A bipartisan Senate bill to unwind the government-sponsored enterprises Fannie Mae and Freddie Mac would save the government nearly $60 billion over 10 years, according to Congress’ official budget scorekeeper.
The Congressional Budget Office on Friday released an estimate of a bill that cleared the Senate Banking Committee in May but has failed to gain traction in the upper chamber.
Originally authored by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., the measure would phase out the two bailed-out mortgage businesses Fannie and Freddie and replace them with a system of private insurance for mortgage securities with a government backstop that would kick in after private investors suffered losses.
Because the private sector would be on the hook for 10 percent of mortgage losses, the CBO said, the cost to the government to provide guarantees would be less under the Senate measure than it would be through the government-sponsored enterprises in the current system.
The CBO also expects that the Senate bill would decrease the government’s dominance in the housing finance market. While Fannie and Freddie today back about half of all new home loans, the Federal Mortgage Insurance Corporation envisioned by the Senate bill to backstop private mortgage insurance would eventually account for only about one-third of the mortgage market.
Most of the Senate bill’s estimated savings, however, are an artifact of the CBO using different accounting methods for assessing the costs associated with Fannie and Freddie and for the bill’s insurance scheme. Evaluating the bill using fair-value accounting, which assumes a higher discount rate on cash flows from the guarantee program, the CBO finds that it would only reduce the deficit by $7 billion.
The Senate Banking Committee voted 13-9 to approve the measure in May after the committee Chairman Tim Johnson, D-S.D., and ranking Republican Mike Crapo of Idaho pushed their own draft. The measure has not been brought up on the Senate floor, however, because of disagreement within the Democratic caucus over how to deal with Fannie and Freddie.
