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Congressional Budget Office: Subsidiy Costs of Credit Programs - Federal Housing Administration's (FHA's) Mutual Mortgage Insurance (MMI) program is NEGATIVE. Federal Credit Reform Act of 1990 (FCRA) activities estimated to produce net gain to goverment excluding its administrative costs. SIGNIFICANT: ANNUAL REVIEW OF FHA LOAN GUARANTY CONSIDERED 'DISCRETIONARY'

Congressional Budget Office: Subsidiy Costs of Credit Programs - Federal Housing Administration's (FHA's) Mutual Mortgage Insurance (MMI) program is NEGATIVE. Federal Credit Reform Act of 1990 (FCRA) activities estimated to produce net gain to goverment excluding its administrative costs. SIGNIFICANT: ANNUAL REVIEW OF FHA LOAN GUARANTY CONSIDERED 'DISCRETIONARY'

Ratings: (0)|Views: 177|Likes:
Published by Mary Cochrane
LINK: HR 5121 enhancements to loan-level risk assessments; not to exceed the appraised value of the property, plus any initial service charges approved by the Secretary of Housing and Urban Development HUD; replace 35 years with 40 years, ....increase basis points charged for FHA insurance; executed by a mortgagor who shall 25 have paid on account of the property, in cash or its; fha singlefamily mortgage insurance, pmi 35% or 40% unpaid mortgage balance,
http://www.scribd.com/doc/110538322/Congressional-Budged-Committee-Modernize-National-Housing-Act-Expanding-American-Homeownership-Act-of-2006-Enable-Federal-Housing-Administration-subs

QUESTION: PIMCO -PRUDENTIAL INVESTMENT MANAGMENT SERVICES LLC - A GOVERMENT SPONSORED ENTERPRISE?

Proposed Changes in Policy: The declining market share of FHA has prompted calls for restructuring the MMI program. One proposal now under consideration by the Congress (H.R. 5121) would give FHA the authority to be more like a commercial mortgage insurer in operating the single-family mortgage program.
http://archives.financialservices.house.gov/media/pdf/109hr5121ai.pdf

SIGNIFICANT EXCEPTIONS:
FOUNDATION PMI COVERING 35% OR 50% OF UNPAID MORTGAGE BALANCE.
FHA COVERAGE FOR NEARLY100% MORTGAGE AMOUNT.

GOVERNMENT SPONSORED ENTERPRISES (GSE) HOLD LARGE PORTFOLIOS OF MORTGAGES WITH FRACTIONAL PRIVATE MORTGAGE INSURANCE COVERAGE. PMI LESS COMPREHENSIVE THAN THAT OFFERED BY FHA, PREMIUMS CHARGED BY PRIVATE INSURERS WILL PROVIDE A LOA ESTIMATE OF THE COST OF FHA GUARANTEES.

FANNIE MAE INSISTED 1995 USE OF FICO SIGNFICANT.


Subsidiy costs of guarantees as net present value of goverment's cash flows from fees and defaults, not of recoveries.
FCRA calculating subsididies for federal credit, omits some costs even through they can be major contributors to the total cost of credit. fcra RULES DO NOT VALUE LOSSESS THE WAY MARKETS DO -- BY INCLUDING THE COST FOR UNCERTAINTY AND RISK. BUDGET MEASURES ONLY EXPECTED, AVERAGE LOSSES. ASSIGNS SAME COST TO AN EXPECTED LOSS OF 25 PERCENT OF PRINCIPAL THAT IS CERTAIN TO OCCU AS IT DOES TO 100% PERCENT LOSS.

Since 1934, FHA provided mortgage insurance for single-family and multifamily homes and now provides for manufactured homes and HOSPITALS.

Insurance affords LENDERS with protection against losses from defaults

Insurance affords lenders with availability of funds for higher-risk borrowers.

FHA Mutual Mortgage Insurance Program, aimed at extended access to homeownership to those who lack the savings, credit history or income ot qualify for an unguaranteed or conventional mortgage. FHA provides insurance on 30[year and 15 year fixed and adjustable rate amoritizing mortgages for home purchasses or refinancing.

FHA charges borrowers upfront and annual fees for the services. 2.25 per4cent of loan amount, annual fee up to .55 percent of unpaid balance.

Premium is a one-time fee of 1.5 percent and an annual fee of .5 percent (annual fee ceases when loan balance reduced to 78% of the initial amount.

FHA requires down payment at least 3% of purchase price.
SIGNIFICANT EXCEPTION IN FOOTNONE (1) THE RATION OF THE LOAN AMOUNT TO HOUSE VALUE MAY EXCEED 97%, HOWEVER, BECAUSE THE UP-FRONT FEE AND FIRST-YEAR PREMIUM CAN BE FINANCED AS PART OF THE INSURED LOAN.

FIGURE 1 - FHA GUARANTEES OF NEW MORTGAGES 2000 TO 2007 BILLIONS OF DOLLARS

link
http://www.scribd.com/doc/110538322/Congressional-Budged-Committee-Modernize-National-Housing-Act-Expanding-American-Homeownership-Act-of-2006-Enable-Federal-Housing-Administration-subs
LINK: HR 5121 enhancements to loan-level risk assessments; not to exceed the appraised value of the property, plus any initial service charges approved by the Secretary of Housing and Urban Development HUD; replace 35 years with 40 years, ....increase basis points charged for FHA insurance; executed by a mortgagor who shall 25 have paid on account of the property, in cash or its; fha singlefamily mortgage insurance, pmi 35% or 40% unpaid mortgage balance,
http://www.scribd.com/doc/110538322/Congressional-Budged-Committee-Modernize-National-Housing-Act-Expanding-American-Homeownership-Act-of-2006-Enable-Federal-Housing-Administration-subs

QUESTION: PIMCO -PRUDENTIAL INVESTMENT MANAGMENT SERVICES LLC - A GOVERMENT SPONSORED ENTERPRISE?

Proposed Changes in Policy: The declining market share of FHA has prompted calls for restructuring the MMI program. One proposal now under consideration by the Congress (H.R. 5121) would give FHA the authority to be more like a commercial mortgage insurer in operating the single-family mortgage program.
http://archives.financialservices.house.gov/media/pdf/109hr5121ai.pdf

SIGNIFICANT EXCEPTIONS:
FOUNDATION PMI COVERING 35% OR 50% OF UNPAID MORTGAGE BALANCE.
FHA COVERAGE FOR NEARLY100% MORTGAGE AMOUNT.

GOVERNMENT SPONSORED ENTERPRISES (GSE) HOLD LARGE PORTFOLIOS OF MORTGAGES WITH FRACTIONAL PRIVATE MORTGAGE INSURANCE COVERAGE. PMI LESS COMPREHENSIVE THAN THAT OFFERED BY FHA, PREMIUMS CHARGED BY PRIVATE INSURERS WILL PROVIDE A LOA ESTIMATE OF THE COST OF FHA GUARANTEES.

FANNIE MAE INSISTED 1995 USE OF FICO SIGNFICANT.


Subsidiy costs of guarantees as net present value of goverment's cash flows from fees and defaults, not of recoveries.
FCRA calculating subsididies for federal credit, omits some costs even through they can be major contributors to the total cost of credit. fcra RULES DO NOT VALUE LOSSESS THE WAY MARKETS DO -- BY INCLUDING THE COST FOR UNCERTAINTY AND RISK. BUDGET MEASURES ONLY EXPECTED, AVERAGE LOSSES. ASSIGNS SAME COST TO AN EXPECTED LOSS OF 25 PERCENT OF PRINCIPAL THAT IS CERTAIN TO OCCU AS IT DOES TO 100% PERCENT LOSS.

Since 1934, FHA provided mortgage insurance for single-family and multifamily homes and now provides for manufactured homes and HOSPITALS.

Insurance affords LENDERS with protection against losses from defaults

Insurance affords lenders with availability of funds for higher-risk borrowers.

FHA Mutual Mortgage Insurance Program, aimed at extended access to homeownership to those who lack the savings, credit history or income ot qualify for an unguaranteed or conventional mortgage. FHA provides insurance on 30[year and 15 year fixed and adjustable rate amoritizing mortgages for home purchasses or refinancing.

FHA charges borrowers upfront and annual fees for the services. 2.25 per4cent of loan amount, annual fee up to .55 percent of unpaid balance.

Premium is a one-time fee of 1.5 percent and an annual fee of .5 percent (annual fee ceases when loan balance reduced to 78% of the initial amount.

FHA requires down payment at least 3% of purchase price.
SIGNIFICANT EXCEPTION IN FOOTNONE (1) THE RATION OF THE LOAN AMOUNT TO HOUSE VALUE MAY EXCEED 97%, HOWEVER, BECAUSE THE UP-FRONT FEE AND FIRST-YEAR PREMIUM CAN BE FINANCED AS PART OF THE INSURED LOAN.

FIGURE 1 - FHA GUARANTEES OF NEW MORTGAGES 2000 TO 2007 BILLIONS OF DOLLARS

link
http://www.scribd.com/doc/110538322/Congressional-Budged-Committee-Modernize-National-Housing-Act-Expanding-American-Homeownership-Act-of-2006-Enable-Federal-Housing-Administration-subs

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Published by: Mary Cochrane on Oct 19, 2012
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10/19/2012

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www.cbo.gov 
CONGRESSIONALBUDGET OFFICE
U.S. Congress Washington, DC 20515 
July 19, 2006Honorable Jeb HensarlingU.S. House of RepresentativesWashington, DC 20515Dear Congressman:According to the federal budget, the subsidy cost of the Federal Housing Administration’s(FHA’s) Mutual Mortgage Insurance (MMI) program is negative. That is, under the budgetaccounting rules specified in the Federal Credit Reform Act of 1990 (FCRA), the program’sactivities are estimated to produce a net gain to the government, excluding its administrativecosts. The President’s budget for fiscal year 2007, for example, projects net income of 37 centsfor each $100 of guaranteed loans originated that year. However, studies by the CongressionalBudget Office (CBO) indicate that the current budget rules tend to understate the cost of federalcredit programs.In response to your request of June 14, 2006, CBO has compared the cost of single-familymortgage insurance offered by FHA as reported in the budget with the cost of comparableinsurance in private markets. The competitiveness of the market for private mortgage insurancesuggests that quoted prices are good approximations of the minimum cost of providing suchinsurance. Therefore, the differences between market prices and premiums charged by FHAindicate the actual cost to the government of federal mortgage insurance. That comparison yieldsthe following conclusions:
Budget accounting understates the subsidy cost of credit programs by excluding the cost of market risk and displaying administrative expenses separately. (Subsidy costs are recognizedup front as loans are originated; administrative expenses are included in the budget as theyare paid each year.) The result is a budgetary bias in favor of credit programs relative to othertypes of spending programs.
FHA’s Mutual Mortgage Insurance program imposes costs on the government and taxpayers.On the basis of market prices for private mortgage insurance, the subsidy cost of the FHAinsurance is between 2 percent and 5 percent of the amount of insured loans, CBO estimates.(However, the accounting rules specified in FCRA, which indicate a net gain to thegovernment from providing such insurance, govern federal budget estimates.)
Some current proposals for increasing the volume of FHA insurance would increase thegovernment’s costs for that program.
 
Honorable Jeb HensarlingPage 2The details of CBO’s analysis are contained in the attachment to this letter. I hope that you findthe analysis useful. The staff contacts for this work are Marvin Phaup and Susanne Mehlman,who can be reached at (202) 226-2640 and (202) 226-2860, respectively.Sincerely,Donald B. MarronActing DirectorAttachmentcc: Honorable Jim Nussle, ChairmanHonorable John M. Spratt Jr., Ranking MemberHouse Committee on the BudgetHonorable Michael G. Oxley, ChairmanHonorable Barney Frank, Ranking MemberHouse Committee on Financial ServicesHonorable Robert W. Ney, ChairmanHonorable Maxine Waters, Ranking Minority MemberSubcommittee on Housing and Community OpportunityHouse Committee on Financial ServicesHonorable Judd Gregg, ChairmanHonorable Kent Conrad, Ranking MemberSenate Committee on the BudgetHonorable Richard C. Shelby, ChairmanHonorable Paul S. Sarbanes, Ranking MemberSenate Committee on Banking, Housing, and Urban AffairsHonorable Wayne Allard, ChairmanHonorable Jack Reed, Ranking MemberSubcommittee on Housing and TransportationSenate Committee on Banking, Housing, and Urban Affairs
 
Assessing the Government’s Costs forMortgage Insurance Provided by theFederal Housing Administration
July 19, 2006
The Congress of the United States
Congressional Budget Office

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