Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that purchase mortgages from lenders, package them into securities to be sold to investors, and guarantee the timely payment of those securities, charging fees in exchange for that guarantee. By law and regulation, the GSEs must allocate a share of their purchases to mortgages made to low-income families and certain underserved populations. The details of that allocation are described in directives known as housing goals.

In this report, CBO analyzes how the GSEs achieve their housing goals by offering discounts on their standard fees for mortgages that meet the goals’ requirements and charging higher fees for mortgages that do not meet the requirements—a practice that is economically equivalent to a subsidy and tax policy.