The commotion you hear about shuttering Fannie Mae and Freddie Mac is no longer a dream. It may take a while to accomplish the task of getting these two mortgage entities out from under the wing of the federal government but the wheels are indeed turning.

The idea that’s been around for a long time is proposed to get public capital out of the coffers of Fannie and Freddie. No more billion dollar bailouts. And while that’s certainly a good thing, there will be some changes if in fact both are privatized or shut down completely.

If Fannie and Freddie do close their doors, it will be private capital that will replace them. Private investors can capitalize the new entity with fresh money as well as raising funds by selling stock, that’s a lot of money to replace for any investor, big or small.

One of the changes will be fewer loan choices. The President, in his speech last Tuesday, promised the 30 year fixed rate mortgage will still be available. There was no mention of any other loan type, just the 30 year fixed.  What about a 15 year fixed rate, a popular option for those who want to save on long term interest? Or hybrid loans, ARMs that are fixed for a predetermined period of time, providing investors with lower initial rates compared to fixed rate fare? Didn’t hear anything about them. Just that the 30 year should be preserved.

Okay, so there’s probably just one mortgage program. But without the purchasing power of Fannie and Freddie, who currently own more than half of all outstanding mortgages today, interest rates will be higher. Private bankers simply won’t take on the risk of guaranteeing 30 year mortgage to investors of mortgage bonds without offsetting that risk with higher rates.

So that appears to be on the table in say five years from now. Higher rates and fewer choices. Be careful what you ask for, right?