Recent recommendations made by the Congressional Budget Office (CBO) to increase the amount of money in the government has sparked some debate among various government-sponsored enterprises and other market-related government agencies, as these recommendations do not necessarily benefit the agencies.
Among the most high-profile recommendations in the March 2000 Budget Options include the elimination of the Federal Housing Administration (FHA) mortgage insurance rebates, increasing the Ginnie Mae guarantee fee, and requiring all GSEs to register with the Securities & Exchange Commission (SEC).
While these recommendations are not official proposals, according to sources at the CBO, they are a result of "brainstorming," and will be submitted to Congress for consideration in their inclusion in the federal budget.
Perhaps the recommendation that has received the most reaction has been that the GSEs be required to register all securities with the SEC. "Requiring issuers to register their securities with the SEC protects investors by ensuring that all offerings are accompanied by disclosures of information," the report states. The report then stated it is no longer necessary for the GSEs to remain exempt because they have become accepted names in the marketplace.
A spokesman from the CBO stated that requiring the GSEs to register all securities, which many of them currently do on a voluntary basis, would not go against their congressionally chartered missions. "Our sense is if they bore the full cost and didn't pass it through, that they would still earn above competitive returns, returns more than high enough to attract capital, so that wouldn't be a detriment to their mission," he said. "And if they passed it through, the price increase to the borrowers would be pretty much undetectable. And it's not like people are going to put a new line on your closing form for SEC related-portion of your origination fee."
To register, the GSEs would have to pay 2.5 basis points for every $1,000 in securities they issue, declining gradually to less than one basis point by 2007.
Freddie Mac has said that the registration process should not be changed. "That general issue gets raised annually, and Freddie Mac certainly thinks that the current state of affairs for our securities, registration and that kind of thing, is in the best interest of America's homebuyers and we think that should remain," said Douglas Robinson, Freddie Mac spokesman.
Fannie Mae has also expressed concern about the measure, but did not return phone calls by press time to give an official comment.
The CBO also wants to eliminate the FHA mortgage insurance rebates it gives to borrowers who prepay their mortgages within seven years. The report states that eliminating the rebate would boost the cost of FHA mortgage insurance, leaving some borrowers to pursue the private mortgage insurance industry.
The CBO spokesman said the CBO doesn't anticipate any loss because the cost increase is small. "This is, in effect, the government raising money by increasing the relative price of FHA," he said. "If you think FHA ought to have as much market share as possible, it is a negative for them. But again, our numbers don't reflect any behavioral shift, probably because it's hard to know what it would be."
Representatives from the FHA did not return phone calls by press time.
As for raising the Ginnie Mae guarantee fee three basis points to nine cents per $100 of guaranteed MBS, the CBO said the measure is strictly to raise revenue, not to help Ginnie Mae. "The fee will come in as money that's fundable for the whole government," the spokesman said. "I don't think if it was made available for obligation by Ginnie Mae, and Ginnie would spend it, we wouldn't show any savings. So it doesn't benefit Ginnie Mae in terms of giving them new resources to contract with people. It's really a revenue issue."
A representative from Ginnie Mae was not available for comment.