New Mortgage System Expected to Push Mortgage Rates Up

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The prognosis for rising mortgage rates due to the recovery of the US economy and the withdrawal of the support programs by the Federal Reserve did not come true. Now there are predictions that the termination of Fannie Mae and Freddie Mac and the introduction of a new mortgage system will lead to their increase. The predictions actually came from the companies as the passing of the bill for the new system is becoming more likely.

Under the new system, private companies will be able to issue securities backed by mortgage and purchase federal insurance. These companies will be required to hold more capital so that the risk of losses for people will be lower. It is expected that the required capital cushion will equal 10%. At the same time, this is more than two times the amount of capital which would have saved the two current companies during the recent housing market downturn. It is this high percentage which is expected to push mortgage rates up.

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If the capital cushion is set at 10%, the prediction of Fannie Mae is that for the majority of current mortgage holders, the interest rates will rise between 0.5 and 1%. Borrowers who have lower credit score and can afford smaller down payment may have to pay interest which is up to 3% higher than the current rates. The predictions of Freddie Mac are for an even greater increase in the rates. They expect them to rise by 1.4 to 2.2%.

At the same time, the two companies agree that if the capital cushion is 5%, there will be a minimal rise in the mortgage rates. Fannie Mae predicts a rise of 0.2% while Freddie Mac expects the increase to range from 0.1% to 0.6%. If the capital cushion is below 5%, the companies suggest that the rates may actually fall.

The speculations for the effects of the new system on the mortgage market continue.

Christian

Christian

Christian Calvin mortgage Christian is a contributing writer for Mortgage.info. He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.

Contact: christian@mortgage.info
Christian

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