Goldman expects U.S. mortgage rates to jump 150 bps by 2019
Reuters
Published Feb 17, 2017 10:00AM ET
Goldman expects U.S. mortgage rates to jump 150 bps by 2019
NEW YORK (Reuters) - Goldman Sachs (NYSE:GS) analysts said on Friday they expected U.S. 30-year conventional mortgage rates to rise 150 basis points to about 5.5 percent by 2019, in step with an increase in benchmark Treasury yields and investors demanding higher compensation to own mortgage-backed securities.
Conventional mortgages are home loans guaranteed by federal agencies Fannie Mae (PK:FNMA) and Freddie Mac (PK:FMCC), which were taken over by the federal government in 2008 during the global credit crisis.
There has been speculation the administration of President Donald Trump may push for mortgage finance reform which includes changing roles for Fannie and Freddie and possibly a phase-out of the two government-sponsored enterprises (GSEs).
In 2013-2014, a number of bills were introduced for reforming the GSEs, including one from Senators Tim Johnson and Mike Crapo. They provide potential templates for future reform, Goldman analysts Marty Young and Alec Phillips wrote in a research note.
"These proposals varied significantly according to the extent to which the government would still play a role in backstopping mortgage debt," they said.
Under the Johnson-Crapo proposal named Housing Finance Reform and Taxpayer Protection Act of 2014, Fannie and Freddie would be wound down and replaced by another government agency that insures mortgages and issue MBS with private sector entities taking first 10 percent principal losses for each portfolio of loans.
If mortgage finance reform undergoes the changes similar to the Johnson-Crapo plan, mortgage rates may climb 50 basis points due to higher costs to compensate private sector guarantors for the loans.
"Costs would also need to rise in order to pay the proposed explicit government reinsurance fee, a backstop which today is unpriced," Young and Phillips said.
They added any law on housing finance reform will unlikely be enacted before 2018.
Get The News You Want
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.