Eliminating Fannie, Freddie would save government billions -- report

by Ryan Smith08 Sep 2014
Eliminating Fannie Mae and Freddie Mac in favor of a new government mortgage insurer would reduce direct spending by $60 billion and slash the deficit by $58 billion over the next 10 years, according to new data from the Congressional Budget Office.

The CBO’s report seems to backstop congressional cries to dismantle Fannie and Freddie. Specifically, it lends support to a bill which would replace the agencies with a new federal mortgage insurer.

“Today’s CBO report further confirms that the bipartisan bill passed by the Senate Banking Committee in May is a win-win for the American taxpayer and should serve as the framework for how our housing finance system should look in the future,” said Sen. Bob Corker (R-Tenn.), who sponsored the bill along with Virginia Democrat Mark Warner. “This bill not only protects taxpayers against future losses, but it also reduces the deficit by $58 billion over 10 years and creates a more competitive, dynamic housing finance system. It is time for our country to move beyond the status quo and finally end the failed model of private gains and public losses.”

But many industry leaders and investors have resisted the idea of dismantling Fannie and Freddie. Many who own stock in the companies would see significant losses if the government wound them down. And many industry leaders worry that the end of Fannie and Freddie could mean higher costs for homeowners. A study earlier this year, conducted by by Leading Builders of America by the Harvard Joint Center for Housing Studies, predicted that various government proposals to overhaul the mortgage finance giants could cause rates to rise as much as 1.5 percentage points.
 

COMMENTS

  • by cheryl m | 9/8/2014 11:09:49 AM

    Bob Corker should put a cork in it..talk about what you know not what you don't. Here's a clear example

  • by Edward | 9/8/2014 11:13:47 AM

    Eliminating Fannie Mae and Freddie Mac will increase the cost and the rate for consumers who are qualified and have strong credit. I have not seen anything done right by the government!! Right now the Treasury is profiting from Fannie and Freddie in billions and they are not costing the government anything! I wonder sometimes about this so called people who provide the data??

  • by John | 9/8/2014 11:47:30 AM

    This report was cleverly designed to exploit CBO's propensity to count guarantees as expenses. They are only expenses if the guarantee is executed. The CBO erroneously predicted in 2011 that Fannie Mae would cost $187 billion above the $130 billion the government provided. Instead, Fannie Mae repaid the $130 billion and more. Supposedly, the Corker proposal will not have losses so fees will cover the guarantees. This is the supposed $58 billion that would be saved. Meanwhile, mortgages will cost about 1.5% more in rate costing consumers several hundred billion dollars.

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