On September 3, the Congressional Budget Office (CBO) released a cost estimate (“score”) of S. 1217, the housing finance reform bill sponsored by Senate Committee on Banking, Housing, and Urban Affairs Chair Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID). The bill was voted out of the Banking Committee on May 15 by a bipartisan vote of 13 to 9 (see Memo, 5/16). However, lack of support from some Committee Democrats, who had concerns about access and affordability issues within the single family marketplace, has kept the bill from being taken up on the Senate floor.
The bill, the Housing Finance Reform and Taxpayer Protection Act of 2013, would provide for a 10 basis point fee applied to federally guaranteed securities. The fee revenue would fund the National Housing Trust Fund (NHTF), the Capital Magnet Fund (CMF), and a new Market Access Fund (MAF), with 75% of the fee revenue targeted to the NHTF. Various sources have estimates the fee would eventually generate $5 billion a year after a five-year phase-in.
Assumptions made by the CBO in the report, however, result in an estimate of only $7.3 billion for the NHTF, CMF, and MAF between 2019 and 2024, a sharp decrease from the amount anticipated to go into the NHTF during these years.
The CBO score of the bill assumes a steep drop in market share for the bill’s successor to Fannie Mae and Freddie Mac, the Federal Mortgage Insurance Corporation (FMIC). According to the CBO report, in 2013 the value of mortgages guaranteed by Fannie Mae and Freddie Mac, along with the Federal Housing Administration (FHA), was about $1.7 billion, or about 80% of total mortgage originations.
“Under S. 1217, CBO estimates that FMIC would guarantee about 30% of the total mortgage market over the 2020-2024 period. The remaining mortgage market would be supported mostly by private firms that carry no federal guarantee (60% of the total), while about 10% would be guaranteed by FHA, the Department of Veterans Affairs (VA), or the Rural Housing Service (RHS),” the report says.
CBO assumes that borrowers would be more likely to secure non-FMIC insured loans because interest rates for FMIC-guaranteed loans would be higher, due to cash reserve requirements for FMIC imposed by S. 1217 and the 10 basis point fee on private entities to fund the affordable housing programs. The assumption that the GSEs’ market share would drop so precipitously within the next five years results in the low amount the report predicts would go to the three affordable housing programs, including the NHTF.
The CBOs report is at http://www.cbo.gov/sites/default/files/cbofiles/attachments/s1217.pdf