According to a recent report from the Congressional Budget Office, Fannie Mae and Freddie Mac might be more attractive to investors as a result of their financial improvements in recent years.
The report was requested by outgoing House Financial Services Chair Patrick McHenry (R-N.C.), and it updates earlier analysis, describing how the GSEs’ current financial conditions differ from the conditions underlying the estimates in a 2020 report and how those differences affect scenarios for recapitalization.
“CBO’s updated analysis concludes that the potential value of the GSEs to investors is greater now than it was at the time of the previous analysis, resulting in more scenarios in which [Fannie and Freddie] could be recapitalized through the sale of common stock and could repay the Treasury for its stake in the enterprises,” according to the report.
CBO said the government-run entities would have an easier time raising money to meet their capital requirements and pay the Treasury for its stake in them than projected back in 2020.
“Under current conditions, nearly 60% of CBO’s 250 recapitalization scenarios would raise enough funds to allow the GSEs to fully repay the Treasury for its roughly $190 billion in outstanding preferred shares issued before the GSEs’ conservatorships,” the report said. “In the 2020 analysis, by comparison, that outcome occurred in only 12% of scenarios.”
Republicans and the incoming administration have considered selling the government’s stake in the GSEs to offset the cost of extending President-elect Donald Trump’s 2017 tax cuts.
The agency said its analysis did not weigh other privatization factors, such as their potential status as systemically significant institutions, and how it would affect the mortgage markets or mortgage-backed securities.
