Until the financial crisis hit, the Federal Housing Administration has never required budgetary support for its mortgage insurance programs. When it received a $1.7 billion infusion from the Treasury, it was seen as a sad day in the FHA’s long history by many. Others felt that the FHA worked, overall, at a relatively low cost to keep the mortgage markets functioning through the 2000s.
The budgetary impact of the FHA will certainly be factor in the politics of housing finance reform. The Congressional Budget Office has produced a report, Budgetary Estimates for the Single-Family Mortgage Guarantee Program of the Federal Housing Administration, that sheds some light on this topic. The CBO first estimated the costs of FHA loan guarantees made from 1992 through 2013 and found that between “1992 and 2013, FHA guaranteed roughly $2.8 trillion of single-family mortgages. Using the methodology specified by FCRA, CBO estimates that those guarantees account for $2.2 billion in subsidy costs to the federal government.” (2) In contrast, the CBO’s projects that FHA loan guarantees being made in 2014 and 2015, “will generate savings—negative subsidy costs—of $16.4 billion.” (2)
FHA’s critics and fans will both be able to crow about these figures. But perhaps the most important issue is whether the FHA’s capital reserve requirements can be designed to both cushion the FHA during severe housing market downturns while also keeping FHA borrowers (often low- and moderate-income households) from effectively subsidizing the federal budget by generating “savings” or “negative subsidy costs” when the market is functioning more normally. Such a goal seems to best align with FHA’s mission.