30 Year Fixed Mortgage May Be Unavailable to Many Buyers Soon

By Kyle Chezum Updated on 6/3/2011

 

Since the beginning of the financial crisis, lawmakers and politicians have been trying to find ways to ease the taxpayer burden that has evolved through the nationalization of Fannie Mae and Freddie Mac, the two mortgage giants that guarantee the majority of mortgage loans made in the nation.  These two companies together have cost citizens more than $150 billion dollars.  According to the Congressional Budget Office, they will likely require another $42 billion in taxpayer dollars before the end of the crisis.

To combat this, some lawmakers have proposed immediate or incremental privatization of the mortgage giants.  Representative Jeb Hensarling recently proposed a bill that would rapidly speed up sales of Fannie and Freddie's mortgage portfolio and swiftly move the costs out of taxpayer hands.

But other officials, notably Representative Chris Van Hollen, claim that swift privatization and a removal of government support would make financing costs on the 30 year fixed rate mortgage skyrocket.  This mortgage product, the most common and beneficial available to middle class home buyers, has long provided average Americans with opportunities to purchase homes they wouldn't otherwise have had.  A sudden increase in financing costs for the 30 year fixed rate mortgage would eliminate a primary financing option and block many home purchases from occurring.

Sarah Wartell, who serves as one of the executive leaders of the Center for American Progress Action Fund, fears that this outcome is highly likely if immediate privatization is sought.  30 year fixed rate mortgages, in a private market, are simply too expensive to take on, she claims.  “Those mortgages available privately are for very high-quality borrowers with very high down-payments. Most Americans don’t have those options,” she said.

At this point, there are no plans in place to privatize Fannie and Freddie ahead of schedule.  But the time of the 30 year fixed rate mortgage may be drawing to a close.  Its fate is in the hands of the representatives and lawmakers.