30-Year Mortgages Could Be A Thing Of The Past

DENVER (CBS4) - The government's plan to overhaul its role in the mortgage business might mean the end of 30-year fixed mortgages. That's just one possibility as it tries to distance itself from Fannie Mae and Freddie Mac.

Bailing out Fannie and Freddie has cost taxpayers nearly $150 billion.

The Obama Administration offers three scenarios and is not throwing its weight behind any one in particular. The three basically break down to "no government," "government light," and "full government backing." Each one means change.

Jack O'Connor is the broker owner with Prestige Realty Services. He says potential buyers could see the 30-year fixed rate go away. He says banks won't want to take on that risk.

"There could be a shorter term or higher interest rate or a combination of both depending upon who is going to be buying the loans and who is going to be holding it," O'Connor said.

It will also impact home sellers..

"Sellers are going to have to figure out how to contribute. If the interest rates were to go up, sellers may have to contribute discount points or pay for some closing costs for that particular buyer," O'Connor said.

For the existing homeowner the current interest rate they have and the current mortgage they have will stay intact. In fact homeowners may choose to stay in their home longer because the financial investment will be more attractive long-term.

Fannie Mae and Freddie Mac own about half of the mortgages in the country.

"It's good news from a taxpayer perspective because you won't have to continue to pay Fannie and Freddie's losses."

Even though the housing market will have some short-term adjustments, O'Connor remains optimistic.

"It's good news for buyers and sellers to stabilize the market long term," O'Connor said.

But buyers will be required to put more money down to get a loan and it'll reduce the number of buyers because there's only so many people who can afford to put 20 percent down.

So now it's up to Congress. The Obama Administration has deferred to them to make a final decision on how to proceed. But with interest rates on the rise and the mortgage market poised to change now is the time to sell and buy a home.

Treasury secretary Timothy Geithner said homeowners need to hold more equity in their homes and not be so quick to spend it. He admits though that could hurt those who use home equity loans to invest in their small businesses.