CBO released a letter this morning that analyzes the Administration's July 14th proposal to provide temporary authority to the Secretary of the Treasury to purchase obligations and other securities issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The authority provided under this proposal would expire on December 31, 2009. (The Congress may consider a slightly modified version of the proposal, but it is unlikely that the modifications would have a significant effect on the estimated costs.)
CBOs estimate reflects the current budgetary treatment and existing scorekeeping conventions for federal credit assistance and equity purchases and does not necessarily measure the underlying change in the federal governments financial condition as a result of this legislation. On the one hand, the acquisition of financial assets like equities is recorded as an outlay in the budget even though such purchases may not change the governments underlying financial condition. On the other hand, even if enacting this legislation would not result in outlays over the near term, it might effectively strengthen the linkages between the GSEs and the federal government and thereby increase the governments underlying exposure to the risks associated with the GSEs activities.
A final point to note is that a strong argument can be made that if the Treasury used the proposed authority, the GSEs operations should be incorporated directly into the federal budget. That is, the proposal, especially to the extent it would result in any government acquisition of an equity stake in the GSEs, raises a significant budgetary question. Currently, data on the GSEs are reported along with federal budget information each year, but the activity of those entities is not encompassed within the budget. That treatment could change if the federal governments financial stake or control changes in a significant way. For the purposes of this cost estimate, CBO did not incorporate any change in the underlying budgetary treatment of the GSEs, in part because the proposed authority would be temporary; if it is not used, the relationship between the GSEs and the federal government would presumably return to one consistent with current budgetary treatment after the temporary authority expires.