Home News Finance News Reforms in Fannie Mae and Freddie Mac increase the costs of US...

Reforms in Fannie Mae and Freddie Mac increase the costs of US mortgage loans

mortgage loans

Share This On Social

The proposal to reform of the state-sponsored companies Fannie Mae and Freddie Mac, which guarantee US mortgages, may raise monthly housing costs and reduce property accessibility for many Americans. The US Congress is considering changes to Fannie Mae and Freddie Mac in order to reduce the risk for taxpayers if the housing market collapses again. The two companies that secure most of the home loans against default have been placed under state supervision since 2008, when they received state funding of over 150 billion USD to stay in the market after the housing crisis.
An analysis by the real estate consultant Zillow shows that potential changes will cost borrowers about 400 USD per month to service the mortgage.
The guarantee from Fannie Mae and Freddie Mac should keep interest rates on 30-year mortgage loans at a fixed interest rate and housing fairly affordable. The average American borrower may need to pay a shorter term loan and higher interest rates. At current house prices and mortgage rates, the average borrower will pay an additional 390 USD per month for a middle-class home with a 15-year, fixed-rate mortgage instead of a 30-year loan.
Some proposals for reforming state-sponsored companies can lead to the end of the familiar 30-year mortgage loans, which have long been the foundation of home ownership financing in America.
“If monthly spending really increases and, more importantly, stays high, at some point we expect housing prices to decline slightly in response to a drop in purchasing power and some long-time owners may opt not to sell to keep lower monthly payments”, says the analyze of real estate consultant Zillow.