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Why the 30-Year Mortgage Could Be Coming to an End

NEW YORK (TheStreet) -- The 30-year mortgage is a U.S. consumer institution, affording families a path to full homeownership at reasonable monthly payments (although banks and lenders make out like bandits on the high interest payments.)

But Approved Mortgage, in Orange City, Fla., says big changes are coming in the form of two congressional reform bills that could put the 30-year mortgage out to pasture for good.

Whether that outcome is good for homeowners is debatable, as a company statement calls the two bills a " growing concern " for potential homebuyers.

The bills:

The Housing-Finance Reform and Taxpayer Protection Act of 2013: Also known as the Corker-Warner Pan, this bill proposes to eliminate Freddie Mac and Fannie Mae and generally kick direct government involvement with mortgage loans to the curb. The bill would give private lenders license to run the nation's mortgage system -- not just as loan originators, but also as issuers of mortgage-backed securities.

The Protecting American Taxpayers and Homeowners Act: Also known as the PATH Act, this mortgage reform bill ends the bailout of Fannie and Freddie, which Congress estimates at $200 billion, and phases out the entities within five years. It also calls for a reduction in the government-sponsored enterprise/Federal Housing Authority loan limits, and gives residential borrowers more mortgage loan options.

Here's where the elimination of the 30-year mortgage comes into play. Both bills knock Fannie Mae and Freddie Mac out of the equation and the resulting loss of loan guarantees would change the loan market in a major way. As Approved Mortgage puts it:

Eliminating Fannie and Freddie would mean that conventional loans, like the 30-year mortgage, would no longer be guaranteed. What that means for consumers is that long-term, fixed-rate loans would become too expensive to be an option. And with traditional, fixed-rate mortgages comprising the majority of the market, a loss of guarantee could be disastrous.

The "disaster" would come from the resulting rise in interest rates, Approved Mortgage says, citing data from Bill Gross, founder of the mutual fund giant Pimco. Gross' estimate: Mortgage rates would rise by 3% without government guarantees. That would add thousands of dollars -- potentially tens of thousands of dollars -- to no-longer-guaranteed 30-year mortgages, making them less appealing to lenders and borrowers.

The company notes that any big changes are "years away" -- but that the wheels have already started rolling.