An Update to CBO’s Analysis of the Effects of Recapitalizing Fannie Mae and Freddie Mac Through Administrative Actions

This letter responds to your request of September 10, 2024, that the Congressional Budget Office update its 2020 report titled Effects of Recapitalizing Fannie Mae and Freddie Mac Through Administrative Actions. That report analyzed illustrative options for using administrative (rather than legislative) actions to rebuild the capital reserves of Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) that play a major role in the housing finance system and that have been in federal conservatorships since 2008. In that report, CBO examined options for recapitalizing the GSEs by allowing them to retain all of their profits for an initial period, rather than paying some of those profits to the Treasury. After that initial period, the GSEs would sell new common stock to investors to replace the Treasury’s ownership stake.

This letter updates that earlier analysis, describing how the GSEs’ current financial conditions differ from the conditions underlying the estimates in the 2020 report and how those differences affect scenarios for recapitalization. CBO’s updated analysis concludes that the potential value of the GSEs to investors is greater now than it was at the time of the previous analysis, resulting in more scenarios in which the GSEs could be recapitalized through the sale of common stock and could repay the Treasury for its stake in the enterprises.