New GSE Policy Could Mean 'Drastically Changed' 30-Year Fixed-Rate Mortgages

In an effort to reduce taxpayer risk, U.S. policymakers are now considering changes to Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac's guarantee against default for mortgage-backed securities.

Opponents of the change toward a fee-based system curbing the guarantee say that the 30-year fixed-rate mortgage as we know it would be changed significantly, and that borrowers would be negatively impacted. The Bureau of Labor Statistics estimates that about seven in 10 mortgages held in 2014 were 30-year fixed-rate. Zillow reports that changes could "lead to a shift toward adjustable-rate products, higher fixed interest rates and/or shorter-duration loans."

We don’t know what exact effects, if any, GSE reform might have on the 30-year mortgage. It’s possible any resulting dominant mortgage product would be wildly or only mildly different from what we have today. The figures in the comparison tool above provide a glimpse at mortgage alternatives and illustrate how sensitive house payments are to changes in interest rates and loan duration.

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