If it does, in fact, get more expensive for people to borrow for expensive homes because the government stops insuring these borrowers, I think it will ultimately be a good thing.  There will be a fair amount of pain in the short-term, and it really stinks for people that currently own homes that were federally insured.  It stinks because the value of their homes has been, in essence, propped up.  

Take that financial support away, and a $600,000 loan goes from costing $3,221 a month to $3,597 per month (jumping from 5% - 6%, as the article suggests).  Think of it another way, and it may seem even more significant.

To keep the same payment (around $3,220 a month) with the higher rate of 6% the mortgage amount would need to drop from $600k to $540,000 - a drop of $60,000 or so.  Now, assume that the buyer had put 5% down in both cases.  At a $600,000 value the value of the home was around $630,000.  In the new scenario, for a person with the same monthly budget, the corresponding value of the home would drop to around $567,000 - that’s over $60,000 - and a 10% drop in home values for people selling their home.  

So how could I say this is a good thing?  Well, in the sort-term it is certainly not, at least for the sellers, Realtors, and others whose take is tied to value.  However, over the longer term, once the value of the homes stabilizes, I do think that this approach serves to make homes more affordable and removes the government from at least one tier of mortgages.  Without the endless array of regulations regarding government-backed loans, the cost to borrow would increase, but (presumably) some of the mindless regulations currently in place may be reduced. 

Of course, thinking a step or two out, one might rightly wonder if this will lead to lenders on big ticket loans - without as many restrictions placed on them by the government - taking larger and larger risks and creating another toxic lending environment.  Sadly, that may well be the case, but we’ll have to see.

Short of that, I think that I think that this makes some sense.  How about you?