Projecting the Budgetary Costs of FHA's Single-family Mortgage Insurance Program

September 14th, 2014
in econ_news

from the Congressional Budget Office

How does the CBO project the budgetary costs of the Federal Housing Administration's (FHA's) single-family mortgage insurance program? The CBO simulates defaults, recoveries, and prepayments on cohorts of mortgages insured by FHA with key parameters estimated from a dataset of FHA-insured mortgages. Those simulations are used to estimate the loan guarantees' subsidy rates, which are the lifetime cost of FHA's insurance claim payments minus fees, expressed as a percentage of the original loan amounts.

Follow up:


The simulations are also used to estimate the balance in FHA's capital reserve account, which reflects the sum of all past subsidies plus accumulated interest. As of the end of fiscal year 2013, CBO estimates that the loan guarantees issued between 1992 and 2013 contributed $3 billion to FHA's capital reserves, $73 billion less than the amount those loan guarantees would have contributed based on their originally estimated subsidy rates. That large decline is mostly the result of the downturn in the housing market that began in 2007 and the severe recession that followed. The estimates reflect a combination of realized gains and losses to date and the expected gains or losses over the remaining life of the loan guarantees, but there is considerable uncertainty about the amount of any future gains or losses. Using its model to quantify that uncertainty,

CBO finds that ninety percent of the simulated lifetime contributions of those loan guarantees to the capital reserve account are between negative $28 billion and positive $26 billion. Present budgetary procedures for calculating the subsidy rates do not fully account for the cost of the risk that the government bears. If costs were projected on a fair-value basis, which more closely corresponds to the economic costs by using market prices of comparable insurance, subsidy rates would be notably higher. For example, loan guarantees for fiscal years 2014 and 2015 are projected to have a weighted average subsidy rate of negative 5.5 percent under current budgetary treatment and have a small positive subsidy rate on a fair-value basis.

[click on image below to read the entire study]

Source: http://www.cbo.gov/sites/default/files/cbofiles/attachments/45711-FHA.pdf









Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.















 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved