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Accounting for FHA's Single-Family Mortgage Insurance Program on a Fair-Value Basis 1 (May 2011)

handle is hein.congrec/cbo08020 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Douglas W Elmendorf, Director U.S. Congress Washington, DC 20515 May 18, 2011 Honorable Paul Ryan Chairman Committee on the Budget U.S. House of Representatives Washington, DC 20515 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. Sincerely, Douglas W, Elmendorf Attachment www.cbo.gov

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