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		2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2025– 2029	2025– 2034
Change in outlays^a
	Increase guarantee fees	0	0	0	0	0	0	0	0	-3.3	-3.4	0	-6.7
	Decrease loan limits	0	0	-0.1	-0.3	-0.6	-0.8	-1.1	-1.4	-2.8	-3.3	-1.0	-10.4
	Implement both alternatives^b	0	0	-0.1	-0.3	-0.6	-0.8	-1.1	-1.4	-5.0	-5.4	-1.0	-14.7

This option would take effect in January 2025.

a. Excludes the potential effects on spending by the Federal Housing Administration and Ginnie Mae. 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. Because of interactions between the alternatives, if both alternatives were enacted, the total effects in 2033 and 2034 would be less than the sum of the effects for each alternative.

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 calendar year 2024 Fannie Mae and Freddie Mac generally can purchase mortgages of up to $1,149,825 in areas with high housing costs and $766,550 in other areas; regulators can alter those limits if house prices change, and those limits will be higher in 2025. The Temporary Payroll Tax Cut Continuation Act (TCCA) of 2011 implemented an additional fee of 10 basis points per year, remitted to the Treasury. (A basis point is equivalent to 0.01 percentage point.) The act is scheduled to expire in 2032.

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 consists of two alternatives. The first alternative would extend the TCCA fee by two years. Doing so would keep the average guarantee fee at about 58 basis points, its level in 2025, CBO projects. It would result in additional income for the government and lower subsidy costs. Under the second alternative, the size of the mortgages that Fannie Mae and Freddie Mac could include in their MBSs would be reduced. Beginning in 2027, the higher limit in high-cost areas would be eliminated, and maximum mortgage in all areas would be set at $691,800, 10 percent less than the current maximum in other areas. That maximum would be reduced by 5 percent per year until 2034, resulting in lower subsidy costs over the 10-year projection period. The delay in phasing in the lower limits would give the mortgage market time to adjust.