Honorable Paul Ryan Chairman Committee on the Budget U.S. House of Representatives Washington, DC 20515

By | May 19, 2011

(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.

Source: CBO

To see the entire release, click on this link

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