In its latest report on Fannie Mae and Freddie Mac, the Congressional Budget Office addressed the future of the GSEs. According to HousingWire Editor-in-Chief Jacob Gaffney, under current agreements, the net worth of the two GSEs is expected to reach zero in 2018.Since the future of both Fannie and Freddie remains uncertain, the CBO’s report indicates that any proposed solution with regard to the GSEs be non-legislative.
The CBO refers to this best option as the “illustrative solution.”
The other route would be the “policy option” which would be built around several bills introduced in the Congress with different approaches to building the GSEs’ capital.
Here’s why the CBO prefers the illustrative option:
Under the illustrative option, each GSE would be allowed to retain an average of $5 billion of its profits annually and would thus increase its capital by up to $50 billion over 10 years. The government’s commitment to purchase more senior preferred stock from Fannie Mae and Freddie Mac if necessary to ensure that they maintain a positive net worth would remain in place.In addition, the GSEs would invest the profits that they retained under the option in Treasury securities, and returns on those securities would raise the GSEs’ income. Through its holdings of senior preferred stock, the government would continue to have a claim to the GSEs’ net worth ahead of other stockholders.