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On Tuesday, August 6, 2013, President Barack Obama spoke about the new Congressional proposal to shut down Frannie Mae and Freddie Mac, the government-run behemoth mortgage companies that were rescued by a $187 billion taxpayer bailout during the financial crisis.
If Congress follows through with the plans, borrows will probably end up paying slightly higher mortgage rates under the House and Senate bills that would slowly phase out Fannie and Freddie over five years and establish a much more limited government role in insuring mortgage securities. Supports of the bill say this would keep mortgage rates available and affordable for everyone.
The underlying idea behind both of the House and Senate bills is to shift more mortgage financing risk away from the government and to the private sector to prevent taxpayers from having to pay for future bailouts.
However, there will be a price homebuyers would have to pay for having private investors shoulder the majority of borrowing risk to protect taxpayers.
Mark Zandi, chief economist at Moody’s Analytics said, “It will mean higher mortgage rates. The question is how much higher.”
Zandi estimated that the average borrowers could pay up to $75 per month in extra interest payments (half a percentage point) on a mainstream mortgage under the Senate proposal, and about $135 more under the House plan. These figures are for a conforming loan of around $200,00 with the borrower providing 20% of the down payment.
Story from SFGate: Read more at http://bit.ly/1bkBrCu
