CBO: Housing bill would save $58 billion and reduce taxpayer risk

Authors of a massive housing finance industry overhaul said that a recent Congressional Budget Office (CBO) report provides further proof that their legislation would save taxpayers billions and reduce risk.

The CBO estimates that a bipartisan measure approved by the Senate Banking Committee in May would save $58 billion over 10 years.

{mosads}But the effort to move forward in Congress continues to languish.

At this point, the bill isn’t expected to reach the Senate floor before year’s end, leaving it to the next Congress to consider, quite possibly one with a different makeup.

The Senate is up for grabs and could shift to a Republican majority and change the Banking panel’s leadership.

Even outside the election, panel Chairman Tim Johnson is retiring (S.D.), putting Democratic Sen. Sherrod Brown (Ohio) in line to take the gavel if Democrats retain control of the upper chamber. 

Besides, the House has separate legislation that would still need to pass and be reconciled with the Senate within a tight timeframe. 

Johnson said the report “reaffirms” lawmakers arguments that the measure would be a positive for the housing sector. 

The legislation, drafted by Johnson and panel ranking member Mike Crapo (R-Idaho) would wind down and eliminate Fannie Mae and Freddie Mac and let private entities replace most of their functions.

“This CBO score demonstrates that our strong, bipartisan legislation will have a positive impact on economic growth, contribute to deficit reduction, increase private sector involvement in the housing finance market and ensure that taxpayers are protected going forward,” Crapo said. 

The legislation builds on a bill put forward by Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) and a bipartisan group of eight other committee members.

“This bill not only protects taxpayers against future losses, but it also reduces the deficit by $58 billion over 10 years and creates a more competitive, dynamic housing finance system,” he said.

The new system would be regulated by Federal Mortgage Insurance Corporation (FMIC), which is modeled after the FDIC. It also creates a reinsurance fund, known as the Mortgage Insurance Fund, aimed at protecting taxpayers.

The measure also would establish a type of mortgage-backed security with an explicit government backstop along with a 10 percent first loss private secondary-market capital to absorb losses and protect taxpayers from future bailouts.

Small lenders would have multiple access points to the secondary mortgage market, including the option to sell their individual loans through a new small lender mutual.

FMIC would charge fees on the underlying mortgages to guarantee the payment of principal and interest to investors in eligible Mortgage Backed Securities and would require private capital to absorb some losses before federal payments would occur.

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.

Since 2008, Fannie and Freddie have received a total of $188 billion from the Treasury Department to stay afloat.