FHA and RHS operate a variety of loan guarantee programs, organized under three budget accounts, that support the financing of single-family and multifamily housing, as well as healthcare facilities (see fig. 1). The guarantees substantially reduce the financial risk for lenders in the event that borrowers default, thereby allowing lenders to make loans available to more borrowers. FHA and RHS loan guarantees for multifamily properties are often combined with other financing sources, such as low-income housing tax credits and tax-exempt bonds issued by states and localities. FHA is the federal government’s principal provider of mortgage loan guarantees and operates numerous loan guarantee programs. In fiscal year 2004, FHA guaranteed over $107 billion in loans under the MMI/CMHI account, the vast majority of which occurred within the 203(b) program. The 203(b) program provides loan guarantees for the purchase or refinancing of single-family homes. The other program in the MMI/CMHI account is the Section 213 program, which guarantees mortgage loans to facilitate the construction, substantial rehabilitation, and purchase of cooperative housing projects. Because both programs currently have negative subsidy costs, neither requires credit subsidy budget authority. The MMI/CMHI account received $185 billion in commitment authority in fiscal year 2004. FHA’s GI/SRI account, which received $29 billion in commitment authority in fiscal year 2004, supports an array of programs. These include programs that facilitate the development, construction, rehabilitation, purchase, and refinancing of multifamily apartments and healthcare facilities. For example, the 221(d)(4) program—FHA’s largest multifamily program—guarantees loans to for-profit developers of multifamily apartments, and the 221(d)(3) program guarantees loans to nonprofit developers. The GI/SRI account also includes several specialized single-family programs, such as the 203(k) (rehabilitation mortgage), Section 234 (condominiums), Title I (property improvement and manufactured housing), and Section 255 (home equity conversion mortgage) programs. In contrast to the MMI/CMHI account, several of the programs in the GI/SRI account have positive subsidy costs, which require credit subsidy budget authority. In fiscal year 2004, four GI/SRI account programs—Section 221(d)(3), Section 241, Multifamily Operating Loss, and Title I Property Improvement—received $15 million in credit subsidy budget authority. RHS’s loan guarantee programs, as a whole, are much smaller than FHA’s, are targeted to rural areas, and have more income restrictions. Under its RHIF account, RHS guarantees loans through two programs—the Section 502 program and the Section 538 program. The Section 502 program serves rural residents with incomes not exceeding 115 percent of the U.S. median income who wish to purchase or refinance a single-family home. In fiscal year 2004, this program received $2.7 billion in commitment authority and about $40 million in credit subsidy budget authority. The Section 538 program guarantees loans to nonprofit or for-profit developers for the construction, acquisition, and rehabilitation of multifamily rental housing in rural areas that serve households with incomes that do not exceed 115 percent of area median income. In fiscal year 2004, this program received $100 million in commitment authority and about $6 million in credit subsidy budget authority. In formulating and executing the budgets for their loan guarantee programs, FHA and RHS must adhere to specific federal budgetary and accounting requirements. The process of preparing their annual budget request requires that FHA and RHS prepare estimates of the dollar amount of loans they anticipate guaranteeing nearly 2 years in advance. These estimates influence the amount of commitment authority and credit subsidy budget authority the agencies request and receive. The Federal Credit Reform Act of 1990 requires the President’s Budget to reflect the costs of credit programs and include the planned level of new loan guarantees associated with each appropriation request. Agencies therefore must calculate and estimate the long-term cost, known as the credit subsidy cost, to the federal government of extending or guaranteeing credit and the amount of new loan guarantees they plan on making. The agencies estimate these costs for each program by calculating a credit subsidy rate that takes into account factors such as fees, defaults, and recoveries, and applying this rate to the total dollar amount of loans they anticipate guaranteeing. When an agency decides to guarantee a loan, it uses this rate to determine the credit subsidy cost of doing so. Under programs requiring positive credit subsidies, the agency can issue the new guarantee only if the budget authority to cover this cost is available. In contrast, programs with negative subsidies are constrained only by commitment authority, which limits the amount of financial risk the federal government assumes each year. FHA and RHS receive their commitment authority limit and appropriations of credit subsidy budget authority on a somewhat different basis. Although FHA, as required, estimates its commitment authority and credit subsidy needs for each loan guarantee program under the MMI/CMHI and GI/SRI accounts, it requests and receives these authorities on an account, rather than a program, basis. Congress has generally not specified a level of commitment authority or credit subsidy budget authority for each program. In addition, FHA routinely requests and receives a commitment authority limit that exceeds the dollar amount of loans it has estimated it will make, a practice that helps prevent exhaustion of commitment authority before the end of a fiscal year. In contrast, RHS receives credit subsidy budget authority on a program basis. That is, the Section 502 program and Section 538 program receive separate appropriations of credit subsidy budget authority. For both of these programs, the commitment authority limit is the amount of credit subsidy budget authority divided by the credit subsidy rate. On 10 occasions since 1994, FHA and RHS have suspended the issuance of loan guarantees under certain programs because the programs effectively exhausted their commitment authority or credit subsidy budget authority before the end of a fiscal year. Specifically, FHA suspended programs six times and RHS four times. Several factors contributed to these suspensions, including unforeseeable fluctuations in mortgage interest rates that led to changes in the demand for loan guarantees. Further, the need to make budget estimates nearly 2 years in advance compounds the difficulty of predicting demand. As a result, and because of resource constraints and competing priorities within the federal budget, the resources appropriated for these programs have not always reflected the amounts required to keep them operating for an entire fiscal year. As shown in table 1, FHA has suspended the issuance of loan guarantees under certain programs six times since 1994 after effectively exhausting the commitment authority or credit subsidy budget authority for these programs before the end of the fiscal year. For example, from fiscal year 1994 through fiscal year 2004, FHA suspended the programs with positive subsidy costs under its GI/SRI account three times—in February 1994, July 2000, and April 2001—after effectively exhausting the credit subsidy budget authority under this account. FHA has also suspended all of the programs under the GI/SRI account three times after effectively exhausting the account’s commitment authority. On September 16, 2003, FHA suspended the issuance of loan guarantees under the GI/SRI account until Congress raised the commitment authority limit in a supplemental appropriations act. The other two suspensions occurred while the agency was operating under a series of continuing resolutions in early fiscal year 2004. The first suspension occurred in early December 2003, when FHA exhausted the $3.8 billion in commitment authority provided in the first of these resolutions. FHA lifted the suspension after receiving an additional $3.9 billion under a subsequent resolution in mid- December 2003 but suspended the programs again after exhausting this amount on January 14, 2004. FHA restarted the programs approximately 2 weeks later, after Congress passed the Consolidated Appropriations Act, 2004. RHS has suspended its Section 502 program four times since 1994—in fiscal years 1995, 1996, 2003, and 2004—after effectively exhausting its credit subsidy budget authority. However, in some cases, RHS was able to take actions that delayed or mitigated the impact of the suspensions on borrowers and lenders. For example, in early August 2003, RHS transferred $3.6 million in budget authority from the Section 523 (Mutual and Self-help Technical Assistance) grant program to the Section 502 program in order to delay suspension of the program. This transfer enabled the Section 502 program to guarantee an additional $297 million in loans and delayed suspension of the program until August 27. Also, during the 4-week suspension period, RHS continued to accept and approve loan guarantee applications submitted by lenders and committed to issuing the guarantees as soon as it received its next appropriation. Further, in March 2004, RHS anticipated that the Section 502 program would exhaust its credit subsidy budget authority early in the fourth quarter. In June, RHS increased the program’s guarantee fee and transferred a total of $7 million in budget authority from the Section 504 (Natural Disaster), 514 (Farm Labor Housing), 515 (Multifamily Housing), 516 (Rural Housing Assistance), and 538 programs to the Section 502 program. The increase in the guarantee fee enabled RHS to issue an additional $100 million in loan guarantees, and the transfers enabled RHS to issue an additional $531 million in loan guarantees. Although these actions delayed suspension of the program, RHS eventually had to suspend the program on August 24, 2004. During this suspension period, RHS again accepted and approved loan guarantee applications submitted by lenders and committed to issuing the guarantees as soon as it received its next appropriation. Due partly to difficulties in estimating the demand for loan guarantee programs, the resources budgeted for these programs have not always reflected the amounts required to keep them operating for a full fiscal year. Estimating demand for budget purposes is difficult for several reasons.