Federal Loans: Should the Government Treat Lending More Like Private Banks Do? (H.R. 1872)

What is H.R. 1872?

(Updated February 10, 2018)

Would change the accounting for credit programs such as Federal Housing Administration and veterans’ mortgage guarantees, student loans, small business loans, and rural electric loan guarantees by adding an extra amount to their recorded budgetary cost.  This extra amount is meant to reflect what private lenders would charge if they, rather than the federal government, issued the loans or loan guarantees. Puts Fannie Mae and Freddie Mac onto the budget, and requires that their debt be counted as part of the national debt. 

Argument in favor

The government should treat risk the same way that private investors treat it. Just like banks, the federal government, in a lending scenario, is a market participant. Loan costs would be higher if the private sector made the loans, and the federal budget should therefore show what the loans and loan guarantees would cost if made in the private sector, rather than what it costs the government to make them.

Argument opposed

Effectively cooks the books: distorts the budget by making federal credit programs appear more expensive than their actual cost to the government. Furthermore,the proposal would undercut one of the key purposes of the budget: to provide a meaningful comparison of the cost to the federal Treasury of different programs.

Impact

Impacts the Federal Credit Reform Act of 1990 and federal budget.

Cost of H.R. 1872

A CBO cost estimate is not currently available.

Additional Info

Media:
Center on Budget and Policy Priorities: Partial List of Programs Affected by Proposal

CBPP: In-Depth Analysis