Get Your Mortgage Rate Quote in Just 30 Seconds

Mortgage rates change every day, and your rate will vary based on your location, finances, and other factors. Get your FREE customized rate comparison below.

Study Suggests Elimination of GSEs Could Push Up Rates

A recent study suggests that housing finance reform could have a significant impact on mortgage rates. But even factoring in such increases, mortgage rates would still be lower than they’ve been for most of the past five decades.

The report, The Impact of Housing Finance Reform on Mortgage Rates, Home Buyers and the Economy, was written by Kent W. Colton, PhD, and Marchel Carliner, both of the Harvard Joint Center for Housing Studies.

It was prepared for the Leading Builders of America, a trade group that claims many of the largest U.S. home builders among its members.

According to the authors, new mortgage finance reform legislation will require the private sector to set aside capital to cover first loss risk. It will also have the government establishing a catastrophic risk fund.

Both moves will increase interest rates.

“The basic questions are how much will mortgage rates rise, and what will be the impact on homebuyers and the economy,” the authors wrote.

After considering several studies, the authors estimated that mortgage rates could be negatively impacted by between 25 basis points and 150 BPS.

The low-end figure represents the impact to a pristine borrower, while the high end was indicative of the impact to someone with a FICO score of between 650 and 750 and a loan-to-value ratio of between 85 percent and 95 percent.

The report suggested that 9.4 percent of current buyers would no longer qualify if rates increased 150 BPS. In addition, housing starts would decline by 155,893 units and the gross domestic product would decline by $44.4 billion.

Thirty-year fixed rates averaged 4.41 percent in Freddie Mac’s most recent survey. Given the worst-case estimate of 150 BPS, mortgage rates could jump to around 5.91 percent if housing finance reform occurs.

That was about where mortgage rates were in the early sixties.

But by 1967 rates were above 6 percent — where they’ve stayed until about a decade ago.

Yet, even when mortgage rates exceeded 18 percent in the early 1980s, the real estate market survived — and even thrived in some areas as home prices kept pace with inflation.

Popular posts

7 Refinance Strategies
7 Refinance Strategies

Refinance to a lower interest rate: If interest rates have dropped since you took out your original mortgage, refinancing to a lower rate can help you save money on your monthly payments and reduce the overall cost of your loan. Refinance to a shorter loan term:...

7 Refinance Strategies
Is Refinancing With Your Present Lender Preferable?

Do Not Accept the First Refinancing Offer You Receive Homeowners should not accept the first refinancing rate provided to them. This is particularly important if you are applying with your existing lender. Some mortgage lenders have mechanisms in place that prioritize...


Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts