If the Congressional Budget Office were to incorporate a fair-value basis accounting standard when examining the Federal Housing Administration's budget, the program would report costs rather than savings in 2012. ??In an accounting outline, the CBO told lawmakers the program would record $3.5 billion in costs for fiscal 2012 using fair-value accounting rather than the savings of $4.4 billion under the current accounting method, which is outlined in the Federal Credit Reform Act of 1990. The CBO prepared the report after Rep. Paul Ryan (R-Wis.) asked the agency to employ the fair-value accounting when calculating the program's outlook  for 2012 in place of the current standard. The difference, according to the CBO, is based on the fair-value calculation's inclusion of a market-based risk premium. Essentially, the CBO says fair-value estimates recognize "the financial risk that the government assumes when issuing credit guarantees is more costly to taxpayers than FCRA-based estimates suggest." In terms of the calculation, the fair value of a mortgage guarantee by the FHA is the difference between the estimated value of the mortgage and the value of a similar security with the same promised cash flow but without the default risk, according to the CBO. "The fair-value subsidy that FHA provides to borrowers is thus the difference between the value of expected losses from default and the fair value of expected fees collected," according to the CBO. "To compute the fair values of the mortgages insured by FHA and of FHA’s fees, the Congressional Budget Office inferred the appropriate discount rate for present-value calculations by looking at the pricing of private mortgage insurance and the guarantee fees charged by two government-sponsored enterprises," Fannie Mae and Freddie Mac. As to why the CBO uses the FCRA accounting method, the agency said the stated purpose is to "make the budgetary cost of credit programs equivalent to that of other federal spending." But added that FCRA estimates are not always able to meet that goal. The agency said there are two reasons to explain why the costs for federal loans and loan guarantees are recorded in the budget at prices that do not fully reflect all of the costs. One being the fact that "by using Treasury rates for discounting, FCRA accounting implicitly treats market risk — a type of risk that is reflected in market prices because investors require compensation to bear it — as having no cost to the government." In addition, subsidy rates under the FCRA standard exclude administrative expenses such as servicing and loan collection costs. "Such administrative costs are accounted for separately in the budget on a cash basis each year as they are incurred," the CBO wrote. Write to: Kerri Panchuk.