Magazine article American Banker

Budget Office: GSE Subsidies Are Growing, under More Scrutiny

Magazine article American Banker

Budget Office: GSE Subsidies Are Growing, under More Scrutiny

Article excerpt

Congressional Budget Office Director Douglas Holtz-Eakin estimated Thursday that the subsidies of Fannie Mae, Freddie Mac, and the Federal Home Loan banks have reached $23 billion a year, an annualized increase of 17% from the $13.6 billion estimated just three years ago.

Mr. Holtz-Eakin also warned in a speech at a Women in Housing and Finance luncheon that as budget resources become scarcer in years ahead, policymakers will have to make choices about what pro-housing programs should continue. And he said policymakers might seek a better way to comparatively measure the programs' costs.

The subsidies are contentious because they are hard to quantify. Most observers believe the housing government-sponsored enterprises get an "implied guarantee" because investors perceive them to be backed by the federal government.

Though Treasury and administration officials adamantly deny such backing, many on Wall Street and elsewhere point to advantages retained by the GSEs -- including Fannie and Freddie's $2.25 billion line of credit with Treasury and exemptions from state and local taxes -- as proof of a government guarantee.

Mr. Holtz-Eakin did not release a new study Thursday, but said he used the same methodology used in the budget office's 2001 study, incorporating 2003 data to provide the updated number.

He estimated Fannie's and Freddie's subsidy at $19.9 billion collectively, and said about $6.3 billion of that is retained by the companies, with the rest passed on to the housing market. He added that the total housing GSE subsidy could be as high as $45 billion if different assumptions are made about the maturity of debt issuances.

Mr. Holtz-Eakin's comments add a new wrinkle in the debate over how to improve GSE regulation. Several critics contend that the GSEs receive substantial subsidies from the government but pass little of that along to consumers. …

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