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Fannie Mae and Freddie Mac: What Effect Will Phasing Them Out Have On Mortgage Market?

Current consideration of phasing out Fannie Mae and Freddie Mac over the next 5-7 years has everyone in the real estate and mortgage markets speculating as to the effect it will have.  Created after the depression to help people buy homes, these two entities and FHA, now buy or insure 97% of home loans.

Some of the effects include:

  • Higher borrowing costs – fees as well as interest rates would go up
  • Limited financing choices – more ARMs than 30-year mortgages would be offered

Two articles in last week’s New York Time online,  Without Loan Giants, 30-Year Mortgage May Fade Away and A Plan to Phase Out Fannie Mae and Freddie Mac do a great job of providing looking at the pros and cons of these programs and examining possible outcomes of phasing them out.

Whatever happens, it is another sign that housing will likely never be as cheap as it is now.