Congress has continually subsidized middle-class mortgages. Fannie and Freddie guarantee that investors will be repaid even if borrowers default -- a promise ultimately backed by taxpayers. Fannie, Freddie and other federal programs now support roughly 90 percent of new mortgage loans because lenders cannot raise money for mortgages that do not carry government guarantees.
If Freddie Mac and Fannie Mae were closed, the rare goal shared by the Obama administration and House Republicans, homeownership in America could change greatly. The 30-year fixed-rate mortgage loan, the steady favorite of American borrowers since the 1950s, but not available in most other countries, could become a luxury product. Interest rates would rise for most borrowers, but urban and rural residents could see sharper increases than customers in the suburbs. Lenders could charge fees for popular features now taken for granted, like the ability to "lock in" an interest rate weeks or months before taking out a loan.
It won't happen soon. Congress must agree on a plan, which could take years, and then the market must be weaned slowly from dependence on the companies and the financial backing they provide.
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