April 11, 2013
The 2007–2009 financial crisis and recession were triggered in part by a near collapse of some large financial institutions, a sharp contraction in the availability of credit, and a large drop in house prices. In response, federal support for financial institutions and credit markets substantially increased. CBO quantifies the costs and risks of policy proposals related to federal credit and insurance programs, banking and capital markets, government-sponsored enterprises such as Fannie Mae and Freddie Mac, and other federal financial activities.
CBO examined three options for Fannie Mae and Freddie Mac to use principal forgiveness for certain underwater borrowers. How would those options affect the number of mortgage defaults, the federal budget, and the overall economy?