Senate Housing Bill May Prove Costly for Fannie, Freddie

While the impact of a recent housing and foreclosure relief package passed by the Senate Committee on Banking, Housing and Urban Affairs isn’t likely to cost taxpayers money directly, the cost of the proposal is likely to be borne heavily by both Fannie Mae (FNM) and Freddie Mac (FRE). According to an estimate released June 9 by the Congressional Budget Office, the proposed Federal Housing Finance Regulatory Reform Act of 2008 would cost both GSEs $9 billion over the next 10 years, with roughly $710 million of that total coming in 2009. Freddie Mac has said previously that it expected the cost of the program to be managable, at roughly $175 million for 2009. Clearly, the CBO estimate outstrips those earlier expectations.

A housing relief proposal crafted by Senate Banking Committee chair Chris Dodd (D-CT) could cost Fannie and Freddie $9 billion. (photo: Dodd’s office)

Representatives at Freddie Mac had not commented on the CBO report by the time this story was published on Friday. Under the Senate foreclosure relief bill, both GSEs would be required to annually pay amounts equal to 4.2 basis points on each dollar of unpaid principal balance of each enterprise’s total new business purchases for that year. The net cost of the program will be below the $9 billion figure, however, once accounting for taxes not assessed; the affordable housing contributions by each GSE will reduce tax revenue that would have otherwise been assessed. In net, the CBO estimated that GSE assessments into the proposed affordable housing fund would total $6.8 billion through 2018 and $531 million in 2009. The massive cost of providing federally-sponsored funding of low-income and community revitalization projects — and the expectation that both GSEs provide funding for the effort — underscores lawmaker’s increasing reliance on both Fannie Mae and Freddie Mac to prop up the nation’s troubled housing market. The CBO report would seem likely to add to existing speculation from some that both GSEs aren’t yet done raising additional capital, should the proposed Senate bill become law. The full Senate has yet to formally consider the Senate committee’s housing proposal. Sources suggest that House and Senate members are currently hammering out a compromise between the Senate’s version of the housing bill and that already pushed through the House by Financial Services Committee Chairman Barney Frank (D-MA), in an attempt to fast-track a bill before Congress adjourns in early July.

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