How Would Uncle Sam Replace $153 Billion in GSE Income?

IMF News

February 3, 2015

By Brandon Ivey and Paul Muolo and George Brooks

According to the latest budget estimate from the White House, Fannie Mae and Freddie Mac will give the U.S. Treasury $153.3 billion in cold hard cash over the next 10 years. If you happen to be a president dealing with an uncooperative Congress on budget matters, $153.3 billion is a nice chunk of change. So, why would the president want to kill Fannie and Freddie? The industry can debate that one, but there’s a growing belief – and desire – in the industry that perhaps the two should be allowed to live…

Of course, any monkeying with the GSE charters must get past two of the most powerful lobbying groups in all of housing finance: the National Association of Home Builders and the National Association of Realtors. And you can bet that the American Bankers Association and Mortgage Bankers Association will be formidable advocates as well…

By the way, is the $153.3 billion estimate a bit light? In the third quarter, the two GSEs posted combined earnings of $6 billion. Extrapolated out, that amounts to $24 billion annually or $240 billion over 10 years. There are some qualifiers to consider: the GSEs are supposed to shrink their portfolios and as they slim, profits will slim too, right? But if you consider that 2014 could turn out to be the nadir for mortgage production and if you consider that guaranty fees will stay the same or maybe increase, maybe $24 billion a year is a good number…

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