Congress has plans to end or scale back government involvement in the mortgage market. It could cost new borrowers tens of thousands more over the life of the loan.
Congress wants taxpayers off the hook for risky real estate, but there’s a trade-off: It’ll probably mean higher mortgage rates, and it’s not clear how much higher.
There are currently two plans on the table. The one from House Republicans would “virtually privatize the mortgage market,” The Associated Press says. “It would limit the Federal Housing Administration to insuring loans only for first-time and lower-income borrowers.”
The other, a bipartisan plan in the Senate, would instead limit government’s role in insuring mortgage securities. “Private investors would be most at risk, with the government a secondary guarantor,” The New York Times says. President Obama said this week he supports reform along the lines of this proposal, as long as it would preserve the 30-year, fixed-rate mortgage.
Under both plans, Fannie Mae and Freddie Mac as they exist now would be shut down within five years, the AP says. They currently own or guarantee almost half of U.S. mortgages, and 90 percent of new ones. The changes could make it even more difficult for people with lower credit scores and smaller savings to qualify for a mortgage.
Those who got a loan would end up paying more for it. Typical borrowers might pay $75 per month in extra interest payments under the Senate plan and $135 per month under the House plan, Moody’s Analytics chief economist Mark Zandi told the AP. That’s on a conforming $200,000 loan with 20 percent down, and it works out to an extra $27,000 or $48,600 over 30 years.
Legislation is not likely to pass before 2015, the Times says. In this case, it’s good news that congressional action rarely outpaces a snail. It gives people more time to buy before changes kick in. You’ll learn why now is the best time, and how to decide if you can afford it, by watching the video below: