May 18, 2011
Letter to the Honorable Paul Ryan
CBO has prepared the 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.