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Fair-Value Estimates of the Cost of Selected Federal Credit Programs for 2015 to 2024 1 (May 2014)

handle is hein.congrec/cbo1629 and id is 1 raw text is: MAY 2014 Fair-Value Estimates of the Cost of Selected Federal Credit Programs for 2015 to 2024 The Congressional Budget Office (CBO) has estimated the budgetary costs of the Department of Education's student loan programs, the Export-Import Bank's (Ex-Im Bank's) credit programs, and the Federal Housing Administration's (FHA's) single-family mortgage guaran- tee program using two different approaches. In one, cost is based on an estimate of the market value of the federal government's obligations, termed a fair-value approach. Those estimates are compared with ones reflecting the procedures currently used in the federal budget as pre- scribed by the Federal Credit Reform Act of 1990 (FCRA).' CBO's fair-value and FCRA estimates are based on the program terms and outcomes-including the volume and amount of lending, fees, and borrowers' rates of repayment and default-that are expected to prevail under current law. For fiscal years 2015 to 2024, CBO found that under current law: 0 The Department of Education's four largest student loan programs would yield budgetary savings of roughly $135 billion under FCRA accounting but cost roughly $88 billion on a fair-value basis;2 1. Section 504(d) of FCRA, 2 U.S.C. §661c (d) (2006). 2. To simplify the analysis, the budgetary estimates for the Department of Education are based on the obligations that CBO estimates the department will incur each year for student loans, rather than on the amount of loan disbursements (which would be the basis for official budget estimates). Estimates reflecting the timing of loan disbursements would differ slightly from those shown here. Ex-Im Bank's six largest programs would generate budgetary savings of $14 billion under FCRA accounting but cost $2 billion on a fair-value basis; and FHA's single-family mortgage guarantee program would provide budgetary savings of $63 billion under FCRA accounting but cost $30 billion on a fair-value basis (see Table 1 and Figure 1).3 CBO used its own projections of the volume of loans and cash flows for the Department of Education's student loan programs and FHA's single-family mortgage guaran- tee program because those estimates are a routine part of its baseline budget projections. However, because CBO does not ordinarily project the detailed cash flows required to estimate the costs for most other federal credit programs, CBO relied on the Export-Import Bank's pro- jections of those cash flows for this analysis of the bank's programs. The Difference Between FCRA Procedures and the Fair-Value Approach Although the costs of most federal activities are recorded in the budget on a cash basis (showing the balance of inflows and outflows when those flows occur), the life- time costs of federal credit programs are recorded up front on an accrual basis (that is, they are recognized in the year in which the loan is made). The lifetime cost of a 3. The budgetary costs and savings for all of the programs discussed here exclude administrative expenses, which are treated separately in the federal budget.

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