Fannie Mae and Freddie Mac: A Look at Mortgage Lending Without Them

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Published: April 25, 2011
By: Dona DeZube
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Some legislators say we don’t need mortgage giants Fannie Mae and Freddie Mac. What would happen if lawmakers got their way?

Some in Congress want to shut down Fannie Mae and Freddie Mac. They think the government shouldn’t be spending taxpayer money to support the mortgage market and that we should instead rely solely on Wall Street for mortgage market funding.

But that could cost you more than $1,000 a year in higher mortgage interest payments, and make it tough to find a 30-year fixed-rate loan when you want to refinance or buy. After all, Fannie Mae, Freddie Mac, and the FHA guarantee almost 90% of U.S. mortgage loans.

We looked at two hypothetical families—the Smiths and the Joneses, who each buy a $200,000 home with a 20% downpayment—and calculated how different their financial picture would be if one family didn’t have a government-backed loan.

Our scenario assumes a 1 percentage point difference in the two families’ loan rates. Some experts believe a 1% difference is conservative and would be even higher in a world without Fannie Mae or Freddie Mac guarantees.

Next: Interest rates

Dona DeZube

Dona DeZube has been writing about real estate for more than two decades. She lives in a suburban Baltimore Midcentury modest home on a 3-acre lot shared with possums, raccoons, foxes, a herd of deer, and her blue-tick hound.

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