As ordered reported by the Senate Committee on Banking, Housing, and Urban Affairs on May 15, 2014
S. 1217 would establish the Federal Mortgage Insurance Corporation (FMIC) to provide a partial federal guarantee for mortgage-backed securities (MBSs). Similar to the financial role played by two government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—FMIC would offer guarantees on MBSs composed of mortgages originated by lenders in the primary market. Under the bill, the GSEs would stop offering guarantees on MBSs. FMIC would charge fees on the underlying mortgages to guarantee the payment of principal and interest to investors in eligible MBSs and would require private capital to absorb some losses before federal payments would occur. Because of those features, CBO expects that the government would take on less risk under FMIC guarantees than it would from continued operation of the GSEs under current law and thereby incur smaller costs.
CBO estimates that enacting S. 1217 would reduce direct spending by $60 billion over the 2015-2024 period—largely because new fees that FMIC would charge the issuers of MBSs would exceed the costs of the guarantees as calculated under the Federal Credit Reform Act (FCRA). In addition, under the bill, revenues would decline by $1.5 billion over the 2020-2024 period because the Federal Housing Finance Agency (FHFA)—the GSEs’ regulator—would no longer assess fees on the GSEs (which are recorded in the budget as revenues) to cover the agency’s administrative costs. Combining those effects on direct spending and revenues, CBO estimates that enacting the bill would decrease federal deficits by $58 billion over the 2015-2024 period. Because enacting S. 1217 would affect direct spending and revenues, pay-as-you-go procedures apply.
Under the bill, CBO expects that some mortgages that would be guaranteed by the GSEs under current law would instead obtain guarantees through the Federal Housing Administration (FHA) and the Government National Mortgage Association (GNMA). CBO estimates that those changes would result in a decrease in discretionary spending of $6.9 billion over the 2020-2024 period, assuming enactment of future appropriation laws necessary to implement the legislation’s provisions.
S. 1217 would impose intergovernmental and private-sector mandates, as defined in the Unfunded Mandates Reform Act (UMRA), on mortgage servicers and creditors; the legislation also would impose a separate intergovernmental mandate on state banking and insurance agencies by requiring such agencies to provide information about insolvent entities. CBO estimates that the aggregate costs of the intergovernmental and private-sector mandates in the bill would fall below the annual thresholds established in UMRA ($76 million and $152 million in 2014, respectively, adjusted annually for inflation).