Mandatory Spending
Function 370 - Commerce and Housing Credit
Reduce Subsidies to Fannie Mae and Freddie Mac
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
| Billions of dollars | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2015-2019 | 2015-2024 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Outlays | |||||||||||||
| Increase guarantee fees | 0 | -1.5 | -1.4 | -0.9 | -0.4 | -0.5 | -0.2 | -1.2 | -1.2 | -1.2 | -4.2 | -8.4 | |
| Decrease loan limits | 0 | 0.1 | 0.1 | 0.1 | 0.1 | * | -0.1 | -0.8 | -1.0 | -1.1 | 0.4 | -2.6 | |
| Both of the above policiesa | 0 | -1.3 | -1.2 | -0.7 | -0.4 | -0.5 | -0.2 | -1.3 | -1.3 | -1.3 | -3.6 | -8.3 | |
Notes: This option would take effect in October 2015. Estimates are relative to CBO’s April 2014 baseline projections.
* = between -$50 million and zero.
a. If both policies were enacted together, the total effects would be less than the sum of the effects for each policy because of interactions between the approaches.
This option includes two approaches for reducing the federal subsidies provided to Fannie Mae and Freddie Mac, two government-sponsored enterprises that were established to help ensure a stable supply of financing for residential mortgages. In the first approach, the average guarantee fee that Fannie Mae and Freddie Mac assesses on loans they include in their mortgage-backed securities (MBSs) would increase by 10 basis points (100 basis points are equivalent to 1 percentage point) beginning in October 2015. In addition, to keep guarantee fees constant after fiscal year 2021 (when an increase of 10 basis points that was put in place in 2011 is scheduled to expire), the average guarantee fee would be increased, relative to the amount under current law, by 20 basis points after 2021.
In the second approach, the maximum size of a mortgage that Fannie Mae and Freddie Mac could include in their MBSs would be reduced to $150,000 nationally, beginning with a drop to $500,000 in October 2015 and followed by a series of reductions averaging less than $50,000 a year. (Guarantee fees would remain as they are under current law.)