CBO: Cost of Fannie-Mae/Freddie-Mac
“Historically, support for the mortgage market has been part of a broader federal policy aimed at encouraging home ownership and, to a lesser extent, at making housing more affordable for low- and moderate-income families. The activities of Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) have been an important aspect of that policy. In 2010, Fannie Mae and Freddie Mac owned or guaranteed roughly half of all outstanding mortgages in the United States, and they financed 63 percent of the new mortgages originated that year. Including the 23 percent of home loans insured by federal agencies such as FHA, about 86 percent of new mortgages made in 2010 carried a federal guarantee. However, the largest federal subsidies for home ownership have generally come from favorable tax treatment for housing. My testimony today focuses on the Congressional Budget Office’s (CBO’s) estimates of the budgetary cost of the government’s takeover and continuing operation of Fannie Mae and Freddie Mac. I will also discuss how the budgetary treatment of [Fannie Mae and Freddie Mac] differs from that of FHA and other federal mortgage programs and the potential problems those inconsistencies cause, and I will summarize alternative options for the future role of the federal government in the secondary mortgage market.”
“The practice of using different accounting methods for similar federal obligations can cause confusion, make it difficult to accurately compare costs between programs, and create an incentive to rely more on programs or activities that have relatively low budgetary costs even if their full costs to taxpayers are higher. Providing an illustration, CBO recently compared the estimated cost of FHA’s single-family mortgage insurance program on a FCRA versus a fair-value basis. The two approaches yield very different estimates. Under the FCRA methodology, the FHA program would produce budgetary savings of $4.4 billion in fiscal year 2012. On a fair-value basis, in contrast, the program would have a cost of $3.5 billion in 2012. The inconsistent treatment of the GSEs and FHA also implies that a mortgage that generates a budgetary cost when it is guaranteed by Fannie Mae or Freddie Mac could show budgetary savings if FHA provided the coverage instead.”
See, Congressional Budget Office, The Budgetary Cost of Fannie Mae and Freddie Mac and Options for the Future Federal Role in the Secondary Mortgage Market, Statement of Deborah Lucas, Assistant Director for Financial Analysis before the Committee on the Budget, U.S. House of Representatives (June 2, 2011).