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56 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest SECONDARY MARKET gse Wind-down Bill said to cut spending by Billions CBo estimates proposed legislation could trim $60 billion in spending over the next decade. t he Congressional Budget Office (CBO) released a cost esti- mate last month for S. 1217, a bill proposed in June 2013 by Sens. Bob Corker (R- Tennessee) and Mark Warner (D-Virginia) that would elimi- nate Fannie Mae and Freddie Mac and replace them with a privatized system and a govern- ment backstop. According to CBO's newly released estimate, divesting the housing market of the two GSEs would save the government billions of dollars over the next 10 years. Under S. 1217, the new system for guaranteeing mortgage- backed securities (MBS) would require private capital to absorb some losses before federal pay- ments would occur. That means the government would take on less risk, therefore costing the government less money, CBO explains. Fannie Mae and Freddie Mac would no longer have the author- ity to offer guarantees on MBS after 2019 under S. 1217; instead, a newly established entity, the Federal Mortgage Insurance Corporation (FMIC), would as- sume the responsibility of offering guarantees on MBS that originate in the primary market. FMIC would guarantee pay- ment of principal and interest to investors by charging fees on the underlying mortgages. Private capital would take on some of the losses before any government payments kick in. CBO estimates that S.1217 would result in a reduction of direct government spending by about $60 billion over a 10-year period from 2015 to 2024. The reduction in spending is primar- ily attributed to the fact that fees charged to MBS issuers by FMIC would be more than the cost of the guarantees, as calculated under the Federal Credit Reform Act (FCRA). Also, the Federal Housing Finance Agency (FHFA), the con- servator and regulator for the two GSEs since 2008, would no longer charge Fannie and Freddie for its own administrative expenses (fees that are currently recorded as revenue for the federal agency), which would result in a $1.5-bil- lion decline in governmental revenue over the five-year period from 2020 to 2024. Combining the $1.5-billion loss in revenue and the $60-billion savings in direct spending, CBO estimates federal deficits would decline by $58 billion over the next 10 years under S. 1217. The federal agency noted that pay-as- you-go procedures would come into play under the Corker- Warner legislation because the bill affects both direct spending and revenue.