’t as strong a sales pitch in New England as it is on the West Coast, as least in financial matters.

“It’s new, so you want it? It doesn’t really make sense. Why bother?” he said. “I just think it is the [mortgage] industry trying to create something else.”

Fedele said with the wide variety of loan options available it becomes increasingly more important for borrowers to make sure they are working with a reliable company with extensive product knowledge. He said new mortgage products are a sign that the industry is evolving, but it is important that consumers know what they are getting involved in and that lenders fully understand what each new product can and cannot do.

“You need more professional advice,” he said.

James F. Flynn said he never offered the option of a 40-year loan to his customers when he ran Hopkinton-based Marathon Mortgage, which was recently bought by Countrywide Financial Corp., a national lender based in California

Flynn said he is not surprised there were not swarms of customers flocking to the long-term loan product, especially given that homeowners build up equity very slowly with such loans.

“It’s a social and economic thing. Right now it doesn’t work,” he said. “We are a little conservative in New England. Forty years with very little principal reduction is scary.”

Making It Work
While many local lenders remain skeptical about 40-year mortgages, Michael J. Sinclair, vice president of retail lending for Hingham-based Hingham Institution for Savings, said he has developed a strategy to make the 40-year mortgage a success in Massachusetts. The concept was to split the 40-year mortgage into two parts. For the first 20-year term the mortgage is fixed at a rate below that of a 30-year fixed-rate mortgage. It adjusts once after that and than stays at the new rate for the remainder of the loan.

Sinclair said the concept of a 20/20 mortgage has been well received locally, and the company has done more than $75 million worth of business with the product since it was introduced in May 2004. He said Hingham Institution for Savings was the first to offer a 40-year mortgage in the area and that today more than 75 percent of the company’s mortgage originations are 40-year mortgages.

“I have heard they [40-year mortgages] haven’t been successful elsewhere,” he said, but Hingham Institution for Savings is making good use of the product. The bank keeps all of its loans on its portfolio, allowing it to offer a lower rate than its corresponding 30-year fixed-rate mortgage, he said.

According to Sinclair, Massachusetts homebuyers aren’t too conservative for long-term loans as long as they make financial sense.

“I don’t think it is a question of people being conservative, it is a question of affordability,” he said. “Our 20/20 doesn’t have negative amortization. It doesn’t have a lot of bells and whistles. It’s simple.”

Sinclair, although he has had much success with the 40-year mortgage, said he does not plan to touch the new 50-year mortgage products.

“I did hear about that, and I wish them well, whoever wants to offer that. The 50-year mortgage is only a small step away from an interest-only [mortgage],” he warned.