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Finance

The 2007–2009 financial crisis and recession were triggered in part by a near collapse of some large financial institutions, a sharp contraction in the availability of credit, and a large drop in house prices. In response, federal support for financial institutions and credit markets substantially increased. CBO quantifies the costs and risks of policy proposals related to federal credit and insurance programs, banking and capital markets, government-sponsored enterprises such as Fannie Mae and Freddie Mac, and other federal financial activities.

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  • Government Sponsored Enterprises

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  • Modifying Mortgages Involving Fannie Mae and Freddie Mac: Options for Principal Forgiveness

    May 01, 2013

  • The Budgetary Cost of Fannie Mae and Freddie Mac and Options for the Future Federal Role in the Secondary Mortgage Market

    June 02, 2011

  • Policies for Increasing Economic Growth and Employment in 2012 and 2013

    November 15, 2011

  • An Evaluation of Large-Scale Mortgage Refinancing Programs

    September 01, 2011
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Options for Principal Forgiveness in Mortgages Involving Fannie Mae and Freddie Mac: Working Paper 2013-02

working paper

May 1, 2013

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Abstract

Mitchell Remy and Damien Moore

CBO examined three options under which Fannie Mae and Freddie Mac would provide principal forgiveness to certain distressed borrowers—specifically, to borrowers who are eligible or could become eligible for the Home Affordable Modification Program (HAMP). Such borrowers represent about 4 percent of all those with mortgages involving Fannie Mae or Freddie Mac, CBO estimates. The options would reduce the amount owed by borrowers to as low as 115 percent (through the HAMP Principal Reduction Alternative), 100 percent, and 90 percent, respectively, of the value of their homes. Any gain or loss arising from the way the distressed mortgages are handled by Fannie Mae and Freddie Mac under the options would ultimately accrue to taxpayers because, in CBO’s judgment, the federal government is now the effective owner of those enterprises. CBO finds that all three options would probably result in small savings to the government, slightly reduce mortgage foreclosure and delinquency rates, and slightly boost overall economic growth. Designing a program that affected a larger number of borrowers and had a greater impact on the housing market and the economy would require a significant departure from HAMP’s current eligibility rules.


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related publications


  • Options for Principal Forgiveness in Mortgages Involving Fannie Mae and Freddie Mac: Working Paper 2013-02

    May 01, 2013

  • The Budgetary Cost of Fannie Mae and Freddie Mac and Options for the Future Federal Role in the Secondary Mortgage Market

    June 02, 2011

  • Policies for Increasing Economic Growth and Employment in 2012 and 2013

    November 15, 2011

  • An Evaluation of Large-Scale Mortgage Refinancing Programs

    September 01, 2011
  • Sign Up For CBO Emails
  • Sign up for All CBO RSS Feeds

Modifying Mortgages Involving Fannie Mae and Freddie Mac: Options for Principal Forgiveness

report

May 1, 2013

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H.R. 677, Inter-Affiliate Swap Clarification Act

cost estimate

April 11, 2013

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H.R. 634, Business Risk Mitigation and Price Stabilization Act of 2013

cost estimate

April 11, 2013

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H.R. 313, GSA Act of 2013

cost estimate

April 11, 2013

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H.R. 742, Swap Data Repository and Clearinghouse Indemnification Correction Act of 2013

cost estimate

April 11, 2013

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H.R. 1133, Presidential Library Donation Reform Act of 2013

cost estimate

April 8, 2013

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H.R. 992, Swaps Regulatory Improvement Act

cost estimate

April 5, 2013

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monthly archive

  • May 2013 (2)
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  • January 2013 (11)
  • December 2012 (4)
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Fannie Mae, Freddie Mac, and the Future of the Secondary Mortgage Market

posted by Damien Moore & David Torregrosa on April 4, 2013

  • Snapshot of Guarantees of New Residential Mortgages

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  • April 16, 2013
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Federal Programs that Guarantee Mortgages—February 2013 Baseline

data or technical information

February 5, 2013

read complete document  (pdf, 6 kb)

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