Budget Perspectives for Fannie and Freddie

WASHINGTON, DC – The Senate Budget Committee today released its July 14, 2016, Budget Bulletin focused on Budget Perspectives for Fannie and Freddie. The Budget Bulletin provides regular expert articles by Senate Budget Committee analysts on the issues before Congress relating to the budget, deficits, debt, and the economy.

Read the full Senate Budget Bulletin here.

Excerpts follow:

Fannie Mae and Freddie Mac, which play a key role in the U.S. housing-finance system, have been in conservatorship since 2008. Calls for reform of these government-sponsored enterprises (GSEs) have followed the conservatorship, and Fannie and Freddie remain in legal and financial limbo. Understanding this context is an essential step in evaluating any future reform proposals.

Fannie and Freddie Overview: History and Operations

In 1938, Congress created the Federal National Mortgage Association (Fannie Mae) as a government agency to purchase, hold, and sell loans insured by the Federal Housing Administration (FHA).

In 1970, Congress established the Federal Home Loan Mortgage Corporation (Freddie Mac) to help savings-and-loan banks manage interest-rate risk. Initially, the Federal Home Loan Banks owned Freddie, but in 1989, Congress reorganized Freddie as a shareholder-owned for-profit company.

Differing Budgetary Treatment

The Office of Management and Budget (OMB) and Congressional Budget Office (CBO) take differing approaches to the costs associated with the two GSEs in the federal budget. OMB focuses on money flowing in and out of the government; CBO, on the risks the government assumes in backing the two GSEs. This stems from differing views about the relationship of the government to the two GSEs.

Uncertain Future

As Congress considers various reforms, Fannie and Freddie face an uncertain future. At this time, the two GSEs are able to access several hundred billion dollars before reaching the limits of bailout funds available to cover their losses and meet their obligations to guarantee mortgages.

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