federal government) reduced their annual interest expenses by between $4.7 billion and $13.1 billion in 2005. At the same time, though, the annual interest savings the GSEs bestowed on home loan borrowers ranged between $16.2 billion and $20.7 billion. This range does not account for government subsidies to other financial institutions that the GSEs must match in the marketplace to further reduce
Overall then, we conclude that the residential mortgage
market functions well and that Freddie Mac and Fannie Mae
contribute substantially to its performance.
mortgage rates. For example, account- ing for the federal
subsidies that go to depository institutions
(such as banks and savings and loans) and
members of the Federal Home Loan Bank (FHLB) System, we estimate the total savings to homeown- ers from Freddie Mac and Fannie Mae activities reach the $18.8-26.9 billion range. As a result, even the low end of the savings to borrowers exceeds the high end of the funding advantage to the GSEs by a significant margin—more than $5 billion.
Revisiting the Net Benefits of Freddie Mac and Fannie Mae
Overall then, we conclude that the residential mortgage market functions well and that Freddie Mac and Fannie Mae contribute substantially to its performance. We agree that large retained portfolios—regardless of who owns them—involve distinct risks, and that the size and complexity of the GSEs’ portfolios warrant close monitoring and supervision. But placing statutory limits on the GSEs’ portfolios would reduce the liquidity in the mortgage market and constrain growth in homeownership, while reducing risk only marginally at best. Accordingly, we conclude that the current path of more focused, effective regulation is the best way to maximize the net contributions of the GSEs.
Introduction and Summary