Home / Daily Dose / The Cost of GSE Reform
Print This Post Print This Post

The Cost of GSE Reform

A new analysis by Zillow determined that proposed reforms to the GSEs, Fannie Mae and Freddie Mac, may increase monthly payments for borrowers by up to $400 a month.

The changes being considered by Congress are intended to reduce taxpayer risk in the event of another market crash. Fannie and Freddie have been under government conservatorship since September 6, 2008, following the housing crisis. However, Zillow’s analysis shows the changes may decrease housing affordability as borrowers face shorter loan durations and higher rates.

"Some GSE reform proposals could lead to the end of the 30-year mortgage as we know it, which has long been the bedrock for financing homeownership in America," said Zillow Senior Economist Aaron Terrazas. "If monthly payments do rise and, more importantly, stay elevated, at some point we'd expect home prices to come down a bit in response to this decreased purchasing power, and some long-time owners could opt not to sell to preserve their smaller monthly payments.”

Borrowers seeking alternatives to the 30-year mortgage may face increases in their monthly rates by as much as $400 as they move from a 30-year loan to a 15-year fixed-rate mortgage. Additionally, 30-year non-conforming loans, which are not guaranteed by the GSEs, would cost borrowers around $20 more per month.

“A shorter loan period would mean the lifetime cost of the home is lower, and some households may be able to absorb the extra monthly cost on their mortgage,” said Terrazas. “But in the nearer term, first-time homebuyers or buyers on the margin could feel a real pinch as homeownership becomes significantly less affordable."

Zillow notes that until these changes are officially signed into law, there is now way to know for certain how GSE reform will impact borrowers.

About Author: Seth Welborn

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.
x

Check Also

What Investors Need to Know

Wells Fargo gives an update on what information investors should understand to finish out 2019, from global economic data to RMBS investment.

GET YOUR DAILY DOSE OF DS NEWS

Featuring daily updates on foreclosure, REO, and the secondary market, DS News has the timely and relevant content you need to stay at the top of your game. Get each day’s most important default servicing news and market information delivered directly to your inbox, complimentary, when you subscribe.