Fannie and Freddie costs

In the last two days the Congressional Budget Office (CBO) has issued two items relating to Fannie Mae and Freddie Mac: a letter to the House Budget Committee from CBO Director Peter Orszag and a cost estimate of a pending bill.

Orszag's letter responded to the proposal released July 14 by the Treasury Dept., specifically Treasury's temporary authority to purchase equity in the housing finance government-sponsored enterprises (GSEs) that include Fannie Mae, Freddie Mac, and the Federal Home Loan (FHL) Banks. The letter stated in part:

Taking into account the probability of various possible outcomes, CBO estimates that the expected value of the federal budgetary cost from enacting this proposal would be $25 billion over fiscal years 2009 and 2010. That estimate accounts for both the possibility that federal funds would not have to be expended under the new authority and the possibility that the government would have to use that authority to provide assistance to the GSEs.

CBO's cost estimates of H.R. 3221 (pdf, 636 pp.), the Housing and Economic Recovery Act of 2008, as amended by the Senate on July 11, 2008, span fiscal years 2008-2018. The bill includes Treasury's temporary authority to purchase equity in the GSEs. CBO and the Joint Committee on Taxation (JCT) estimate that enacting this legislation would:

• Increase direct spending by $41.7 billion over the 2008-2018 period, and
• Increase revenues by about $16.8 billion over the 2008-2018 period.

In total, those changes would increase budget deficits (or reduce future surpluses) by about $24.9 billion over the 2008-2018 period.

CBO's Estimate of Cost of the Administration's Proposal to Authorize Federal Financial Assistance for the Government-Sponsored Enterprises for Housing (pdf, 10pp/60kB), July 22, 2008

H.R. 3221, Housing and Economic Recovery Act of 2008 (pdf, 5pp/80kB), July 23, 2008