Cost estimate for Senate housing legislation

June 9, 2008

CBO has issued a cost estimate for the Federal Housing Finance Regulatory Reform Act of 2008, as ordered reported by the Senate Committee on Banking, Housing, and Urban Affairs on May 20. CBO estimates that enacting the legislation would increase revenues by about $8.0 billion over the 2009-2018 period, net of income and payroll tax offsets. Over that period, we estimate that direct spending from those proceeds would total about $7.2 billion. The additional revenues would thus exceed direct spending by an estimated $800 million, decreasing future deficits (or increasing surpluses) by that amount over the next 10 years. In addition, implementing this bill would reduce net discretionary spending over the next 10 years by $31 million, assuming appropriation actions consistent with the bill.

This legislation would make a number of changes in federal housing policy. It would:

Establish a single regulatorthe Federal Housing Finance Agency (FHFA)for government-sponsored enterprises (GSEs) involved in the home mortgage market. GSEs are privately owned, Congressionally chartered financial institutions created to enhance the availability of mortgage credit. The GSEs that would be regulated by FHFA include the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Banks (FHLBs).

Require Fannie Mae and Freddie Mac to annually pay amounts equal to 4.2 basis points on each dollar of unpaid principal balance of each enterprises total new business purchases (that is, 4.2 cents per $100 of the value of the new mortgages purchased or securitized in that year). These assessments would begin during fiscal year 2009 and would be deposited into new federal funds.

Authorizefrom October 1, 2008, through September 30, 2011a new mortgage guarantee program under the Federal Housing Administration (FHA) that would allow certain at-risk borrowers to refinance their mortgages after the mortgage holder (lender or servicer) agrees to a write-down of the existing loan (that is, a reduction in the amount of loan principal). A portion of the GSEs assessments would be used to pay the cost of this new program.

Require loan originators to participate in a Nationwide Mortgage Licensing System and Registrythat would be administered by either a nonfederal entity or the Department of Housing and Urban Development in coordination with the federal banking regulatory agencies.

Authorize the appropriation of such sums as are necessary for the Treasury Departments Office of Financial Education to provide grants to state and local governments, Indian tribes, and other entities to support financial education and counseling services.