While the debate over Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform doesn’t look like it will progress much until the end of this year, for anyone who wants a sneak peak at what will happen if the government sponsored enterprises (GSE) are eliminated, you might only have to look at the last few months.

Fannie Mae Freddie Mac FHFA Federal National Mortgage Assctn Fnni Me (FNMA)

“Observers need to broaden their views to understand what is happening in the housing markets today. It is the change in mortgage finance that is killing housing sales,” writes Rafferty Capital Markets LLC VP of equity research Richard X. Bove in an April 23 report. “That change is government manufactured.”

Government primary reason for weak housing sales: Bove

At 384,000 units sold, home sales for this March came in 13.3% below March 2013 and 14.7% below consensus. Housing prices have increased while middle class income has been fairly stagnant, and monthly inventories have been low for the last few years (though currently on the rise), but Bove doesn’t think these effects can explain such a large drop.

“In my view, the government is the primary reason for the slowdown in housing sales because the actions it has taken have driven monthly costs too rapidly, too high,” he writes.

He argues that loan processing is now more labor intensive than it used to be under new regulations, driving up homeowners’ costs, and that mortgage servicing just isn’t that profitable for banks anymore. Also, since Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are reducing the number of loans they guarantee while Treasury winds them down, banks are cutting back on the number of 30 year loans that they approve because they don’t actually want such long-term loans for their own portfolios.

Banks offering 15 instead of 30 year loans: Bove

Bove says that banks are offering 15 year loans instead, but the difference in monthly payments is so high that it pushes many people out of the market. While monthly payments don’t literally double when moving from a 30-year loan to a 15-year loan (you’ll pay a different interest rate over a different amount of time, so the calculations a bit more involved) Bove estimates that a typical household will have monthly payments 79.4% higher than if 30-year loans were more widely available.

End of Fannie Mae the end of 30-year loans

Many people have predicted that the end of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) would mean the end of 30-year loans, and according to Bove we’re already seeing the first effects of that. Since the Obama administration shows no interest in recapitalizing the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), and we won’t have new legislation in effect for at least another year, if Bove is right we’ll have another couple quarters of declining housing sales to drive the point home.