Jason Delisle | November 8, 2011
In the coming days, the House and Senate will negotiate a fiscal year 2012 funding bill for the Department of Housing and Urban Development as part of larger appropriations bill. Both the House and Senate assume that the FHA’s single-family mortgage insurance program, which provides default guarantees to lenders making mortgages to first-time and lower-income homebuyers, will earn a $4.4 billion profit. The funding bills then “spend” those supposed profits on other programs.
Trouble is there aren’t actually any profits to spend and lawmakers know it. A Congressional Budget Office estimate sent to House budget committee chairman Paul Ryan (R-WI) earlier this year shows FHA’s $233 billion in new loan guarantees won’t earn a profit – they will cost taxpayers $3.5 billion. That estimate uses “fair-value” accounting instead of accounting rules under the 1990 Federal Credit Reform Act.
Fair value accounting more fully reflects the risk that taxpayers bear when the FHA backs mortgages. It shows that taxpayers subsidize homeowners when the FHA charges below-market rates for loan guarantees. (CBO provided a similar estimate in 2006.)
To be sure, the estimate showing FHA profits is the official one – and that’s what defenders of the status quo will argue. But lawmakers aren’t powerless in the face of such a claim.
The House-passed fiscal year 2012 budget resolution allows the chairman of the budget committee to use a “fair-value” estimate of FHA’s costs (or any loan program for that matter) when enforcing appropriations limits. Such an estimate has been available from the CBO for months. Someone in Congress – particularly a member of the Appropriations Committee – should stand up for it.
Jason Delisle is the Director of the Federal Education Budget Project at the New America Foundation.