There could be a major shockwave coming to the way that housing financing works in the US.
Mortgage payments could rise if proposed changes are made to the government-backed enterprises, and 30-year loans could become a rarity.
According to an analysis by Zillow, if Congress goes ahead with proposed steps to reduce taxpayer exposure to a housing market crash, it could mean a typical borrower paying an extra $390 a month for a 15-year loan compared to their current choice of a 30-year loan.
The backing of the GSEs is thought to keep mortgage rates lower, so a change to that guarantee would be significant.
"Some GSE reform proposals could lead to the end of the 30-year mortgage as we know it, which has long been the bedrock for financing homeownership in America," said Zillow Senior Economist Aaron Terrazas.
While this would hit some borrowers hard, especially first-time buyers, Terrazas says that there would be some benefits from a shift to shorter loan periods.
"A shorter loan period would mean the lifetime cost of the home is lower, and some households may be able to absorb the extra monthly cost on their mortgage," he said.
Impact on home prices longer term
“If monthly payments do rise and, more importantly, stay elevated, at some point we'd expect home prices to come down a bit in response to this decreased purchasing power, and some long-time owners could opt not to sell to preserve their smaller monthly payments,” added Terrazas.
Zillow’s report notes that until actual changes to the GSEs is known, it is difficult to calculate what typical loans will look like. There are several scenarios examined on its website.
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