Mandatory Spending

Function 370 - Commerce and Housing Credit

Raise Fannie Mae’s and Freddie Mac’s Guarantee Fees and Decrease Their Eligible Loan Limits

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 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2023–
Change in Outlaysa                        
  Increase guarantee fees -1.4 -1.6 -1.7 -1.4 -0.8 -0.6 -0.7 -0.9 -0.9 -1.1 -6.9 -11.1
  Decrease loan limits -0.3 -0.7 -0.9 -0.9 -0.7 -0.5 -0.6 -0.6 -0.8 -1.1 -3.5 -7.1
  Implement both alternativesb -1.5 -2.1 -2.3 -2.0 -1.3 -1.0 -1.1 -1.2 -1.4 -1.7 -9.2 -15.6

This option would take effect in January 2023.

a. Excludes the potential effects on spending by the Federal Housing Administration and the Government National Mortgage Association. Spending by those agencies is governed by annual appropriation acts and thus is classified as discretionary, whereas spending by Fannie Mae and Freddie Mac is not determined by appropriation acts and thus is classified by the Congressional Budget Office as mandatory.

b. If both alternatives were enacted together, the total effects would be less than the sum of the effects for each alternative because of interactions between the approaches.

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that were federally chartered to help ensure a stable supply of financing for residential mortgages. The GSEs carry out that mission in the secondary mortgage market (the market for buying and selling mortgages after they have been issued): They buy mortgages from lenders and pool those mortgages to create mortgage-backed securities (MBSs), which they sell to investors and guarantee (for a fee) against losses from defaults. Under current law, in 2022 Fannie Mae and Freddie Mac generally can purchase mortgages of up to $970,800 in areas with high housing costs and $647,200 in other areas; regulators can alter those limits if house prices change, and those limits will be higher in 2023.

In September 2008, the federal government took Fannie Mae and Freddie Mac into conservatorship. As a result, the Congressional Budget Office concluded, the institutions effectively became governmental entities whose operations should be reflected in the federal budget. By contrast, the Administration considers the GSEs to be nongovernmental entities. CBO projects that under current law, the mortgage guarantees issued by the GSEs will have a budgetary cost—that is, the cost of the guarantees is expected to exceed the fees received by the GSEs.

This option includes two alternatives. In the first alternative, the average guarantee fee that Fannie Mae and Freddie Mac assess on loans they include in their MBSs would increase by 5 basis points starting in January 2023. (A basis point is one one-hundredth of a percentage point. Under current law, the average guarantee fee is projected to be about 55 basis points in 2023.) In the second alternative, the size of the mortgages that Fannie Mae and Freddie Mac can include in their MBSs would be reduced. The maximum mortgage in all areas would be set at $647,200 (eliminating the higher limit in high-cost areas) and then reduced by 5 percent per year until it reached about $408,000 by 2032.