WASHINGTON (AP) — Homebuyers could feel the pinch ifCongress follows through on plans to shut
down Fannie Mae and FreddieMac, the government-controlled mortgage guarantee giants that wererescued by
a $187 billion taxpayer bailout during the financial crisis.Borrowerswould probably end up paying
slightly higher mortgage rates under Houseand Senate bills that would phase out Fannie and Freddie over
fiveyears and shrink the government’s huge role in guaranteeing mortgagesecurities. Fannie and Freddie
teetered under a crush of massive losseson risky mortgages before being bailed out.The House
Republicanbill would virtually privatize the mortgage market. The Senate’sbipartisan plan envisions a
continued but more limited government rolein insuring mortgage securities. Supporters say that would
keepmortgages available and affordable.Congressional efforts tooverhaul the nation’s mortgage finance
system got a boost Tuesday fromPresident Barack Obama’s call for changes that are generally in linewith
the Senate’s bipartisan plan."For too long these companieswere allowed to make huge profits buying
mortgages, knowing that iftheir bets went bad, taxpayers would be left holding the bag. It was’heads we
win, tails you lose,’ and it was wrong," Obama said. "The goodnews is right now there’s a
bipartisan group of senators working to endFannie and Freddie as we know them. And I support these kinds
of reformefforts."The idea behind both plans is to shift more mortgagefinancing risk from the
government to the private sector to preventtaxpayers from having to pay for future bailouts. But there’s
a pricehomebuyers would likely pay for having private investors shoulder morerisk to protect
taxpayers."It will mean higher mortgage rates," said Mark Zandi, chief economist at Moody’s
Analytics. "The question is how much higher."Typicalborrowers could pay about $75 per month in
extra interest payments,about half a percentage point, on an average mortgage under the Senateproposal,
Zandi estimated, and about $135 more under the House plan.That’s on a conforming loan of about $200,000
with the borrowerproviding a 20 percent down payment."You have to assume thatalmost in any future
model being drafted, loans will be more expensive,"said David Stevens, CEO of the Mortgage Bankers
Association and aformer Obama administration housing official.Most Democrats tendto favor a continued
government role backstopping the mortgage marketbecause they say it stabilizes the housing market. Many
HouseRepublicans, especially conservatives, want to end governmentinvolvement and let the free market
rule. Given the split, the rivalbills stand as opening markers in a long fight."We all agree
thatthe system with Fannie and Freddie needs to be changed," said Rep.Michael Capuano, D-Mass.,
ranking Democrat on the House FinancialServices subcommittee on housing and insurance. "The real
question is,do we reform it or kill it the way House Republicans want to."Rep.Maxine Waters,
D-Calif., the ranking Democrat on the Financial ServicesCommittee, said the vast majority of housing
industry groups such asreal estate agents, mortgage bankers and homebuilders support keeping agovernment
role insuring mortgage securities.House Republicans,led by the chairman of the House Financial Services
Committee, Rep. JebHensarling, R-Texas, say their bill to vastly reduce the government’sinvolvement in
the mortgage finance system will be a boon to consumers,spurring competition and innovation in the
private sector and givingborrowers more choices. They blame Fannie and Freddie for inflating themarket
before the housing crash, contributing to the boom-bust cycle.Hensarling,in a statement Tuesday, said
his plan "puts private capital at thecenter of the housing finance system, ends the bailout of
Fannie Mae andFreddie Mac and sustains the 30-year fixed rate mortgage – all goalsthe president today
says he supports."Hensarling’s bill recentlycleared his committee without any Democratic votes and
is expected toget a House vote in the next few months.Housing advocates warnthat if the government’s
role is scaled back too far, mortgages could bepushed out of reach for people with lower credit scores
and smallersavings for down payments.They say 30-year fixed-rate mortgages,long a staple of the housing
market, could become harder to find andmore expensive for borrowers with modest incomes because lenders
wouldbe less willing to offer such longer-term loans without governmentguarantees."Those people are
now going to be locked out of thesystem or many will end up paying a premium because of these
changes,"said John Taylor, chief executive of the National Community ReinvestmentCoalition, a
housing advocacy group.Fannie and Freddie own orguarantee nearly half of all U.S. mortgages and 90
percent of new ones.They buy mortgages from lenders, package them as bonds, guarantee themagainst
default and sell them to investors. That helps banks get rid ofrisk from their balance sheets, freeing
up more money to lend.Duringthe financial crisis, as house prices tanked and foreclosures surged,the
government rescued Fannie and Freddie from a flood of defaults onrisky loans the agencies had
guaranteed, many aimed at providingaffordable housing for lower-income borrowers.Like many banks,the two
companies had relaxed their standards on loans they bought orguaranteed during the boom. High-interest
loans, some with low "teaser"rates, were given to risky borrowers.Now under governmentcontrol,
Fannie and Freddie are hugely profitable, and thanks in largepart to the housing recovery they’re
pumping billions of dollars intothe U.S. Treasury. Fannie and Freddie have paid the Treasury
$132billion, more than two-thirds of the bailout.In theDemocratic-controlled Senate, a bipartisan bill
by Sens. Bob Corker,R-Tenn., and Mark Warner, D-Va., would gradually replace Fannie andFreddie over five
years with a new agency having a more limited roleinsuring mortgage securities against catastrophic
losses.The billwould create a new Federal Mortgage Insurance Corp. that would providebackstop insurance
available only after a substantial amount of privatecapital is used up. Investors would pay insurance
fees to thecorporation while agreeing to put a substantial amount of their owncapital at risk.The bill
in the GOP-controlled House nearlyeliminates the government’s role in the mortgage financing system.
Itwould limit the Federal Housing Administration to insuring loans onlyfor first-time and lower-income
borrowers.Copyright 2013 The Associated Press.