The Wall Street Journal reports that mortgage rates are expected to rise if congress passes legislation to reform Fannie Mae and Freddie Mac.
You may be keeping up with news about congressional legislation that reform Fannie Mae and Freddie Mac. Though we don’t know which bill will gain the most traction, or what reforms will be enacted, the consensus is that mortgage rates will go up as a result of congressional action.
Read The Wall Street Journal article: How Much Will Mortgage Rates Rise In Fannie, Freddie Overhaul?
So how much could rates rise? Estimates vary depending in part on how regulators interpret and implement the new rules. Fannie estimates that rates would rise by around 0.5 and 1 percentage points from current levels, though borrowers with small down payments and weaker credit could see rates rise by more than 3 percentage points. Borrowers with strong credit and large down payments could see rates fall slightly.
Fannie estimates that if the capital cushion is dropped to 5%, however, then rates for more borrowers might actually be lower than current levels, and rates for all borrowers would rise by an average 0.2 percentage points.
Freddie constructs four different scenarios that vary depending on how regulators calibrate capital standards and on the rate of return sought by private investors. Under the low- and mid-cost scenarios, rates rise by 0.1 and 0.6 percentage points, respective. Under the high- and extreme-cost scenarios, rates rise by 1.4 and 2.2 percentage points, respectively.
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