Borrowers probably would end up paying slightly higher mortgage rates under House and Senate bills that would phase out Fannie and Freddie over five years and shrink the government’s huge role in guaranteeing mortgage securities. Fannie and Freddie teetered under a crush of massive losses on risky mortgages before being bailed out.
The idea behind both plans is to shift more mortgage-financing risk from the government to the private sector to prevent taxpayers from having to pay for future bailouts. But there’s a price homebuyers likely would pay for having private investors shoulder more risk to protect taxpayers.
“It will mean higher mortgage rates,” said Mark Zandi, chief economist at Moody’s Analytics. “The question is how much higher.”
Typical borrowers could pay about $75 per month in extra interest payments, about half a percentage point, on an average mortgage under the Senate proposal, Zandi estimated, and about $135 more under the House plan. That’s on a conforming loan of about $200,000 with the borrower providing a 20 percent down payment.
The House Republican bill virtually would privatize the mortgage market. The Senate’s bipartisan plan envisions a continued but more limited government role in insuring mortgage securities.
Freddie Mac and Fannie Mae own or guarantee half of all mortgages in the 50 U.S. states including New Mexico and own or guarantee 90 percent of new ones.
In New Mexico, Freddie Mac’s 2012 portfolio showed it was involved in $1.68 billion in home loans with 7,851 homebuyers, according to the organization’s website. In the past 10 years, Freddie Mac has handled $23.84 billion in loan business in New Mexico assisting 143,398 homebuyers.
Congressional efforts to overhaul the nation’s mortgage-finance system got a boost Tuesday from President Barack Obama’s call for changes that are generally in line with the Senate’s bipartisan plan.
“The good news is right now there’s a bipartisan group of senators working to end Fannie and Freddie as we know them. And I support these kinds of reform efforts,” Obama said.