(Source: SBO) – Dear Mr. Chairman:
In response to your request, the Congressional Budget Office (CBO) has prepared the attached analysis of accounting for the Federal Housing Administration’s (FHA’s) single-family mortgage insurance program on a fair-value basis. (Over the past two years, that program has guaranteed more than 17 percent of new and refinanced mortgages in the United States.) The fair-value approach is an alternative to the current accounting methodology, which is specified in the Federal Credit Reform Act of 1990 (FCRA).Fair-value estimates differ from estimates produced using the FCRA methodology in an important way: By incorporating a market-based risk premium, fair-value estimates recognize that the financial risk that the government assumes when issuing credit guarantees is more costly to taxpayers than FCRA-based estimates suggest. Including an adjustment for market risk increases the estimated subsidy rate of the FHA’s single-family mortgage program to such a degree that the program would show costs in 2012 rather than savings, CBO estimates.
I hope you find this information useful. If you would like further details, we would be glad to provide them. The primary staff contact for the analysis is Damien Moore.
To see the entire release, click on this link