Budget Options
December 14, 2017

Mandatory Spending

Function 370 - Commerce and Housing Credit

Options for Expanding the Transferring of Credit Risk on Mortgages Guaranteed by Fannie Mae or 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.

CBO analyzed three options for expanding Fannie Mae and Freddie Mac’s efforts to share risk with investors.

  • In the first option, for loans newly guaranteed in 2018, Fannie Mae and Freddie Mac would transfer 40 percent (rather than 20 percent) of the losses equal to the first 0.5 percent of the original unpaid principal balance (UPB) of the reference pool of loans, as well as 95 percent (rather than 85 percent) of the losses that equaled between 0.5 percent and 3.75 percent of the pool’s original UPB.
  • In the second option, Fannie Mae and Freddie Mac would issue credit-risk notes covering a portion of the losses equal to as much as 6 percent of the original UPB of the reference pool of loans newly guaranteed in 2018.
  • In the third option, Fannie Mae and Freddie Mac would expand their risk-sharing efforts to include loans originated before the 2013 start of the current credit-risk-transfer program.