Fannie Mae-No Politics (FNMA)

[crawford2012]

WASHINGTON • The White House says mortgage giants Fannie Mae and Freddie Mac will be huge money makers for the federal government over the next decade.

But the Congressional Budget Office (CBO) says the firms will lose billions of taxpayer dollars over that period.

That disagreement is sowing a bit of confusion as Congress considers a major overhaul of the mortgage-finance system.

Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, the leaders of the Senate banking committee, have proposed bipartisan legislation that would wind down Fannie and Freddie, replace them with a new entity and shift more of the risks of mortgage lending to the private sector.

********I am not sure if I should Laugh or cry???***Do they even think there is a chance in this life time this will be accepted by investors, specially after that they just did to current share holders - Comon People...But guess what unless they have it all planned as a big gang/mafia style...where they introduce the bill, they already have the private capital ready and they will get all the profit...knowing all along this was there plan from day one 8 years ago.*************

The banking committee plans to vote on the measure April 29. If it passes, the Congressional Budget Office would determine the cost of the measure — its "score," in congressional lingo. If CBO says the proposal would lose less money than the current structure — or even make money — the bill would get a big boost. But a bad score would probably doom it.

"The CBO clearly thinks Fannie and Freddie lose money," said Michael Bopp, a partner at Gibson, Dunn & Crutcher. "The question becomes: Will the new entity created under Johnson-Crapo cost more than Fannie and Freddie? Or not?"

Fannie and Freddie buy mortgages from lenders, package them into securities and sell them to investors. For a fee, they also insure mortgages and pay investors if the loans go bad. In 2008, as millions of loans soured, the federal government took control of the companies.

The Office of Management and Budget (OMB), an agency of the White House, never really incorporated the takeover into its budget and has not identified the agencies as part of the government. Instead, OMB continues to treat Fannie and Freddie as third-party entities that generate receipts for Uncle Sam.


Since the 2008 takeover, the firms have sent more than $200 billion in dividends to the Treasury, exceeding the $188 billion they received in federal bailout money. Over the next decade, OMB forecasts that the two mortgage giants will send another $181.5 billion in profits to the Treasury if they maintain their current structure.

The CBO, an independent agency whose director is appointed by Congress, views the situation differently. Since the takeover, the CBO has considered Fannie and Freddie an integral part of the government. And on net, the firms are money losers, according to CBO, which projects additional losses of about $19 billion between 2015 and 2024.

That projection includes CBO's analysis of future business conditions for the companies and its assessment of whether the fees Fannie and Freddie pocket to guarantee mortgages will cover the costs of defaulting loans. For the next decade, they will not, CBO has concluded.

The OMB, in yet another contrast with CBO, looks at past guarantees and default rates to project how Fannie and Freddie will perform in the future. At a recent event hosted by the Bipartisan Policy Center, Deborah Lucas, a former CBO assistant deputy, called OMB's method "deficient" and said CBO's approach makes more sense.

"The cash flows that appear to be profits in the popular narrative are really a result of legacy guarantees made years or decades in the past," said Lucas, now a professor of finance at the Massachusetts Institute of Technology. They are not relevant when it comes to setting future policies that will affect the federal budget, she said.

Bopp, a former OMB assistant director who also spoke at the event, said the CBO method has its own drawbacks in that it relies too heavily on judgments that are not always transparent or consistent from one program to the next.

Still, the White House supports congressional efforts to overhaul the mortgage finance system. That makes the OMB's continued insistence on identifying Fannie and Freddie as money makers all the more confusing, and curious.

April 18, 2014 7:03 pm
http://www.stltoday.com/business/local/white-house-cbo-split-on-fannie-freddie/article_04372877-7bc3-5b72-9964-e002cd7639c8.html