Analytical Perspectives - 8. Underwriting Federal Credit and Insurance

[Analytical Perspectives]
[Special Analyses and Presentations]
[8. Underwriting Federal Credit and Insurance]
[From the U.S. Government Publishing Office, www.gpo.gov]

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8. UNDERWRITING FEDERAL CREDIT AND INSURANCE

The Federal Government continues to be the largest financial
institution in the United States, with a face value of $6.2 trillion
outstanding at the end of 1997. Of this, $181 billion is direct loans,
$822 billion is loan guarantees, and $5.2 trillion is insurance.
Including Government-sponsored enterprises (GSEs), the total Federal and
federally assisted credit and insurance outstanding is $7.9 trillion.
These diverse financial programs offer credit for housing, education,
business, and exports, and insurance for deposits, pensions, and other
risks. They face two challenges. Like other programs, they are operating
under tight budgetary constraints. And they are seeking to redefine
their purpose and improve their effectiveness in the context of rapidly
evolving private financial markets that are making some of their
functions less necessary while generating both new risks and new
opportunities.
The introduction to this chapter summarizes key changes in financial
markets and their effects on Federal programs.
Its first section is a cross-cutting assessment of the
rationale for a continued Federal role in providing credit and
insurance, performance measures for credit programs, and
criteria for re-engineering credit programs so as to enhance
their benefits in relation to costs. This section also
describes the recent simplification of credit reform and the
intent to increase loan sales.
The second section reviews Federal credit programs and GSEs
in four sectors: housing, education, business and community
development, and exports, noting the rationale and goals of
these programs. It highlights a new housing consortium to help
program managers integrate with evolving private sector
practices, and efforts to improve the effectiveness of
student, business, and international credit programs.
The final section assesses recent developments in Federal
deposit insurance, pension guarantees, and disaster insurance.

Evolving Financial Markets

Financial markets have been evolving rapidly in recent years. Both
intermediaries--banks and the many non-bank firms engaged in financial
services--and capital markets have been reaching out to new clients that
they did not serve a few years ago. Competition for business within and
across industry lines has become more intense as legal and regulatory
restrictions segmenting financial markets have eased. Massive databanks
and increasingly sophisticated analytical methods are being used to find
creditworthy borrowers among people and businesses previously thought
ineligible for private credit.
Moreover, funds are flowing more readily to their most productive uses
across the country and around the world. Interstate banking and
branching are almost nationwide. Capital market financing is available
to smaller companies and for a broader range of purposes than before.
Secondary markets are the main source of financing for mortgages, and a
rapidly growing source of financing for household durables, consumer
credit, and small business loans. Nonbanks and nonfinancial firms are
helping to funnel funds from capital markets to small clients in cities
and in rural areas.
Faster and cheaper information and communications systems have
revolutionized ``back office'' functions. These can be consolidated to
achieve economies of scale and located anywhere in the world where
capable help is available and economical. From these locations,
communications can bring the ``back office'' to the front line on a
computer terminal in the office of any realtor or supplier or in any
storefront or kiosk. From a timely information base, credit servicing
and workout have become much more efficient.

Impact on Federal Programs

These changes are affecting the roles, risks, and operations of
Federal credit and insurance programs.
In some cases, private credit and insurance markets may
evolve sufficiently to take over functions previously left to
Federal programs. More likely, they may take away the best
risks among those who have been borrowing from the Government
or with its guarantee, leaving the Federal program facing a
smaller pool of riskier clients. If the Government is aware of
this in time, the result may be new benefit/cost calculations
that might help to redesign--or to end--the program. If the
Government is caught unaware, the result may be greater cost
for the taxpayers.
At the same time, Federal programs can take advantage of
the growing private capability. They can leverage it to
provide additional assistance to their clients. With careful
attention to the incentives faced by the private sector, they
can develop a variety of partnerships with private entities.
And they can contract with the private sector wherever it can
provide specific credit servicing, collection, or asset
disposition services more efficiently.
Insurance programs, too, are affected by the evolution of the
financial marketplace. That is most obvious for deposit insurance, which
now backs a recovered, consolidating industry, but one that has assumed
the risks inherent in providing a growing array of increasingly

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sophisticated services, including many off-balance sheet activities,
often on a world-wide basis. Depository institutions have become
increasingly vulnerable to adverse shocks in foreign financial markets
through loans, investments, foreign exchange transactions, and off-
balance-sheet activities. In pensions, the Government guarantees defined
benefit plans, but defined contribution plans play an increasing role--
attracting the support of younger workers in an aging workforce. This
trend may accelerate as the retirement of the baby boom generation
nears. In disaster insurance, private firms are gaining a better
understanding of their risks and exploring ways to diversify them in
capital markets.
In this changing environment for Federal credit and insurance
programs, this chapter asks three questions. First, what is our current
understanding of the roles of these programs? Second, how well they are
achieving their goals? And finally, could they be re-engineered to
achieve greater benefits in relation to costs? A new consortium of
housing program managers, and managers of student, business, and
international credit programs will be working intensively on this third
question next year.

I. A CROSS-CUTTING ASSESSMENT

The Federal Role

In most lines of credit and insurance, the private market efficiently
allocates resources to meet societal demands, and Federal intervention
is unnecessary. However, Federal intervention may improve on the market
outcome in some situations. The following are six standard situations
where this may be the case,\1\ together with some examples of Federal
programs that address them.
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\1\ Economics textbooks also list pure public goods,like national
defense, where it is difficult or impossible to exclude people from
sharing the full benefits of the goods or services once they have been
produced. It is hard to imagine credit or insurance examples in this
category.
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Information failures occur when there is an asymmetry in
the information available to different agents in the
marketplace. A common Federal intervention in such cases is to
require the more knowledgeable agent, such as a financial
institution, to provide certain information to the other
party, for example, the borrower or investor. A different sort
of information failure occurs when the private market deems it
too risky to develop a new financial instrument or market.
This is rare nowadays, but it is worth remembering that the
Federal Government developed the market for amortized, fixed-
rate mortgages and other innovations in housing finance.
Externalities occur when people or entities either do not
pay the full cost of their activities (e.g., pollution) or do
not receive the full return. Federal credit assistance for
students is justified in part because, although people with
more education are likely to have higher income and even
better health, they do not receive the full benefits of their
education. Their colleagues at work, the residents of their
community, and the citizens of the Nation also benefit from
their greater knowledge and productivity.
Economic disequilibrium is a third rationale for Federal
intervention. This is one rationale for deposit insurance. If
many banks and thrifts are hurt simultaneously by an economic
shock, such as accelerating inflation in the 1970s, and
depositors have a hard time knowing which ones may become
insolvent, deposit insurance prevents a contagious rush to
withdraw deposits that could harm the whole economy.
Failure of competition, resulting from barriers to entry,
economies of scale, or foreign government intervention, may
also argue for Federal intervention--for example, by reducing
barriers to entry, as has often been done recently, by
negotiating to eliminate or reduce foreign government
subsidies, or by providing countervailing Federal credit
assistance to American exporters.
Incomplete markets occur if producers do not provide credit
or insurance even though customers might be willing to pay for
it. One example would be catastrophic insurance, where there
is a small risk of a very large loss; a disaster that occurred
sooner rather than later could bankrupt the insurer even if
premiums were set at an appropriate level to cover long-term
cost. Another example is caused by ``moral hazard'' problems,
where the borrower or insured could behave so as to take
advantage of the lender or insurer. This is the case for
pension guarantees, where sponsors might underfund plans, and
for deposit insurance, where banks might take more risk to
earn a higher return. In these cases, the Government's legal
and regulatory powers provide an advantage in comparison with
a private insurer.
In addition to correcting market failures, Federal credit
programs are often used to redistribute resources by providing
subsidies from the general taxpayer to disadvantaged regions
or segments of the population.
In reviewing its credit and insurance programs, the Federal Government
must continually reassess whether the direct and indirect benefits to
the economy exceed the direct and indirect costs. This assessment should
include the costs associated with redirecting scarce resources away from
other investments. In some situations, the market may have recently
become capable of providing financial services, and older Federal
programs may need to be modified or ended to make room for private
markets to develop. Private providers in similar circumstances might go
bankrupt, merge, or change their line of business; for Federal programs,
a policy decision and usually a change in law are need

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ed to eliminate overcapacity. In other instances, Federal programs may
be redesigned to encourage the development of private credit market
institutions or to target Federal assistance more efficiently to groups
still unable to obtain credit and insurance in the private market.

What Are We Trying to Achieve?

If the main Federal role is to provide credit and insurance that
private markets would not provide--to stretch the boundaries in
providing credit and insurance--the Federal goal is to achieve a net
impact that benefits society. Together, these objectives make the
standard for success of a Federal credit or insurance program more
daunting than for a private credit or insurance firm.
For credit and insurance, as for all other programs, implementation of
the Government Performance and Results Act (GPRA) will help to assess
whether programs are achieving their intended results in practice--and
will improve the odds for success. GPRA requires agencies to develop
strategic plans in consultation with the Executive Branch, the Congress,
and interested parties; this process should refine and focus agency
missions. The strategic plans set long-range goals, annual performance
plans set milestones to be reached in the coming year, and annual
performance reports will measure agency progress toward achieving their
goals.
GPRA defines four kinds of measures for assessing programs: inputs
(the resources used), outputs (the goods or services produced), outcomes
(the gross effects on society achieved by the program), and net impacts
(the effects net of those that would have occurred in the absence of the
program, e.g., with private financing). For credit and insurance
programs, interesting interrelationships among these measures provide
the keys to program success.

Net impacts assess the net effect of the program on intended outcomes
compared with what would have occurred in the absence of the program.
They exclude, for example, effects that would have been achieved with
private credit in the absence of the program. Among the net impacts
toward which Federal credit programs strive are: a net increase in home
ownership, a net increase in higher education graduates, a net increase
in small businesses, a net increase in exports, and a net increase in
jobs.
For credit programs, the first key to achieving any of these net
impacts is outreach. In the spirit of the Federal role, programs need to
identify borrowers who would not get private credit. They need to reach
out to under-served populations (e.g., low-income or minority people)
and neighborhoods (urban and rural). They need to encourage the start-up
of new activities (e.g., beginning farmers, new businesses, new
exporters). They need to reach their legislatively targeted populations
(e.g., students, veterans). Federal lending is often to higher-risk
borrowers, or for higher-risk purposes. In order to assist certain
target groups or encourage certain activities, credit may be extended
for longer periods or at a lower cost to the borrower.
Achieving program objectives, however, also means finding ways to
assist those borrowers at the boundary of private credit markets to
repay their loans. This is not just a financial goal; it is necessary to
achieve the program's social purpose. Home ownership requires mortgage
repayment. Education that enhances income is associated with repayment
of student loans. Remaining in business with a good credit rating
requires repayment of small business, farm, and export loans. And loan
repayment is inherent in program cost-effectiveness. Moreover, when the
Federal Government bears risk for less creditworthy borrowers and does
so in a way that fails to assist them to repay, they struggle with high
debt burdens and are left with poor credit records.
With implementation of the Federal Credit Reform Act of 1990, Federal
credit programs began to reconcile the tension between helping certain
groups or purposes and ``business-like'' financial management. With the
implementation of GPRA, they may begin to see program success and
financial success as two facets of the same goal. The challenge is
usually to identify ``boundary'' borrowers and to structure the loan and
its servicing (including technical assistance) so as to pull those
borrowers toward financial and programmatic success. In some cases,
savings from improved credit program management may be reinvested to
pull more borrowers across that boundary.

Outputs and outcomes, therefore, have an interrelationship which is
crucial to the performance of credit programs. The most obvious output
of Federal credit programs is the number and value of direct loans
originated or loans guaranteed. But volume alone does not achieve the
objectives of Federal credit programs; indeed, large volume or market
share may mean that private lenders are displaced. Loans must have
certain characteristics in order to achieve the desired outcomes and net
impacts; these characteristics are therefore part of the desired program
output.
Because of the Federal role, output measures should include an
estimate of the percent of loans or guarantees originated going to
borrowers who would otherwise not have access to private credit, and the
percent of loans or guarantees originated going to specific target
groups (e.g., veterans) or for specific purposes. Because of the Federal
goal, output measures should include the percent of loans or guarantees
that are current. This should be compared with the percent that were
expected to be current at this point in the repayment cycle.
To assess the latter, program data should be analyzed to determine
whether repayment prospects are enhanced by particular characteristics
of loan structure (such as higher initial borrower equity), of loan
origination (such as verifying borrower financial status), of loan
servicing (such as prompt counseling), or of guarantee conditions (such
as lender risk-sharing). When such characteristics help to control the
cost of credit

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programs and to achieve desired outcomes, then these characteristics
should be measured as part of the program's output.
The linkage between such output characteristics and the outcomes of
Federal credit programs is not always fully recognized. For example, one
desired outcome is to reach under-served populations or neighborhoods.
To achieve this outcome, it would be useful to monitor whether loans are
going to borrowers who would not otherwise have access to credit, or to
specific target groups. Other desired outcomes include supporting
investment important to the economy, encouraging start-up of new
activities, or contributing to sustained economic development. To
achieve these outcomes, it would be useful to monitor whether the
program's loans and operating procedures have characteristics that would
enhance borrower repayment.

Inputs. Program cost is also a performance measure. For credit and
insurance programs, it is a continuing challenge to understand and
control the risks that the Government assumes and to measure the
inherent cost. This is especially important in view of the rapid changes
in financial markets discussed above and the increasingly complex
financial instruments.
The subsidy cost of Federal credit programs, cumulated over time for
each cohort of the program's loans or loan guarantees, is the main
input. Another is the administrative cost of the program, including the
cost of credit extension, direct loan servicing and guaranteed loan
monitoring, collecting on delinquent loans and collateral, and other
administrative costs such as policy making or systems development.
The relationship between these inputs is also crucial for credit
programs. Careful servicing of loans, for example, can reduce default
costs, and perhaps total program costs. So good servicing is good
financial management for the taxpayer. But good servicing is also an
art, which can--by assisting borrowers to repay--help to achieve the
program's performance objectives. Private servicing of loans offers many
examples of the gains from matching repayment to the borrower's flow of
income, treating borrowers in different circumstances differently, and
in other ways maximizing the borrower's chances to make good.
In sum, there are three relationships that seem to hold the key to
excellence in credit program performance: the relationship between
repayment and the achievement of program objectives, the relationship
between the characteristics of credit program outputs and desired
outcomes, and the relationship between subsidy cost and good servicing
and program administration. Another important key to success is the
speed with which the program adapts to market changes, including its
ability to provoke or harness private markets into meeting Federal
goals.

Principles for Re-engineering

In order to improve the effectiveness of Federal credit programs, OMB
will be working with agencies to identify ways to re-engineer credit
management. This effort will focus on improving servicing, will consider
consolidation of functions such as data collection and asset
disposition, will rely on the private sector when that would improve
efficiency, will devise incentives to improve management and reduce
cost, and will ensure the development of data for management and subsidy
estimation.
The focus will be on managing the servicing, workout, and sale of any
collateral efficiently. For example, why does the Federal Government pay
claims on guaranteed loans and handle the workout, instead of leaving
this to the originating lender? Why does the Government take over
collateral? How do the timing and results of our asset disposition
compare with private practice? Why do we make loans to finance purchases
of collateral? What incentives and penalties would be useful for
programs and program staff? For guaranteed loan originators? For
contractors who service Federal loans or dispose of collateral?
OMB has developed a tentative set of principles for re-engineering
credit programs that builds on OMB Circular A-129 and initial research.
These will be modified by lessons learned as they are put into practice.
The resulting principles are intended to improve the performance of
Federal credit programs in the years ahead. Because private markets are
extending credit where it was formerly unavailable, and because there is
little purpose to re-engineering programs which are not justified, these
principles start with basic questions of program justification. But
their main focus is on how programs should be carried out.

Program Justification

1. Credit assistance should be provided only when it has
been demonstrated that private credit markets cannot
achieve clearly defined Federal objectives. What is the
objective? Is access to private credit available? If
not, why not? If so, why and to what extent should
private terms and conditions be supplemented or
subsidized?

2. Credit assistance should be provided only when it is the
best means to achieve Federal objectives. Can private
credit markets be developed? Can market imperfections be
overcome by information, regulatory changes, or other
means? Would small grants for downpayments,
capitalization for State, local, or nonprofit revolving
funds, or other approaches be more efficient?

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3. Credit assistance should be provided only when its
benefits exceed its cost. Analyze benefits and costs in
accordance with OMB Circular A-94.

Program Design

4. Credit programs should minimize substitution for private
credit. What features of program design minimize
displacement? Encourage and supplement private lending?
To what extent is credit for this objective expanded by
this program compared with what would be available in
the absence of the program? What is the economic cost of
the lending bumped from the credit queue?

5. Credit programs should stretch their resources and
better meet their objectives by controlling the risk of
default. What features of program design minimize risk?
Are there incentives and penalties for loan originators
and servicers to minimize risk? What features of the
loan contract, the process of origination, the quality
of servicing, and the workout procedures minimize risk?
Do borrowers have an equity interest? Is maturity
shorter than the economic life of the asset financed?
Are the timing and amount of payment matched with
availability of resources? Is timely reminder and
technical assistance provided? How well is risk
understood, measured, and monitored?

6. Credit programs should stretch their resources to better
meet their objectives by minimizing cost; most should be
self-sustaining. Do fees and interest cover the
Government's cost, including administration? Are
interest rates specified as a percent of market rates on
comparable maturity Treasury securities? Are charges for
riskier borrowers proportional to their higher cost?

Program Operations

7. Credit programs should take advantage of the capacity,
flexibility, and expertise available in competitive
private markets unless the benefits of direct Federal
operations can be shown to exceed the cost. Private
financial institutions may offer convenient access for
borrowers, potential for graduation to private credit,
economies of scale, ready adjustment to changing volume
or location of loans, and knowledge of current credit
conditions and techniques.

8. The lender (in the case of a loan guarantee), the
servicer, and the providers of workout and asset
disposition services should have a stake in the
successful and timely repayment of the loan or
collections on claims and collateral. Originators of
guaranteed loans should bear a share of each dollar of
default loss, and--unless other arrangements can be
shown to be more cost-effective--should be responsible
for handling workout. Each contract should include
incentives for good performance, and penalties,
including loss of business, for poor performance. The
duration and scope of each contract or agreement should
be limited so as to maximize specialization and
competition, unless those are offset by economies of
scale in operations and monitoring.

9. Criteria should be established for participation in
Federal loan guarantee programs by lenders, servicers,
and providers of workout and asset disposition services.
These criteria should include financial and capital
requirements for lenders and servicers not regulated by
a Federal financial institution regulatory agency, and
may include fidelity/surety bonding and/or errors and
omissions insurance, qualification requirements for
officers and staff, and requirements of good standing
and performance in relation to other contracts and
debts. Lenders transferring and/or assigning servicing,
and lenders or servicers transferring and/or assigning
workout or asset disposition, must use only entities
which have qualified under the Federal participation
criteria.

10. When there are economies of scope or scale, the data
gathering and analysis, servicing, workout, asset
disposition, or other functions of specific credit
programs should be combined or coordinated. The sequence
of operations should be streamlined, and accountability
for each step clearly defined.

Program Monitoring

11. Each program should maintain or receive monthly loan-by-
loan transaction data and a system whereby this
information triggers servicing, workout, and follow-up
actions. These data shall be linked by loan number to an
analytical database showing characteristics of loans,
borrowers, projects financed, financial information,
credit ratings, and other data in a form suitable for
use in subsidy estimation and loan pricing.

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12. Each program should design and carry out steps to
foresee problems, and to inspect, audit, and assess the
program's operations. Methods should be benchmarked
against the best practices used elsewhere. The program
and its lenders, servicers, and other contractors should
experiment with and assess ways in which the
effectiveness or efficiency of the program might be
improved or costs reduced.

Simplification of Credit Reform

The Balanced Budget Act of 1997 amended the Federal Credit Reform Act
of 1990 (FCRA) to make several technical changes, some of which codified
OMB guidance. Among the provisions were:
Requiring agencies to use the same discount rate to
calculate the subsidy when they obligate budget authority for
direct loans and loan guarantees as when they prepare the
President's Budget. Previously, agencies switched at
obligation to interest rates during the preceding calendar
quarter. Analysis showed that quarterly rates predicted actual
annual average rates slightly better than the President's
Budget assumptions from the previous year. However, the
increased accuracy was not great enough to justify the
additional complexity and the change in loan volume from what
Congress had assumed when it appropriated subsidy budget
authority for the program.
Requiring agencies to use the same forecast assumptions
(e.g., default and recovery rates) to calculate subsidy rates
when they obligate for direct loans and loan guarantees as
when they prepare the President's Budget. This provision also
was enacted in response to the Budget and Appropriations
Committees' desire for loan volumes consistent with
Congressional intent in appropriations acts. While agencies
must use the same forecast assumptions, they will continue to
calculate subsidy estimates at obligation using cash flows
that have been adjusted to reflect the actual terms and
conditions (explicit technical assumptions) of the direct loan
and loan guarantee contracts, rather than the estimated terms
and conditions assumed in the President's Budget.
Strengthening the requirement that agencies to transfer
end-of-year unobligated balances in liquidating accounts
(revolving funds for direct loans and loan guarantees made
prior to the effective date of the FCRA) to the general fund
as soon as practicable after the close of the fiscal year.
Because permanent appropriations are available to pay claims
in excess of the liquidating account balance, these
unobligated balances do not need to be carried forward between
fiscal years.
Requiring the interest rate paid on financing account debt
to Treasury, and earned on financing account balances, to be
identical to the discount rate used to calculate subsidy
costs. These interest rates must be equal in order for the
financing accounts to have exactly enough resources to pay
default claims or repay debt to Treasury.
OMB also has simplified the reestimate process by requiring only one
reestimate for differences between the interest rate assumptions in the
President's Budget and the actual interest rate when the loan is
disbursed. This reestimate is to be made when at least 90 percent of the
dollar volume of loans in a cohort has been disbursed. Previously,
agencies were required to perform interest rate reestimates after the
close of each fiscal year in which disbursements occurred. For programs
disbursing over multiple years, the true discount rate for a cohort is
not known for several years; meanwhile, calculations using a combination
of estimated and actual rates resulted in wide fluctuations in
reestimates that provided no useful information.

Debt Collection and Loan Asset Sales

The Federal Government's inventory of delinquent loans and loan
receivables was $37 billion at the end of 1997. Usually, this debt is
worked by the agency that made the direct loans or loan guarantees.
Little progress has been made in reducing this debt, whereas the private
sector has developed sophisticated tools for collecting delinquent debt
and quickly disposing of assets acquired through default. A major theme
of credit program re-engineering will be to work delinquent debt more
aggressively and take advantage of private sector efficiencies by:
Fully implementing the Debt Collection Improvement Act of
1996. Agencies must send debt that is over 180 days overdue
to Treasury for offset against Federal payments to the
delinquent borrower and to a debt collection center designated
by the Secretary of the Treasury.
Requiring private lenders to liquidate collateralized
defaulted loan assets. The Rural Housing Service of USDA, and
its farm and business loan guarantee programs, require lenders
to dispose of defaulted assets. This better aligns private
lenders' incentives with the Federal Government's interest in
maximizing collections, and takes advantage of private sector
efficiencies to maximize collections and reduce the net cost
of credit programs. The Government avoids acquiring delinquent
debt and having to dispose of the collateral.
Requiring agencies to sell delinquent debt over one year
overdue. Government policy will presume that sales of
delinquent debt over one year overdue will be in the best
financial interest of the Government unless demonstrated
otherwise. Exemptions will be made for debt that is producing
collections, owned by foreign Governments or entities, is in
structured forbearance, or is in adjudication or bankruptcy.
HUD's aggressive program of selling delinquent assets over the
past three years has demonstrated that agencies can
significantly reduce their delinquent debt in a way that
furthers program objectives and increases the return to the

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Government. SBA also will sell delinquent assets in 1998,
1999, and 2000.
The Federal Credit Policy Working Group, together with the General
Services Administration, is developing a government-wide Financial
Advisor Request for Proposal, which by June 1998 will make available to
all agencies a list of financial advisors through a basic ordering
agreement. Each credit agency will be expected to contract with a
financial advisor to conduct a valuation of their loan asset portfolio.
For all agencies, the results of the asset valuation study will be used
to adjust baseline subsidy rates in the FY 2000 Budget. These rates will
also reflect estimated proceeds from the sale of delinquent assets.

II. CREDIT IN FOUR SECTORS

Housing Credit Programs and GSEs

The Federal Government provides loans and loan guarantees to expand
access to home ownership to people who lack the savings, income, or
credit history to qualify for a conventional home mortgage and to
finance rental housing for low-income persons. The Departments of
Housing and Urban Development (HUD), Veterans Affairs (VA), and
Agriculture (USDA) made $102 billion of loan and loan guarantee
commitments in 1997, helping 1.3 million households.
Each Department has a program to guarantee single-family mortgages;
together, they guaranteed [XX] percent of the single-family mortgages
originated in the United States last year.
HUD's Federal Housing Administration (FHA) runs a Mutual
Mortgage Insurance Fund that guaranteed $61 billion in
mortgages for 740,000 households in 1997. Over three-fourths
of these went to first-time homebuyers.
The VA assists veterans, members of the Selected Reserve,
and active duty personnel to purchase homes as a recognition
of their service to the Nation. The program substitutes the
Federal guarantee for the borrower's down payment. In 1997, VA
provided $24 billion in guarantees to 239,000 borrowers.
USDA's Rural Housing Service (RHS) guarantees up to 90
percent of an unsubsidized home loan. The program's emphasis
is on reducing the number of rural residents living in
substandard housing. In 1997, nearly $2 billion of guarantees
went to 40,000 households.
In addition, RHS has direct loan programs for single-family and multi-
family mortgages, and FHA guarantees mortgages for multi-family housing
and other specialized properties. The VA makes vendee loans when it
sells collateral from defaults.

The Housing Consortium

Private banks, thrifts, and mortgage bankers, which originate the
mortgages that FHA, VA, and RHS guarantee, may deal with all three
programs, as well as with the Government National Mortgage Association
(Ginnie Mae), which guarantees timely payment on securities based on
pools of these mortgages. In addition, the same private firms originate
conventional mortgages, many of which are securitized by Government-
sponsored enterprises--the Federal National Mortgage Association (Fannie
Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
Many of these firms already use or are planning to use electronic loan
origination and are moving toward electronic underwriting. Behind such
underwriting are data warehouses showing default experience by type of
loan, borrower characteristics, home location, originator, and servicer,
and models relating these factors to default cost. ``Web lending'' is
also on the horizon.
These changes offer both challenges and opportunities to the Federal
mortgage guarantors and Ginnie Mae. They are challenged to make
themselves electronically accessible to their clients and loan
originators. They are challenged to assess and monitor their risks
closely, now that private firms are reaching out to the better risks
among their potential clients. They also have an opportunity to provide
better service, and to improve the effectiveness and efficiency of their
programs.
The FHA, VA, and RHS housing guarantee programs and Ginnie Mae are
forming a Housing Consortium to adapt to the rapid shift to electronic
underwriting in the private sector. This Consortium will become the
focus of agency efforts to keep abreast of changes in the housing credit
market, accelerate adoption of best practices, establish common
standards where possible, and make government systems compatible with
the private sector. The Consortium will become the ``board of
directors'' for a common data warehouse and analysis center on housing
loan performance--using it to monitor the changing risk and cost of
guarantees and the performance of guaranteed loan originators and
servicers. Learning from each other and from the private sector, the
Housing Consortium will seek to improve loan origination, data systems,
performance measurement, risk sharing and pricing, and asset
disposition.

Loan Origination. Electronic underwriting provides convenient, faster
service at a lower cost to both lenders and borrowers. Freddie Mac and
Fannie Mae are among the leaders in developing such systems and
encouraging their use.
The VA recently entered into a ``memorandum of understanding'' with
Freddie Mac to use its ``Loan Prospector'' electronic underwriting
system. VA customized the scoring for its applicants based upon the
actual profile of its veteran borrowers. As a result, VA will improve
its risk management capability by focusing servicing on its high-risk
borrowers to reduce losses to the government, lenders, and borrowers. VA
expects that less required lender documentation, faster processing, and
fewer errors will improve efficiency of loan

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origination. In 1999, VA will propose legislation to charge lenders a
fee that will be used to develop Electronic Data Interchange (EDI)
capability with lenders to automate loan processing and servicing.
The FHA is also collaborating with Freddie Mac to pilot Loan
Prospector, adapting it to FHA's clients. The RHS is examining the
potential benefits of electronic underwriting for its guaranteed loan
program. Meanwhile, RHS will develop the ability to offer electronic
origination using off-the-shelf software. Building on new systems for
both its direct and guarantee programs, RHS will introduce electronic
origination into its 502 Guarantee program by 1999.

Data Systems. Ginnie Mae guarantees timely payment of principal and
interest on securities based on pools of mortgages guaranteed by FHA and
VA. The issuers of these securities are almost always FHA and VA
servicers. To track experience on these loans and issuers, Ginnie Mae
created two data bases starting in 1990 that draw monthly input from
issuers based on private standards.
The Issuer Portfolio Analysis Database System (IPADS) and the
Correspondence Portfolio Analysis Database System (CPADS) monitor
current performance by loan, originator, servicer, mortgage pool,
security, and security issuer. Performance can be tracked and compared,
taking account of differences between region, economic conditions, size
and type of business, and age of portfolio.
The current analytical system is designed fill Ginnie Mae's needs.
IPADS allows quick access to information, such as yearly changes in the
size of business an issuer has with Ginnie Mae, delinquency ratio,
twelve-month collection history, portfolio age, and average mortgage
rate. IPADS will generate twenty-four month trend analyses of key
performance indicators and compare an issuer's portfolio data against
established Ginnie Mae norms.
But the same data and much the same system could be very useful to the
loan guarantee programs. For example, CPADS is similar to IPADS but
organizes the data by loan servicer and can compare performance by loan
originator regardless of how often a loan is sold. Thus, CPADS could
enable FHA and VA to monitor and assess how well the firms that
originate and service the loans they guarantee are doing their jobs.
These systems can also report promptly on the payment status of
individual loans, enabling quick follow-up to late payments. If
federally guaranteed loans were originated electronically, useful data
on the loan, borrower, and home characteristics could be ``warehoused''
in conjunction with information on the monthly payment history. This
could be the basis for models that determine which loans are most likely
to become delinquent or default. Servicer attention could focus on those
borrowers.
FHA is currently a participant in Ginnie Mae's data monitoring
systems. VA and RHS will soon become participants. RHS will require all
of its lenders to file reports electronically in IPADS before FY 1999,
and will become a full user of that system to track its guaranteed
loans.

Performance Measurement. Measuring loan servicing performance
establishes a baseline for assessing changes to servicing practice.
Monthly data will not only give housing programs a better understanding
of how their guarantee portfolio behaves, but also how the federally
guaranteed housing market as a whole performs. This information is
critical for developing good performance standards.
HUD has begun to rank servicers based on a combination of loan default
rates and the ratio of actual to potential losses on defaults. The
rankings are adjusted for each state. Bonus points are given for
servicers with portfolios emphasizing social objectives. Servicers are
divided into categories based on their size. Those in the top 25 percent
of their category receive higher reimbursement rates for certain
servicing-related activities.
The rankings move FHA away from reviewing compliance with procedures
and toward evaluating servicing performance. Ranking criteria can be
refined as more experience is gained with the system. For example, the
system could include the effects of proactive servicing techniques that
would prevent delinquency. The most effective use of performance-based
incentives to encourage better servicing could also be analyzed.
Aggressive use of such measures would allow FHA to identify best
practices of top servicers and to sanction poorly-performing servicers.
RHS reviews at least 10 percent of the loans serviced by a lender
every two years. If deficiencies in loan servicing or underwriting are
noted, the lender is requested to take corrective action; its
eligibility will be terminated if it does not comply. RHS is now
instituting an annual external audit of servicing at a representative
sample of lenders for compliance with requirements and to pinpoint
weaknesses contributing to loan delinquencies.
RHS is re-writing program regulation to enhance program delivery, and
is considering a legislative proposal to augment the guarantee fee
structure in order to reward or penalize lenders based on performance.

Risk Sharing and Pricing. Risk-based pricing is emerging in the
conventional mortgage market as an important means by which lenders can
take on more risk. Technology is giving lenders much more precise
ability to assess the initial default risk associated with making a
particular loan. This increasingly precise underwriting technology, in
turn, allows lenders and insurers to adjust fees or loan rates and/or
raise insurance premiums to reflect risk and loan cost accurately.
If, as expected, risk-based pricing becomes common in the private
sector in the next few years, Federal loan guarantee programs will need
to assess the impact on their loan portfolios. They may need to adopt a
similar pricing structure or face adverse selection and larger losses.
Currently, premiums are fixed in statute and vary only slightly with one
dimension of risk, the

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initial loan-to-value ratio. New risk-based pricing might help maintain
the actuarial soundness of these programs in the context of adverse
selection. On the other hand, risk-based pricing might reduce the
effectiveness of these programs in serving the needs of lower-income,
minority, and traditionally underserved borrowers. Further study of
these competing concerns in light of actual market developments is
required.
Under its current limited risk-sharing demonstration authority, FHA
may assess risk-sharing proposals to test a scheme that partners a
housing credit program with a private guarantor. The purpose is to lower
the government's share of risk while, under a pre-arranged contract, the
private guarantor picks up the remainder. The private guarantor, perhaps
a large private mortgage insurer with experience and superior skills,
would have an incentive to help loan programs push loan servicers to
manage risks efficiently. FHA and a partner assume a large majority of
the risk while holding the lender accountable for a small portion, so
the lender's willingness to underwrite high-risk borrowers is not
significantly reduced compared with current practice.

Asset Disposition. Common wisdom in the mortgage industry is to avoid
foreclosure because that is when significant losses pile up, including
costs for maintenance and marketing. Federal guarantee programs have
found that the best practice is to avoid taking the property into
possession, and instead make it the responsibility of the lender.
Of the three Federal mortgage guarantee programs, RHS is the only one
that currently operates under the ``best practice'' for asset
disposition. The lender is paid the loss claim, which includes costs
incurred for up to six months from the time of the default. After the
loss claim is paid, RHS has no involvement in the loan, and it becomes
the sole responsibility of the lender. RHS will shorten the loss claim
period from six months to three months through regulation changes to
encourage lenders to dispose of properties as efficiently as possible.
VA and FHA will also be making improvements in asset disposition. VA
will propose legislation to eliminate the vendee loan program, which
provides public financing on foreclosed properties. In addition, VA will
explore initiatives that outsource its asset disposition.

RHS Direct Housing Loans

RHS also provides subsidized single-family direct loans to very-low
and low-income borrowers unable to get credit elsewhere to purchase,
rehabilitate, or repair homes. In October 1997, RHS completed
implementation of the Dedicated Loan Origination Service System (DLOS),
which centralized servicing of the whole loan portfolio. Whereas all
origination and servicing had been done in over 2,000 field offices,
these now only handle origination and some specific liquidation duties.
Everything else is handled at the centralized servicing center.
DLOS has been a major improvement. Along with two major regulations in
1996 and 1997, it reduced RHS' direct loan subsidy rate by 40 percent.
RHS is also exploring what economies of scale could be realized in the
area of asset disposition. Legislative proposals for 1999 would allow
single-family direct loans to be refinanced using guarantees, thus
helping borrowers to graduate to private credit. The refinanced loans
would be relatively low-risk because the borrowers would have built up
equity in their homes.

Fannie Mae and Freddie Mac

Because Fannie Mae and Freddie Mac, the largest Government-sponsored
enterprises (GSEs), are the dominant firms in the secondary mortgage
market, changes in their business practices can have a significant
impact on the housing finance sector of the U.S. economy. As of
September 1997, Fannie Mae and Freddie Mac had $1.5 trillion outstanding
in mortgages purchased or guaranteed. These GSEs engage in two main
lines of business: they issue and guarantee mortgage-backed securities
(MBS), and they hold portfolios of mortgages, MBS, and other mortgage-
related securities that they finance by borrowing.
The Federal Housing Enterprises Safety and Soundness Act of 1992
reformed Federal regulation of Fannie Mae and Freddie Mac. This Act
created the Office of Federal Housing Enterprise Oversight (OFHEO) to
manage the Government's exposure to risk by conducting examinations and
enforcing minimum and risk-based capital requirements. The risk-based
capital requirements will be based on a stress-test model. OFHEO has
solicited public comment on a variety of issues related to a risk-based
capital regulation and, in June 1996, published the first of two Notices
of Proposed Rulemaking (NPR) on risk-based capital. OFHEO expects to
publish its second NPR in early 1999.
As required by the 1992 Act, the Secretary of Housing and Urban
Development issued a final regulation at the end of 1995 that
established new goals for Fannie Mae and Freddie Mac to foster housing
credit for lower-income families and under-served communities. For 1997
through 1999, the regulation requires each GSE to devote:
42 percent of its mortgage purchases to finance dwelling
units that are affordable by low- and moderate-income
families;
24 percent of its purchases to finance units in central
cities, rural areas, and other metropolitan areas with low and
moderate median family income and high concentrations of
minority residents; and
14 percent of its purchases to finance units that are
special affordable housing for very-low-income families and
low-income families living in low-income areas.
During 1993-95, the GSEs were subject to transitional goals, and in
1996, they were subject to interim goals that were slightly lower than
the goals for

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1997-99. Fannie Mae and Freddie Mac each achieved all three goals in
1996.
The growth of the GSEs' core mortgage businesses has slowed, but they
have maintained the growth in their earnings by expanding the range of
their activities and increasing their on-balance sheet holdings of
mortgages and MBS. These changes may, however, increase their risk. The
GSEs' exposure to changes in interest rates increases as their on-
balance sheet holdings of mortgages and MBS grow.
By contrast, some of the GSEs' new business activities and innovations
may improve their risk profiles. The GSEs' use of credit scores and
automated underwriting may improve risk measurement and therefore
mitigate the credit risks inherent in purchasing and securitizing
mortgages. Similarly, the advent of risk-based pricing may mitigate risk
by pricing more precisely for expected losses. For holders of mortgage
credit risk, sophisticated risk measurement and pricing tools are
leading to shifts in the distribution of risk among the GSEs, private
mortgage insurers, lenders, and mortgage investors.

Federal Home Loan Bank System

The Federal Home Loan Bank System (FHLBS) was established in 1932 to
provide liquidity to home mortgage lenders. The FHLBS carries out this
mission by issuing debt and using the proceeds to make secured loans,
called advances, to its members. Member institutions primarily use
advances to finance residential mortgages and other housing related
assets. Federally chartered thrifts are required to be FHLBS members,
but membership is open to state-chartered thrifts, commercial banks,
credit unions, and insurance companies on a voluntary basis. As of
September 30, 1997, 6,418 financial institutions were FHLBS members, an
increase of 395 over September 1996. About 69 percent of members are
commercial banks, 28 percent are thrifts, and the remaining 3 percent
are credit unions and insurance companies; however, almost 70 percent of
outstanding FHLBS advances were held by thrifts as of September 30.
The FHLBS reported net income of $1.5 billion for the year ending
September 30, 1997, up from $1.3 billion in the previous 12 months.
Total System capital rose from $16.5 billion to $18.4 billion, and the
ratio of capital to assets fell from 5.8 percent to 5.7 percent. Average
return on equity was about 6.8 percent, after adjustment for payment of
interest to the Resolution Funding Corporation (REFCorp). Outstanding
advances to members reached $182 billion at September 30, 1997, a 19
percent increase over the $153 billion outstanding a year earlier.
System investments other than advances stood at $138 billion, or about
42 percent of total assets, as of September 30, 1997; compared to a year
earlier, investments have increased in dollar terms but declined as a
percentage of assets.
The Federal Home Loan Banks are required by law to pay $300 million
annually toward the cost of interest on bonds issued by the Resolution
Funding Corporation and the greater of 10 percent of net income or $100
million to the Affordable Housing Program (AHP). In addition, the
FHLBanks are required by law to provide discounted advances for targeted
housing and community investment lending through a Community Investment
Program (CIP). The need to generate income to meet the REFCorp and AHP
obligations and still provide a competitive return on members'
investment was a driving force behind the substantial increase in the
System's investment activity in recent years. The System also needs to
service a capital requirement which is based on members' asset size,
mortgage holdings, and advances, rather than the amount of risk in the
System.
In the past, the FHLBS' exposure to credit risk was virtually
nonexistent. All advances to member institutions are collateralized, and
the FHLBanks can call for additional or substitute collateral during the
life of an advance. No FHLBank has ever experienced a loss on an
advance. While the System's expanding investment activities have created
new sources of risk, the FHLBanks have taken measures to manage these
risks. Indeed, the FHLBS' investment activities also pose important
public policy issues as to the degree to which the composition of assets
on the FHLBS' balance sheet adequately reflects the mission of the
System. New pilot programs allowing the FHLBanks to underwrite mortgages
jointly with their members have been approved by the Federal Housing
Finance Board, the System's regulator. Through these programs, the FHLBS
is expanding its traditional role as a wholesale lender as a means of
promoting housing finance and community investment.
Significant developments in housing finance markets over the past two
decades, such as increasing securitization, have reduced the role of
portfolio lenders. Of about $4 trillion in residential mortgage debt
outstanding, only about 14 percent of loans are held directly by thrifts
and 18 percent are held by commercial banks. Together, Fannie Mae,
Freddie Mac, and Ginnie Mae hold or guarantee an additional 47 percent.
As a result of GSE and Federal agency sponsorship of secondary markets
and the increasing presence of private securitizers, lenders have access
to liquidity sources other than FHLBS advances. In addition, the Deposit
Insurance Funds Act of 1996 called for merging the Bank Insurance Fund
and the Savings Association Insurance Fund in 1999, contingent on
legislation to abolish the Federal thrift charter, which requires a
significant degree of specialization in housing finance. Like other
GSEs, the role and risks of the FHLBS must continue to be examined and
monitored in the face of rapidly changing financial markets and
potential changes in the structure and activities of the industry served
by the FHLBS.

Education Credit Programs and GSEs

Student Loans

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The Department of Education helps to finance student loans through two
major programs: the Federal Family Education Loan (FFEL) program and the
William D. Ford Federal Direct Student Loan (FDSL) program. Eligible
institutions of higher education may choose to participate in either
program. Loans are available to students and their parents regardless of
income. Borrowers with low family incomes are eligible for higher
interest subsidies.
In 1999, about 6 million borrowers will receive $40 billion in loans,
of which $34 billion is for new loans and the remainder to consolidate
existing loans. Loan levels have risen dramatically over the past 10
years as a result of rising educational costs, higher loan limits, and
more eligible borrowers. The upward trend is expected to continue for
the next five years.
The Federal Family Education Loan program provides loans through a
complex administrative structure involving over 4,800 lenders, 36 State
and private guaranty agencies, 50 participants in the secondary markets,
and nearly 7,000 participating schools. Under FFEL, banks and other
eligible lenders loan private capital to students and parents, guaranty
agencies insure the loans, and the Federal Government reinsures the
loans against borrower default. Lenders bear two percent of the default
risk, and the government is responsible for the remainder. The
Department also makes administrative payments to guaranty agencies and
pays interest subsidies to lenders on need-based loans while a student
is in school and during certain grace and deferment periods.
The Federal Direct Student Loan program was authorized by the Student
Loan Reform Act of 1993 to enable students and parents to obtain and
repay loans more easily than under the FFEL program. Under FDSL, the
Federal Government provides loan capital directly to schools, which then
disburse loan funds to students--greatly streamlining loan delivery for
students, parents, and schools. The program offers a variety of flexible
repayment plans including income-contingent repayment, under which
annual repayment amounts vary based on the income of the borrower and
payments can be made over 25 years.

Reform proposals. The Administration is proposing legislation to
restructure and improve the efficiency of the guaranteed loan system and
to reduce fees for students and parents. Proposed changes will save $1.8
billion over five years.
The General Accounting Office and Federal courts have acknowledged
that the Federal Government is the actual guarantor of the loans. The
State and non-profit intermediaries in FFEL act as agents of the Federal
Government. Guaranty agencies are not independent guarantors, but are in
fact administrators of the Federal guarantee. The Administration
proposes that direct Federal payments be used to pay default claims,
eliminating the need for guaranty agencies to hold Federal funds in
reserve from which to pay claims. This will make possible the return to
the Treasury of over $1 billion in reserve funds between 2000 and 2003.
To improve accountability for the Federal guarantee, the Secretary's
agreements with guaranty agencies will be revised and be subject to
periodic recertification. They will include specific, publicly released
performance information--confirmed by reliable audits--to ensure the
submission of timely, accurate, and consistent data for management. Over
the next five years, the Secretary expects to move to a system of
performance-based contracts for the administration of the guarantee,
rather than designation of intermediary agencies.
The Department of Education continues to improve program integrity and
reduce default costs. The Department will use newly automated systems to
review and analyze institutional eligibility information, and will
target its regulatory and enforcement efforts on high-risk institutions.
Over the past several years, improvements in oversight and termination
of schools with high default rates have led to the removal of
approximately 1,000 schools, of which 203 were eliminated from the
student loan programs. This has helped reduce the national student loan
cohort default rate from 10.7 percent for 1994 to 10.4 percent for 1995,
the fifth straight year of decline. This rate is the percentage of
borrowers who enter repayment in a given year and for whom a default
claim is paid before the end of the following year.
Modernizing student aid benefit delivery is one of the Department's
key priorities. To improve the management of both loan programs,
attention will be given to re-engineering information systems and
expanding electronic data exchange to improve customer service, enhance
data quality, and lower costs. The Department will support adoption of
private sector best practices to improve servicing in both programs.

Sallie Mae

The Student Loan Marketing Association is a for-profit, shareholder-
owned corporation chartered by Congress in 1972. Its purpose is to
expand funds available for student loans by providing liquidity to
lenders participating in the FFEL program. Sallie Mae purchases insured
student loans from eligible lenders and makes warehousing advances
(secured loans to lenders). It currently holds about one-third of all
outstanding guaranteed student loans. Sallie Mae also has authority to
finance academic facilities and equipment.
Pursuant to legislation enacted in 1996, Sallie Mae shareholders voted
in July 1997 to approve a plan to reorganize the corporation as a fully
private, state-chartered entity. Under the reorganization, which became
effective in August, shares of Sallie Mae common stock were converted on
a one-for-one basis into shares of a new holding company, the SLM
Holding Corporation. Sallie Mae, which retains its status as a GSE, is
now a wholly owned subsidiary of the holding corporation. According to
the authorizing legislation, the GSE must wind down and be liquidated by
September 30, 2008.

Connie Lee

The College Construction Loan Insurance Association was created by the
Higher Education Amendments of

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1986 to insure and reinsure the financing of postsecondary education
facilities. In 1988, the Department of Education helped provide initial
financing of the corporation by purchasing $19 million of newly issued
common stock. Subsequently, the corporation sold additional stock to
institutional investors. By 1996, Connie Lee had insured over $2 billion
of debt service on bonds benefitting colleges, universities, and
teaching hospitals. Legislation was enacted in 1996 that privatized
Connie Lee by repealing its legislation and requiring the Government to
sell, and Connie Lee to purchase, the corporation's federally owned
stock. This sale was completed in February 1997.

Business and Rural Development Credit Programs and GSEs

Small Business Administration

SBA has successfully expanded small businesses' access to capital,
increasing its annual loan volume 46 percent over the past five years
(from $7.4 billion in 1993 to $10.9 billion in 1997), while also
reducing agency staff by about 20 percent.
In its principal program, Section 7(a) General Business loans, SBA has
improved access to capital for the Nation's most under-served small
businesses in several ways. The Low Documentation (LowDoc) initiative
reduced the application form for 7(a) loans under $100,000 to a single
sheet. The FA$TRACK pilot allows lenders to use their own forms and
processes in exchange for a reduced Government guarantee. These
initiatives--and aggressive lending goals--have helped to increase 7(a)
loan volume to minority- and women-owned businesses from $1.8 billion
(27 percent of 7(a) loan volume) in 1993 to $3.8 billion (40 percent) in
1997.

Reliance on private sector partners. With its portfolio growing from
$20.7 billion in 1993 to $35.0 billion in 1997, SBA has relied
increasingly on its private sector partners for loan servicing and
liquidation, especially in the 7(a) program, which accounts for 75
percent of SBA business lending.
Prior to 1996, SBA's most experienced lenders had authority to
approve, service, and liquidate SBA-guaranteed loans under the Preferred
Lender Program (PLP) in exchange for a lower SBA guaranty (70 percent
compared to 80 or 90 percent for other lenders). In 1996, Congress set
the maximum guaranty for all 7(a) loans at 80 percent for loans under
$100,000, and 75 percent for most others. Congress also authorized PLP
lenders to service and liquidate their loans. In 1997, SBA issued a new
policy requiring all lenders to service and liquidate loans approved on
or after Oct. 1, 1997.
These changes in legislation, together with SBA's goal of increasing
its use of PLP lenders, have led to a large increase in lending. Loans
approved through PLP lenders grew from $3.0 billion in 1996 (39 percent
of all 7(a) loans approved) to $4.9 billion in 1997 (52 percent of
approvals) and are currently estimated at $5.5 billion in 1998.
SBA also delegates servicing and liquidation authority in its LowDoc
program. LowDoc loans accounted for 33 percent of all 7(a) loans in 1997
(down from 45 percent in 1996.)

Need for better oversight tools. Over the past four years, SBA has
significantly increased loan volume, reduced staffing, and delegated
additional authorities to its private sector partners. During this
period, commercial small business lenders have become increasingly more
sophisticated in identifying credit risk, and some of them now pursue
aggressive small business lending goals. This expands small businesses'
access to capital, but may also concentrate higher risk loans in SBA
loan guarantee programs.
These trends reinforce SBA's need to improve oversight tools. SBA
continues to struggle with antiquated financial systems. Its managers
need improved access to timely and accurate analysis of portfolio trends
and information on the performance of its private sector partners. SBA
will begin a new initiative in 1998 to improve its lender monitoring and
oversight tools.

Reform initiatives. In 1998, SBA will implement a plan to complete its
shift from a loan servicing to a lender oversight financial institution.
These initiatives include: (1) delegating remaining 7(a) servicing and
liquidation to its lending partners, including requiring them to service
and liquidate all defaulted loans, (2) selling all direct loans and
defaulted guarantees, and (3) making strategic investments in better
portfolio oversight tools. This will allow SBA to focus on its goals of
increasing access to capital, while relying on private lenders to
perform functions where they have historically been more efficient.
Portfolio oversight. To ensure that the agency meets its portfolio
management responsibilities, SBA will invest $8 million in 1998 to
improve portfolio oversight. An additional $12 million is requested for
1999. This funding will allow SBA to recruit expertise in lender
oversight, develop the necessary in-house systems to support lender
monitoring, and create a centralized corporate database. Drawing on the
experience of financial institutions such as Fannie Mae and Freddie Mac,
SBA will also establish loan servicing performance goals for its field
offices and private sector partners.
Loan asset sales. Completing its transition from loan servicing to
lender oversight, SBA will sell its portfolio of defaulted guaranteed
loans and direct loans in 1998, 1999, and 2000. The Disaster loan
portfolio will be sold in 1999 and 2000. Drawing on the experience of
Federal agencies such as the Resolution Trust Corporation and the
Department of Housing and Urban Development, and SBA's analysis of its
portfolio value stemming from its Liquidation Improvement Project, the
Administration estimates that SBA's business loan assets (face value of
approximately $2 billion) can be

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sold at a gain to the government. It is estimated that disaster loans
can be sold at their current value. These sales are also expected to
yield future operational cost savings.
Criminal background checks. In 1999, $1 million is requested for SBA
to conduct criminal background checks of loan applicants prior to the
disbursement of the loans. According to recent research conducted by
SBA's Office of Inspector General (OIG), loans made to borrowers with an
undisclosed criminal record are approximately 2.5 times more likely to
become delinquent or to default. This proposal will likely result in
future subsidy rate reductions for SBA's credit programs.
Doing more with less. These initiatives will allow SBA to continue to
``do more with less''. Through improved portfolio oversight and lender
servicing of defaulted loans, the Government's subsidy cost of SBA's
7(a) loan program is estimated to decline from 2.14 percent in 1998 to
1.39 percent in 1999, reducing the Government's contribution to the cost
of this program by nearly $83 million. Additional savings may be
achieved in the future if increasing reliance on lenders allows SBA to
further reduce agency staffing.

USDA Rural Infrastructure and Business Development Programs

USDA provides grants, loans, and loan guarantees to communities for
constructing facilities such as health-care clinics, day-care centers,
and water and wastewater systems. Direct loans are available at lower
interest rates for lower-income communities. These programs are targeted
to rural communities with fewer than 10,000 residents. Each program has
low default rates.
USDA also provides grants, direct loans, and loan guarantees to assist
rural businesses, including cooperatives, to increase employment and
diversify the rural economy. In 1999, USDA proposes to provide $1
billion in loan guarantees to rural businesses, and $50 million in
direct loans. USDA's assistance to rural businesses has grown from $100
million in 1993 to almost $800 million in 1998. The default rate for
these programs is low.
The 1996 Farm Bill enacted the ``Rural Community Assistance Program''
(RCAP). Funding for 12 USDA rural development activities was
consolidated into a ``performance partnership'' to provide more
flexibility in targeting Federal assistance to the highest-priority
needs of States. In FY 1997, Congress provided increased flexibility
through three funding ``streams,'' but blocked transfers among streams.
In FY 1998, Congress consolidated the three streams into one RCAP
account, but still did not allow transfers between funding streams. The
budget proposes $715 million for a fully flexible RCAP.

Electric and Telecommunications Loans

USDA's rural electric and telephone program makes new loans to
maintain existing infrastructure and to modernize electric and telephone
service. Historically, the Federal risk associated with the over $40
billion loan portfolio in electric and telephone loans has been small,
although several large defaults occurred in the electric program,
primarily as a result of nuclear power construction loans, and $400
million was written off in 1997. However, both the telephone and
electric industries are moving into a more competitive environment.
In the electric industry, deregulation may erode loan security and the
ability of borrowers to repay. Maintaining the goal of ``affordable,
universal service'' is also of concern to USDA. Many rural cooperatives
are by nature high cost providers of electricity, since there are fewer
subscribers per line-mile than in urban areas. USDA will propose
legislation to restructure its outstanding $30 billion portfolio of
rural electric loans. This Budget includes a legislative proposal for a
new direct Electric Loan Program with a loan level of $400 million.
Borrowers would pay an interest rate tied to the Treasury rate. The
demand for loans to rural electric co-ops will continue to rise as
borrowers replace many of the 40-year-old electric plants.
The Rural Telephone Bank (RTB) provides financing for rural
telecommunications systems. The FY 1998 Budget proposed, but did not
achieve, privatization of the RTB. The 1999 Budget proposes legislation
to charter the RTB as a Performance-Based Organization (PBO). As a PBO,
the RTB would remain under the Secretary of Agriculture through majority
Federal membership on the RTB Board of Directors. The RTB's managers
would be required to set strategic and financial goals. A key goal would
be to achieve privatization within 10 years; the RTB would be on-budget
until fully privatized.
As a PBO, the RTB would have authority to hire its own personnel, and
appoint its own CEO and CFO. It could seek waivers from government-wide
regulations, policies, and procedures. Funding for both administrative
expenses and subsidy budget authority would be provided from the RTB
liquidating account balances beginning in 1999. It could establish its
interest rates, charge administrative fees, and retain proceeds from any
negative subsidies for RTB operations. It would also have authority to
prepay its outstanding Treasury borrowing without penalty. This approach
would allow the RTB to establish a private governance structure and
demonstrate its ability to be financially self-sufficient, which should
help prepare it for privatization. A privatization feasibility study
would be required within 3 years.

Loans to Farm Operators

Farm Service Agency (FSA) direct and guaranteed operating loans
provide credit to farmers and ranchers for annual production expenses
and purchases of livestock, machinery, and equipment. Direct and
guaranteed farm ownership loans assist producers in acquiring

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their farming or ranching operations. These loans are proposed to
increase as part of USDA's Civil Rights Initiative. As a condition of
eligibility for direct loans, borrowers must have been denied private
credit at reasonable rates and terms, or they must be beginning or
socially disadvantaged farmers. Loans are provided at Treasury rates or
5 percent. High defaults and delinquencies are inherent in the direct
loan program.
FSA guaranteed farm loans are made to more creditworthy borrowers who
have access to private credit markets. Because the private loan
originators must retain 10 percent of the risk, they exercise care in
examining borrower repayment ability. As a result, guaranteed farm loans
have not experienced losses as high as those on direct loans.
The 1996 Farm Bill changed many of the servicing requirements for
delinquent borrowers. The FSA no longer can make a new loan to a
borrower who is delinquent on an existing loan. Borrowers who have
previously received a FSA loan write-down or write-off are no longer
eligible for additional loans. The 1999 Budget proposes to allow farmers
to become eligible for assistance after 7 years, which is consistent
with commercial terms. Property acquired through foreclosure on direct
loans must now be sold at auction within 105 days of acquisition, and
leasing of inventory property is no longer permitted except to beginning
farmers. Prior to these changes, acquired property remained in inventory
on average for five years before the FSA could dispose of it.

The Farm Credit System and Farmer Mac

The Farm Credit System (FCS) and the Federal Agricultural Mortgage
Corporation (Farmer Mac) are GSEs that enhance credit availability for
the agricultural sector. The FCS is a direct lender, financing its loans
largely through bond sales in the national credit markets, while Farmer
Mac facilitates a secondary market for agricultural loans. Both GSEs
face the risk of concentration in certain agricultural commodities. The
Farm Credit Banks are also geographically limited, often to areas
dependent on one or a few commodities. The downturn in the agricultural
economy in the 1980s led the FCS to the brink of insolvency. Legislation
in 1987 bailed out the FCS and created Farmer Mac.
The Nation's agricultural sector and its lenders are now on much
firmer ground. Strong farm income has enabled borrowers to repay debt,
and lenders to augment their capital. Farmland prices have regained most
of their previous levels and continue to increase. Interest rates and
inflationary expectations are significantly lower. Credit usage by
farmers and credit standards of lenders are more conservative.
Another sign of the increasing health of agricultural finance is the
greater share of credit provided by commercial banks. From 1986 to 1996,
commercial banks' share of all farm debt increased from 24 percent to 39
percent, while the share for FCS declined from 29 percent to 25 percent
and for USDA from 12 percent to 6 percent. In 1995, however, FCS's share
of farm operating loans began to creep up--a trend that continued in
1996 and 1997.

The Farm Credit System

The Farm Credit System earned income every year in the past decade,
including over $1 billion in each of the last four years. Nonperforming
loans have been reduced to 1.5 percent of the portfolio. Loan volume has
been gradually increasing since 1992, although the $63.0 billion in
September 1997 is far below the high of over $80 billion in the early
1980s. Increases in loan volume, declines in the cost of funds, and
increases in capital have widened the FCS's net interest margin from
less than one percent in 1987 to 2.99 for 1996.
Improved asset condition and income enabled FCS to post record capital
levels; by September 30, 1997, capital stood at $11.4 billion--half
again larger than five years ago, primarily as a result of retained
earnings. Included in this capital are investments set aside to repay
about $600 million of the $1.3 billion of Federal assistance provided
through the Financial Assistance Corporation (FAC) due beginning in
2003. The System has adopted an annual repayment mechanism to cover the
remainder. The FCS has retired all of its high-coupon long-term debt,
moved to marginal cost loan pricing, and adopted asset liability
management practices designed to reduce its interest rate risk.
Operating risk is also being reduced. Substantial consolidation has
occurred in the structure of the FCS. In January 1988, there were 12
districts with 36 banks plus 376 associations; by October 1997, there
were only 6 districts, 8 banks and 206 associations. System staff
declined by 14 percent over 1990-1995. Operating expenses as a percent
of loans outstanding have begun to decline.
The 1987 Act established the FCS Insurance Corporation (FCSIC) to
insure timely payment of interest and principal on FCS obligations.
Insurance fund balances, largely comprised of premiums from FCS
institutions, supplements the System's capital, the joint and several
liability of all System banks for FCS obligations, and the Farm Credit
Administration's enforcement authorities. On September 30, 1997, the
Insurance Fund's assets were $1.3 billion, and are estimated to attain
the statutorially required level of two percent of outstanding debt in
1998.
Improvement in the FCS's financial condition is also reflected in the
evaluations of the Farm Credit Administration (FCA), its Federal
regulator. The FCA rates each of the System's institutions for capital,
asset quality, management, earnings, and liquidity (CAMEL). At the end
of 1990, 94 institutions carried the best ``CAMEL'' ratings of ``1'' or
``2,'' and 40 were rated in the problem range of ``4'' or ``5.'' By
September 1997, in contrast, 203 institutions were given the top
ratings, only 9 received the mid-range rating of ``3,'' and one
institution was rated ``4.'' Enforcement actions to correct illegal or
unsafe operations were applied to 77 institutions, with 80 percent of
the FCS's assets, in 1991,

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but only 5 institutions, with 3.9 percent of the FCS's assets, in 1997.
Loans to farmers and other eligible producers comprise 73 percent of
the System's portfolio. Lending secured by farm land has been stagnant
since 1990, but farm operating loans have increased by 41 percent since
1992, with most of the gain since 1994. Loans to finance processing,
marketing, credit cooperatives, and rural utilities cooperatives
increased the cooperatives' share of FCS's portfolio to almost 27
percent at year-end 1996.
During 1997, the FCA published regulations that expand the loan-making
authority of Farm Credit System banks. Previously, System banks could
only lend to businesses that provided custom services performed on the
customer's farm. Under the revised rules, farm- related businesses are
eligible for full-firm financing if more than 50 percent of their income
is derived from farm-related services. Furthermore, if less than 50
percent of the firm's income is farm-service related, then at least the
farm-related service portion of the firm's business is eligible for
financing. The rule also permits Farm Credit banks to finance non-farm,
single-family, moderately priced homes for residents of rural areas
(population does not exceed 2,500 in a village or town).
The Farm Credit System is stronger now than it has been in years. But
primarily due to its concentration in agriculture, it is exposed to
risks arising from natural disasters, changes in Government policies
toward agriculture, and to structural changes in the agricultural and
commercial banking sectors. During 1995 and 1996, FCS's loan growth rate
accelerated, in part due to more aggressive lending as its capital
strengthened. This coincided with a surge in agricultural exports and a
rise in crop prices, which have propelled land values upward in regions
with export concentration. The volatility of these forces will be a risk
factor for future repayment and collateral capacity.

Farmer Mac

Farmer Mac was established in 1987 to create and oversee a secondary
market for, and to guarantee securities based on, farm real estate and
rural housing loans. Since the 1987 Act, Farmer Mac has been authorized
to issue its own debt securities, and to purchase and securitize the
guaranteed portions of farm program, rural business, and community
development loans guaranteed by the USDA (``Farmer Mac II''). The Farm
Credit System Reform Act of 1996 transformed Farmer Mac from just a
guarantor of securities formed from loan pools into a direct purchaser
of mortgages in order to form pools to securitize.
The 1996 Act was passed in response to a steady erosion of Farmer
Mac's capital base. Revenues had not met expectations and showed no
prospect of improvement. The new powers increase commercial banks'
incentives to participate in Farmer Mac. However, these powers also
subject the Corporation to more credit risk. As a direct purchaser of
loans with no required subordination, Farmer Mac will be exposed to
losses, and must estimate them accurately to set fees and decide the
appropriate level of capital reserves.
The 1996 Act gave Farmer Mac three additional years to reach its
capital requirements, and 2 years to raise capital to $25 million. In
December 1996, Farmer Mac sold 1.4 million shares of Class C common
stock, generating $32 million of new equity. In November 1997, Farmer
Mac completed its second public offering, selling 400,000 shares of
Class C common stock and raising $23 million of new equity. Farmer Mac's
year-end 1997 capital is estimated to be about $75 million--three times
greater than the 1996 statutory capital requirement well ahead of the
deadline.
Farmer Mac has also taken steps to minimize losses on securitized
loans under the new authorities. These steps include: (1) a higher
annual guarantee fee of 50 basis points on securitized loans, (2) a loan
loss reserve adequate to cover anticipated losses, and (3) loan
underwriting standards that include a maximum loan-to-value ratio of 70
percent for loans up to $2.3 million and 60 percent for loans between
$2.3 million and $3.3 million.

International Credit Programs

Seven Federal agencies, the Departments of Agriculture, Defense,
State, and Treasury and the Agency for International Development, the
Export-Import Bank, and the Overseas Private Investment Corporation,
provide direct loans, loan guarantees, and insurance to a variety of
foreign private and sovereign borrowers. At the end of 1997, the amount
outstanding was about $130 billion.
Through the Trade Promotion Coordinating Committee (TPCC), agencies
providing export credit have developed a unified National Export
Strategy, and they are working together to make the delivery of trade
promotion support more effective and convenient for U.S. exporters.

Leveling the playing field. The Federal Government provides credit to
U.S. exporters to offset the subsidies that foreign governments, largely
in Europe and Japan, provide their exporters usually through export
credit agencies (ECAs). Although the Arrangement on Official Export
Credits of the Organization for Economic Cooperation and Development
(OECD) has significantly constrained direct interest rate subsidies and
tied-aid grants, foreign ECAs continue to provide implicit subsidies (by
charging interest rates or fees that do not fully compensate for risk).
The Export-Import Bank (Eximbank) attempts to ``level the playing
field'' and to fill gaps in the availability of private export credit.
Compared to the other major ECAs, Eximbank provides the most
unrestricted financing, and provides this financing in almost twice as
many markets as its nearest competitor.
USDA's GSM-102 and 103 programs guarantee credit extended by private
U.S. exporters and U.S. or foreign financial institutions to expand
agricultural exports. The GSM programs are targeted to countries where
government guarantees are needed to counter competi

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tion from countries that offer credit through ECAs or commodity
marketing boards.
The increase in world trade and the globalization of capital markets
have made ECAs somewhat less important in recent years. During 1993-95,
ECA credit from G-7 countries averaged $70 billion annually. In
comparison, private credit to developing countries was $230 billion in
1996.

Stabilizing international financial markets. In today's global
economy, the health and prosperity of the American economy depend
importantly on the stability of the global financial system and the
economic health of our major trading partners. The United States has
several ways in which it can help to stabilize world financial markets.
It can provide resources on a multilateral basis through the IMF
(discussed in other sections of the President's Budget), or through a
bilateral loan provided by the Exchange Stabilization Fund (ESF).
The ESF provides ``bridge loans'' to other countries in times of
short-term liquidity problems and financial crises. In the past,
``bridge loans'' from ESF have usually provided dollars to a country
over the short period before the first disbursement under an IMF loan. A
$12.5 billion ``bridge loan'' of ESF was provided to Mexico during its
crisis in 1995. This loan was essential in helping to stabilize Mexico,
as well as the global financial markets. Mexico paid back its loan ahead
of schedule in 1997, and the loan didn't cost the taxpayers any money.
Use of the ESF is also being considered in response to the crises in
some Asian economies. In particular, an ESF agreement with South Korea
is near completion, as part of a broader undertaking by 13 countries to
provide ``second line'' support to that country. This ESF facility will
carry interest rates that will result in zero subsidy cost for the
United States as defined under credit reform.

Helping economies in transition. The dramatic transformation that has
been underway in Eastern and Central Europe in recent years presents
U.S. businesses with unprecedented opportunities matched by
unprecedented risks. Since 1991, Eximbank has provided financing for
exports to Russia and other New Independent States, as well as countries
in Central Europe, to increase U.S. exports and assist the region's
economic transformation. Eximbank provided $3.2 billion in financing
from FY 1995 through 1997, and expects to provide $1.5 billion in
additional credits each year for exports to the region in FYs 1998 and
1999.
For example:
In July 1993, Eximbank signed the Oil and Gas Framework
Agreement (OGFA) under which it may provide $2 billion or more
in financial assistance for purchases of U.S. equipment and
services to revitalize Russia's energy sector. Nine
transactions for $971 million have been authorized under this
agreement.
In January 1996, Eximbank signed a Memorandum of
Understanding with the Russian state timber industry
governmental entity, helping to open the way for the export of
U.S. goods and services to modernize Russia's timber and
forest products industry.
In November 1996, Eximbank initiated a Russian commercial
bank program to expand Eximbank financing for the private
sector. Eximbank currently accepts commercial bank guarantees
from Russia, Kazakhstan, Lithuania, Latvia, and Estonia, and
expects to accept commercial bank guarantees from other NIS
countries and most Central European countries as their banking
sectors develop.
Through its Urban and Environmental Credit Program, USAID has provided
loan guarantees to Poland, the Czech Republic, and Hungary. These
guarantees, accompanied by technical assistance, will assist in
developing financial markets for mortgages, municipal finance, and
infrastructure finance.

Using credit to promote sustainable development. Credit has become an
increasingly important tool in U.S. bilateral assistance to promote
sustainable development. USAID received funding through transfer
authority in the FY 1998 budget for a new credit program, the
Development Credit Authority (DCA). The DCA will provide loan guarantees
in cases where credit is the most effective mechanism to achieve
sustainable development, such as more effective financial markets or
reductions in global climate change-causing emissions. Funding for this
program has been doubled in the FY 1999 Budget. OPIC investment
guarantees also support development by promoting U.S. direct investment
in developing countries. This can transfer skills and technology, and
create more efficient financial markets.
International credit management initiative. The Administration
proposes as part of the Director's management agenda to improve credit
management at USAID, Eximbank, OPIC, DSAA, DOD/DELG, and USDA. This will
include improvements to loan servicing, portfolio tracking, and credit
budgeting policies and procedures. More accurate financial records,
using consistent accounting standards, will improve repayment practices
and collections.
International lending cost estimates. Since 1992, the President's
budget requests have used the same assumptions about default risk in
international lending. These assumptions were obsolete given the changes
in financial markets over the last six years. In addition, due to the
scarcity of emerging market debt information in 1992, these assumptions
were based on domestic corporate bond risk spreads, rather than
international bond market data.
The FY 1999 Budget makes new assumptions about default risk, as
defined by the risk premia set for each country-risk category in the
International Country Risk Assessment System (ICRAS). The new premia
reflect

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the risk spreads observed on international debt market instruments from
1992 to 1997 for a variety of risk categories. These new cost estimates
will continue to be updated and refined over time, given agencies'
default experience and additional observation of emerging market debt
data.
The ``subsidy cost'' of international credit programs is the
government's contribution to an agency's long-term expense from
extending a foreign credit, excluding administrative costs. Agency
subsidy rates depend not only on the international lending risks
measured by the ICRAS risk premia, but also on what fees or subsidies
(such as below-market interest rates) the agencies offer with their
credits. Most international credit agencies charge borrowers fees that
substantially offset the cost due to credit risk. The FY 1999 Budget
Credit Supplement shows lending terms and subsidy rates for each
international credit agency.

III. INSURANCE PROGRAMS

Deposit Insurance

Federal deposit insurance was begun in the 1930s to provide coverage
against depositor losses from failures of insured institutions. Deposit
insurance also protects the Nation against widespread disruption in
financial markets by reducing the probability that the failure of one
financial institution will lead to a cascade of other failures. The
Federal Deposit Insurance Corporation (FDIC) insures the deposits of
banks and thrifts through separate insurance funds, the Bank Insurance
Fund (BIF) and the Savings Association Insurance Fund (SAIF). Deposits
of credit unions are insured through the National Credit Union
Administration (NCUA).
Deposits are currently insured up to $100,000 per account. The FDIC
insures about $2.7 trillion at over 9,200 commercial banks and about
1,800 savings institutions. The NCUA insures about 11,300 credit unions
with $290 billion in insured deposits.

Current Industry and Insurance Fund Conditions. The 1980s and early
1990s were a turbulent period for the bank and thrift industries, with
over 1,400 bank failures and 1,100 thrift failures. The Federal
Government responded with the Financial Institutions Reform, Recovery
and Enforcement Act (FIRREA) of 1989 and the Federal Deposit Insurance
Corporation Improvement Act (FDICIA) of 1991. These reforms, combined
with more favorable economic conditions, helped to restore the health of
depository institutions and the deposit insurance system. The FDIC
currently classifies only 98 institutions with $7 billion in assets as
``problem'' institutions, compared to over 1,000 institutions with
almost $600 billion in assets just five years ago.
No commercial banks or thifts failed during 1997--a record year for
BIF and SAIF. Eight credit unions with $19 million in assets failed
during 1997. Although depository institutions and their Federal
insurance funds are currently in good financial condition, an economic
downturn could put pressure on the deposit insurance funds.
Banks have achieved very strong levels of earnings in the last few
years, which enabled the industry to recapitalize BIF. BIF reached its
statutorily designated reserve ratio of 1.25 percent in mid-1995. As a
result, the FDIC continues to maintain deposit insurance premiums for
banks in a range from zero for the healthiest banks to 27 cents per $100
of deposits for the riskiest banks. Currently, 95 percent of commercial
banks pay no deposit insurance premiums.
The earnings of the thrift industry also have significantly improved
in the last few years. The industry remains in strong financial
condition despite enactment of the Deposit Insurance Funds Act of 1996
(DIFA) which imposed a $4.5 billion special assessment to bring SAIF's
reserves up to 1.25 percent of insured deposits. As a result, most
thrifts paid no deposit insurance premiums in 1997.
In addition, the DIFA merges the BIF and SAIF on January 1, 1999,
provided that no savings associations exist at that time. This makes the
merger conditional on legislation this year to combine the bank and
thrift charters.
The National Credit Union Share Insurance Fund (NCUSIF) also remains
strong with assets of $3.7 billion. Each insured credit union is
required to deposit and maintain in the fund 1 percent of its member
share accounts. In 1997, the income generated from the 1 percent deposit
eliminated the need to assess an additional insurance premium, and after
the end of the fiscal year, the NCUA Board approved a dividend to reduce
the Fund's equity ratio to the statutory ceiling of 1.30 percent. This
was the third consecutive year that the Fund paid a dividend to
federally insured credit unions. The Board also waived premiums for
1998.

Other Legislative and Regulatory Developments. Recent legislation and
regulatory changes highlight the importance of financial modernization
in a rapidly changing financial market. Depository institutions have
faced increasing competition from non-bank providers of financial
services in recent years. Legislative and regulatory changes that alter
depository institution charters and/or expand the range of permissible
activities for bank subsidiaries, holding companies, or affiliates will
contribute toward the increasing integration and efficiency of the
financial services industry.
In May 1997, the Administration presented its recommendations for
modernizing the financial services industry and developing a common
depository institution charter to Congress. The Administration's
proposal removes Depression-era barriers to competition, preserves the
safety and soundness of our nation's depository institutions and
protects consumer rights. The proposal promotes competition and
efficiency within the indus

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try, which will foster the creation of new products and services and
benefit consumers.
In October 1997 the Supreme Court heard arguments on two related
cases: the National Credit Union Administration v. First National Bank
and the AT&T Family Federal Credit Union v. First National Bank. At
issue is the question of how broadly a credit union may interpret its
field of membership. The Supreme Court decision in these cases, which is
expected during the current term, could have a significant impact on the
growth rate and total size of credit unions.

Pension Guarantees

The Pension Benefit Guaranty Corporation (PBGC) insures most defined-
benefit pension plans sponsored by private employers. PBGC pays the
benefits guaranteed by law when a company with an underfunded pension
plan becomes insolvent. PBGC's exposure to claims relates to the
underfunding of pension plans, that is, to any amount by which expected
future benefits exceed plan assets. In the near term, its loss exposure
results from financially distressed firms with underfunded plans. In the
longer term, additional loss exposure results from firms which are
currently healthy but become distressed, and from changes in the funding
of plans and their investment results. Two-thirds of all plans are
sufficiently funded, and much of the underfunding is in plans sponsored
by financially healthy firms. Underfunding is spread across all
industries, with a heavier concentration in the steel, automobile, and
transportation equipment industries.
The number of plans insured by PBGC has been declining as small
companies with defined benefit plans terminate them and shift to defined
contribution plans. At the same time, the number of workers whose
pensions are insured by PBGC has increased. In particular, the number of
defined benefit pension plans with 1,000 or more participants has
increased to 4,400 compared to 3,600 in 1980.
During the past five years, PBGC has been working to prevent and
mitigate losses. Under the Early Warning Program, it has negotiated more
than 50 major settlements providing more than $15 billion in new pension
contributions from companies and improving pension security for 1.6
million people. In 1995, the Early Warning Program was one of the first
six Federal programs to receive an award from the Ford Foundation and
Harvard's Kennedy School of Government. The program also received the
National Performance Review's Hammer Award. In 1996, PBGC expanded the
Early Warning Program to include more companies. In 1997, PBGC posted
the second year with a positive financial position in its 23-year
history.
The Retirement Protection Act of 1994 (RPA) improved PBGC's early
intervention capability, was an important factor in achieving a number
of the settlements, and is beginning to strengthen PBGC's financial
condition. The RPA requires companies to increase their contributions to
underfunded plans over 10 to 15 years, and relates companies' premiums
more fairly to PBGC's exposure by increasing the insurance premiums for
those pension plans that are the most underfunded. RPA requires
privately held companies with seriously underfunded plans to give PBGC
advance notice of any transactions that potentially are harmful to their
plans. When this ``Early Warning Program'' shows benefits to pensioners
to be seriously at risk, PBGC begins negotiating funding and other
arrangements in order to forestall its taking over the plan.
PBGC fared well in 1997. There were no major plan terminations, and
investment performance was strong. Premium revenues dropped somewhat,
largely reflecting lower underfunding-related premiums as pension
funding improved. Premiums were also reduced by an RPA provision that
became effective July 1, 1997 which increased the interest rate used to
calculate underfunding-related premiums.
The multi-employer program guarantees pension benefits of certain
unionized plans offered by several employers in an industry. The program
continues to be financially strong. In May 1996, the Administration
proposed to increase the maximum guarantee level on pension benefits
paid to retirees for the first time since 1980. It would be increased
from $5,580 to $12,870 per year for retirees with 30 years of service.
Although it passed the Senate, this provision was not enacted and is
being proposed again.
This Budget proposes a new and simplified defined-benefit pension plan
for small businesses, featuring accounts for individual participants.
Unlike defined-contribution plans, the new plan guarantees a known level
of annual income throughout workers' retirement years. The new plan is
designed to be fully funded virtually constantly, but would also be
protected by PBGC.

Disaster Insurance

Flood Insurance

The Federal Government provides flood insurance through the National
Flood Insurance Program (NFIP) administered by the Federal Emergency
Management Agency (FEMA). This insurance is available to property owners
living in communities that have adopted and enforced appropriate
floodplain management measures. Coverage is limited to buildings and
their contents. Policies for structures built before a community joined
the flood insurance program are subsidized by law, while policies for
structures built after a community joined the NFIP are actuarially
rated.
When the Federal flood insurance program was created in the early
1970s, private insurance companies, with little information on flood
risks by geographic area, had deemed the risk of floods uninsurable. In
response, the NFIP provided insurance coverage, required building
standards and other mitigation efforts to reduce losses, and undertook
flood hazard mapping to quantify the geographic risk of flooding. The
program has substantially met these goals.
Flood insurance premium revenue grew by approximately 45 percent from
1994 to 1997, exceeding the

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goal of 20 percent set three years ago. The NFIP's ``Cover America''
initiative, which is a major marketing and advertising campaign, should
continue to increase awareness of flood insurance and educate people
about the risks of floods. FEMA is using three strategies to increase
the number of flood insurance policies in force: lender compliance,
program simplification, and expanded marketing.
The NFIP's Community Rating System (CRS) now allows policyholders in
over 900 communities to receive discounts of at least 5 percent on their
premiums by undertaking activities which will reduce flood losses,
facilitate accurate insurance rating, and promote public awareness of
flood insurance and flood risk.
In 1997, the NFIP expanded mitigation insurance as authorized by the
National Flood Insurance Reform Act of 1994. Mandatory Increased Cost of
Construction (ICC) coverage, which took effect May 1, 1997, allows
repetitively flooded or substantially damaged structures to be rebuilt
in accordance with existing floodplain management requirements. This
will reduce the amount and cost of future flood damage and allow those
structures to be actuarially rated.
In 1998 and 1999, FEMA will continue efforts to reduce future flood
damage by educating Federal regulators about mandatory flood insurance
requirements for federally backed home and business loans on property
located in flood hazard areas; simplifying policy language; using
mitigation insurance to allow flood victims to rebuild to code, thereby
reducing future flood damage costs; and using flood insurance premium
adjustments to encourage community and State mitigation activities
beyond those required by the NFIP.

Crop Insurance

Subsidized Federal crop insurance administered by USDA assists farmers
in managing catastrophic yield shortfalls due to bad weather or other
natural disasters. Private companies are unwilling to offer multi-peril
crop insurance because losses tend to be correlated across geographic
areas, and the companies are therefore exposed to large losses. For
example, a drought will affect many farms at the same time. Damage from
hail, on the other hand, tends to be more localized, and a private
market for hail insurance has existed for over 100 years.
The USDA crop insurance program is a cooperative effort between the
Federal Government and the private insurance industry. Private insurance
companies sell and adjust crop insurance policies. The Federal
Government reimburses private companies for the administrative expenses
associated with extending crop insurance and reinsures the private
companies for excess insurance losses on all policies. The Federal
Government also subsidizes premiums for farmers.
A major program reform was enacted in 1994 to address a growing
problem caused by the repeated provision of Federal ad hoc agricultural
disaster payments. Participation in the crop insurance program had been
kept low by the availability of post-event disaster aid to farmers from
the Federal Government. Because disaster payments were no-cost grants,
farmers had little incentive to purchase Federal crop insurance. The
1994 reform repealed agricultural disaster payment authorities and
substituted a ``catastrophic'' insurance policy that indemnifies farmers
at a rate roughly equal to the previous disaster payments. The
catastrophic policy is free to farmers except for an administrative fee.
Private companies sell and adjust the catastrophic portion of the crop
insurance program, and also provide higher levels of coverage (which are
also federally subsidized.) The reform was implemented in crop year
1995, and no ad hoc crop disaster assistance bill has been enacted since
1994. In 1995, 82 percent of eligible acres participated in the
program--140 percent over 1994. However, the 1996 Farm Bill eliminated
the requirement that farmers participating in USDA's commodity programs
carry crop insurance, and participation dropped in 1997 to an estimated
61 percent of eligible acres.
The 1996 Farm Bill significantly changed the commodity programs and
associated price and income support for farmers. The President's signing
statement for the Farm Bill stated: ``The fixed payments in the bill do
not adjust to changes in market conditions, which would leave farmers,
and the rural communities in which they live, vulnerable to reductions
in crop prices or yields. I am firmly committed to submitting
legislation and working with the Congress next year to strengthen the
farm safety net.'' Accordingly, the 1998 Budget proposed to expand the
crop insurance program to include ``revenue insurance'' coverage.
Revenue insurance will protect farmers against lost revenue caused by
low prices, low yields, or any combination of the two.
In order to ensure that sufficient funding is available to provide
agent sales commissions, the budget proposes to shift funding for this
activity from discretionary spending back to mandatory spending through
the Federal Crop Insurance Corporation Fund. The Administration is
developing a combination of program changes to reduce program cost that
would take effect in 2000. These include placing a $100,000 limit on the
indemnity producers can receive from the premium-free catastrophic
insurance policy; reducing the reimbursement rate paid to the private
insurance companies from the current 27 percent of premium to 25
percent; slightly reducing the subsidy the Federal Government pays for
insurance on changes from the expected market price; and lowering the
loss ratio that premiums are based on to 1.060 from the current 1.075.

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Improving Debt Collection

The timing and the amount of recoveries of defaulted loans are key elements
in the cost of loan programs. Recoveries and rehabilitation of delinquent
debt are important measures of overall program performance.

At the end of 1997, total receivables of the Federal Government were $263
billion or an increase of 4 percent from 1996. Of that amount, $52 billion
were delinquent or an increase of 1 percent from 1996. Total delinquencies
over 180 days delinquent increased by over $1 billion from $46 billion in
1996 to $47 billion in 1997. The amount of non-performing accounts
written-off increased from $5 billion in 1996 to $ 6 billion in 1997.

At each stage of the Government's credit and debt management process, there
are specific tools that can be used to prevent default, convert delinquent
accounts into repayment, and, if appropriate, enforce a claim through the
judicial process. The chart below shows the historical growth in terms of
collections through private collection agencies, salary offset, tax refund
offset, administrative offset and litigation. In the last ten years, the
use of these tools has resulted in the collection of over $17 billion.

Total collections on outstanding receivables increased from $95 billion to
$102 billion from 1996 to 1997. As Treasury and the agencies implement the
Debt Collection Improvement Act of 1996,
collections will increase through the use of such tools as administrative
garnishment and loan asset sales. In addition, initiatives such as rescreening
for prior delinquency will prevent unnecessary future defaults.

------------------------------------------------------------------------

[[Page 185]]

------------------------------------------------------------------------

[[Page 186]]

------------------------------------------------------------------------

Table 8-1. FACE VALUE AND ESTIMATED COST OF FEDERAL AND FEDERALLY ASSISTED CREDIT PROGRAMS
(in billions of dollars)
----------------------------------------------------------------------------------------------------------------
1998 Budget Current
Estim. Estimates
Face Value Present Face Value Present
Program 1996 Value of 1997 Value of
Future Costs Future Costs
\1\ \1\
----------------------------------------------------------------------------------------------------------------
Direct Loans: \2\
Farm Service Agency (excl.CCC), Rural Development,
Rural Housing........................................ 47 10-16 47 10-16
Rural Electrification Admin. and Rural Telephone Bank. 35 3-6 34 3-6
Agency for International Development.................. 13 1-2 13 1-2
Public Law 480........................................ 12 0-1 11 0-1
Disaster Assistance................................... 9 8-12 10 7-11
Foreign Military Financing............................ 8 0-1 8 0-1
Export-Import Bank.................................... 8 2-4 10 3-4
Federal Direct Student Loan Program................... 12 6-9 21 8-12
Small Business........................................ 2 0-1 1 0-1
Other Direct.......................................... 19 1-2 26 2-4
-------------------------------------------------------
Total Direct Loans.................................. 165 31-54 181 34-58
-------------------------------------------------------
Guaranteed Loans: \2\
FHA Mutual Mortgage Insurance Fund.................... 364 (12)-0 361 (10)-0
VA Mortgage........................................... 155 3-5 170 5-7
FHA General/Special Risk Insurance Fund............... 91 7-10 88 6-9
Federal Family Education Loan Program................. 102 5-10 99 5-10
Small Business........................................ 31 2-4 34 2-4
Export-Import Bank.................................... 18 4-6 22 4-7
Farm Service Agency and Rural Housing................. 11 1-2 12 1-2
CCC Export Credits.................................... 5 0-1 5 0-1
Other Guaranteed...................................... 28 2-4 31 2-5
-------------------------------------------------------
Total Guaranteed Loans................................ 805 12-42 822 15-45
-------------------------------------------------------
Total Federal Credit.................................. 970 43-96 1,003 49-103
-------------------------------------------------------
Government-Sponsored Enterprises: \3\
Fannie Mae............................................ 812 ............ 862 ............
Freddie Mac........................................... 601 ............ 627 ............
Federal Home Loan Banks \4\........................... 153 ............ 182 ............
Sallie Mae \5\........................................ ............ ............ ............ ............
Farm Credit System.................................... 57 ............ 59 ............
-------------------------------------------------------
Total Government-Sponsored Enterprises................ 1,623 ............ 1,730 ............
=======================================================
Total............................................. 2,593 43-96 2,733 49-103
----------------------------------------------------------------------------------------------------------------
\1\ Direct loan future costs are program account outlays projected over a period comparable to loan maturity
plus the embedded loss from outstanding loans. Loan guarantee costs are program account outlays plus
liquidating account outlays (and outlays from defaulted guaranteed loans that result in loans receivable)
projected over a period comparable to loan maturity.

\2\ Excludes loans and guarantees by deposit insurance agencies and programs not included under credit reform,
such as CCC farm supports. Defaulted guaranteed loans which become loans receivable are accounted for in
guaranteed loans.

\3\ Net of purchases of federally guaranteed loans.

\4\ The lending by the Federal Home Loans Banks measures their advances to member thrift and other financial
institutions. In addition, their investment in private financial instruments at the end of 1997 was $136
billion.

\5\ The face value and Federal costs of Federal Family Education Loans in Sallie Mae's portfolio are included in
the account of that program under guaranteed loans above.

[[Page 187]]

Table 8-2. REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED, 1992--1997 \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Program 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------------------------
Direct Loans:
Agriculture credit insurance fund...................... -72 28 2 -31 .........
Agricultural conservation.............................. -1 ......... ......... ......... .........
Rural electrification and telephone loans.............. * 61 -37 84 .........
Rural telephone bank................................... 1 ......... ......... 10 .........
Rural water and waste disposal......................... ......... ......... ......... -12 .........
Rural housing insurance fund........................... 2 152 46 -73 .........
Rural community facility............................... ......... ......... ......... -2 .........
Rural economic development loans....................... ......... ......... ......... 1 .........
Rural development loan program......................... ......... 1 ......... ......... .........
Rural community advancement program.................... ......... ......... ......... 22 .........
P.L. 480 Title I loan program.......................... ......... ......... -37 -1 .........
Federal direct student loans........................... ......... ......... 3 -83 123
Bureau of Reclamation direct loans..................... ......... ......... ......... ......... 2
Veterans housing benefit program fund.................. -39 30 76 -72 465
Foreign military financing............................. ......... ......... ......... 13 4
SBA--disaster loans.................................... ......... ......... ......... ......... -354
Export-Import Bank direct loans........................ -28 -16 37 ......... .........

Loan Guarantees:
Agriculture credit insurance fund...................... 5 14 12 -51 .........
Commodity Credit Corporation export guarantees......... 3 103 -426 343 .........
Rural development insurance fund....................... 49 ......... ......... -3 .........
Rural housing insurance fund........................... 2 10 7 -10 .........
Rural business and industry............................ ......... ......... ......... -6 .........
Rural community facility guarantees.................... ......... ......... ......... -2 .........
Rural community advancement program.................... ......... ......... ......... -2 .........
P.L. 480 Title I Food for Progress credits............. ......... 84 -38 ......... .........
Federal family education (formerly GSL):
Technical reestimate................................. 97 421 60 ......... .........
Volume reestimate.................................... ......... ......... 535 99 .........
FHA-Mutual mortgage.................................... ......... ......... ......... -340 .........
FHA-General and special risk........................... -175 ......... -110 -25 .........
BIA-Indian guaranteed loans............................ ......... ......... ......... 31 .........
Veterans housing benefit fund guarantees:
Technical reestimate................................. -447 167 334 -706 38
AID housing guaranty................................... -2 -1 -7 ......... .........
SBA-Business loans..................................... ......... ......... 257 -16 -176
Export-Import Bank guarantees.......................... -11 -59 13 ......... .........
------------------------------------------------------
Total................................................ -616 995 727 -832 102
----------------------------------------------------------------------------------------------------------------
* $500 thousand or less.
\1\ Additional information on credit reform subsidy rates is contained in the Federal Credit Supplement to the
budget for 1999.
\2\ Volume reestimates in mandatory programs represent a change in volume of loans disbursed in the prior years.
These estimates are the result of guarantee programs where data from loan issuers on actual disbursements of
loans are not received until after the close of the fiscal year.

[[Page 188]]

Table 8-3. ESTIMATED 1999 SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS FOR DIRECT LOANS \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
1999 Weighted
average 1999 1999
Agency and Program subsidy as a Subsidy Estimated
percent of budget loan levels
disbursements authority
----------------------------------------------------------------------------------------------------------------
Agriculture:
Agricultural credit insurance program................................ 8.5 56 666
Rural community advancement program.................................. 14.43 153 1,014
Rural electrification and telephone.................................. 2.27 36 1,475
Rural telephone bank................................................. 2.65 10 175
Distance learning and medical link program........................... 0.12 * 150
Rural housing insurance fund......................................... 16.45 197 1,197
Rural development loan fund.......................................... 50.35 18 35
Rural economic development loans..................................... 25.22 4 15
P.L. 480 direct loans................................................ 86.79 89 102

Commerce:
Fisheries finance loans.............................................. 1 * 24

Defense:
Family housing improvement fund...................................... 60 ........... ...........

Education:
Federal direct student loans......................................... 3.42 525 13,857

Housing and Urban Development:
FHA-mutual mortgage insurance program................................ ............. ........... 50
FHA-general and special risk program................................. ............. ........... 50

Interior:
Bureau of Reclamation loan program................................... 31.58 12 38

State Department:
Repatriation loans................................................... 80 1 1

Transportation:
Minority business resource center program............................ 11 2 14

Treasury:
Community development financial institutions fund.................... 40.65 20 49

Veterans Affairs:
Veterans housing benefit program fund................................ 19.55 56 203
Miscellaneous veterans programs fund................................. 6.73 1 11

International Assistance Programs:
Foreign military financing loan program.............................. 11.97 20 167
Overseas Private Investment Corporation.............................. 2 4 200

Small Business Administration:
Disaster loans....................................................... 5.93 53 901
Business loans....................................................... 9.54 6 60

Other Independent Agencies:
Export-Import Bank................................................... 3.22 45 1,396

Federal Emergency Management Agency:
Disaster assistance................................................ 5.42 2 25
----------------------------------------
Total.............................................................. 5.99 1,310 21,875
----------------------------------------------------------------------------------------------------------------
* $500 thousand or less.
\1\ Additional information on credit reform subsidy rates is contained in the Federal Credit Supplement to the
budget for 1999.

[[Page 189]]

Table 8-4. ESTIMATED 1999 SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS FOR LOAN GUARANTEES \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
1999 Weighted
average 1999 1999
Agency and Program subsidy as a Subsidy Estimated
percent of budget loan levels
disbursements authority
----------------------------------------------------------------------------------------------------------------
Agriculture:
Agricultural credit insurance fund................................... 1.89 44 2,325
Commodity Credit Corporation export loans............................ 5.48 253 4,615
Rural community advancement program.................................. 0.55 10 1,285
Rural housing insurance fund......................................... 0.18 6 3,250

Defense:
Export loan guarantees............................................... ............. ........... 250
Family housing improvement fund...................................... 7 ........... ...........

Education:
Federal family education loan program................................ 6.15 1,763 28,671

Health and Human Services:
Health resources and services........................................ 5.32 4 80

Housing and Urban Development:
Indian housing guarantee fund........................................ 8.13 6 69
Title VI Indian Federal guarantees................................... 11 5 44
Home loan guarantees................................................. 11 11 100
Community development loan guarantees (Sec. 108)..................... 2.3 29 1,261
FHA-mutual mortgage.................................................. -2.62 -1,594 110,000
FHA-general and special risk......................................... -0.27 81 18,100

Interior:
Indian loan guarantees............................................... 7.54 5 60

Transportation:
MARAD guaranteed loans (Title XI).................................... 5.01 16 520

Veterans Affairs:
Veterans housing benefit program fund................................ 0.88 206 23,440

International Assistance Programs:
Micro and small enterprise development............................... 3.29 2 61
Urban and environmental credit....................................... 8.82 6 68
Development credit authority......................................... 8.39 13 155
Overseas Private Investment Corporation.............................. 2 46 2,600

Small Business Administration:
Business Loans....................................................... 1.51 176 15,235

Other Independent Agencies:
Export-Import Bank................................................... 5.86 903 15,401
----------------------------------------
Total.............................................................. N/A 1,991 227,590
========================================

ADDENDUM

Secondary guaranteed loans:
GNMA secondary mortgage guarantees................................... -0.42 -9 150,000
----------------------------------------------------------------------------------------------------------------
N/A = Not applicable.
\1\ Additional information on credit reform subsidy rates is contained in the Federal Credit Supplement to the
budget for 1999.

[[Page 190]]

Table 8-5. SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Actual Estimate
-----------------------------------------------------------
1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------------
Direct Loans:
Obligations..................................... 22.7 30.9 23.4 33.6 28.1 26.3
Disbursements................................... 19.3 22.0 23.6 32.2 32.0 29.8
Subsidy budget authority \1\.................... 2.8 2.6 1.8 2.4 4.5 1.3

Loan Guarantees:
Commitments..................................... 204.1 138.5 175.4 172.3 194.0 210.4
Lender Disbursements............................ 194.2 117.9 143.9 144.7 155.5 163.0
Subsidy budget authority \1\.................... 2.4 4.6 4.0 3.6 2.3 2.0
----------------------------------------------------------------------------------------------------------------
\1\ Excludes subsidy reestimates for loans made in prior years.
\2\ GNMA secondary guarantees of loans that are guaranteed by FHA, VA and RHS are excluded from the totals to
avoid double-counting.

Table 8-6. DIRECT LOAN WRITE-OFFS AND GUARANTEED LOAN TERMINATIONS FOR DEFAULTS
----------------------------------------------------------------------------------------------------------------
In millions of dollars As percentage of outstanding
------------------------------ loans\1\
Agency or Program -----------------------------
1997 1998 1999 1997 1998 1999
actual estimate estimate actual estimate estimate
----------------------------------------------------------------------------------------------------------------

----------------DIRECT LOAN WRITEOFFS---------------------------------------------------------------------------

Agriculture:
Agricultural credit insurance fund................ 392 322 322 3.93 3.37 3.69
Rural development insurance fund.................. 2 2 2 0.04 0.04 0.04
Rural housing insurance fund...................... 97 96 92 0.33 0.36 0.33
Rural electrification and telecommunications loans 409 ........ ........ 1.45 ........ ........

Commerce:
Economic development revolving fund (EDA)......... ........ 1 1 ........ 1.81 1.96

Education:
Student financial assistance...................... 5 8 8 3.54 5.36 4.81
Federal direct student loan program............... 15 ........ 2 0.07 ........ ........

Health and Human Services:
Health Resources and Services..................... 2 2 2 0.25 0.25 0.25

Housing and Urban Development:
Revolving fund.................................... 5 ........ ........ 1.84 ........ ........
FHA-Mutal mortgage insurance...................... ........ ........ 1 ........ ........ 1.96

Interior:
Revolving fund.................................... 2 14 4 3.77 31.11 11.76

State:
Repatriation loans................................ 1 1 1 25 25 25

Veterans Affairs:
Veterans housing benefit program \2\.............. 9 11 16 0.04 0.04 0.07

Federal Emergency Management Administration:
Disaster assistance............................... 42 ........ ........ 25.6 ........ ........

Small Business Administration
Business and disaster loans....................... 232 117 85 2.14 1.11 0.91

Other Independent Agencies:
Federal Communications Commission................. 793 6,202 119 11.65 152.83 9.48
Tennesee Valley Authority......................... 1 ........ ........ ........ 0.57 0.9

-----------------------------------------------------------
Total, direct loan writeoffs.................... 1,598 6,776 655 ........ ........ ........
-----------------------------------------------------------
GUARANTEED LOAN TERMINATIONS FOR DEFAULT

Agriculture:
Agricultural credit insurance fund................ 78 13 12 1.11 0.17 0.15
CCC guaranteed loans.............................. 31 345 342 0.68 6.54 5.55
Rural development insurance fund.................. 42 30 13 11.2 8.98 4.88

[[Page 191]]

Rural housing insurance fund...................... 10 26 33 0.14 0.14 0.13
Rural business and industry loans................. 6 17 16 ........ ........ ........

Commerce:
Federal ship financing fund....................... 1 ........ ........ 1.17 ........ ........

Education:
Federal family education loans.................... 3,322 3,522 3,567 3.36 3.29 2.88

Health and Human Services:
Health professions graduate student loans......... 44 42 49 1.48 1.42 1.69

Housing and Urban Development:
FHA-General and special risk guaranteed loans..... 1,092 1,496 3,280 1.24 1.63 3.33
FHA-Mutual mortgage and cooperative housing loans. 4,488 4,108 3,895 1.24 1.08 0.92

Interior:
Indian loan guaranty.............................. 40 6 5 39.21 5.94 4.9

Veterans Affairs:
Veterans housing benefit program \3\.............. 2,102 2,984 3,205 1.23 1.68 1.68

International Assistance Programs:
Foreign military financing........................ 6 1 1 0.1 0.01 0.01
Housing and other credit guaranty programs........ ........ 27 15 ........ 1.47 0.86
Microenterprise and small enterprise development.. ........ 1 1 ........ 2.12 1.42
Overseas Private Investment Corporation........... 7 ........ ........ 0.35 ........ ........

Small Business Administration:
Business loans.................................... 545 513 493 2.14 1.11 0.91

Other Independent Agencies:
Export-Import Bank................................ 74 8 12 0.37 0.04 0.05

-----------------------------------------------------------
Total, guaranteed loan terminations for default. 11,888 13,139 14,939 ........ ........ ........
-----------------------------------------------------------
Total, direct loan writeoffs and guaranteed loan
terminations................................... 13,486 19,915 15,594 ........ ........ ........
===========================================================

ADDENDUM: WRITEOFFS OF DEFAULTED GUARANTEED LOANS
THAT RESULT IN LOANS RECEIVABLE

Commerce:
Federal ship financing fund....................... 1 ........ ........ 0.51 ........ ........

Education:
Federal family education loans.................... 285 257 259 1.73 1.53 1.46

Health and Human Services:
Health professions graduate student loans......... 10 10 10 2.12 2.08 2.01

Housing and Urban Development:
FHA-General and special risk guaranteed loans..... 142 232 545 5.87 8.71 18.56
FHA-Mutual mortgage and cooperative housing loans. 550 26 1 191.63 15.11 1.72

Veterans Affairs:
Veterans housing benefit program \3\.............. 1,120 548 565 145.83 71.72 74.73

International Assistance Programs:
Housing and other credit guaranty programs........ ........ 70 84 ........ 16.43 25

Small Business Administration:
Business loans.................................... 105 174 810 1.6 1.44 1.27

-----------------------------------------------------------
Total, writeoffs of loans receivable............ 2,213 1,317 2,274 ........ ........ ........
----------------------------------------------------------------------------------------------------------------
\1\ Average of loans outstanding over year.
\2\ In FY 1998, Veterans Housing Direct Loan Program, Loan Guaranty Program and Guaranty and Indemnity Fund
direct loans were consolidated.
\3\ In FY 1998, Veterans Housing Loan Guaranty Program and Guaranty and Indemnity Fund loan guarantees were
consolidated.

[[Page 192]]

Table 8-7. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Agency or Program 1997 -----------------------
Actual 1998 1999
----------------------------------------------------------------------------------------------------------------

Housing and Urban Development:
FHA-General and special risk loans........................................ 120 120 120
FHA-Mutual mortgage insurance loans....................................... 200 200 50

Interior:
Bureau of Reclamation direct loans........................................ 37 31 38

State Department:
Repatriation loans........................................................ 1 1 1

Transportation:
Minority business resource center loans................................... 15 15 14
Orange County (CA) toll road demonstration................................ 25 .......... ..........
Direct loan financing (Alameda)........................................... 140 140 120

Treasury:
Community development financial institutions fund......................... .......... 32 49

Federal Emergency Management Agency:
Disaster assistance loans................................................. 25 31 25

International Assistance Programs:
Foreign military financing................................................ 543 218 171
-----------------------------------
Total, limitations on direct loan obligations........................... 1,106 1,378 1,162
===================================
LIMITATIONS ON GUARANTEED LOAN COMMITMENTS

Health and Human Services:
Health professions graduate student loan insurance........................ 140 85 ..........
Health center guaranteed loans............................................ .......... 160 ..........

Housing and Urban Development:
Indian housing loan guarantee fund........................................ 53 62 69
Title VI Indian Federal guarantees........................................ .......... 45 44
Community development loan guarantees (Sec. 108).......................... 1,389 1,261 1,261
Home loan guarantee....................................................... .......... .......... 100
FHA-General and special risk.............................................. 17,400 17,400 18,100
FHA-Mutual mortgage insurance............................................. 110,000 110,000 110,000
FHA-Loan recovery fund.................................................... 10 10 ..........

Interior:
Indian guaranteed loans................................................... 35 35 56

Transportation:
MARAD guaranteed loans (Title XI)......................................... 1,000 1,000 520

International Assistance Programs:
Loan guarantees to Israel................................................. 2,000 .......... ..........
-----------------------------------
Total, limitations on guaranteed loan commitments....................... 132,027 130,058 130,150
===================================
ADDENDUM

Secondary guaranteed loan commitment limitations:
GNMA, mortgage-backed securities.......................................... 110,000 130,000 150,000
----------------------------------------------------------------------------------------------------------------
\1\ Data represents loan level limitations enacted or proposed to be enacted in appropriations acts. For
information on actual and estimated loan levels supportable by new subsidy budget authority requested, see
Table 8-3 and Table 8-4.

[[Page 193]]

Table 8-8. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
(in millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Agency or Program 1997 -----------------------------------------------------------------------
Actual 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
Department of Agriculture

Farm Service Agency

Agricultural credit
insurance fund liquidating
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 1 1 1 4 4 4 4
Change in outstandings... -1,074 -984 -981 -921 -760 -702 -552
Outstandings............. 7,709 6,725 5,744 4,823 4,063 3,361 2,809

Agricultural credit
insurance fund direct loan
financing account:
Obligations.............. 799 646 666 666 666 666 666
Loan disbursements....... 785 649 665 677 666 666 666
Change in outstandings... 232 161 145 126 91 72 57
Outstandings............. 2,258 2,419 2,564 2,690 2,781 2,853 2,910

Commodity credit corporation
fund:
Obligations.............. 5,333 6,408 7,451 7,525 6,849 6,288 5,970
Loan disbursements....... 5,333 6,408 7,451 7,525 6,849 6,288 5,970
Change in outstandings... 97 -93 -127 -53 -112 -60 -38
Outstandings............. 1,769 1,676 1,549 1,496 1,384 1,324 1,286

Rural Utilities Service

Rural communication
development fund
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... -1 .......... -1 -1 .......... ..........
Outstandings............. 9 8 8 7 6 6 6

Distance learning and
medical link direct loan
financing account:
Obligations.............. .......... 300 150 150 150 150 150
Loan disbursements....... .......... 90 195 180 150 150 150
Change in outstandings... .......... 83 173 143 99 85 70
Outstandings............. .......... 83 256 399 498 583 653

Rural development insurance
fund liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 17 10 .......... .......... .......... .......... ..........
Change in outstandings... -214 -199 -199 -189 -179 -170 -162
Outstandings............. 4,135 3,936 3,737 3,548 3,369 3,199 3,037

Rural electrification and
telecommunications direct
loan financing account:
Obligations.............. 1,105 1,420 1,475 1,475 1,475 1,475 1,475
Loan disbursements....... 916 1,903 1,499 1,346 1,287 1,213 1,412
Change in outstandings... 804 1,829 1,409 1,234 1,150 1,056 1,233
Outstandings............. 4,306 6,135 7,544 8,778 9,928 10,984 12,217

Rural telephone bank direct
loan financing account:
Obligations.............. 100 175 175 175 175 175 175
Loan disbursements....... 34 248 197 223 208 180 175
Change in outstandings... 12 240 185 205 184 149 137
Outstandings............. 203 443 628 833 1,017 1,166 1,303

Rural water and waste
disposal direct loans
financing account:
Obligations.............. 830 694 764 764 764 764 764
Loan disbursements....... 670 726 680 649 757 635 642
Change in outstandings... 645 701 646 605 704 569 564
Outstandings............. 2,260 2,961 3,607 4,212 4,916 5,485 6,049

Rural electrification and
telecommunications
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 64 39 25 17 12 9 6
Change in outstandings... -2,213 -1,408 -1,668 -1,068 -969 -876 -790
Outstandings............. 28,246 26,838 25,170 24,102 23,133 22,257 21,467

Rural telephone bank
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 32 30 27 24 21 18 15
Change in outstandings... -64 -70 -93 -96 -100 -100 -100
Outstandings............. 1,264 1,194 1,101 1,005 905 805 705

[[Page 194]]

Rural Housing Service

Rural housing insurance fund
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 2 .......... .......... .......... .......... .......... ..........
Change in outstandings... -1,238 -1,209 -1,206 -1,215 -1,170 -1,124 -1,077
Outstandings............. 20,947 19,738 18,532 17,317 16,147 15,023 13,946

Rural housing insurance fund
direct loan financing
account:
Obligations.............. 928 1,230 1,197 1,197 1,197 1,197 1,197
Loan disbursements....... 950 1,196 1,196 1,196 1,186 1,180 1,180
Change in outstandings... 767 1,024 928 857 768 690 619
Outstandings............. 8,567 9,591 10,519 11,376 12,144 12,834 13,453

Rural community facility
direct loans financing
account:
Obligations.............. 137 206 200 200 200 200 200
Loan disbursements....... 159 163 192 196 189 176 201
Change in outstandings... 145 152 178 177 166 148 169
Outstandings............. 493 645 823 1,000 1,166 1,314 1,483

Rural Business--Cooperative
Service

Rural economic development
loans liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -1 -2 -2 -2 .......... .......... ..........
Outstandings............. 6 4 2 .......... .......... .......... ..........

Rural economic development
direct loan financing
account:
Obligations.............. 12 25 15 15 15 15 15
Loan disbursements....... 11 14 20 15 15 15 16
Change in outstandings... 7 8 12 6 4 3 2
Outstandings............. 42 50 62 68 72 75 77

Rural development loan fund
direct loan financing
account:
Obligations.............. 37 35 35 35 35 35 35
Loan disbursements....... 45 61 50 38 31 36 35
Change in outstandings... 42 58 47 32 26 30 29
Outstandings............. 173 231 278 310 336 366 395

Rural business and industry
direct loans financing
account:
Obligations.............. 12 50 50 50 50 50 50
Loan disbursements....... 3 17 35 44 48 50 50
Change in outstandings... 3 17 35 43 46 47 46
Outstandings............. 3 20 55 98 144 191 237

Rural development loan fund
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 1 1 .......... .......... .......... .......... ..........
Change in outstandings... -2 -2 -3 -3 -3 -3 -3
Outstandings............. 82 80 77 74 71 68 65

Foreign Agricultural Service

Expenses, Public Law 480,
foreign assistance
programs, Agriculture
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -321 -354 -406 -463 -330 -332 -333
Outstandings............. 9,446 9,092 8,686 8,223 7,893 7,561 7,228

P.L. 480 Direct credit
financing account:
Obligations.............. 183 227 102 102 102 102 102
Loan disbursements....... 156 240 152 110 102 102 102
Change in outstandings... 107 225 120 66 49 39 39
Outstandings............. 1,371 1,596 1,716 1,782 1,831 1,870 1,909

P.L. 480 Title I Food for
Progress Credits, financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... .......... .......... .......... -49 -49 -49
Outstandings............. 508 508 508 508 459 410 361

[[Page 195]]

Debt reduction--financing
account:
Obligations.............. .......... 27 262 72 .......... .......... ..........
Loan disbursements....... .......... 27 262 72 .......... .......... ..........
Change in outstandings... -3 26 261 71 -1 -1 -1
Outstandings............. 63 89 350 421 420 419 418

Department of Commerce

Economic Development
Administration

Economic development
revolving fund liquidating
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -4 -5 -4 -4 -4 -4 -4
Outstandings............. 58 53 49 45 41 37 33

National Oceanic and
Atmospheric Administration

Fisheries finance, financing
account:
Obligations.............. 25 34 24 24 24 24 24
Loan disbursements....... .......... 59 24 24 24 24 24
Change in outstandings... .......... 57 20 19 17 14 14
Outstandings............. .......... 57 77 96 113 127 141

Department of Defense--
Military

Family Housing

Department of Defense,
Family Housing Improvement,
Direct Loan Financing
Account:
Obligations.............. .......... 13 .......... 531 411 239 489
Loan disbursements....... .......... 7 .......... 175 345 319 334
Change in outstandings... .......... 7 .......... 175 345 319 334
Outstandings............. .......... 7 7 182 527 846 1,180

Revolving and Management
Funds

Working capital fund, Navy:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -62 -69 -69 -73 -78 -136 -133
Outstandings............. 1,164 1,095 1,026 953 875 739 606

Working capital fund, Air
Force:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -13 -14 -17 -18 -29 -25 -27
Outstandings............. 144 130 113 95 66 41 14

Department of Education

Office of Postsecondary
Education

Student financial
assistance:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -66 17 17 17 16 16 16
Outstandings............. 141 158 175 192 208 224 240

College housing and academic
facilities loans
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 11 .......... .......... .......... .......... .......... ..........
Change in outstandings... -33 -59 -35 -32 -31 -28 -28
Outstandings............. 614 555 520 488 457 429 401

College housing and academic
facilities loans financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 4 5 1 6 6 .......... ..........
Change in outstandings... 4 5 1 6 6 .......... ..........
Outstandings............. 18 23 24 30 36 36 36

Federal direct student loan
program, financing account:
Obligations.............. 12,026 9,836 8,160 12,658 13,800 14,678 15,527
Loan disbursements....... 10,271 13,333 13,670 14,477 15,274 16,093 16,951
Change in outstandings... 9,652 12,316 11,889 11,733 11,387 10,898 10,309
Outstandings............. 21,212 33,528 45,417 57,150 68,537 79,435 89,744

[[Page 196]]

Department of Energy

Power Marketing
Administration

Bonneville Power
Administration fund:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... .......... .......... .......... .......... .......... ..........
Outstandings............. 2 2 2 2 2 2 2

Department of Health and
Human Services

Health Resources and
Services Administration

Health Resources and
Services:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 21 .......... .......... .......... .......... .......... ..........
Change in outstandings... -3 -24 -24 -24 -24 -24 -24
Outstandings............. 797 773 749 725 701 677 653

Medical facilities guarantee
and loan fund:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -10 -7 -7 -5 -5 .......... ..........
Outstandings............. 24 17 10 5 .......... .......... ..........

Department of Housing and
Urban Development

Public and Indian Housing
Programs

Low-rent public housing--
loans and other expenses:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -65 -70 -71 -71 -71 -71 -74
Outstandings............. 1,562 1,492 1,421 1,350 1,279 1,208 1,134

Community Planning and
Development

Revolving fund (liquidating
programs):
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -57 -40 -40 -35 -30 -30 -30
Outstandings............. 271 231 191 156 126 96 66

Community development loan
guarantees liquidating
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -3 -4 -4 -4 -4 -4 -4
Outstandings............. 36 32 28 24 20 16 12

Housing Programs

Nonprofit sponsor assistance
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... .......... .......... .......... .......... .......... ..........
Outstandings............. 1 1 1 1 1 1 1

Flexible Subsidy Fund:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 71 62 33 11 .......... .......... ..........
Change in outstandings... 68 58 29 7 -4 -4 -4
Outstandings............. 744 802 831 838 834 830 826

FHA-Mutual mortgage and
cooperative housing
insurance funds liquidating
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -2 -2 -1 .......... .......... .......... ..........
Outstandings............. 5 3 2 2 2 2 2

FHA-General and special risk
insurance funds liquidating
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -19 -13 -10 -10 -8 -7 -7
Outstandings............. 78 65 55 45 37 30 23

[[Page 197]]

FHA-General and special risk
direct loan financing
account:
Obligations.............. 1 20 50 10 10 10 10
Loan disbursements....... 1 20 50 10 10 10 10
Change in outstandings... 1 20 45 4 2 .......... -10
Outstandings............. 1 21 66 70 72 72 62

Housing for the elderly or
handicapped fund
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 6 184 .......... .......... .......... .......... ..........
Change in outstandings... -78 114 -71 -70 -70 -69 -69
Outstandings............. 8,228 8,342 8,271 8,201 8,131 8,062 7,993

FHA-Mutual mortgage
insurance direct loan
financing account:
Obligations.............. 3 25 50 10 10 10 10
Loan disbursements....... 1 27 50 10 10 10 10
Change in outstandings... .......... 26 47 3 -2 -13 -33
Outstandings............. 2 28 75 78 76 63 30

Government National Mortgage
Association

Guarantees of mortgage-
backed securities
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 98 19 8 44 18 5 5
Change in outstandings... 11 -247 8 4 2 1 1
Outstandings............. 332 85 93 97 99 100 101

Guarantees of mortgage-
backed securities financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... 339 71 65 61 62 54
Change in outstandings... .......... 255 13 1 2 3 1
Outstandings............. .......... 255 268 269 271 274 275

Department of the Interior

Bureau of Reclamation

Bureau of reclamation loan
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... -3 -3 -3 -4 -4 -4
Outstandings............. 77 74 71 68 64 60 56

Bureau of Reclamation direct
loan financing account:
Obligations.............. 28 33 38 38 38 38 38
Loan disbursements....... 26 38 38 44 46 48 51
Change in outstandings... 26 38 38 44 46 48 51
Outstandings............. 81 119 157 201 247 295 346

National Park Service

Construction:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... -1 .......... .......... -1 .......... -1
Outstandings............. 7 6 6 6 5 5 4

Bureau of Indian Affairs

Revolving fund for loans
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -5 -16 -6 -4 -4 -4 -4
Outstandings............. 53 37 31 27 23 19 15

Indian direct loan financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -1 -1 -1 -2 .......... .......... ..........
Outstandings............. 32 31 30 28 28 28 28

[[Page 198]]

Insular Affairs

Assistance to territories:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -1 -1 -1 -1 -1 -2 -2
Outstandings............. 19 18 17 16 15 13 11

Department of State

Administration of Foreign
Affairs

Repatriation loans financing
account:
Obligations.............. 1 1 1 1 1 1 1
Loan disbursements....... 1 1 1 1 1 1 1
Change in outstandings... .......... .......... .......... .......... .......... .......... ..........
Outstandings............. 4 4 4 4 4 4 4

Department of Transportation

Office of the Secretary

Minority business resource
center direct loan
financing account:
Obligations.............. 7 15 14 14 14 14 14
Loan disbursements....... 6 15 14 14 14 14 14
Change in outstandings... -1 .......... -1 .......... -2 -2 -2
Outstandings............. 7 7 6 6 4 2 ..........

Federal Highway
Administration

Orange County (CA) toll road
demonstration project
direct loan financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... 6 13 13 13 13 13
Change in outstandings... .......... 6 13 13 13 13 13
Outstandings............. .......... 6 19 32 45 58 71

High priority corridors loan
financing account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -37 .......... .......... .......... .......... .......... ..........
Outstandings............. .......... .......... .......... .......... .......... .......... ..........

Right-of-way revolving fund
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 18 20 20 20 3 .......... ..........
Change in outstandings... 2 .......... -2 -4 -21 -24 -24
Outstandings............. 184 184 182 178 157 133 109

Federal Railroad
Administration

Amtrak corridor improvement
loans liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... -1 .......... -1 -1 -1 ..........
Outstandings............. 6 5 5 4 3 2 2

Amtrak corridor improvement
direct loan financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -3 .......... .......... .......... .......... .......... ..........
Outstandings............. .......... .......... .......... .......... .......... .......... ..........

Direct loan financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 140 140 120 .......... .......... .......... ..........
Change in outstandings... 140 140 120 .......... .......... .......... ..........
Outstandings............. 140 280 400 400 400 400 400

Railroad rehabilitation and
improvement liquidating
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -14 -4 -4 -4 -5 -4 -4
Outstandings............. 57 53 49 45 40 36 32

[[Page 199]]

Railroad rehabilitation and
improvement direct loan
financing account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... .......... .......... .......... .......... .......... ..........
Outstandings............. 4 4 4 4 4 4 4

Department of the Treasury

Departmental Offices

Community development
financial institutions fund
direct loan financing
account:
Obligations.............. 7 32 49 49 49 49 49
Loan disbursements....... 4 4 5 6 46 52 54
Change in outstandings... 4 4 5 6 46 52 54
Outstandings............. 4 8 13 19 65 117 171

Department of Veterans
Affairs

Veterans Benefits
Administration

Veterans Housing Benefit
Program Fund Liquidating
Account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 56 52 54 55 57 59 60
Change in outstandings... -29 12 13 13 14 14 15
Outstandings............. 420 432 445 458 472 486 501

Veterans Housing Benefit
Program Fund Direct Loan
Financing Account:
Obligations.............. 1,280 1,891 109 152 124 88 49
Loan disbursements....... 1,280 1,891 109 152 124 88 49
Change in outstandings... 269 413 -712 -351 -173 -86 -42
Outstandings............. 992 1,405 693 342 169 83 41

Miscellaneous veterans
programs loan fund direct
loan financing account:
Obligations.............. 5 7 11 13 17 7 3
Loan disbursements....... 5 7 11 13 17 7 3
Change in outstandings... 2 4 9 11 14 4 ..........
Outstandings............. 15 19 28 39 53 57 57

Miscellaneous veterans
programs loan fund
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -2 .......... -1 .......... .......... .......... ..........
Outstandings............. 1 1 .......... .......... .......... .......... ..........

Environmental Protection
Agency

Abatement, control, and
compliance direct loan
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -4 -9 -9 -8 -8 -8 -8
Outstandings............. 85 76 67 59 51 43 35

Abatement, control, and
compliance direct loan
financing account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 5 4 2 .......... .......... .......... ..........
Change in outstandings... .......... -1 -3 -5 -5 -5 -5
Outstandings............. 65 64 61 56 51 46 41

Federal Emergency Management
Agency

Disaster assistance direct
loan liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -22 .......... .......... .......... .......... -3 -4
Outstandings............. 37 37 37 37 37 34 30

Disaster assistance direct
loan financing account:
Obligations.............. .......... 31 25 25 25 25 25
Loan disbursements....... 48 45 50 25 25 25 25
Change in outstandings... -15 42 48 15 8 -2 -6
Outstandings............. 127 169 217 232 240 238 232

[[Page 200]]

International Assistance
Programs

International Security
Assistance

Foreign military loan
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 14 9 8 8 7 7 7
Change in outstandings... -867 -841 -626 -494 -432 -379 -296
Outstandings............. 6,154 5,313 4,687 4,193 3,761 3,382 3,086

Foreign military financing
direct loan financing
account:
Obligations.............. 298 200 167 167 167 167 167
Loan disbursements....... 376 471 543 592 615 263 167
Change in outstandings... 353 251 221 217 182 -240 -367
Outstandings............. 1,451 1,702 1,923 2,140 2,322 2,082 1,715

Military debt reduction
financing account:
Obligations.............. 3 18 4 .......... .......... .......... ..........
Loan disbursements....... 3 14 1 .......... .......... .......... ..........
Change in outstandings... 3 14 1 .......... .......... .......... ..........
Outstandings............. 3 17 18 18 18 18 18

Multilateral Assistance

International organizations
and programs:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -2 -2 -2 -2 -2 -2 -2
Outstandings............. 32 30 28 26 24 22 20

Agency for International
Development

Economic assistance loans--
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 10 .......... .......... .......... .......... .......... ..........
Change in outstandings... -485 -671 -637 -648 -556 -545 -519
Outstandings............. 12,164 11,493 10,856 10,208 9,652 9,107 8,588

Debt reduction, financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... 69 89 199 .......... .......... ..........
Change in outstandings... -57 12 32 142 -57 -57 -15
Outstandings............. 339 351 383 525 468 411 396

Microenterprise and small
enterprise development
credit direct loan
financing account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... 1 .......... .......... .......... .......... ..........
Change in outstandings... .......... .......... .......... .......... .......... .......... ..........
Outstandings............. 2 2 2 2 2 2 2

Overseas Private Investment
Corporation

Overseas Private Investment
Corporation liquidating
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 3 .......... .......... .......... .......... .......... ..........
Change in outstandings... -16 -13 -8 -7 -4 -3 ..........
Outstandings............. 37 24 16 9 5 2 2

Overseas private investment
corporation direct loan
financing account:
Obligations.............. 133 133 133 133 133 133 133
Loan disbursements....... 15 41 61 70 80 80 80
Change in outstandings... 11 36 55 60 65 60 50
Outstandings............. 83 119 174 234 299 359 409

Small Business
Administration

Business direct loan
financing account:
Obligations.............. 24 19 20 21 21 22 22
Loan disbursements....... 8 13 30 30 30 30 30
Change in outstandings... -10 -14 -54 -62 27 27 27
Outstandings............. 151 137 83 21 48 75 102

[[Page 201]]

Disaster direct loan
financing account:
Obligations.............. 961 785 1,516 985 951 1,010 1,035
Loan disbursements....... 1,168 744 533 878 902 936 936
Change in outstandings... 664 136 -511 -7,168 .......... .......... ..........
Outstandings............. 7,891 8,027 7,516 348 348 348 348

Disaster loan fund
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -220 -227 -597 -633 .......... .......... ..........
Outstandings............. 1,457 1,230 633 .......... .......... .......... ..........

Business loan fund
liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 117 90 69 .......... .......... .......... ..........
Change in outstandings... -345 -565 -648 -112 .......... .......... ..........
Outstandings............. 1,325 760 112 .......... .......... .......... ..........

Other Independent Agencies

District of Columbia

Loans to the District of
Columbia for capital
projects:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -12 -12 -12 -12 -15 .......... ..........
Outstandings............. 51 39 27 15 .......... .......... ..........

Repayable advances to the
District of Columbia direct
loan financing account:
Obligations.............. 223 .......... .......... .......... .......... .......... ..........
Loan disbursements....... 223 .......... .......... .......... .......... .......... ..........
Change in outstandings... -156 -223 .......... .......... .......... .......... ..........
Outstandings............. 223 .......... .......... .......... .......... .......... ..........

Export-Import Bank of the
United States

Export-Import Bank of the
United States liquidating
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 2 .......... .......... .......... .......... .......... ..........
Change in outstandings... -770 -1,038 -738 -1,236 -331 -294 -220
Outstandings............. 6,388 5,350 4,612 3,376 3,045 2,751 2,531

Debt reduction financing
account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... 500 234 838 .......... .......... ..........
Change in outstandings... .......... 500 234 838 .......... .......... ..........
Outstandings............. .......... 500 734 1,572 1,572 1,572 1,572

Export-Import Bank direct
loan financing account:
Obligations.............. 1,549 2,780 1,396 1,396 1,396 1,396 1,396
Loan disbursements....... 1,331 1,042 1,113 1,062 1,128 1,197 1,269
Change in outstandings... 750 673 609 335 245 207 187
Outstandings............. 3,736 4,409 5,018 5,353 5,598 5,805 5,992

Farm Credit System Financial
Assistance Corporation

Financial assistance
corporation assistance
fund, liquidating account:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 127 125 120 117 117 117 114
Change in outstandings... -35 -77 -88 -97 -103 -110 -139
Outstandings............. 1,132 1,055 967 870 767 657 518

Federal Communications
Commission

Spectrum auction direct loan
financing account:
Obligations.............. 7,481 713 .......... .......... .......... .......... ..........
Loan disbursements....... 7,481 713 .......... .......... .......... .......... ..........
Change in outstandings... 6,688 -5,489 -119 -119 -10 .......... ..........
Outstandings............. 6,803 1,314 1,195 1,076 1,066 1,066 1,066

[[Page 202]]

Bank Insurance

Bank insurance fund:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... .......... .......... .......... .......... .......... ..........
Outstandings............. 100 100 100 100 100 100 100

FSLIC Resolution

FSLIC resolution fund:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -31 -95 .......... .......... .......... .......... ..........
Outstandings............. 95 .......... .......... .......... .......... .......... ..........

National Credit Union
Administration

Community development credit
union revolving loan fund:
Obligations.............. .......... .......... .......... .......... .......... .......... ..........
Loan disbursements....... 2 2 2 2 2 1 1
Change in outstandings... .......... -1 -2 .......... .......... .......... ..........
Outstandings............. 6 5 3 3 3 3 3

Tennessee Valley Authority

Tennessee Valley Authority
fund:
Obligations.............. 49 50 38 38 153 172 172
Loan disbursements....... 49 50 38 38 38 33 33
Change in outstandings... -109 36 27 23 16 8 8
Outstandings............. 41 77 104 127 143 151 159
===================================================================================
Total, Direct loan
transactions:
Obligations.............. 33,580 28,079 24,347 28,691 29,022 29,200 29,963
Loan disbursements....... 32,181 31,985 29,832 31,315 30,538 30,216 30,919
Change in outstandings... 12,715 5,535 7,810 1,921 9,971 8,965 8,829
Outstandings............. 181,375 186,910 194,720 196,641 206,612 215,577 224,406
----------------------------------------------------------------------------------------------------------------

[[Page 203]]

Table 8-9. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
(in millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Agency or Program 1997 -----------------------------------------------------------------------
Actual 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
Department of Agriculture

Farm Service Agency

Agricultural credit
insurance fund liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 1 1 1 .......... .......... .......... ..........
Change in outstandings... -181 -162 -161 -130 -109 -98 -86
Outstandings............. 992 830 669 539 430 332 246

Agricultural credit
insurance fund guaranteed
loan financing account:
Commitments.............. 1,575 2,331 2,325 2,325 2,325 2,325 2,325
New guaranteed loans..... 1,549 2,254 2,279 2,279 2,279 2,279 2,279
Change in outstandings... 334 1,046 862 862 862 862 862
Outstandings............. 6,039 7,085 7,947 8,809 9,671 10,533 11,395

Commodity credit corporation
export guarantee financing
account:
Commitments.............. 3,500 5,000 4,615 4,615 4,615 4,615 4,615
New guaranteed loans..... 2,411 5,000 4,615 4,615 4,615 4,615 4,615
Change in outstandings... -775 1,439 349 -177 14 3 -1
Outstandings............. 4,548 5,987 6,336 6,159 6,173 6,176 6,175

Commodity credit corporation
guaranteed loans
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -75 -16 .......... .......... .......... .......... ..........
Outstandings............. 16 .......... .......... .......... .......... .......... ..........

Natural Resources
Conservation Service

Agricultural resource
conservation demonstration
guaranteed loan financing
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... .......... .......... .......... .......... .......... ..........
Outstandings............. 17 17 17 17 17 17 17

Rural Utilities Service

Rural communication
development fund
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... -1 .......... .......... .......... .......... ..........
Outstandings............. 5 4 4 4 4 4 4

Rural development insurance
fund liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 3 .......... .......... .......... .......... .......... ..........
Change in outstandings... -125 -82 -54 -44 -36 -31 -24
Outstandings............. 375 293 239 195 159 128 104

Rural water and waste water
disposal guaranteed loans
financing account:
Commitments.............. 3 75 75 75 75 75 75
New guaranteed loans..... .......... 24 26 78 53 75 75
Change in outstandings... -1 23 25 76 48 68 66
Outstandings............. 7 30 55 131 179 247 313

Rural electrification and
telecommunications
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -25 -20 -20 -20 -20 -20 -20
Outstandings............. 642 622 602 582 562 542 522

Rural Housing Service

Rural housing insurance fund
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -2 -2 -1 -2 -1 -2 -1
Outstandings............. 30 28 27 25 24 22 21

Rural housing insurance fund
guaranteed loan financing
account:
Commitments.............. 2,028 3,020 3,250 3,150 3,150 3,150 3,150
New guaranteed loans..... 1,690 2,888 3,026 3,127 3,139 3,138 3,139
Change in outstandings... 1,536 2,638 2,711 2,698 2,583 2,438 2,280
Outstandings............. 5,039 7,677 10,388 13,086 15,669 18,107 20,387

[[Page 204]]

Rural community facility
guaranteed loans financing
account:
Commitments.............. 83 153 210 210 210 210 210
New guaranteed loans..... 32 67 107 124 173 196 210
Change in outstandings... 27 61 97 109 152 167 171
Outstandings............. 121 182 279 388 540 707 878

Rural Business--Cooperative
Service

Rural business and industry
guaranteed loans financing
account:
Commitments.............. 816 1,075 1,000 1,000 1,000 1,000 1,000
New guaranteed loans..... 666 711 813 771 763 766 750
Change in outstandings... 578 550 593 489 434 392 334
Outstandings............. 1,306 1,856 2,449 2,938 3,372 3,764 4,098

Department of Commerce

Economic Development
Administration

Economic development
revolving fund liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -1 -1 -1 -1 -1 -1 -1
Outstandings............. 14 13 12 11 10 9 8

National Oceanic and
Atmospheric Administration

Fishing vessel obligations
guarantees financing
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 23 20 .......... .......... .......... .......... ..........
Change in outstandings... 15 11 -9 -9 -9 -9 -9
Outstandings............. 94 105 96 87 78 69 60

Federal ship financing fund,
fishing vessels liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -22 -13 -12 -10 -9 -8 -8
Outstandings............. 85 72 60 50 41 33 25

Department of Defense--
Military

Procurement

Defense export loan
guarantee financing
account:
Commitments.............. 20 250 250 250 250 250 250
New guaranteed loans..... .......... 20 75 150 250 250 250
Change in outstandings... .......... 20 71 146 246 218 190
Outstandings............. .......... 20 91 237 483 701 891

Family Housing

Department of Defense,
Family Housing Improvement,
Guaranteed Loan Financing
Account:
Commitments.............. .......... 186 .......... 200 1,175 682 1,396
New guaranteed loans..... .......... .......... 101 66 986 914 955
Change in outstandings... .......... .......... 101 56 966 884 915
Outstandings............. .......... .......... 101 157 1,123 2,007 2,922

Department of Education

Office of Postsecondary
Education

Federal family education
loan liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -6,743 -5,888 -5,548 -4,073 -2,726 -1,654 -924
Outstandings............. 23,583 17,695 12,147 8,074 5,348 3,694 2,770

Federal family education
loan program, financing
account:
Commitments.............. 24,832 26,820 28,671 30,380 32,031 33,755 35,560
New guaranteed loans..... 19,542 25,051 25,686 27,293 28,829 30,387 32,019
Change in outstandings... 16,715 22,276 22,112 22,412 22,055 21,157 19,834
Outstandings............. 75,387 97,663 119,775 142,187 164,242 185,399 205,233

Historically Black College
and University Capital
financing--Financing
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... 1 4 8 12 15 16
Change in outstandings... .......... 1 4 8 12 15 16
Outstandings............. .......... 1 5 13 25 40 56

[[Page 205]]

Department of Health and
Human Services

Health Resources and
Services Administration

Health education assistance
loans:
Commitments.............. 140 85 .......... .......... .......... .......... ..........
New guaranteed loans..... 140 85 .......... .......... .......... .......... ..........
Change in outstandings... 128 74 -16 -21 -26 -31 -33
Outstandings............. 1,494 1,568 1,552 1,531 1,505 1,474 1,441

Health education assistance
loans program:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -84 -88 -99 -104 -108 -114 -119
Outstandings............. 1,475 1,387 1,288 1,184 1,076 962 843

Health center guaranteed
loan financing account:
Commitments.............. .......... 160 .......... .......... .......... .......... ..........
New guaranteed loans..... .......... 67 74 13 6 .......... ..........
Change in outstandings... .......... 67 71 9 1 -5 -6
Outstandings............. .......... 67 138 147 148 143 137

Medical facilities guarantee
and loan fund:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -46 -44 -40 -30 -28 .......... ..........
Outstandings............. 142 98 58 28 .......... .......... ..........

Department of Housing and
Urban Development

Public and Indian Housing
Programs

Low-rent public housing--
loans and other expenses:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -275 -280 -280 -280 -280 -280 -280
Outstandings............. 3,586 3,306 3,026 2,746 2,466 2,186 1,906

Indian housing loan
guarantee fund financing
account:
Commitments.............. 47 62 69 34 34 34 34
New guaranteed loans..... 11 20 34 40 40 40 40
Change in outstandings... 11 20 34 40 40 40 40
Outstandings............. 17 37 71 111 151 191 231

Title VI Indian Federal
guarantees financing
account:
Commitments.............. .......... 45 44 .......... .......... .......... ..........
New guaranteed loans..... .......... 11 11 22 33 12 ..........
Change in outstandings... .......... 11 11 22 33 12 ..........
Outstandings............. .......... 11 22 44 77 89 89

Community Planning and
Development

Revolving fund (liquidating
programs):
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -1 -1 -1 .......... .......... .......... ..........
Outstandings............. 2 1 .......... .......... .......... .......... ..........

Community development loan
guarantees financing
account:
Commitments.............. 278 1,261 1,261 1,217 1,217 1,217 1,261
New guaranteed loans..... 189 1,000 1,000 1,000 1,200 1,250 1,250
Change in outstandings... 142 865 800 800 950 950 950
Outstandings............. 775 1,640 2,440 3,240 4,190 5,140 6,090

Community development loan
guarantees liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... 10 10 7 5 .......... ..........
Change in outstandings... -45 -23 -20 -18 -20 -20 -20
Outstandings............. 198 175 155 137 117 97 77

Home loan guarantee
financing account:
Commitments.............. .......... .......... 100 100 .......... .......... ..........
New guaranteed loans..... .......... .......... 27 82 72 19 ..........
Change in outstandings... .......... .......... 27 72 62 4 -15
Outstandings............. .......... .......... 27 99 161 165 150

[[Page 206]]

Housing Programs

FHA-Mutual mortgage and
cooperative housing
insurance funds liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -14,404 -6,362 -5,655 -5,607 -4,924 -4,486 -4,171
Outstandings............. 87,755 81,393 75,738 70,131 65,207 60,721 56,550

FHA-General and special risk
insurance funds liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -6,018 -2,715 -4,088 -3,439 -2,769 -2,928 -2,638
Outstandings............. 42,405 39,690 35,602 32,163 29,394 26,466 23,828

FHA-General and special risk
guaranteed loan financing
account:
Commitments.............. 13,318 16,648 17,100 18,100 18,100 18,100 18,100
New guaranteed loans..... 12,677 14,323 14,416 14,073 13,805 12,331 13,480
Change in outstandings... 5,344 9,999 10,495 8,768 8,207 6,576 7,578
Outstandings............. 45,663 55,662 66,157 74,925 83,132 89,708 97,286

FHA-Loan guarantee recovery
fund--financing account:
Commitments.............. .......... 10 .......... .......... .......... .......... ..........
New guaranteed loans..... .......... 3 3 3 1 .......... ..........
Change in outstandings... .......... 3 3 3 1 .......... ..........
Outstandings............. .......... 3 6 9 10 10 10

FHA-Mutual mortgage
insurance guaranteed loan
financing account:
Commitments.............. 75,432 82,260 98,031 97,753 97,513 97,237 96,958
New guaranteed loans..... 61,175 58,613 67,222 68,315 69,369 70,473 71,590
Change in outstandings... 37,459 46,068 47,746 43,227 39,485 38,358 54,163
Outstandings............. 272,750 318,818 366,564 409,791 449,276 487,634 541,797

Government National Mortgage
Association

Guarantees of mortgage-
backed securities
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 97,569 .......... .......... .......... .......... .......... ..........
Change in outstandings... 32,609 -439,725 -82,607 -7,373 -322 -14 ..........
Outstandings............. 530,042 90,317 7,710 337 15 1 1

Guarantees of mortgage-
backed securities financing
account:
Commitments.............. 110,000 130,000 150,000 150,000 150,000 150,000 150,000
New guaranteed loans..... .......... 107,472 108,658 110,772 111,853 112,522 114,285
Change in outstandings... .......... 468,737 108,369 31,308 62,387 27,840 31,525
Outstandings............. .......... 468,737 577,106 608,414 670,801 698,641 730,166

Department of the Interior

Bureau of Indian Affairs

Indian loan guaranty and
insurance fund liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -31 -20 -13 -8 -6 -4 -2
Outstandings............. 57 37 24 16 10 6 4

Indian guaranteed loan
financing account:
Commitments.............. 35 35 56 35 35 35 35
New guaranteed loans..... 6 16 20 25 35 35 35
Change in outstandings... -44 -1 2 2 10 .......... -5
Outstandings............. 102 101 103 105 115 115 110

Department of Transportation

Maritime Administration

Federal ship financing fund
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -154 -154 -124 -104 -84 -84 -84
Outstandings............. 677 523 399 295 211 127 43

[[Page 207]]

Maritime guaranteed loan
(Title XI) financing
account:
Commitments.............. 330 477 520 320 320 320 320
New guaranteed loans..... 319 477 477 477 477 477 477
Change in outstandings... 242 299 271 242 213 185 185
Outstandings............. 2,006 2,305 2,576 2,818 3,031 3,216 3,401

Department of Veterans
Affairs

Veterans Benefits
Administration

Veterans Housing Benefit
Program Fund Liquidating
Account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -835 -838 -741 -657 -584 -528 -478
Outstandings............. 23,896 23,058 22,317 21,660 21,076 20,548 20,070

Veterans Housing Benefit
Program Fund Guaranteed
Loan Financing Account:
Commitments.............. 24,287 24,844 23,440 22,895 23,399 22,786 23,287
New guaranteed loans..... 24,287 24,844 23,440 22,895 23,399 22,786 23,287
Change in outstandings... 16,543 14,928 12,627 11,308 11,215 10,035 10,000
Outstandings............. 146,574 161,502 174,129 185,437 196,652 206,687 216,687

International Assistance
Programs

International Security
Assistance

Foreign military loan
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -438 -388 -380 -373 -357 -350 -349
Outstandings............. 5,691 5,303 4,923 4,550 4,193 3,843 3,494

Agency for International
Development

Loan guarantees to Israel
financing account:
Commitments.............. 2,000 .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 1,250 1,412 .......... .......... .......... .......... ..........
Change in outstandings... 1,250 1,412 .......... .......... .......... .......... ..........
Outstandings............. 7,814 9,226 9,226 9,226 9,226 9,226 9,226

Development credit authority
guaranteed loan financing
account:
Commitments.............. .......... 36 214 155 155 155 155
New guaranteed loans..... .......... .......... 94 130 155 155 155
Change in outstandings... .......... .......... 94 130 154 154 153
Outstandings............. .......... .......... 94 224 378 532 685

Housing and other credit
guaranty programs
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 41 29 .......... .......... .......... .......... ..........
Change in outstandings... -66 -98 -116 -121 -108 -105 -105
Outstandings............. 1,884 1,786 1,670 1,549 1,441 1,336 1,231

Private sector revolving
fund liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -8 -8 .......... .......... .......... .......... ..........
Outstandings............. 8 .......... .......... .......... .......... .......... ..........

Microenterprise and small
enterprise development
guaranteed loan financing
account:
Commitments.............. 96 69 46 47 48 49 50
New guaranteed loans..... 6 33 36 46 46 47 48
Change in outstandings... 6 31 15 40 29 32 1
Outstandings............. 32 63 78 118 147 179 180

Urban and environmental
credit guaranteed loan
financing account:
Commitments.............. 43 31 68 71 91 102 114
New guaranteed loans..... 104 150 65 35 54 65 81
Change in outstandings... 104 150 65 35 54 65 81
Outstandings............. 343 493 558 593 647 712 793

Assistance for the New
Independent States of the
Former Soviet Union:
Ukraine export credit
insurance financing
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 61 .......... .......... .......... .......... .......... ..........
Change in outstandings... 61 -81 -61 .......... .......... .......... ..........
Outstandings............. 142 61 .......... .......... .......... .......... ..........

[[Page 208]]

Overseas Private Investment
Corporation

Overseas Private Investment
Corporation liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 20 .......... .......... .......... .......... .......... ..........
Change in outstandings... -75 -75 -56 -10 .......... .......... ..........
Outstandings............. 141 66 10 .......... .......... .......... ..........

Overseas private investment
corporation guaranteed loan
financing account:
Commitments.............. 2,143 1,800 2,000 2,000 2,000 2,000 2,000
New guaranteed loans..... 857 1,100 1,300 1,500 1,800 2,000 2,000
Change in outstandings... 646 700 800 800 1,000 1,000 800
Outstandings............. 1,981 2,681 3,481 4,281 5,281 6,281 7,081

Small Business
Administration

Pollution control equipment
fund liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... -10 -11 -11 -11 -11 -10 -10
Outstandings............. 76 65 54 43 32 22 12

Business guaranteed loan
financing account:
Commitments.............. 10,641 11,887 11,660 11,660 11,660 11,660 11,660
New guaranteed loans..... 6,955 7,143 7,336 7,534 7,738 7,947 7,947
Change in outstandings... 3,822 3,926 4,032 4,142 4,253 4,368 4,368
Outstandings............. 28,452 32,378 36,410 40,552 44,805 49,173 53,541

Business loan fund
liquidating account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 1 1 1 1 1 1 1
Change in outstandings... -1,042 -850 -698 -579 -33 -23 -23
Outstandings............. 5,341 4,491 3,793 3,214 3,181 3,158 3,135

Other Independent Agencies

Export-Import Bank of the
United States

Export-Import Bank of the
United States liquidating
account:
Commitments.............. .......... .......... .......... .......... .......... .......... ..........
New guaranteed loans..... 13 .......... .......... .......... .......... .......... ..........
Change in outstandings... -833 -616 -445 -375 -315 -246 -177
Outstandings............. 2,368 1,752 1,307 932 617 371 194

Export-Import Bank
guaranteed loan financing
account:
Commitments.............. 10,610 15,413 15,413 15,413 15,413 15,413 15,413
New guaranteed loans..... 10,670 10,102 10,693 11,036 11,302 11,600 11,600
Change in outstandings... 5,159 329 23 -240 -711 -918 -918
Outstandings............. 19,743 20,072 20,095 19,855 19,144 18,226 17,308

National Credit Union
Administration

Credit union share insurance
fund:
Commitments.............. 1 .......... .......... .......... .......... .......... ..........
New guaranteed loans..... .......... .......... .......... .......... .......... .......... ..........
Change in outstandings... .......... -1 .......... .......... .......... .......... ..........
Outstandings............. 1 .......... .......... .......... .......... .......... ..........
-----------------------------------------------------------------------------------
Subtotal, Guaranteed loans
(gross)
Commitments.............. 282,258 324,033 360,418 362,005 364,816 365,170 367,968
New guaranteed loans..... 242,268 262,948 271,650 276,517 282,490 284,395 290,584
Change in outstandings... 90,372 117,120 111,153 103,988 141,869 103,854 124,005
Outstandings............. 1,351,933 1,469,053 1,580,206 1,684,194 1,826,063 1,929,917 2,053,922

Less, secondary guaranteed
loans: \1\

GNMA guarantees of RHS/VA/
FHA pools:
Commitments.............. -110,000 -130,000 -150,000 -150,000 -150,000 -150,000 -150,000
New guaranteed loans..... -97,569 -107,472 -108,658 -110,772 -111,853 -112,522 -114,285
Change in outstandings... -32,609 -29,012 -25,762 -23,935 -62,065 -27,826 ..........
Outstandings............. -530,042 -559,054 -584,816 -608,751 -670,816 -698,642 -730,167
===================================================================================

[[Page 209]]

Total, primary guaranteed
loans: \2\
Commitments.............. 172,258 194,033 210,418 212,005 214,816 215,170 217,968
New guaranteed loans..... 144,699 155,476 162,992 165,745 170,637 171,873 176,299
Change in outstandings... 57,763 88,108 85,391 80,053 79,804 76,028 92,480
Outstandings............. 821,891 909,999 995,390 1,075,443 1,155,247 1,231,275 1,323,755
----------------------------------------------------------------------------------------------------------------
\1\ Loans guaranteed by FHA, VA, or RHS are included above. GNMA places a secondary guarantee on these loans, so
they are deducted here to avoid double counting.
\2\ When guaranteed loans result in loans receivable, they are shown in the direct loan table.

[[Page 210]]

Table 8-10. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs) \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Enterprise 1997 -------------------------
actual 1998 1999
----------------------------------------------------------------------------------------------------------------
Student Loan Marketing Association...... New transactions................ 10,019 8,224 8,106
Net change...................... -3,132 -5,402 -4,442
Outstandings.................... 34,259 28,857 24,415
Federal National Mortgage Association:
Portfolio Programs.................... New transactions................ 60,290 79,623 87,093
Net change...................... 28,674 44,319 42,238
Outstandings.................... 321,711 366,030 408,268
Mortgage-backed securities............ New transactions................ 133,703 207,272 156,883
Net change...................... 22,189 110,611 59,420
Outstandings.................... 566,942 677,553 736,973
Federal Home Loan Mortgage Corporation:
Portfolio Programs.................... New transactions................ 36,040 39,644 43,608
Net change...................... 27,738 33,683 40,902
Outstandings.................... 157,165 190,848 231,750
Mortgage-backed securities............ New transactions................ 103,600 106,708 109,909
Net change...................... -1,295 -1,291 -1,287
Outstandings.................... 470,015 468,724 467,437
Farm Credit System:
Banks for cooperatives................ New transactions................ 14,941 15,523 16,026
Net change...................... -196 39 74
Outstandings.................... 2,026 2,065 2,139
Farm Credit Banks..................... New transactions................ 43,441 38,985 40,492
Net change...................... 1,809 1,396 1,510
Outstandings.................... 41,025 42,421 43,931
Agricultural Credit Banks............. New transactions................ 40,668 48,000 49,000
Net change...................... 47 749 898
Outstandings.................... 14,961 15,710 16,608
Federal Agricultural Mortgage New transactions................ 302 528 924
Corporation.
Net change...................... 216 394 711
Outstandings.................... 814 1,208 1,919
Federal home loan banks \2\............. New transactions................ 980 1,039 1,107
Net change...................... 28,698 11,000 11,000
Outstandings.................... 182,000 193,000 204,000
Subtotal, lending (gross)........... New transactions................ 443,984 545,546 513,148
Net change...................... 104,748 195,498 151,024
Outstandings.................... 1,790,918 1,986,416 2,137,440
Less guaranteed loans purchased by:
Student Loan Marketing Association \3\ Net change...................... -3,132 -5,402 -4,442
Outstandings.................... 34,259 28,857 24,415
Federal National Mortgage Association. Net change...................... 1,168 ........... ...........
Outstandings.................... 26,614 26,614 26,614
Other................................. Net change...................... -1,219 ........... ...........
Outstandings.................... 15,659 15,659 15,659
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Total GSE lending (net)............. New transactions................ 443,984 545,546 513,148
Net change...................... 107,931 200,900 155,466
Outstandings.................... 1,714,386 1,915,286 2,070,752
BORROWING

Student Loan Marketing Association...... Net change...................... -5,022 -7,588 -6,060
Outstandings.................... 40,230 32,642 26,582
Federal National Mortgage Association... Net change...................... 61,039 153,824 105,088
Outstandings.................... 924,945 1,078,769 1,183,857
Federal Home Loan Mortgage Corporation.. Net change...................... 11,802 29,506 51,203
Outstandings.................... 630,066 659,572 710,775
Farm Credit System:
Banks for cooperatives................ Net change...................... -269 13 77
Outstandings.................... 2,067 2,080 2,157
Farm credit banks..................... Net change...................... 1,647 1,354 1,300
Outstandings.................... 43,588 44,942 46,242
Agricultural credit banks............. Net change...................... 523 494 890
Outstandings.................... 16,469 16,963 17,853
Federal Agricultural Mortgage Net change...................... 967 409 662
Corporation.
Outstandings.................... 1,699 2,108 2,770
Federal home loan banks................. Net change...................... 41,012 15,165 15,247
Outstandings.................... 284,545 299,710 314,957
The Financing Corporation \3\........... Net change...................... 2 1 1
Outstandings.................... 8,144 8,145 8,146
Resolution Funding Corporation \3\...... Net change...................... -2 -3 -2
Outstandings.................... 30,072 30,069 30,067
Subtotal, borrowing (gross)......... Net change...................... 111,699 193,175 168,406
Outstandings.................... 1,981,825 2,175,000 2,343,406
Less borrowing from other GSEs.......... Net change...................... 354 ........... ...........
Outstandings.................... 51,159 51,159 51,159
Less purchase of Federal debt Net change...................... 800 451 627
securities:.
Outstandings.................... 9,008 9,459 10,086
Less borrowing to purchase guaranteed
loans by:
Student Loan Marketing Association \4\ Net change...................... -3,132 -5,402 -4,442

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Outstandings.................... 34,259 28,857 24,415
Federal National Mortgage Association. Net change...................... 1,168 ........... ...........
Outstandings.................... 26,614 26,614 26,614
Other................................. Net change...................... -1,219 ........... ...........
Outstandings.................... 15,659 15,659 15,659
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Total GSE borrowing (net)........... Net change...................... 113,728 198,126 172,221
Outstandings.................... 1,845,126 2,043,252 2,215,473
----------------------------------------------------------------------------------------------------------------
\1\ The estimates of borrowing and lending were developed by the GSEs based on certain assumptions but are
subject to periodic review and revision and do not represent official GSE forecasts of future activity. The
data for all years include programs of mortgage-backed securities. In cases where a GSE owns securities issued
by the same GSE, including mortgage-backed securities, the borrowing and lending data for that GSE are
adjusted to remove double-counting.
\2\ The lending by the Federal Home Loans Banks measures their advances to member thrift and other financial
institutions. In addition, their investment in private financial instruments at the end of 1997 was $136
billion.
\3\ The change in debt outstanding is due solely to the amortization of discounts and premiums. No sale or
redemption of debt securities is estimated to occur in 1998 or 1999.
\4\ All SLMA loans acquired are guaranteed by the Federal Government and therefore also counted as guaranteed
loans.