Phase-out of Fannie and Freddie to hurt borrowers now, experts warn

Mar.March 04, 2011 03:13 PM

A proposal to phase out Fannie Mae and Freddie Mac over the next five to seven years is currently winding its way through Congress, but the plan will most likely affect borrowers even before it is finalized, industry experts told the New York Times. Consumers may see higher borrowing costs in the next year, along with a more limited number of financing choices, experts say, because some of the proposed changes do not require Congressional approval and already appear to be in the works. “There’s a lot of uncertainty in the process, but you’re probably going to get a better deal on a fixed-rate loan sooner rather than later,” Barry Zigas, the director of housing policy at the Consumer Federation of America, said. Zigas added that the 30-year fixed-rate mortgage might become more expensive and harder to find because without agencies like Fannie and Freddie to buy these loans, banks may be less willing to extend credit at a fixed rate over such a long term. John Mechem, a spokesperson for the Mortgage Bankers Association, agreed. “Traditionally, banks have been less willing to keep 30-year fixed-rate mortgages on their balance sheets, so in the absence of a vibrant securitization market, banks would more heavily favor adjustable-rate products,” he said. [NYT]

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