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1 Center or American Progress | Managing Taxpayer Risk

Managing Taxpayer Risk

The Federal Government Responsibly Prices andManages Risk When Issuing Loans and Loan Guarantees

John Griffith and Richard Caperton May 2012

Introduction

Te U.S. governmen is arguably he larges and mos inuenial nancial insiuion inhe world,1 wih abou $2.7 rillion ousanding in loans and loan guaranees.2 Among

oher hings, hese ederal credi programs help college sudens aord uiion, rs-ime

homebuyers access aordable morgages, and budding small businesses ge he capial

hey need o expand.

In hese and many oher cases, he privae secor will simply no lend o cerain borrow-

ers or will lend only under unaordable or unmanageable condiions. Ta’s why we rely

on ederal credi programs: Te U.S. governmen can bear cerain risks ha he privae

secor canno o achieve cerain public goals such as increasing he global compeiive-

ness o our workorce, reurning sabiliy o he U.S. housing marke, and adding jobshrough business expansion.

Tese programs ypically run a very low cos o axpayers. On average, every $1 allocaed

o loan and guaranee programs generaes more han $99 o economic aciviy rom indi-

viduals, businesses, nonpros, and sae and local governmens, according o our analysis.3

Bu in he wake o cerain widely publicized credi blunders, mos noably his pas

summer’s bankrupcy announcemen rom solar company Solyndra LLC, some have

called ino quesion Washingon’s abiliy o manage nancial risk. Conservaive criics

conend ha he governmen is incapable o accuraely pricing r isk, and ha polii-

cal pressure encourages governmen agencies o rouinely underesimae he risk o

axpayers when exending credi.4

Governmen underpricing o risk is a convenien heory or ree-marke ideologues bu

i runs conrary o he overwhelming evidence.




Our review o ederal governmen credi programs back o 1992 shows ha on average he

governmen is quie accurae in is risk pricing. In ac, he majoriy o governmen credi

programs cos less han originally esimaed, no more.5 Specically, we ound ha:

• Based on iniial esimaes over he pas 20 years, he governmen expeced is credi

programs o cos axpayers 79 cens or every $100 loaned or guaraneed. Based on

recenly updaed daa, hose cos predicions were reasonably accurae bu slighly underesimaed. Te curren budgeary impac o hese programs is abou 94 cens per

$100 loaned or guaraneed.

• Tere’s litle evidence ha credi programs are biased oward underpricing risk. In

ac, a litle more han hal o all nonemergency ederal credi programs will cos he

governmen less han wha hey are expeced o over he lie o he program.

• Te remainder is accouned or by he losses suered by he Federal Housing

Adminisraion on loans made in 2008 during he peak o he housing crisis.

Excluding ha book o loans, all nonemergency ederal credi programs cos slighly less han expeced.

Conservaive criics oen porray a world in which governmen bureaucras haphazardly

issue loans and loan guaranees wihou considering axpayer exposure o risk. Ta’s

simply no he case. Tis issue brie explains how he governmen prices credi risk in he

ederal budge, how well hose cos esimaes have reeced realiy over he years, and why

he governmen is in a paricularly good posiion o assume cerain ypes o risk.

Budgeting for credit risk

Federal governmen agencies adhere o sric budge and accouning sandards o careully

assess he risks and poenial losses associaed wih credi programs. Here’s how i works.

Beore an agency can issue any loans or loan guaranees, Congress mus rs auhorize

and allocae unding or he program.6 In mos cases Congress sars by deermin-

ing how much money he program will be auhorized o guaranee or loan and hen

appropriaes a cerain percenage o ha amoun o cover he program’s expeced cos

o he governmen. Ta cos esimae—assessed by boh he agency adminisering he

program and he presiden’s Ofce o Managemen and Budge—akes ino accoun

expeced repaymens, deauls, recoveries, and any ineres or ees colleced over he lie

o he loan, adjused o curren dollars.

Te ne cos o he ederal governmen as a percenage o oal dollars loaned or guar-

aneed is known as he subsidy rae.7 As an example, say Congress approves a $100

million loan guaranee program wihin he Deparmen o Agriculure. Te deparmen




models expeced marke condiions and loan aciviy and hen esimaes a subsidy rae,

which he Ofce o Managemen and Budge independenly esimaes as a check on he

agency’s mehodology. Le’s say he esimaed subsidy rae is 0.75 percen. Ta means

he governmen expecs o ake a ne loss o 75 cens or every $100 i guaranees over

he lie o hose loans. o cover expeced losses on he $100 million in loan guaranees,

he governmen ses aside $750,000 in a special accoun a he reasury Deparmen.

Tis is similar o a loan loss reserve a a privae bank.

Each subsequen year, he Ofce o Managemen and Budge and he agencies recalcu-

lae he subsidy rae o reec acual loan perormance, curren economic condiions,

and anyhing else adminisraors may have learned abou a program. Tese revised num-

bers are repored in he presiden’s budge each year, which gives us a prety good idea

o each program’s “acual” coss and he governmen’s abiliy o assess nancial risk.

I conservaive claims were accurae in saying ha he ederal governmen canno accu-

raely price or risk, hen one would expec he iniial cos esimaes o be signicanly

lower han he more recen re-esimaes. Using he Deparmen o Agriculure exampleabove, i he criics were righ, he re-esimaed subsidy rae would presumably be much

higher han 0.75 percen, and acual oulays would be higher han esimaed. Le’s see

how he governmen’s risk esimaes acually sack up.

Government risk estimates are quite accurate

o es his heory, we analyzed credi daa published in he presiden’s 2013 budge.

We compared iniial and updaed cos esimaes, also known as subsidy re-esimaes, or

each book o nonemergency loans and loan guaranees or each ederal credi programsince 1992, he rs year or which comprehensive daa are available.

We limi our analysis o nonemergency credi programs, omiting programs creaed in

response o he recen nancial crisis. Tis includes programs creaed hrough he roubled

Asse Relie Program—he so-called Wall Sree rescue package passed by Congress a

he heigh o he housing and nancial crises—and he U.S. Deparmen o he reasury’s

purchase o securiies issued by he wo roubled housing nance gians Fannie Mae and

Freddie Mac. Boh o hese programs are emporary, aypically large, and are accouned or

in he ederal budge using dieren sandards han all oher credi programs.8

I we had included hese “emergency” programs, i would drasically skew he overall

resuls—bu skew hem in avor o our basic argumen. Based on our analysis o daa

published in he 2013 budge, hese programs will cos he governmen abou $130

billion less han iniially expeced.9 So heir inclusion would make i seem as hough he

governmen signicanly overesimaed he cos o all credi programs over he pas 20

years, which is no he case.




We also exclude any ederal credi program ha is no lised in he ederal credi supple-

men o presiden’s budge,10 and any program ha did no publish a subsidy re-esimae

in he 2013 budge.11 We do his boh because complee daa are unavailable or hese

programs and because heir coss are no recorded in he ederal budge. Noably, his

includes insurance programs hrough he Federal Deposi Insurance Corporaion, mor-

gage guaranees oered by he wo housing nance gians Fannie Mae and Freddie Mac

(boh now under governmen conservaorship), and guaranees on morgage-backedsecuriies oered by he governmen corporaion Ginnie Mae.12

Here’s wha we ound ou abou nonemergency ederal credi programs. Federal agencies

have issued $5.7 rillion worh o hese loans or loan guaranees since 1992.13 Based on

our analysis o iniial esimaes, he governmen expeced hese programs o cos axpayers

abou 79 cens or every $100 loaned or guaraneed, or a 0.79 percen subsidy rae overall.

O course, no one expecs hose esimaes o be perec. Many o hese loans such as

home morgages or unding or large inrasrucure projecs ake decades o pay back.

Governmen nancial analyss are charged wih he difcul ask o modeling pay-mens, deauls, recoveries, and marke condiions or he enire lie o he loan, so

some error has o be expeced.

Bu as i urns ou, he iniial

esimaes weren’ very ar o.

Te curren budgeary impac o

hese credi programs is abou 94

cens per $100 loaned or guar-

aneed, or a 0.94 percen subsidy

rae, according o our analysis o updaed subsidy esimaes.14 o

pu ha in a budgeary conex,

while issuing nearly $6 rillion

in loans and guaranees over he

pas 20 years, he governmen

iniially prediced abou $45

billion in oal coss o axpayers,

bu he acual coss were slighly

higher—abou $53 billion.

Ta dierence—$8 billion over wo decades or $400 million per year—migh seem high

a rs. Bu i amouns o jus 0.15 percen o he oal dollars loaned or guaraneed by he

governmen and 0.02 percen o all governmen spending over ha period.15 (see Figure 1)

FIGURE 1

The low and predictable cost of federal loans and loan guarantees

Nonemergency direct loans and loan guarantees with a recent subsidy re-estimate, 1992–2011

Cost to federal government Total amount loaned or guaranteed

Estimated cost

to government

Actual cost

to government

$45 billion, 0.79 percent subsidy rate


$5.7 trillion

loaned or

guaranteed

Source: Author’s analysis of data in the federal credit supplement of the president’s 2013 budget (Tables 7 and 8).




O course, he ederal governmen’s perormance on individual programs varied subsanially. Some programs overesimae risks, while ohers underesi-mae. Bu as menioned above, some conservaives argue ha poliical pres-sures cause he governmen o sysemically underprice coss o axpayers whenissuing loans or guaranees.

Te daa show his o be unrue.O he 104 nonemergency credi

programs adminisered since

1992, our analysis shows ha

mos have acually overesimaed

oal subsidy coss.16 Fiy-six

programs overpriced risk over

heir lieimes, while 48 programs

underpriced risk. (see Figure 2)

Our analysis only akes inoaccoun lieime coss or eachprogram, no he ederal gov-ernmen’s abiliy o esimaecoss on an individual year’sporolio o loans. Indeed, cri-ics oen poin o individualdaa poins such as he Solyndra bankrupcy as evidence o he governmen’sinabiliy o price nancial risk. Bu wha maters mos is acually he ne budge-ary impac over ime o hese inaccuracies, which is wha is measured in Figure 1.

Overall hese overesimaes and underesimaes—wheher across programs or in

individual books o business—end o roughly balance ou in he long run, give or ake

a reasonable margin o error. As we show in he ollowing secion, however, all o hese

underesimaed losses can acually be atribued o a single year o morgage guaranees

made a he heigh o he housing crisis.

The recent housing cris is skews the results

By ar he larges nonemergency credi program is he Federal Housing Adminisraion’s

single-amily morgage insurance program, which has guaraneed abou $2.4 rillion

in morgage deb since 1992.17 Ta’s more han 40 percen o he oal nonemergency

governmen lending and credi enhancemen over ha period.

Te Federal Housing Adminisraion’s agship insurance program deals exclusively in

residenial morgages. Ta’s good news or axpayers when he U.S. housing marke is

FIGURE 2

The government record of overestimating credit risk

Number of federal direct loans and loan guarantees in which risk was overestimated or

underestimated with a recent subsidy re-estimate, 1992–2011

Programs that underestimated subsidy costs Programs that overestimated subsidy costs

Direct loan

programs

(53 total)

Loan guaranteeprograms

(51 total)

27

26

21

30





booming bu bad news when i’s sruggling. So in he hick o wha is arguably he wors

oreclosure crisis in our counry ’s hisory—a ime when home prices have dropped

more han 30 percen naionwide rom heir peak ve years ago, leading o millions o

people losing heir homes—he agency is acing unprecedened losses ar beyond wha

is acuarial models prediced, severely depleing is capial reserves.18

Tose losses are especially bad or morgage loans originaed in 2008, he year he hous-ing crash sparked a widespread nancial crisis.19 Te agency iniially expeced is single-

amily insurance program o save

axpayers abou $400 million on

loans originaed ha year, mosly

rom ees colleced rom lenders.

Aer adjusing or recen losses

and curren marke condiions,

hese 2008 guaranees are now

expeced o cos axpayers $10.9

billion—by ar he wors per-ormance o any single book o

business in he agency’s 78-year

hisory.20 (see Figure 3)

As bad as hose numbers are,i’s imporan o pu hemino perspecive. Te recencollapse in home prices andsubsequen wave o oreclo-

sures was no somehing any acuarial analysis would haveprediced, hough i’s clearha he Federal Housing

Adminisraion did no ade-quaely adjus o he crisis in is early days. Despie enormous losses, he FederalHousing Adminisraion acually weahered he housing crisis beter han many o is counerpars in he privae secor.

Indeed, many privae morgage insurers eiher wen ou o business since he crisis

began or signicanly scaled back heir insurance business.21 Meanwhile, as privae

capial le he morgage marke in recen years,22 he Federal Housing Adminisraion

meaningully increased is insurance aciviy o keep he marke aoa, backing 40

percen o home-purchase morgages in 2011.23 I’s also worh noing ha he Federal

Housing Adminisraion has aken seps since he onse o he crisis o improve is risk

managemen.24 Saring in 2009, he agency:

FIGURE 3

The housing crisis brought unprecedented losses on mortgage guarantees

The initial cost versus re-estimated cost of home loan guarantees from the Federal

Housing Administration during the housing crisis, 2007–2011

-$10,000,000

-$8,000,000

-$6,000,000

-$4,000,000

-$2,000,000

0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

2007 2008 2009 2010 2011

Intial cost estimate (from first year of each book)

Re-estimated cost (from 2013 budget)

Source: Author’s analysis of data in the federal credit supplement of the president’s 2013 budget (Table 8).




• Repeaedly increased ees and ighened underwriing sandards o improve he

qualiy o is new books o business• Creaed a new risk ofce and hired a consulan o recommend bes pracices

or is operaion• Cracked down on auly lender pracices• Adoped a more robus model or projecing home price appreciaion

As a resul, he Federal Housing Adminisraion’s 2010 and 2011 books o business

are expeced o save he agency

$13.7 billion over he lie o hose

loans, which is signicanly more

han iniial subsidy esimaes.25

(see Figure 3)

Due o he sheer size o he sin-

gle-amily insurance program, he

Federal Housing Adminisraion’slosses rom loans made in 2008

weigh heavily on our overall nd-

ings. In ac, when you ake away

ha single book o morgage

guaranees, nonemergency credi

programs acually overesimaed

oal coss o governmen by $3

billion over he pas 20 years.26

(see Figure 4)

Seeing the big picture

Largely los in his discussion o ederal governmen cash ows and subsidy raes is an

undersanding o why he governmen exends credi in he rs place. In 2011 ens o

housands o American small businesses expanded operaions hanks o loans and credi

enhancemen rom he ederal governmen.27 Millions o undergraduae sudens paid

heir college uiion wih money borrowed a aordable raes rom he governmen.28

And hundreds o housands o homebuyers ook ou a manageable 30-year xed-rae

morgage,29 which likely wouldn’ exis wihou governmen suppor.30

Te ederal governmen is in a unique posiion o issue hese loans and guaranees or

several reasons. Firs, he governmen can borrow money a a much lower rae han any

privae rm, meaning hey can usually charge lower raes when lending or public pur-

poses. Second, he governmen can spread risk unlike any privae nancial insiuion,

boh across long ime periods and a diverse credi porolio ha spans housing, educaion,

FIGURE 4

Just one year of mortgage guarantees accounts for any overestimated risk

on federal loans and loan guarantees

After removing the 2008 book of business at the Federal Housing Administration,

the federal government paid less than expected for all federal credit programs

Cost to federal government Total amount loaned or guaranteed

Estimated cost

to government

Actual cost

to government



$5.5 trillion

loaned or

guaranteed





agriculure, inrasrucure, inernaional developmen, and several oher indusries. Tis

diversicaion limis axpayer exposure o drasic swings rom year o year or booms and

buss in any individual marke.31 Tird, he governmen has he unmached abiliy o limi

risks by regulaing markes and ensuring compliance rom lenders and borrowers.

For hese and oher reasons, responsible risk managemen has long been essenial o sound

policymaking. Harvard economis David A. Moss wroe in 2002 ha risk managemen is“one o he undamenal ways in which policymakers solve problems.” He added ha “he

hisorical record reveals a remarkable degree o economic sophisicaion in he way leading

policymakers hough abou risk and abou he governmen’s role in managing i.”32

o be sure, he governmen’s risk managemen is ar rom perec, and some ederal credi

programs are subjec o poor modeling, excessive risk-aking, and avoidable losses o

axpayers. Bu we musn’ misake hese anomalies or he norm. Insead we should con-

inuously seek smar reorms o he way he governmen issues loans and loan guaranees,

learning rom wha has worked in he pas and wha hasn’. Analyss and policymakers are

righ o scruinize he efcacy and efciency o individual credi programs, bu ha debaeshould ocus on simple acs, no on heaed and unsubsaniaed rheoric.

When you look a all loans issued or guaraneed by he governmen over he pas 20

years, one ac is clear: Uncle Sam has proven o be a sae and responsible lender.

John Grifth is a Policy Analyst with the Economic Policy team at the Center or American

Progress. Richard Caperton is the Director o Clean Energy Investment at the Center.




Endnotes

1 Douglas J Elliott, Uncle Sam in Pinstripes: Evaluating U.S.Federal Credit Programs (Washington: Brookings InstitutionPress, 2011), available at http://www.brookings.edu/press/Books/2011/unclesaminpinstripes.aspx.

2 Congressional Budget Oce, “Fair-Value Accounting orFederal Credit Programs” (2012), available at http://www.cbo.gov/sites/deault/les/cboles/attachments/03-05-Fair-Value_Brie.pd.

3 Author’s analysis o ederal credit data reported in the presi-dent’s 2013 budget. Based on recent re-estimates, ederalcredit programs cost the government about 94 cents per$100 loaned or guaranteed.

4 For one recent example o this claim, see: Edward Pinto,“Truth In Government Lending Is Long Overdue,” Real Clear Markets, March 12 2012, available at http://ww w.realclearmarkets.com/articles/2012/03/21/truth_in_govern-ment_lending_is_long_overdue_99575.html.

5 Author’s analysis o data rom the Oce o Managementand Budget, The President’s Budget or Fiscal Year 2013:Federal Credit Supplement Spreadsheets (The White House,2012), tables 7 and 8, available at http:// www.whitehouse.gov/omb/budget/Supplemental.

6 This is not necessarily true or all credit programs. Someprograms such as the Federal Housing Administration’s

single-amily mortgage insurance program are expected torun at no cost to government, so they do not receive con-gressional appropriations. In many cases, these programsare limited by an explicit cap set by Congress.

7 Though this is the basic model established by the FederalCredit Reorm Act o 1990, the actual cost-estimate andappropriation processes vary a bit rom program to program.For more detail on the Federal Credit Reorm Act and theederal credit budgeting process, see: Thomas Stanton,“Primer on Credit Reorm” (Washington: Center on FederalFinancial Institutions), available at http://www.co.org/pubs/Primer%20on%20Credit%20Reorm%20by%20Stanton.pd.

8 Troubled Asset Relie Program loan and guarantee pro-grams are statutorily obligated to report subsidy costs usingso-called air value accounting, adding a private marketpremium to all loans and guarantees. This is dierent romthe standards laid out in the Federal Credit Reorm Act. Treating the Troubled Asset Relie Program’s reported coststhe same as costs rom other c redit programs would be

like comparing two products priced in dierent currencieswithout considering the exchange rate.

9 Since 2008 the government loaned or guaranteed about$913 billion through the Troubled Asset Relie Program and Treasury Department purchases o securities issued by FannieMae and Freddie Mac. The government initially expectedto lose about $151 billion, according to our analysis o datapublished in the 2013 budget. Based on recent re-estimates,those losses are now expected to be much lower—about $19billion. Given the sheer size o these emergency programs,including them in the analysis would have meaningullyskewed the results, making it look like the government drasti-cally overpriced risk over the past 20 years.

10 This includes all loans and guarantees issued by the FederalDeposit Insurance Corporation, the Federal Reserve System,the government-sponsored enterprises Fannie Mae andFreddie Mac, and all other o-budget government entities.

11 This includes the Federal Housing Administration’s Generaland Special Risk I nsurance Programs and guarantees onmortgage-backed securities through the GovernmentNational Mortgage Association.

12 Fannie Mae, Freddie Mac, and the Federal Deposit InsuranceCorporation are considered o-budget entities, so theyare not required to estimate an annual subsidy rate or thepresident’s budget. Ginnie Mae is technically on budget, butthe agency’s guarantee covers securities made up o certaingovernment-backed mortgages (namely loans guaranteedby FHA, USDA, and VA loans). Ginnie Mae is not requiredto update their subsidy estimate each year because theguarantee is already accounted or in the individual agency

estimates (again, through the FHA, USDA, or VA). So havinga separate subsidy rate or Ginnie Mae would double-countcertain costs in the budget.

13 This is an incomplete total. All totals in this brie excludeederal credit programs created by the Troubled AssetRelie Program and purchases by the Treasury Departmento securities issued by Fannie Mae and Freddie Mac. Thereport also excludes any ederal credit program that did notpublish a recent subsidy re-estimate in the president’s 2013budget, including the Federal Housing Administration’sGeneral and Special Risk I nsurance Programs and guaran-tees on mortgage-backed securities through the Govern-ment National Mortgage Association. When we include the TARP and MBS purchases in the analysis, the governmenthas issued $1.4 trillion in direct loans and $5.2 trillion inloan guarantees since 1992. It also excludes all implicit guar-antees to government-sponsored enterprises, including themortgage giants Fannie Mae and Freddie Mac, since theseguarantees are not priced or scored annually or the budget

in the same way as other ederal credit programs.

14 Author’s analysis o ederal credit data reported in thepresident’s 2013 budget.

15 The ederal government’s outlays or 1992–2011 add toabout $43.81 trillion, according to data published in thepresident’s 2013 budget. For more inormation, see: Oceo Management and Budget, Historical Tables (The WhiteHouse, 2012), available at http://www.whitehouse.gov/omb/budget/Historicals.

16 It is quite dicult to count exactly how many credit pro-grams there are. An individual credit “program” could haveseveral subprograms or “risk categories”—some may beloan guarantees, others may be direct loans. For purpose o this analysis, we dene a program the same way as the 2013Budget’s Federal Credit Supplement, summing across all risk categories and across all books o business.

17 Author’s analysis o ederal credit data reported in the presi-

dent’s 2013 budget. These numbers (and all others in thissection o the report) include both the FHA single-amilyand HECM reverse-mortgage insurance programs throughthe Mutual Mortgage Insurance Program.

18 Recent nancial reports indicate that FHA’s single-amilycapital reserves are well below the required level, and manyanalysts speculate that FHA will soon require taxpayersupport or the rst time in its 77-year history. For moreinormation, see: Sarah Wartell and John Grith, “Too Earlyto Sound the FHA Alarm” (Washington: Center or AmericanProgress, 2011), available at http://www.americanprogress.org/issues/2011/12/pd/ha_market_stability.pd.

19 For the most part these loans were made beore FHA putin place appropriate controls to stem risks in this newbusiness. Those loan books also contain a high concentra-tion o so-called seller-nanced down payment assistanceloans, in which sellers covered the required down paymentat the time o purchase in exchange or infated purchase

prices. Loans with seller-nanced down-payment as-sistance experienced considerably higher claim rates thancomparable nonassisted loans, according to FHA’s actuaries. These oten-raudulent assistance programs were laterbanned rom FHA insurance programs by the Housing andEconomic Recovery Act o 2008. For more inormation, see:Federal Housing Administration, Actuarial Review o theMutual Mortgage Insurance Fund (Department o Housingand Urban Development, 2010), available at http://por tal.hud.gov/hudportal/HUD?src=/program_oces/housing/rmra/oe/rpts/actr/actrmenu.




20 Author’s analysis o ederal credit data in the president’s2013 budget.

21 PMI Group, one o the country’s largest private mortgageinsurers, led or Chapter 11 bankruptcy in November 2011ater posting 16 straight quarterly losses. Another majorinsurer, Triad Guaranty Inc., stopped selling policies in July2008. See: Dawn McCarty and Steven Church, “PMI GroupSeeks Bankruptcy Ater Regulators Take Over Main Unit,” Bloomberg Businessweek, November 28, 2011, available at http://www.businessweek.com/news/2011-11-28/pmi-group-seeks-bankruptcy-ater-regulators-take-over-main-unit.html.

22 According to the Federal Housing Finance Agency, privatemortgage insurers underwrote $193.4 billion in insurancein 2008, the rst year ater the housing bust. That was theindustry’s lowest volume since 2000. See: Federal HousingFinance Agency, State o the Private Mortgage InsuranceIndustry (2009), available at http://www.ha.gov/web-les/14779/MMNOTE_09-04%5B1%5D.pd.

23 According to a recent nancial report, FHA in 2010 servedmore than 1.75 million households by insuring $319 bil lionin single-amily mortgages. That volume was second only tothat o 2009. For more, see: Federal Housing Administration,“FHA Issues Annual Financial Status Report to Congress,”Press release, November 16, 2010, available at http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_me-dia_advisories/2010/HUDNo.10-252.

24 Government Accountability Oce, “Federal HousingAdministration: Improvements Needed in Risk Assessment

and Human Capital Management,” GAO-12-15, Report tothe Committee on Banking, Housing, and Urban Aairs, U.S.Senate, November 2011, available at http://www.gao.gov/new.items/d1215.pd.

25 According to data reported in the 2013 budget, FHA’s 2010and 2011 books were expected to save the agency a total o $9.8 billion. Based on recent re-estimates, those books arenow expected to save $13.9 billion.

26 Author’s analysis o ederal credit data in the president’s2013 budget. Based on our analysis, ater o mitting FHA’ssingle-amily book o business or 2008, the governmentexpected all nonemergency credit programs to cost $45billion to taxpayers. Based on recent re-esti mates, that costis actually $42 billion.

27 According to the Small Business Administration, the 7(a)loan program alone assisted 37,000 small busi nesses. See:U.S. Small Business Administration, FY 2012 Congressional Budget Justifcation and FY 2010 Annual Perormance Report (2012), available at http://www.sba.gov/sites/deault/les/FINAL%20FY%202012%20CBJ%20FY%202010%20APR_0.pd.

28 For the 2010–11 academic year, 8.7 million undergraduatestudents took out Staord loans. O that group, about 7.8million took out subsidized Staord loans. See: CollegeBoard Advocacy a nd Policy Center, “Trends in StudentAid 2011” (2011), available at http://trends.collegeboard.

org/student_aid/report_ndings/indicator/accessible/Federal_Loans_Percentage_Borrwing_Number_o_Borrow-ers_and_Amounts.

29 According to a recent nancial report, the Federal HousingAdministration served more than 1.1 million homebuyers i n2010, 882,000 o which were rst-time homebuyers. Manyo these borrowers took out long-term, xed rate loans.For more, see: Federal Housing Administration, “FHA IssuesAnnual Financial Status Report to Congress.”

30 For a ull explanation o why the 30-year xed-rate mortgagewould largely disappear without government support,see: Richard K. Green, Testimony beore the U.S. SenateBanking Committee, “Housing Finance Reorm: Shouldthere be a Government Guarantee?”, September 13, 2011,available at http://banking.senate.gov/public/index.cm?FuseAction=Files.View&FileStore_id=56068079-9c03-40d4-b36a-72913d3850b4.

31 For a thorough and thoughtul discussion o why the ederalgovernment lends, see: Douglas J Elliott, “Theoretical andPolitical Underpinnings o Federal Credit Programs.” In UncleSam in Pinstripes: Evaluating U.S. Federal Credit Programs.(Washington: Brookings Institution Press, 2011), available athttp://www.brookings.edu/press/Books/2011/unclesamin-pinstripes.aspx.

32 David A. Moss, When All Else Fails: Government as theUltimate Risk Manager (Cambridge, MA: Harvard UniversityPress, 2002).

managing taxpayer risk

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