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H.R. 4482, a Bill to Amend Title 38, United States Code, to Make Permanent Home Loan Guaranty Programs for Veterans Regarding Adjustable Rate Mortgages and Hybrid Adjustable Rate Mortgages 1 (May 24, 2012)

handle is hein.congrec/cbo10774 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE a COST ESTIMATE May 24, 2012 H.R. 4482 A bill to amend title 38, United States Code, to make permanent home loan guaranty programs for veterans regarding adjustable rate mortgages and hybrid adjustable rate mortgages As ordered reported by the House Committee on Veterans'Affairs on April 27, 2012 H.R. 4482 would make permanent the authority of the Department of Veterans Affairs (VA) to guarantee adjustable-rate mortgages and hybrid adjustable-rate mortgages (that is, mortgages with a rate that is fixed for an initial period and adjustable thereafter). Subsidy costs of those additional loan guarantees-totaling $144 million over the 2013-2022 period-would be paid from a mandatory appropriation; therefore, pay-as-you-go procedures apply.' Under its mortgage guarantee program, VA promises to pay lenders up to 25 percent of the outstanding loan balance (subject to some limitations on the original loan amount) in the event that the borrower defaults. Such guarantees enable veterans to get better loan terms, such as lower interest rates or smaller down payments. VA charges fees to some borrowers who use the program, which offset some of the costs of subsequent defaults. The authority in current law to guarantee adjustable-rate mortgages and hybrid adjustable-rate mortgages expires at the end of fiscal year 2012. Based on the number of such mortgages that VA has guaranteed in recent years, CBO estimates that VA would guarantee about $1.3 billion worth of additional loans a year over the next 10 years. Additional subsidy costs for those loans would increase direct spending by $144 million over the 2013-2022 period, CBO estimates. 1. Under the Federal Credit Reform Act of 1990, the subsidy cost of a loan guarantee is the net present value of estimated payments by the government to cover defaults and delinquencies, interest subsidies, or other expenses, offset by any payments to the government, including origination fees, other fees, penalties, and recoveries on defaulted loans. Such subsidy costs are calculated by discounting those expected cash flows using the rate on Treasury securities of comparable maturity. The resulting estimated subsidy costs are recorded in the budget when the loans are disbursed.

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