Fannie, Freddie overhaul could mean higher rates: study

by Ryan Smith04 Apr 2014
A planned overhaul of Fannie Mae and Freddie Mac could send mortgage rates climbing for homeowners with weaker credit, according to a new study.

The study, produced for the trade group Leading Builders of America by the Harvard Joint Center for Housing Studies, predicted that various government proposals to overhaul the mortgage finance giants could cause rates to rise as much as 1.5 percentage points, according to a Wall Street Journal report.

According to the Journal, the study focused on the potential impacts of a bill proposed last year by Sens. Mark Warner (D-Va.) and Bob Corker (R.-Tenn.) that would wind down Fannie and Freddie, replacing them with a new system of government mortgage insurance. The study estimated rates could rise between 0.25 and 1.5 percentage points as a result of higher capital requirements and various fees proposed in the bill, the Journal reported.

The study said that borrowers with credit scores between 650 and 750 with down payments of 5%-15% were likely to be hardest hit.

The Senate is currently considering a different bill championed by Sens. Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho), but the bill is modeled heavily on the earlier Warner-Corker bill.

Other analysts say the paper overstates the impact of any proposed overhaul, the Journal reported. David Crowe, chief economist for the National Association of Home Builders, said most potential borrowers who would be affected by an overhaul aren’t looking for mortgages now due to tightening underwriting standards.

“It doesn’t take into account that those borrowers aren’t in the market anyway right now,” Crowe told the Journal.
 

COMMENTS

  • by Bruce | 4/4/2014 11:29:35 AM

    No matter what the government does, it will still, most likely, have a negative effect for the consumer.

  • by John | 4/4/2014 11:41:23 AM

    The best bet is still to recapitalize Fannie and Freddie with a stock offering and higher reserves. They can let this new thing compete, if it can.

  • by Broker4Life | 4/4/2014 12:50:40 PM

    "send mortgage rates climbing for homeowners with weaker credit"???

    DUH! That's nothing new............

Poll

Is TILA-RESPA a good or bad thing long term?