
A recent analysis from the Congressional Budget Office (CBO) presents optimistic news regarding the recapitalization of Fannie Mae and Freddie Mac.
The report suggests that such a move could be beneficial for the U.S. Department of the Treasury in most scenarios.
This finding marks a notable shift from previous evaluations.
Capital Generation Potential
The CBO’s study highlights that the market value of these government-sponsored enterprises (GSEs) has seen an upward trend.
This increase opens the door to greater capital generation through common stock offerings, which could help repay the Treasury’s investment more effectively than before.
Remarkably, current economic conditions allow for nearly 60% of the scenarios analyzed to indicate that the GSEs can generate enough funds to settle their debts with the Treasury.
This is a significant rise from just 12% in a similar study conducted back in 2020.
Cost-Saving Measures
In tandem with these findings, a supplemental report from the CBO underscores the potential for the federal government to save about $14.7 billion by raising guarantee fees and tightening regulations on conforming loan purchases.
These purchases have consistently increased since 2016, reflecting a robust demand in the housing market.
The report points to Fannie Mae and Freddie Mac’s impressive capital growth, with their funds soaring from $24 billion in 2019 to a staggering $125 billion in 2023, driven largely by rising home prices that have bolstered their financial footing.
Future Outlook
Moreover, the CBO advocates for the persistence of GSE guarantee fees and suggests adjustments to conforming loan limits to counter potential financial gaps.
These changes could translate into approximately $14.7 billion in savings for the federal government during the timeframe from 2025 to 2034.
Proposed alterations to conforming loan limits might include the elimination of elevated thresholds in high-cost areas, while the Federal Housing Finance Agency has set a new baseline conforming loan limit at $806,500 for single-unit properties in 2025.
Ultimately, these developments paint a picture of a healthier financial landscape for Fannie Mae and Freddie Mac, positioning them to fulfill their obligations to the Treasury while offering potential savings for the government.
The CBO’s findings mark a new chapter in the discussion about the future of these essential entities in the housing market.
Source: Housingwire