Page 31 - July-August 2018 GSE Report Flip Book

FANNIE MAE AND FREDDIE MAC JJUALN. U- ARUYG. 22001188
CBO provides an updated analysis of the costs government will incur under various housing finance reform proposals
In an updated review of housing finance reform, the Congressional Budget Office concluded that restructuring the mortgage market would save the government tens of billions of dollars, but could also increase the cost of housing. CBO concluded:
• Federal Costs. CBO projects that under current policy, the GSEs will guarantee almost $12 trillion in new MBSs over the next 10 years and that those guarantees will cost the government about $19 billion on a fair-value basis. That cost represents the estimated amount that the government would have to pay private guarantors to bear the credit risks of the new guarantees.
New structures for the secondary mortgage market that emphasized private capital would greatly reduce federal costs, compared with current policy, and would decrease taxpayers’ exposure to credit risk, but mortgage borrowers would face slightly higher costs.
TransiTioning To alTernaTive sTrucTures for Housing finance: an updaTe 13 KEY FEATURES OF ALTERNATIVE STRUCTURES FOR THE
augusT 2018
Table 2.
SECONDARY MARKET
Key Features of Alternative Structures for the Secondary Mortgage Market
Existing Operating Assets of Fannie Mae and Freddie Mac
Number of Private Firms Issuing Federally Guaranteed MBSs
Explicit Federal Guarantee for Loans or MBSs
Private Capital’s Role in the Secondary Market
Support for Affordable Housing
Market With a Single, Fully Federal Agency
Used for operations of federal guarantee agency, sold to issuers of private- label MBSs, or liquidated
None; operations undertaken by federal guarantee agency
Yes
Restricted to credit-risk- transfer transactions on federally guaranteed MBSs; absorbs all losses on private-label MBSs
Could occur through federal guarantee agency
Hybrid Public-Private Market
Handed over to specialized issuers of federally backed MBSs (could be nonprofit, cooperative, or private firms), sold to issuers of private-label MBSs, or liquidated
Under some models, only a few; under competitive market-maker model, any firm meeting specified criteria
Yes, possibly covering only catastrophic risks
Absorbs most or all losses, except in cases of unusually large shocks to the financial market
Could occur through terms on federal guarantees, fees on issuers of federally backed MBSs, or government agencies
Market With the Government as Guarantor of Last Resort
Used for operations of federal guarantee agency, sold to issuers of private-label MBSs, or liquidated
Firms meeting specified criteria are allowed to participate in auctions for federal guarantees
Yes, covering a small share of the MBSs issued under normal market conditions but most
of the MBSs issued during a financial crisis
Absorbs most losses under normal market conditions; absorbs no losses on federally guaranteed MBSs issued during a financial crisis
Could occur through government agencies
Largely Private Market
Sold to issuers of private- label MBSs or liquidated
None; private firms issue their own guarantees
No
Absorbs all losses
No special role; could occur through government agencies
Source: Congressional Budget Office.
MBSs = mortgage-backed securities.
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their operating systems and other assets sold to private market conditions since then.35 The continued recovery investors; converted into regulated utilities; or privatized. of the housing market, the decline in the GSEs’ market
The details of organizational changes to Fannie Mae share, and the expansion of CRT transactions all allow