New expense projections could revive interest in GSE reform

The Congressional Budget Office's latest forecast for loan and guarantee program costs highlights some of the reasons the Trump administration has considered selling off a minority equity interest in two government-sponsored enterprises held in conservatorship.

The forecasts for lifetime costs starting next year shows Fannie Mae and Freddie Mac's guarantees have value in that they would save the government $12.5 billion under a legislative measure commonly used in budgeting, but they also have $3.9 billion in fair value liabilities.

The savings could argue for retaining some government control of the GSEs but also suggests they have value for private investors who might be willing to share some of the market risk the public sector may wish to shed, in line with a Trump administration proposal last year.

If the GSEs were to sell new shares to investors for the first time since they were forced into government conservatorship during the Great Financial Crisis, it could change how they interact with private lenders and servicers who sell a larger percentage of their loans to the enterprises.

The enterprises' oversight chief, Bill Pulte, has been focusing on other issues including an acting role as director of national intelligence, but some legacy investors in GSE shares see signs policymakers could return to the idea.

Implications for FHA and VA

In addition to playing a role in policy discussions for GSEs in conservatorship or outside of it, the CBO's assessments may come up in budget talks for next year. (The GSEs are technically outside the federal budget but the CBO numbers do have policy implications for them.)

The CBO's report also measured the expenses associated with the Department of Housing and Urban Development's loans and related guarantees and found they could offer $8.7 billion in savings but would cost $8.1 billion based on their market risk.

Compared to some other forms of federal loan and guarantee programs, HUD and the GSEs had favorable numbers, which suggests they might not be the first place policymakers look for cuts. Many lenders rely heavily on HUD programs in addition to the GSEs for business.

The expense for the Department of Veterans Affairs, which also supports mortgage industry business, was $2 billion based on the standard federal budgeting measure, according to the Congressional Budget Office CBO recorded a market value liability of $6.5 billion for the VA.

The VA's programs extend beyond housing and policymakers prioritize its financial soundness but largely in the context of being able to allow it to sustain its support to military servicemembers.

Overall, the CBO finds all housing and real estate programs combined save the government $19.2 billion with the market value liability being equal to that amount.

Faring least favorably in the report are the Department of Education's student loans, which the CBO found to have a cost of $3.6 billion based on the legislative measure and a $13.7 billion expense on a fair value basis.

While the relationship to the mortgage market is indirect, student loans do have some bearing on how fast younger homeowners can afford to buy homes and can influence delinquency rates.