Treasury Plan Admits to an Increase in the Cost of Housing: 150 BP

The unwinding needs to be done, but will a rate increase so "radical" be allowed to come to pass? -- ``The Treasury Department's 'white paper' on the future of the GSEs not only calls for the federal government to cut the government umbilical to Fannie Mae and Freddie Mac, but estimates that certain mortgage rates could rise upwards of 150 basis points, according to sources who claim to be familiar with some of the plan's contents... the implication is that QRM loans and FHA-backed products will carry lower interest rates than jumbo mortgages... This source, and an advisor who has talked to Treasury about the plan, believe jumbo rates will assuredly increase — but it also will create an incentive for lenders to enter the jumbo space because Treasury will allow the GSE loan limit to fall to $625,500 in the fall, and then to $419,000 two years later.''