Mortgage Rates Set to Soar? Inside the Fannie & Freddie Shakeup

"The Congressional Budget Office estimates that Fanny and Freddy would need anywhere between 267 and 534 billion in capital reserves to go private without causing any disruption to the mortgage market Right now their capital reserves are believed to be somewhere around 150 billion Given that Fanny and Freddy's combined capital reserves are growing at a rate of roughly 20 to 25 billion per year this means that it will be at least another 5 years before either entity is ready to be privatized And if we assume the upper capital reserve range of $534 billion that timeline increases to 15 years"

"the primary impact of privatization would be that it prevents a new housing bubble from forming at least until new government programs are introduced that start blowing the bubble back up again"

"In the short term this could actually make housing even more unaffordable as mortgage rates would rise while housing prices are still elevated In the longer term housing prices would indeed fall and become more affordable"

"This could result in the US debt being downgraded which would result in slightly higher interest rates on all debts in the US including mortgages"

"Taken together this all suggests that long-term interest rates will continue rising in the coming years along with mortgage rates"

"If they do then the effects on the housing market will be almost identical to the privatization of Fanny and Freddy Lower housing prices but also more expensive mortgages Again in the short term this could mean housing prices staying high while mortgage rates rise which is almost exactly what we've been seeing in recent months It's only in the longer term that housing prices would start to come down"