The Treasury Department is looking to wind down Fannie Mae and Freddie Mac, but without these organizations, there would be few buyers for 30-year fixed rate mortgages in the secondary markets. The 30-year mortgage was created during the Great Depression as part of the New Deal to help revitalize the real estate market. Prices have risen in real estate over the decades because this length of time. It has allowed people to leverage their future earnings today bringing forward 30 years of income.
What will happen if Fannie Mae and Freddie Mac are shut down? It is unlikely that the bankers will step in. They are transactional based, not relationship. If they cannot package and resell mortgages, then they will not write 30-year mortgages. Bankers will be glad to offer short-term mortgages with floating rates shifting the risk of interest rates to the American public who is the least capable to handle such a profound change or understand the risks. The net result of this type of change will more likely than not set in motion the second decline of the cycle.
Read the rest here…. http://armstrongeconomics.com/2015/03/01/the-end-of-30-year-fixed-rate-mortgages/