Reducing Fannie and Freddie Subsidies Could Save $8 Billion

Reducing government subsidies to housing giants Fannie Mae and Freddie Mac could shrink the federal deficit by more than $8 billion in a decade, according to a recent report by the Congressional Budget Office (CBO).

The CBO found that several potential approaches could achieve the projected savings, as first noted by the Washington Examiner.

The first option is to increase the guarantee fees that Fannie and Freddie charge mortgage lenders. The companies, also known as government-sponsored enterprises (GSEs), purchase mortgage loans and then package them into securities to sell to investors. Fees protect against losses if the homeowner defaults and cover other costs.

Although guarantee fees have been raised in recent years, senators pressed Federal Housing Finance Agency (FHFA) Director Mel Watt to accelerate the increases at a recent hearing. Increases could help spur private investment in a mortgage market that is still dominated by Fannie and Freddie.

Fewer mortgage investments by the GSEs, in combination with higher fees, would “help facilitate increased participation by the private sector in the mortgage markets,” the Financial Stability Oversight Council (FSOC) said in its annual report last year.

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