Whether the Fannie Mae / Freddie Mac overhaul will or will not damage the housing industry is a matter of opinion, and a matter of which of the legislative proposals makes it through Congress.
Should Congress adopt the Johnson-Crapo proposal, the changes could raise mortgage interest rates by as little as 0.2% for borrowers with excellent credit. Should they adopt the Corker-Warner proposal, higher risk borrowers might pay an additional 1.5%.
Analysts Kent Colton and Michael Cartliner or the Harvard Joint Center for Housing Studies predict that the most stringent of the proposals would knock out between 6% and 9% of qualified buyers and reduce housing starts by as much as 155,000 units per year.
Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, disagrees. She says that riskier borrowers already pay higher rates and that borrowers with weak credit are already being shut out of the housing market because of tighter underwriting standards. Thus she feels that the potential impact on home sales will be minimal.
Fannie and Freddie don’t actually make loans. They purchase loans, package them into securities, and sell them to investors. The reason they got into trouble during the mortgage melt-down is that they guarantee those loans.
This policy translated into lower loan costs for consumers, because the investors had essentially no risk. Fannie and Freddie held all the risk, and didn’t have enough capital to back their guarantees when millions of loans went into default.
Most of the overhaul proposals call for Fannie, Freddie, and any successors to hold significantly more capital. The amount of capital required is one of the factors that will determine just how much more consumers will pay for loans.
How would this affect you?
On a $200,000 loan, the principal and interest payment on a 30 year note at 4.5% is $1,013.37. Raising the rate to 4.7% would raise the payment about $24, to $1,037.28. Should that rate go to 6%, the difference is more significant. Then the payment would increase by $185.73 – to $1,199.10.
Would $185 more per month knock you out of the running for home ownership?
Right now it’s all speculative.
Economists are doing studies and making predictions. But until we see which of several proposals is finally adopted and how the new regulations actually affect interest rates, no one really knows how the overhaul will affect the housing market.
Our best advice for anyone who is thinking about purchasing a home in the near future is to move forward before any changes take place. Today’s interest rates are still low, and as always – so are the fees at Homewood Mortgage.
Call the Mike Clover Group today at 1-800-2232-7409 or apply on line at http://www.mikeclover.com. We’ll be happy to get you pre-approved and ready to find your new home.
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