Cost estimate on Frank FHA housing legislation

May 2, 2008

CBO has released a cost estimate of HR 5830, the FHA Housing Stabilization and Homeownership Retention Act of 2008. We estimate that the legislation would cost about $2.7 billion over the 2008-2013 period, assuming future appropriations consistent with the provisions in the bill. The bulk of that -- about $1.7 billion -- would be needed for the estimated subsidy cost of insuring mortgages under a new FHA program. (Loan guarantees are scored in the federal budget at their estimated subsidy cost.)

The value of the subsidy reflects the value of the insurance provided by the federal government net of the fees charged for that insurance. CBO estimates an estimated average subsidy cost under the new FHA loan-guarantee program of about 2 percent of the loan principal. We also estimate that FHA would insure about 500,000 loans over the 2008-2013 period under the program. The $1.7 billion cost comes from combining the 2 percent subsidy rate with the roughly 500,000 loans and an average loan amount of about $170,000 (after writedown of existing mortgages).

In addition, the legislation establishes an Office of Housing Counseling within the Department of Housing and Urban Development, authorizes appropriation of funds for the Department of Justice to support efforts to combat mortgage fraud, and includes other provisions.