The overhaul proposal for Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) could translate into higher mortgage rates for homeowners with weaker credit or smaller down payments, according to a study done for an industry group.

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

The study by Kent Colton and Michael Carliner of the Harvard Joint Center for Housing Studies was produced for the Leading Builders of America, a trade group representing large U.S. homebuilders.

Johnson-Crapo bill to reform Fannie Mae, Freddie Mac

Last month, US Senators Tim Johnson (D., S.D.) and Mike Crapo (R., Idaho) made a new proposal for reforming the US mortgage industry that falls in line with last year’s proposal from Bob Corker (R., Tenn.) and Mark Warner (D., Va.), but getting bipartisan support could be a major problem.

The proposal would set up a system of private companies that release a common security, much like Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) / and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) sell securitized mortgages under the current system.

The study done by Colton-Carliner examined the potential cost to borrowers under the housing finance overhaul envisioned in the Corker-Warner proposal. They anticipate that rates could rise between 0.25 and 1.5% as a result of higher capital requirements and other fees imposed by the overhaul.

Fannie Mae, Freddie Mac overhaul proposal to hit borrowers

According to the Colton-Carliner study the worst-case estimates are most likely to hit borrowers with credit scores of between 650 and 750 and down payments of around 5% to 15%. The paper worked off of earlier models from Andrew Davidson, an industry consultant and Mark Zandi, chief economist of Moody’s Analytics.

Interestingly, a separate study published last month from Mr. Zandi and Cristian DeRitis of Moody’s Analytics estimated that the Johnson-Crapo bill would increase rates by around 0.4 percentage points for borrowers with a 750 credit score and a 20% down payment. They felt such an increase would have a ‘measurable but very modest impact on the housing market’. They also anticipate that the higher financing costs could reduce home sales by around 250,000 units and housing starts by 100,000 units over three years.

As reported earlier, in January the new Federal Housing Finance Agency director Mel Watt said he intends to put a hold on plans to increase rates for insuring mortgage securities.