A World Without Fannie & Freddie?

I know that most of the buyers that I am taking looking at Channahon homes for sale are using FHA for financing. The conventional loan, as represented by Fannie Mae and Freddie Mac, are necessary though to purchase homes above the $410,000 FHA loan limit for Will County, IL. So what will become of conventional lending if Fannie & Freddie are broken up?

Big changes are in store for the banking system should Fannie Mae and Freddie Mac be revamped or eliminated—both of which are being discussed by housing experts and government officials to deal with the distressed real estate market.

And if the agencies are just revamped, meaning that the implied guarantee of the federal government is removed, the fallout is less than consumer friendly:

Other experts, including Edward DeMarco, director of the Federal Housing Financing Agency (FHFA), contend that ending the subsidies that Fannie and Freddie provide could cause a catastrophe if it’s done too quickly or their functions are not replaced.

Mortgage rates would go up 200 to 300 basis points, and home prices would drop precipitously—between 10 percent and 30 percent—according to some experts. The basis point is used to calculate changes in interest rates, equity indexes and the yield of a fixed-income security.

Change is on the way for these two behemoths. Lets just hope that the fix isn't worse than the original problem.