Fannie and Freddie cuts vanishing from debt ceiling proposals


As the debt ceiling talks continue to limp along in Washington, government savings from reducing operations at Fannie Mae and Freddie Mac are disappearing from both the House and Senate proposals.

Congress has until Aug. 2 to come to an agreement on how to raise the debt ceiling, according to the Treasury Department. The House was expected to vote on a revamped proposal from Rep. John Boehner (R-Ohio) Friday evening, while Sen. Harry Reid (D-Nev.) prepped one of his own in anticipation of striking down the Boehner deal.

Buried in the flurry of negotiations were potential ramifications for Fannie and Freddie, the two mortgage giants that have cost the U.S. government roughly $164 billion in bailouts since the housing downturn.

According to the Congressional Budget Office, the original Boehner plan and subsequent Reid proposals would have saved the government $30 billion via reductions to Fannie and Freddie operations. This, sources within the House told HousingWire, would have meant raising the guarantee fees — the fees Fannie and Freddie charge for guaranteeing a pool of mortgages — up 5 basis points.

Sources said this contributed more than $26 billion to government "cuts," but it was eventually considered a "tax revenue" and was removed from not only Boehner’s proposal but Reid’s as well.

It was unclear Friday whether the Reid bill had any language pertaining to Fannie and Freddie within it, but an aide for one senator said the situation was "extremely fluid."

Rumors even flew Friday afternoon of a possible reduction to the conforming loan limit below the reduction that is already scheduled to occur Oct. 1. The conforming loan limit is the maximum amount Fannie and Freddie can purchase or guarantee.

In 2008, Congress raised the conforming loan limit to $729,750, but the limit is scheduled to expire Oct. 1 and drop to $625,500, varying by county. Discussions over the debt ceiling included talks of taking that limit down to $417,000 by 2013  for the cost savings it would provide in numbers of loans that the GSEs would guarantee going forward. However, sources on the Republican side of the House said such plans never surfaced in the deal.

Should any language regarding Fannie Mae and Freddie Mac disappear from the debt ceiling agreement, it would mark the latest landmark legislation since the Dodd-Frank Act that failed to address the future of housing finance.

Even though Republicans in the House made initial steps toward reforming fringe operations of the government-sponsored enterprises, including raising the g-fee, legislation on how to replace the roles of these companies have yet to be taken up by committee.

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~ by mortgagecompliancecorner on August 1, 2011.

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