NCPA - National Center for Policy Analysis

Fannie And Freddie Reap Billions In Subsidies

May 24, 2001

Home buyers aren't benefiting as much as they could from the special government-conferred privileges enjoyed by mortgage giants Fannie Mae and Freddie Mac, according to the Congressional Budget Office. In hearings before a House panel, CBO director Dan Crippen estimated the annual value of the companies' special ties to the government at $10.7 billion.

Further, he concludes that $3.9 billion -- or 37 percent -- of what the CBO characterizes as a subsidy stays with the publicly-traded corporations, rather than benefiting home buyers.

  • While Fannie and Freddie don't receive taxpayer's money directly and are not, technically, obliged to bail the corporations out if they get into trouble, there is a widely-held assumption that the government would step in and provide funds if a crisis loomed.
  • That assumption means investors will accept lower yields on the firms' securities -- a benefit which the CBO estimates to be worth $9.7 billion annually.
  • Moreover, the two pay no taxes or the regulatory fees which their competitors must pay -- another privilege estimated to be worth $1 billion a year.
  • CBO estimates $6.7 billion from those savings help lower interest rates for borrowers by a quarter of a percentage point -- meaning that Fannie and Freddie and those who invest in them pocket the remainder.

Critics say the special privileges conferred on the firms years ago by Congress continue to unfairly enrich the companies' shareholders and leave their purely private competitors at a disadvantage.

Together, Fannie Mae and Freddie Mac provide capital for most of the home mortgages in the U.S. valued at $275,000 or less. The companies act as conduits between mortgage lenders and capital markets, where investors buy the firms' securities backed by borrowers' house payments.

The companies denounced the CBO report.

Source: Thomas A. Fogarty, "Study Says Mortgage Firms Receive Subsidy," USA Today, May 24, 2001; "Federal Subsidies and The Housing GSEs," May 2001, Congressional Budget Office.

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