Homeowners could pay more under Obama Fannie and Freddie plan

by Ryan Smith08 Aug 2013

If President Barack Obama and Congress follow through with plans to shut down Fannie Mae and Freddie Mac, homeowners could find their wallets a bit lighter each month, according to a Moody’s economist.

Mark Zandi, chief economist for Moody’s Analytics, told USA Today Aug. 7 that homeowners would probably see a slight increase in their mortgage rates if plans to phase out Fannie and Freddie are realized.

Obama voiced his support Aug. 6 for a Senate bill, introduced by Bob Corker (R-Tenn.) and Mark Warner (D-Va.) that would replace Fannie and Freddie with another government reinsurer. The new reinsurer would be part of a mortgage system in which private capital would be required to take at least 10 percent of first losses on mortgage securities before the government stepped in. Meanwhile, a House bill written by Financial Services Committee Chairman Jeb Hensarling (R-Texas) would dismantle Fannie and Freddie without providing a replacement.

Both bills seek to settle more of the risk on private capital. However, Zandi told USA Today that as private investors shoulder more of the risk, they’ll likely spread at least a little of the pain to consumers.

"It will mean higher mortgage rates," Zandi said. "The question is how much higher."

Zandi estimated that consumers could pay about $75 more per month in interest on a typical mortgage under the Senate plan or $135 more per month under the House plan, according to USA Today.

Most Democrats favor the Senate bill, which reduces the government’s risk but still provides a backstop for the mortgage system. Industry leaders also seem to prefer the Senate plan. In a statement Aug. 6, National Association of Home Builders Chairman Rick Judson applauded Obama’s support of the plan, which he said “affirm(ed) the importance of maintaining a federal backstop as part of efforts to revamp the housing finance system and protect the 30-year mortgage.”

The House bill, meanwhile, would virtually eliminate government involvement in the industry.  It cleared Hensarling’s committee without a single Democratic vote, and is expected to go to the House floor within a few months, according to USA Today.


  • by The Old Man | 8/8/2013 9:47:52 AM

    Don't be misled. The government intent is to take 1 - 3% in fees on every mortgage for their quasi backing. Quoting Mr. Obama, "...lenders will pay a fee". They see the mortgage market as a "cash generator". They look at the 132 billion fannie has already paid back for the 183 billion bail out, and say, "wow!, this could be a gravy train, and the fees don't show up on any disclosure so the borrowers won't know they are getting ripped off. Note- when they added gse fees to offset the 2% reduction in ss withholding, did you see them reduce that gse fee when the withholding went back up?

  • by JCRussell | 8/8/2013 9:51:46 AM

    Unless I am missing something, on the Senate plan of Zandi's estimated $135/mo jump in interest expense, a $100,000 30 year mortgage at 4.00% would equate to a payment with a rate of nearly 6.25%. OR comparing to FHA, equal to an annual MIP factor of 1.62% which is presently higher than FHA's. Not a pretty picture.....

  • by Roger | 8/8/2013 9:53:36 AM

    Never trust the government's estimation of cost, its almost always low. Just look at the cost of Medicare prescription drug benefits, over estimates by 400% and then there's Obamacare that looks to be at least 300% over budget and it hasn't even gone into effect.

    What will happen if they dismantle Fannie and Freddie is that new home ownership will come to a halt and the ripple effects of decreased housing spending will cause us to drop back into recession.

    I really don't think anyone in Washington has thought this through.


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