[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

  Federal programs offer direct loans and/or loan guarantees for 
housing, education, business, and exports. At the end of FY 1998, there 
were $217 billion in Federal direct loans outstanding and $882 billion 
in loan guarantees. In addition, net lending by Government-sponsored 
enterprises totaled $2.0 trillion. The Federal Government also insures 
bank, thrift, and credit union deposits up to $100,000, guarantees 
vested define-benefit pensions, and insures against disasters, specified 
international investment risks, and various other risks. These diverse 
programs are operating 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. Thus, program 
managers are continually reassessing their roles and seeking to improve 
their effectiveness in dynamic financial markets.
  The introduction to this chapter summarizes key changes in financial 
markets and their effects on Federal programs.
     Its first section is a crosscutting assessment of the 
          rationale for a continued Federal role in providing credit and 
          insurance, performance measures for credit programs, and 
          criteria for reengineering credit programs so as to enhance 
          their benefits in relation to costs.
     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 housing consortium recently 
          created 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, and growing numbers of large financial 
institutions serve global markets. 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.
  While the increased globalization of financial institutions and 
capital markets provides extensive benefits, it also makes domestic 
market conditions more sensitive to events abroad. In 1998, the 
continued Asian crisis and further events in Russia and Brazil resulted 
in a flight to liquidity and safety. This drove down U.S. Treasury bond 
yields dramatically, and also helped to lower rates in the mortgage 
market and on high-grade corporate debt. Some markets, however, were 
temporarily disrupted; related to this was an increase in business 
borrowing from banks, rather than directly from capital markets. Less 
creditworthy borrowers faced higher rates or were temporarily unable to 
find funds. As a result of this episode, awareness of the potential for 
discontinuities in financial markets has increased.

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.

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     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 
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 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.
---------------------------------------------------------------------------
  \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.
---------------------------------------------------------------------------
     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.

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     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 needed 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 underserved 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 inter-relationship 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 guaran

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tees 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 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 underserved 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.

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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, is there a reason why private terms
                and conditions should be supplemented or subsidized? To
                what extent?
 
  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 non-profit revolving
                funds, or other approaches be more efficient?
 
  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; where program
                purposes allow, 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.
 

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  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.
 
  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.
 

                                     

                      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 $150 billion of loan and loan guarantee 
commitments in 1998, helping nearly 1.5 million households. Roughly 1 
out of 7 single-family mortgages originated in the United States 
receives assistance from one of these programs.
     HUD's Federal Housing Administration (FHA) runs a Mutual 
          Mortgage Insurance Fund that guaranteed $90 billion in 
          mortgages for one million households in 1998. 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 1998, VA 
          provided $40 billion in guarantees to 369,000 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 1998, $2.8 billion of guarantees went 
          to 39,400 households.
  In addition, RHS offers a single-family direct loan program and both 
direct and guaranteed multi-family mortgages. FHA guarantees mortgages 
for multi-family housing and other specialized properties.

Housing Finance Challenges and Opportunities

  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 become 
electronically accessible to their clients and loan originators. They 
are challenged to assess and monitor their risks more 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, to 
lower cost and improve efficiency, and to target their efforts to help 
borrowers to retain their homes.

The Housing Consortium

  In FY 1998, the FHA, VA, and RHS housing guarantee programs and Ginnie 
Mae formed The Federal Housing Consortium to adapt to the rapid shift to 
electronic underwriting and other technological developments in the 
private sector. The Consortium is 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.

  Data Systems. The Consortium members are currently pooling resources 
to create a prototype data warehouse through which all members will have 
access to integrated data on program and borrower characteristics, 
lender and loan performance. It will provide timely, easily retrievable 
information, giving managers

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the ability to monitor the changing risk and cost of guarantees and the 
performance of guaranteed loan originators and servicers. Using the data 
warehouse and learning from each other and from the private sector, the 
Consortium will seek to improve loan origination, performance 
measurement, risk sharing and pricing, and asset disposition.
  The Consortium is also working with Ginnie Mae to integrate and 
enhance Ginnie's two databases for use of all Consortium members. 
Ginnie's databases, the Issuer Portfolio Analysis Database System 
(IPADS) and the Correspondence Portfolio Analysis Database System 
(CPADS), receive monthly data from issuers of mortgage-backed 
securities, and 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.
  Because 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. 
About 65 percent of RHS's single-family loans are also placed in Ginnie 
Mae pools. Thus, although the current analytical system is designed fill 
Ginnie Mae's needs, the same data and much the same system could be very 
useful to the loan guarantee programs. For example, 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. Ginnie Mae has 
shared CPADS with FHA and VA for many years. RHS began a partnership 
with Ginnie Mae in 1998, and this year will have access to loan and 
lender performance data to analyze RHS loan guarantees.
  Ginnie Mae has committed to making enhancements to IPADS/CPADS that 
will provide additional benefits to all three loan guarantee programs. 
The integration of IPADS and CPADS and an initial round of enhancements 
will be implemented this year. Further enhancements are planned in the 
future to enable the agencies to monitor and respond effectively to 
technological, institutional, and financial developments in the 
residential mortgage market.

  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.
  Both FHA and VA now permit mortgage lenders to use approved automated 
underwriting systems to originate their loans. Both undertook pilot 
assessment of Freddie Mac's ``Loan Prospector'' system; VA approved its 
use in October 1997 and FHA in February 1998. Both are now working with 
Fannie Mae to pilot ``Desktop Underwriter,' and with other large 
mortgage originators. FHA and VA are also increasing the use of 
electronic data interchange to obtain information electronically from 
mortgage originators and servicers and to provide notifications and 
approvals for faster client services.
  The RHS plans to develop the capacity to accept electronic loan 
originations from their participating lenders. Utilizing electronic loan 
origination technology will add significant benefits to loan processing 
efficiency and timeliness for both RHS and the lenders. RHS is also 
exploring using some form of automated underwriting and credit scoring. 
RHS's goal is to implement these improvements as soon as possible, but 
in order to ensure proper planning and maximum efficiency, complete 
adoption of these procedures is several years away.

  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.
  FHA has created a loss mitigation program that scores lender 
performance on loss mitigation annually and provides incentives to 
lenders to hold down mortgage defaults and hold down FHA claim and 
property disposition costs relative to other lenders in each FHA 
insuring district.
  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. Since 1998, RHS 
has commissioned external audits of its largest loan servicers. The 
audits focus on both loan origination and loan servicing requirements. 
These audits have helped to pinpoint program weaknesses contributing to 
loan delinquencies. In addition, they serve to alert and train servicers 
on RHS guidelines and reporting requirements.

  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.
  Federal loan guarantee programs will need to assess the impact of 
private sector customization on their loan portfolios, and 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 initial loan-to-value ratio.

  Asset Disposition. Common wisdom in the mortgage industry is to avoid 
foreclosure because that is when significant losses occur, including 
costs for maintenance and marketing. Managers of Federal guarantee pro

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grams have found that the best practice is to avoid taking the property 
into possession, and having to manage and dispose of foreclosed 
properties.
  RHS already operates under the ``best practice'' for asset 
disposition. The lender is paid the loss claim, including costs incurred 
for up to six months after the default. After the loss claim is paid, 
RHS has no involvement in the loan, and it becomes the sole 
responsibility of the lender. In FY 2000, RHS will shorten the loss 
claim period from six months to three months through regulatory changes 
to encourage lenders to dispose of properties as efficiently as 
possible.
  In 1998 the Administration proposed and Congress passed legislation 
giving new authority to FHA to pay claims prior to foreclosure, thereby 
allowing FHA to pass along defaulted notes to the private sector for 
servicing and/or disposition. When fully implemented, this new authority 
will reduce foreclosures and, for properties that do go into 
foreclosure, this new authority will greatly reduce the time such 
properties remain on the market.
  In 1999, VA will eliminate its role in the disposition of foreclosed 
properties by outsourcing this function to the private sector. Thus, all 
three housing guarantee programs will be following ``best practice.''

RHS Single-family Direct 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. The most recent and on-going servicing 
improvement effort is the implementation of the Dedicated Loan 
Origination Service System (DLOS), which centralizes the servicing of 
the 502 Direct Loan program. DLOS has been a recent servicing 
improvement and, in conjunction with 2 major regulations implemented 
between 1996 and 1997, reduced RHS's direct loan subsidy rate by 40 
percent.

RHS Multi-family Loans

  RHS also offers direct loans to private developers to construct and 
rehabilitate multi-family rental housing for very-low-to low-income 
residents, elderly households, or handicapped individuals. It provided 
$151 million in direct loans in 1998, that will provide 7,890 units for 
very-low-income tenants. For the first time under permanent 
authorization, RHS obligated $39.7 million in loan guarantees for multi-
family housing in 1998. The loan level is proposed to increase to $200 
million for FY 2000, providing 5,380 new units for low to moderate 
income tenants. The cost of this program is primarily due to the 
subsidized interest component because default rates are expected to be 
low. The budget includes a legislative proposal to remove the 
requirement to provide subsidized interest on these loans, which would 
result in a negative subsidy. The budget also provides $40 million, a 33 
percent increase over FY 1999, for the farm labor housing program ($25 
million in loans; $15 million in grants) as part of USDA's civil rights 
initiative, which will provide an estimated 960 units for minority 
farmworkers and their families.

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, their business activities have a significant impact on the 
housing finance sector of the U.S. economy. 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. As of 
September 1998, Fannie Mae and Freddie Mac had $1.7 trillion outstanding 
in mortgages purchased or guaranteed. Of this, $0.6 trillion was 
retained in the GSEs' portfolios and $1.1 trillion was issued as MBSs 
(excluding MBSs held in portfolio).
  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. Both GSEs have 
consistently met the minimum capital requirements, which are based on 
leverage ratios. The risk-based capital requirements will be based on a 
stress test. 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 for public comment in 
1999.
  As required by the 1992 Act, the Secretary of Housing and Urban 
Development (HUD) 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-in-come 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 1997-99. Fannie Mae and Freddie Mac each achieved all 
three goals in 1996 and 1997. HUD expects to publish new affordable 
housing goals for 2000 and thereafter in 1999.
  In recent years, the GSEs have sought to maintain rapid growth in 
their earnings through even more rapid growth of their debt-financed 
holdings of mortgage as

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sets. From September 1997 to September 1998, outstanding retained GSE 
holdings grew 28 percent in dollar volume, while total outstanding 
mortgage purchases grew 14 percent. Increased asset volumes imply 
increased risk exposures, as do some new activities, such as purchases 
of lower quality mortgages.
  By contrast, some of the GSEs' new business activities and innovations 
may enhance their risk management capabilities. 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 gradual development of risk-based 
pricing may more closely tie revenues to potential losses. For holders 
of mortgage credit risk, sophisticated risk measurement and pricing 
tools continue to lead 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, 1998, 6,806 financial institutions were FHLBS members, an 
increase of 388 over September 1997. About 71 percent of members are 
commercial banks, 25 percent are thrifts, and the remaining 4 percent 
are credit unions and insurance companies. However, nearly 50 percent of 
outstanding FHLBS advances were held by Federally-chartered thrifts as 
of September 30.
  The FHLBS reported net income of $1.6 billion for the year ending 
September 30, 1998, up from $1.5 billion in the previous 12 months. 
System capital rose from $18 billion to $21 billion, while the ratio of 
capital to assets fell from 5.7 percent to 5.4 percent. Average return 
on equity was about 6.7 percent, after adjustment for payment of 
interest to the Resolution Funding Corporation (REFCorp). Outstanding 
advances to members reached $246 billion at September 30, 1998, a 35 
percent increase over the $182 billion outstanding a year earlier. 
System investments other than advances fell to $136 billion, or about 35 
percent of total assets, as of September 30, 1998. A year earlier, 
investments stood at $138 billion, or 42 percent of total 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 to provide discounted advances for targeted 
housing and community investment lending through a Community Investment 
Program. 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 System risk.
  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 FHLBanks face minimal credit risk on advances, the System's 
investment activities, including certain ``pilots,'' do create certain 
risks. To control the System's risk exposure, the Federal Housing 
Finance Board (FHFB), the System's regulator, has established 
regulations and policies that the FHLBanks must follow to evaluate and 
manage their credit and interest rate risk. FHLBanks must file periodic 
compliance reports, and the FHFB conducts an annual on-site examination 
of each FHLBank. Each FHLBank's board of directors must establish risk 
management policies that comport with FHFB guidelines.
  As a pilot activity, the FHFB has allowed some of the FHLBanks to 
underwrite mortgages jointly with their members. Under one such pilot, 
the FHLBanks finance the loans and assume the interest rate and 
prepayment risks, while the members originate and service the loans and 
assume the credit risk. All assets held by a FHLBank under this pilot 
are required, pursuant to the terms of the program, to be credit 
enhanced to at least the level of an AA security. Through these pilot 
programs, the FHLBS is expanding its traditional role as a wholesale 
lender as a means of promoting housing finance and community investment.
  The FHLBS' investment activities also pose important public policy 
issues about the degree to which the composition of assets on the FHLBS' 
balance sheet adequately reflects the mission of the System. Over the 
last year, outstanding advances as a percentage of the System's 
outstanding debt increased by nearly ten percent. In addition, as of 
September 30, 1998, about 60 percent of advances outstanding had a 
remaining maturity of greater than one year--up from about 40 percent a 
year earlier. Despite this progress, investments (other than advances) 
currently represent over one-third of the System's assets and are used 
to conduct extensive arbitrage--the System issues debt securities at 
close to U.S. Treasury rates and invests the proceeds in other, higher-
yielding securities. In fact, in 1998 the FHLBS issued $2.4 trillion in 
debt securities and became the world's largest issuer of debt. However, 
the majority of debt issued by the System is short-term, and total debt 
outstanding was only about $336 billion at the end of 1998.
  An enormous, liquid, and efficient capital market exists for 
conventional home mortgages today. And, over

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the years, the FHLBS has played an important role in developing and 
expanding this market. The FHLBanks continue to provide valuable 
services to their members. They assist members in remaining competitive 
in housing finance and managing interest-rate risk, and offer their 
members a reliable source of funds, as evidenced by the recent increase 
in advances. However, as a result of GSE and Federal agency sponsorship 
of secondary markets and the increasing presence of private 
securitizers, lenders have access to substantial liquidity sources other 
than FHLBS advances. As with other GSEs, the role and risks of the FHLBS 
will be tested 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

  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 2000, more than 6 million borrowers will receive 9.4 million loans 
totaling over $41 billion. Of this amount, $34 billion is for new loans 
and the remainder is 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 4,100 lenders, 36 State 
and private guaranty agencies, 50 participants in the secondary markets, 
and nearly 4,000 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. In FY 2000, FFEL lenders will disburse 
more than 6 million loans exceeding $25 billion in principal. Lenders 
bear two percent of the default risk, and the government and guaranty 
agencies are responsible for the remainder. The Department also makes 
administrative payments to guaranty agencies and pays interest subsidies 
to lenders.
  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 1,300 schools, 
which then disburse loan funds to students--greatly streamlining loan 
delivery for students, parents, and schools. In FY 2000, the FDSL 
program will generate more than 3.4 million loans with a total of over 
$16 billion. 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 provide additional benefits to students. Proposed changes will save 
$4.6 billion over five years.
  The Administration is proposing to extend the temporary Consolidation 
Loan policies included in the recent Higher Education Amendments of 1998 
(HEA) through the end of fiscal year 2000. This proposal would maintain 
the interest rate on Direct Consolidation Loans--scheduled to increase 
on February 1, 1999--at the 91-day Treasury bill rate plus 2.3 percent, 
producing significant savings for students while encouraging competition 
between the Direct Loan and Federal Family Education Loan programs. The 
proposal would also maintain the reduced FFEL Consolidated Loan holder 
fee at 0.62 percent of outstanding volume, rather than increase the fee 
to 1.05 percent on February 1, 1999, as required under the HEA.
  The Administration is also proposing to improve the management and 
collection of defaulted loans through four new initiatives, three of 
which build on provisions enacted in the HEA. First, the amount guaranty 
agencies may retain on default collections will be reduced from 24 
percent to 18.5 percent--approximately the rate paid on loans collected 
by the Department of Education through competitively awarded contracts. 
This will provide the guaranty agencies greater incentive to increase 
collections on defaulted loans in order to bolster revenues. Second, the 
Administration proposes increasing true risk-sharing between the Federal 
government and guaranty agencies. Complementing the reduction of re-
insurance to guaranty agencies from 98 to 95 percent specified in HEA, 
the Administration proposes eliminating provisions that allow agencies 
to recoup this 5 percent cost from subsequent default collections. As 
such, the Administration expects greater emphasis on default avoidance 
activities. Third, the HEA extended the time before lenders may submit a 
default claim on a delinquent loan from 180 days to 270 days. In order 
to promote risk-sharing and increase lenders' incentive to bring these 
loans back into repayment, the Administration is proposing that interest 
not continue to accrue during this additional 90-day period. Again, this 
proposal provides default avoidance incentives. Lastly, data from the 
Department of Health and Human Services' National Directory of New Hires 
(NDNH) will be made available to assist in the Department of Education's 
default collection efforts. Defaulted

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debtor data matching will provide the Department of Education with 
current borrower address information for collection activities.
  The Administration is also proposing to expand the use of voluntary 
agreements which were created by the HEA to afford greater regulatory 
flexibility to a limited number of guaranty agencies. The broader 
availability of these voluntary flexible agreements will reduce the need 
for agencies to hold Federal reserve funds; accordingly, the 
Administration is proposing to bring forward and augment the reserve 
recall provisions included in the HEA. The Administration would recall a 
total of $1.5 billion in additional reserves over fiscal years 2000-
2004.
  The Administration is proposing to reduce interest subsidy payments to 
20 basis points on FFEL loans funded through tax-exempt securities. This 
reduction will bring lender returns on these loans in line with those 
realized on loans funded with private capital.
  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 1,700 schools. An additional 300 schools were eliminated 
from the student loan programs, but remain eligible for other Federal 
student aid. This has helped reduce the national student loan cohort 
default rate from 10.4 percent for 1995 to 9.6 percent for 1996, 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.
  As one of Education's Performance Management Objectives, modernizing 
student aid benefit delivery is a key priority. Accordingly, the 
Department has converted the Office of Student Financial Assistance into 
the government's first-ever Federal performance-based organization. The 
PBO is designed to improve the management of all student aid programs, 
using its expanded procurement and contracting flexibilities. This new 
organization will focus on re-engineering information systems and 
expanding electronic data exchange to improve customer service, enhance 
data quality, and lower costs. The PBO will work with students, lenders, 
guaranty agencies, and others to develop a strategic performance plan to 
address customer needs, enabling more students to gain information on 
Federal aid on the Internet, apply for it electronically, and have their 
eligibility determined quickly.

Sallie Mae

  The Student Loan Marketing Association (Sallie Mae) was charted by 
Congress in 1972 as a for-profit, shareholder-owned, Government-
sponsored enterprise (GSE). Sallie Mae was privatized in 1997 pursuant 
to the authority granted by the Student Loan Marketing Association 
Reorganization Act of 1996. The GSE is a wholly owned subsidiary of SLM 
Holding Corporation and must wind-down and be liquidated by September 
30, 2008. Legislation in the Omnibus Consolidated and Emergency 
Supplemental Appropriations for FY 1999 allows the SLM Holding 
Corporation to affiliate with a financial institution upon the approval 
of the Secretary of the Treasury. Any affiliation will require the 
holding company to disolve the GSE within two years of the affiliation 
date.
  Sallie Mae makes 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). Generally, under the 
privatization legislation, the GSE cannot engage in any new business 
activities or acquire any additional program assets other than 
purchasing student loans. The GSE can continue to make warehousing 
advances under contractual commitments existing on August 8, 1997. 
Sallie Mae currently holds about one-third of all outstanding guaranteed 
student loans.

         Business and Rural Development Credit Programs and GSEs

Small Business Administration

  Over the past six years, SBA has expanded small businesses' access to 
credit, increasing its annual loan volume by 55 percent, from $7.4 
billion in 1993 to $11.5 billion in 1998. This increase, across all of 
SBA's business credit programs, has occurred while staffing has been 
reduced by about 20 percent. Although SBA's general business lending 
declined slightly in FY 1998 due to a favorable interest rate climate 
and commercial lenders' aggressive small business lending goals, the 
expansion of SBA's venture capital and capital asset financing programs 
contributed to a net $5 billion increase in the total guaranteed 
portfolio in FY 1998.
  SBA's principal program, Section 7(a) General Business Loans, has 
improved access to credit for the Nation's most under-served small 
businesses over the last three years through several successful 
initiatives. The Low Documentation (LowDoc) initiative reduced the 
application form for 7(a) loans under $100,000 to a single page, 
allowing both lenders and SBA to process loans in less than two days. 
The SBAExpress program (the former FA$TRACK pilot, now permanent) allows 
lenders to use their own forms and procedures in exchange for a reduced 
Government guarantee. These initiatives--and aggressive lending goals--
have helped to increase loan approvals to minority-and women-owned 
businesses from $1.8 billion in FY 1993 to $4 billion in FY 1998.




[[Page 192]]

Increasing Access to Credit

  SBA is proposing several new intiatives to further expand access to 
credit by qualified borrowers who are unable to secure financing without 
Government participation.

  Targeting ``new markets.'' In FY 2000, SBA proposes to target ``new 
markets''--regions where small business growth has been very limited. 
The proposed initiatives will provide patient capital and technical 
assistance to private-sector lenders and non-financial intermediaries in 
underserved inner cities and rural areas. SBA will also expand the 
number of participating intermediaries in the microloan program, which 
to date has experienced no defaults as a result of strict agency 
oversight and rigorous reserve requirements.
  Financing smaller loans. Commercial lenders frequently avoid making 
smaller loans due to high fixed costs per dollar lent, resulting in an 
access barrier for many startup firms or established firms whose 
financing needs do not meet the lenders' minimum thresholds. To close 
this access gap, SBA is proposing to standardize the guarantee fee and 
to increase the maximum guarantee percentage to 80 percent on loans up 
to $150,000 in order to provide an incentive to lenders to make these 
loans. This will result in higher subsidy costs due to reduced fee 
revenue and higher claim payments in the event of default.

Integrating Private Sector Practices

  Reliance on private sector partners. With its portfolio growing from 
$20.7 billion in FY 1993 to $35.0 billion in FY 1998, SBA has relied 
increasingly on private sector partners for loan servicing and 
liquidation. The 7(a) program, which accounted for more than 70 percent 
of SBA's business lending in FY 1998, has experienced the greatest shift 
to private partnership. Under the Preferred Lender Program (PLP), SBA's 
most experienced lenders have authority to approve, service, and 
liquidate SBA-guaranteed loans in exchange for a reduced guarantee. 
Loans approved through PLP lenders comprised 58 percent of all 7(a) 
loans approved in FY 1998, a share that is expected to continue to grow. 
SBA also requires all non-PLP lenders to service and liquidate their 
SBA-guaranteed loans. These policies have shifted SBA's principal role 
from origination and servicing to one of oversight and monitoring of 
private sector partners.
  In FY 2000, SBA proposes to broaden the universe of firms eligible to 
make SBA-guaranteed loans by licensing up to 10 New Markets Lending 
Companies, some of which may also fall into the category of Small 
Business Lending Companies, SBA-approved and monitored non-depository 
lending institutions. These non-financial intermediaries often operate 
in regions where qualified borrowers' access to credit through 
traditional commercial financial institutions is limited. In addition, 
the Section 504 Certified Development Company (CDC) liquidation pilot 
program was made permanent in FY 1998. Under this program, qualified 
CDCs service and liquidate SBA-guaranteed Section 504 development 
company debentures, increasing the agency's reliance on its non-Federal 
partners.

  Need for better oversight tools. Over the past six years, SBA has 
significantly increased its loan portfolio, reduced staffing, and 
delegated its servicing and liquidating authorities to its private 
sector partners. During this period, commercial small business lenders 
have become increasingly more sophisticated in identifying credit risk, 
and many 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. To 
ensure that the agency meets its portfolio management responsibilities, 
SBA will invest $8 million in 1999 to improve portfolio oversight. An 
additional $8 million is requested for 2000. This funding will allow SBA 
to improve internal accounting systems, 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 private 
sector partners.

  Reform initiatives. In FY 2000, SBA will continue to shift from loan 
servicing to lender oversight. Initiatives already in progress 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 
credit, while relying on private lenders to perform functions where they 
have historically been more efficient. In conjunction with this shift in 
agency focus, SBA is proposing to implement a multi-year workforce 
transition strategy, beginning in FY 2000, to retrain workers in the 
skills needed in the SBA of the 21st Century, move employees to those 
functions where their skills will be most utilized, and provide 
retirement incentives for those employees who do not wish to participate 
in the transition effort.
  Loan asset sales. One of the most significant events in completing the 
transition from loan servicing to lender oversight is SBA's planned sale 
of its current portfolio of defaulted guaranteed loans and direct loans 
in 1999, 2000, and 2001. The Disaster loan portfolio will be sold in 
1999 and 2000. Implementation of an ongoing sales program will be based 
upon the knowledge gained in these upcoming sales. Drawing on the 
experience of Federal agencies such as the Resolution Trust Cor

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poration 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 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.

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.
  USDA also provides grants, direct loans, and loan guarantees to assist 
rural businesses, including cooperatives, to increase employment and 
diversify the rural economy. In 2000, 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 $1.1 billion in 1998. The default rate for 
these community 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 and localities. 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 the FY 1998 and 1999 bills still did not allow 
transfers between funding streams. The budget proposes $668 million for 
a fully flexible RCAP.

Electric and Telecommunications Loans

  USDA's rural electric and telecommunications program makes new loans 
to maintain existing infrastructure and to modernize electric and 
telephone service. Historically, the Federal risk associated with the 
$33 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 $667 
million was written off in 1997. However, both the telephone and 
electric industries are moving into a more competitive environment.
  In the electric industry, increased deregulation may erode loan 
security and the ability of some 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. 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 equal to the Treasury rate. This 
loan program would be an additional tool to help provide for the 
increasing demand for electric distribution loans as rural borrowers 
begin to position themselves in a newly competitive deregulated 
environment. The demand for loans to rural electric coops is expected to 
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 2000 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 2000. 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 
will 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 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. As FSA is the ``lender of last resort,'' high defaults and 
delinquencies are inherent in the direct loan program; over $15 billion 
in direct farm loans have been written off since 1988.
  FSA guaranteed farm loans are made to more credit-worthy 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, guaran

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teed farm loans have not experienced losses as high as those on direct 
loans.
  The 1999 Appropriations Bill changed portions of the servicing 
requirements for delinquent borrowers. A borrower who has received an 
FSA loan write-down or write-off may now be eligible for an additional 
farm operating loan when the borrower is current under a debt 
reorganization plan or in certain emergency circumstances. 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 the 1996 Farm 
Bill, 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 a business risk exceeding that of other GSEs because their 
borrowers are generally dependent on a single economic sector: 
agriculture. 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 provided Federal assistance to bail out 
the FCS and created Farmer Mac.
  The Nation's agricultural sector and its lenders are now on much 
firmer ground, although periodic commodity price and income declines, 
such as experienced in some parts of the country in 1998, highlight its 
continuing volatility. Strong farm income has enabled most borrowers to 
improve their debt-to-asset ratios, and lenders to augment their 
capital. Farmland prices regained most of their previous levels in 1997 
and generally held steady in 1998. Interest rates and inflationary 
expectations remain low. Credit usage by farmers and credit standards of 
lenders are more conservative. However, the emergence of non-
traditional, trade-credit lenders has increased competition among 
lenders.
  Another sign of the increasing health of agricultural finance is the 
greater share of credit provided by commercial banks. From 1986 to 1997, 
commercial banks' share of all farm debt increased from 24 percent to 41 
percent, while the share for FCS declined from 29 percent to 26 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 
through 1996, leveling-off in 1997. FCS is expected to maintain 1997 
market share levels in 1998 at 19 percent.

The Farm Credit System

  The Farm Credit System has achieved positive net income every year in 
the past decade, including over $1 billion in each of the last five 
years. Nonperforming loans increased slightly to 1.65 percent of the 
portfolio, up from 1.5 percent in 1997. Loan volume has gradually 
increased since 1992, although the $66.1 billion in September 1998 is 
far below the high of over $80 billion in the early 1980s. Increases in 
loan volume and declines in the cost of funds have widened the FCS's net 
interest margin from less than one percent in 1987 to 2.93 in 1997.
  Improved asset quality and income enabled FCS to post record capital 
levels: by September 30, 1998, capital stood at $12.4 billion--an 
increase of 9 percent for the year, 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 required of 
FCS institutions to cover the remainder. The FCS has further reduced its 
risk exposure by retiring all of its high-coupon long-term debt, using 
marginal cost loan pricing, and adopting 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 FCS 
districts with 36 banks plus 376 associations; by December 1998, there 
were only 6 FCS districts, 8 banks and 189 associations.
  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 paid by FCS 
institutions, supplement 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, 1998, the 
Insurance Fund's net assets were $1.2 billion, and are estimated to 
attain the statutorially required level of two percent of outstanding 
debt in 2000.
  Improvement in the FCS' financial condition is also reflected in the 
evaluations of FCS member institutions by 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 1998, in contrast, 201 
institutions were given the top ratings, only 3 received the mid-range 
rating of ``3,'' and none 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, but only 1 institution, 
with 0.5 percent of the FCS's assets, in 1998.
  FCS loans outstanding as of September 1998 were $66 billion, up 5 
percent over 1997, and representing a 32 percent increase since 1990. 
Loans to farmers and other eligible producers comprise 73 percent of the 
System's portfolio. The volume of lending secured by farm land has been 
generally stagnant since 1990, but farm operating loans have increased 
by 41 percent since

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1992, with most of the gain since 1994. Loans to finance processing, 
marketing, credit cooperatives, and rural utilities cooperatives 
accounted for 21 percent of FCS's portfolio at fiscal year-end 1998.
  During 1997, the FCA published regulations that expand the 
agriculture-related business 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, such as 
hiring owner/operators of harvesting machinery. 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 (where the 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. From 1995 through 1998, FCS's loan growth 
rate increased, in part due to more aggressive lending as its capital 
strengthened. Volatility of agricultural exports and crop prices will 
continue to be a risk factor for future repayment and collateral 
capacity. However, 1998 farm income, including government assistance, is 
anticipated be the fourth highest on record at $48 billion, down from 
$49.8 billion in 1997.

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's authorities have 
been legislatively expanded to permit it 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 (known as the ``Farmer Mac II'' program). 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 is exposed to greater 
risk and must set appropriate fees and level of capital reserves.
  Farmer Mac has 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.
  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 1998 capital is estimated to be about $80 million--three times 
greater than the 1996 statutory capital requirement and fully compliant 
with the revised regulatory capital requirements.

                      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.
  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 strategically ``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. financial

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institutions to facilitate exports to buyers in countries where credit 
is necessary to maintain or increase U.S. sales. The GSM programs are 
targeted to countries where government guarantees are needed to counter 
competition from countries that offer credit through ECAs or commodity 
marketing boards.
  The increase in world trade and the globalization of capital markets 
have officially supported direct and guaranteed credit, including export 
credit, somewhat less important in recent years. Aggregate net resource 
flows to all developing countries grew from $144 billion in 1992 to $300 
billion in 1997. In comparison, resource flows from official direct or 
guaranteed credit fell from $23 billion in 1992 to $10 billion in 1997.

  Stabilizing international financial and commercial 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.
  ESF support was offered in response to the crises in some Asian 
economies, including South Korea. These ESF facilities would have 
carried interest rates that would have resulted in zero subsidy cost for 
the United States as defined under credit reform. While the ESF was not 
drawn upon by any of these countries, the offer in and of itself helped 
to provide the international confidence needed by these countries to 
begin the stabilization process.
  Export credit programs also help to ensure continued access for US 
exporters to important overseas markets facing liquid problems. In 
response to the Asian financial crisis, USDA's GSM programs in FY 1998 
were expanded by 40 percent (to $4 billion) over the previous year to 
assist these countries in meeting their food and agricultural import 
needs.

  Supporting more manufacturing exports in more markets. In FY 1998, Ex-
Im Bank supported exports totaling $13 billion with a budget of $683 
million. Ex-Im Bank's role is particularly critical now, because banks 
have rolled back, or stopped in some cases, providing credit to many 
developing countries that are key markets for U.S. exports. The FY 2000 
budget proposes $81 million in additional funds for Ex-Im Bank--10 
percent above its FY 1999 budget of $815 million--so that Ex-Im Bank 
can:
     Help meet the demand for financing aircraft and capital 
          equipment exports in developing markets. One of every four 
          U.S. commercial aircraft is sold to an Asian airline, but 
          commercial credit has decreased drastically because of Asia's 
          economic problems. Ex-Im Bank currently finances 10 percent of 
          all U.S. capital equipment exports to the developing world. 
          More funding will allow Ex-Im to provide significantly more 
          long-term financing for exports of U.S. manufactured capital 
          goods and aircraft.
     Expand short-term and medium-term credit to keep U.S. 
          products flowing to emerging markets where private sector 
          financing is no longer available. Ex-Im Bank supported 2,400 
          transactions involving more than $1 billion in U.S. exports to 
          Korea in 1998 (up from $50 million in 1997). Ex-Im has been 
          active in expanding support for U.S. businesses seeking to 
          sell goods and services to Brazil. To date in FY 1999, Ex-Im 
          has opened for financing short-, medium-, and long-term 
          transactions in the public sector and has increased its credit 
          limit to certain Brazilian banks seeking to purchase U.S. 
          products.
     Finance exports to riskier markets. U.S. exporters 
          increasingly seek Ex-Im financing to meet the demand in 
          riskier markets, but the higher cost of providing such 
          financing strains Ex-Im's budget. Ex-Im support is critical in 
          these markets because bank financing often is unavailable, and 
          U.S. exporters compete with government-financed foreign firms.

  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. Increased funding 
for this program has been requested in the FY 2000 budget. However, 
these funds cannot be used until OMB certifies that USAID can adequately 
manage its credit programs, as required in the FY 1998 Foreign 
Operations Appropriations Act. USAID is outsourcing many of its credit 
management activities in order to comply with this requirement.
  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. OPIC has 
implemented investment funds, on-lending facilities, and bond 
insurance--building onto its traditional political risk insurance, 
lending, and guarantee products.

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  International lending cost estimates. Since 1992, the President's 
budget requests have used the same assumptions about default risk in 
international lending. These assumptions became less accurate 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.
  Beginning with the FY 1999 budget, 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), were used to 
estimate the cost of U.S. Government international lending. The new 
premia reflect 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, and on transaction-specific risks for credits that do not have 
a sovereign guarantee from the beneficiary country. Most international 
credit agencies charge borrowers fees that substantially offset the cost 
due to credit risk. The FY 2000 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 protect depositors 
against 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 
savings associations (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 $2.8 trillion at over 8,900 commercial banks and about 
1,700 savings institutions. The NCUA insures 11,125 credit unions with 
$308 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 of 1989 and the Federal Deposit Insurance 
Corporation Improvement Act of 1991. These reforms, combined with more 
favorable economic conditions, helped to restore the health of 
depository institutions and the deposit insurance system. No thrifts 
have failed in the last two years, and only three relatively small 
commercial banks failed during 1998. Nineteen credit unions with $15 
million in assets failed during 1998. The FDIC currently classifies only 
88 institutions with $8 billion in assets as ``problem'' institutions, 
compared to nearly 575 institutions with over $300 billion in assets 
just five years ago.
  Banks have achieved record levels of earnings in recent years, which 
enabled the industry to recapitalize BIF in 1995 up to its statutorily-
designated reserve ratio of 1.25 percent of insured deposits. As of 
September 30, 1998, BIF had estimated reserves of $29 billion, 1.41 
percent of insured deposits.
  The earnings of the thrift industry also have improved significantly 
in recent years. With record profits again in 1998, 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. By 
September 30, 1998, SAIF's reserves reached an estimated $9.7 billion or 
1.39 percent of insured deposits. However, on January 1, 1999, in 
accordance with the DIFA, the FDIC was required to transfer all funds in 
the SAIF above 1.25 percent to a Special Reserve. Approximately $1 
billion was transferred and is available only if SAIF's reserve ratio 
falls below 0.625 percent.
  The FDIC continues to maintain deposit insurance premiums in a range 
from zero for the healthiest institutions to 27 cents per $100 of 
deposits for the riskiest institutions. Due to the strong financial 
condition of the industry and the insurance funds, 95 percent of 
commercial banks and 92 percent of thrifts did not pay insurance 
premiums in 1998.
  The National Credit Union Share Insurance Fund (NCUSIF) also remains 
strong with assets of $3.8 billion. Each insured credit union is 
required to deposit and maintain in the fund an amount equal to 1 
percent of its member share accounts. In 1998, 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 fourth consecutive year that the 
Fund paid a dividend to feder

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ally insured credit unions. The Board also waived premiums for 1999.
  Although depository institutions and their Federal insurance funds 
currently are in good financial condition, the U. S. economy has 
experienced strong growth in recent years. This trend is unlikely to 
continue indefinitely. An economic downturn, international events or 
other changes in the industry could put pressure on industry profits and 
ultimately the deposit insurance funds. In the last quarter of fiscal 
1998, some large banks reported lower-than-expected earnings from their 
international operations due to recent international economic crises.

  Legislative, Judicial and Regulatory Developments. Recent marketplace 
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 to increasing integration and 
efficiency in the financial services sector.
  In May 1997, the Administration presented to Congress its 
recommendations for modernizing the financial services industry and 
developing a common depository institution charter. The Administration's 
proposal would have removed Depression-era barriers to competition, 
preserved the safety and soundness of our Nation's depository 
institutions, and protected consumer rights. The proposal also would 
have promoted competition and efficiency within the industry, fostering 
the creation of new products and services and benefiting consumers. 
However, Congress did not pass legislation to modernize the financial 
services industry during the last session.
  On February 25, 1998, the Supreme Court (in National Credit Union 
Administration v. First National Bank and AT&T Family Federal Credit 
Union v. First National Bank) struck down NCUA's longstanding policy of 
allowing credit unions to accept members from multiple fields of 
membership. On August 7, 1998, the President signed the Credit Union 
Membership Access Act, overturning the Supreme Court's ruling and 
allowing credit unions to accept members from multiple employers with 
fewer than 3,000 employees. This will allow smaller firms and 
associations greater opportunity to offer credit union services to their 
employees and members. NCUA promulgated rules to implement this 
legislation in January 1999, which is expected to increase the growth 
rate and total size of credit unions and the NCUSIF.
  The Federal regulators of depository institutions (FDIC, Comptroller 
of the Currency, Office of Thrift Supervision, NCUA, and the Federal 
Reserve) are aggressively reaching out to educate banks, thrifts, and 
credit unions about the ``Year 2000 Problem,'' which refers to the 
possibility that information technology and computer-aided systems may 
malfunction on January 1, 2000 due to computer programming that reads 
the date improperly. The regulators are conducting on-site examinations 
of depository institutions and some of their service providers. They are 
prepared to close institutions which fail to prevent disruptions to the 
financial and payments systems and to protect depositors. As a result of 
regulators' actions, the vast majority of depository institutions should 
be ready for the Year 2000 date change well in advance of January 1, 
2000.

                           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 that are 
currently healthy but become distressed, and from changes in the funding 
of plans and their investment results.
  The number of plans insured by PBGC has been declining as small 
companies with defined benefit plans terminate them and shift to defined 
contribution pension arrangements such as 401(k) accounts. The number of 
plans with 1,000 or more participants has increased slightly since 1980. 
However, the number of active workers in defined benefit plans declined 
from 29 million in 1985 to fewer than 25 million in 1994. If the trend 
continues, by 2005 fewer than half of the participants in defined 
benefit plans will be active workers.
  In 1998, PBGC posted a positive financial position for the third 
straight year after 21 years of being in a deficit position. This was 
due to good economic conditions and favorable investment returns. But 
risk remains. That risk has been reduced somewhat by steps taken by PBGC 
and the Congress. Since 1990, PBGC has been working to more actively to 
prevent and mitigate losses. Under its Early Warning Program, PBGC has 
negotiated more than 75 major settlements, providing more than $16 
billion in new pension contributions from companies and improving 
pension security for 1.8 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.
  The Retirement Protection Act of 1994 (RPA) also is strengthening 
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 also required companies to notify participants if the 
plan is

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less than 90 percent funded, so companies have increased funding to 
avoid giving this notice. In addition, RPA requires privately held 
companies with seriously underfunded plans to give PBGC advance notice 
of certain transactions that potentially are harmful to their plans.
  PBGC fared well in 1998. There were no major plan terminations, and 
investment performance was strong. Premium revenues dropped somewhat, 
largely reflecting lower underfunding-related premiums because of 
improved pension funding and a previously-enacted increase in the 
statutory interest rate for calculating the underfunding.
  The multiemployer program guarantees pension benefits of certain 
unionized plans offered by several employers in an industry. The program 
continues to be financially strong. The Administration proposes 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.
  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 a worker's retirement years. The new plan is 
designed to be fully funded virtually constantly, but also would be 
protected by PBGC at a reduced premium. The budget also proposes 
expanding the PBGC's missing participant program to multiemployer and 
defined-contribution plans.

                           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.
  The flood insurance policy base grew by approximately 10 percent from 
1997 to 1998, exceeding the goal of a 5 percent increase set in 1997. 
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 more accurate insurance rating, and promote public awareness 
of flood insurance and flood risk.
  In 1997, the NFIP offered expanded insurance to cover increased costs 
of compliance (ICC), as authorized by the National Flood Insurance 
Reform Act of 1994. This separate 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 1999 and 2000, FEMA will continue efforts to reduce future flood 
damage by educating Federal financial regulators about mandatory flood 
insurance requirements for federally related home and business loans on 
properties 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.
  The President's FY 2000 budget proposes two additional reforms of this 
program. First, $12 million is requested to begin the process of 
purchasing and/or elevating insured properties that have filed four or 
more flood insurance claims over the last 10 years. This effort will 
ultimately result in lower claims payments. Second, the budget includes 
a proposal to charge a $15 mortgage transaction fee, to supplement a 
request of $5 million in discretionary funds, to support a multi-year 
program to update and modernize FEMA's inventory of floodplain maps. 
These maps are essential in developing appropriate risk-based flood 
insurance premium charges, will ensure that property owners have 
appropriate levels of insurance, and will result in a more actuarially 
sound program.

Crop Insurance

  Subsidized Federal crop insurance administered by USDA assists farmers 
in managing 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

[[Page 200]]

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.) In 1995, 82 percent of eligible acres 
particiated 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.'' To begin to address the safety net problem, the 1998 
Budget proposed to expand the crop insurance program to include 
``revenue insurance'' coverage. Revenue insurance protects farmers 
against lost revenue caused by low prices, low yields, or any 
combination of the two. Revenue insurance programs are now available in 
36 states and further expansion is being studied. The Administration 
will work with the Congress to enact further improvements to the Crop 
Insurance program in 1999.
  To ensure that sufficient funding is available to provide agent sales 
commissions, the 1998 Agricultural Research, Extension, and Education 
Reform Act shifted Federal funding to reimburse this private sector 
administrative costs shifted from discretionary spending back to 
mandatory spending through the Federal Crop Insurance Corporation Fund. 
Further, the Administration developed, and Congress adopted, a 
combination of program changes to reduce program costs such as reducing 
the reimbursement rate paid to the private insurance companies from the 
current 27 percent of premium to 25 percent and increasing 
administrative fees.

[[Page 201]]




[[Page 202]]





         Table 8-1.  ESTIMATED FUTURE COST OF OUTSTANDING FEDERAL AND FEDERALLY ASSISTED CREDIT PROGRAMS
                                            (in billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated                      Estimated
                                                     Outstanding  Future Costs of   Outstanding  Future Costs of
                      Program                           1997            1997           1998            1998
                                                                  Outstanding \1\                Outstanding \1\
----------------------------------------------------------------------------------------------------------------
Direct Loans: \2\
  Federal Student Loan Programs...................         35               1             49               2
  Farm Service Agency (excl.CCC), Rural
   Development, Rural Housing.....................         47              14             46              14
  Rural Electrification Admin. and Rural Telephone
   Bank...........................................         30               6             30               4
  Housing and Urban Development...................         13               3             14               2
  Agency for International Development............         13               6             12               6
  Public Law 480..................................         11               7             11               7
  Export-Import Bank..............................         10               2             11               3
  Commodity Credit Corporation....................          9               1              9               2
  Federal Communications Commission...............          7               1              7               2
  Disaster Assistance.............................         10     ...............          7               1
  Other Direct Loans..............................         11               1             21               5
                                                   -------------------------------------------------------------
  Total Direct Loans..............................        196              41            217              45
                                                   -------------------------------------------------------------
Loan Guarantees: \2\
  FHA Mutual Mortgage Insurance Fund..............        361              -1            380              -2
  VA Mortgage.....................................        170               4            200               5
  Federal Family Education Loan Program...........         96              13            101               4
  FHA General/Special Risk Insurance Fund.........         88               7             89               7
  Small Business..................................         34               2             37               2
  Export-Import Bank..............................         22     ...............         22               1
  International Assistance........................         18               1             19               1
  Farm Service Agency and Rural Housing...........         12     ...............         14     ...............
  Other Loan Guarantees...........................         21               4             20               4
                                                   -------------------------------------------------------------
  Total Loan Guarantees...........................        822              30            882              22
                                                   -------------------------------------------------------------
  Total Federal Credit............................      1,018              72          1,099              67
                                                   -------------------------------------------------------------
Government-Sponsored Enterprises: \3\
  Federal National Mortgage Association...........        862     ...............        989     ...............
  Federal Home Loan Mortgage Corporation..........        627     ...............        702     ...............
  Federal Home Loan Banks \4\.....................        182     ...............        238     ...............
  Student Loan Marketing Association \5\..........  ............  ...............  ............  ...............
  Farm Credit System..............................         59     ...............         60     ...............
                                                   -------------------------------------------------------------
  Total Government-Sponsored Enterprises..........      1,730     ...............      1,989     ...............
                                                   =============================================================
      Total.......................................      2,748              72          3,088              67
----------------------------------------------------------------------------------------------------------------
\1\ Direct loan future costs are the financing account allowance for subsidy cost and the liquidating account
  allowance for estimated uncollectible principal and interest. Loan guarantee future costs are estimated
  liabilites for loan guarantees.
\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 as
  direct 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 1998 was $135
  billion, including federally guaranteed securities and GSE securities.
\5\ The face value and Federal costs of Federal Family Education Loans in Student Loan Marketing Association's
  portfolio are included in the account of that program under guaranteed loans above.


[[Page 203]]


                                  Table 8-2.  REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED BETWEEN 1992--1998 \1\
                                                                (In millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Program                                            1994       1995       1996       1997       1998       1999
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Loans:
  Agriculture credit insurance fund...................................................      -72         28          2        -31         23    .........
  Agricultural conservation...........................................................       -1    .........  .........  .........  .........  .........
  Rural electrification and telephone loans...........................................        *         61        -37         84    .........      -79
  Rural telephone bank................................................................        1    .........  .........       10    .........      -12
  Rural housing insurance fund........................................................        2        152         46        -73    .........       82
  Rural economic development loans....................................................  .........  .........  .........        1    .........       -2
  Rural development loan program......................................................  .........        1    .........  .........  .........       -7
  Rural community advancement program \2\.............................................  .........  .........  .........        8    .........        4
  P.L. 480 Title I loan program.......................................................  .........  .........      -37         -1    .........  .........
  Federal direct student loans........................................................  .........  .........        3        -83        172       -361
  Bureau of Reclamation direct loans..................................................  .........  .........  .........  .........  .........        3
  BIA-Indian direct loans.............................................................  .........  .........  .........  .........  .........       18
  High priority corridor loans........................................................  .........  .........  .........  .........       -3    .........
  Veterans housing benefit program fund...............................................      -39         30         76        -72        465        -22
  Foreign military financing..........................................................  .........  .........  .........       13          4          2
  SBA-Disaster loans..................................................................  .........  .........  .........  .........     -193       -227
  Export-Import Bank direct loans.....................................................      -28        -16         37    .........  .........  .........
  Spectrum auction program............................................................  .........  .........  .........  .........    4,592    .........
 
Loan Guarantees:
  Agriculture credit insurance fund...................................................        5         14         12        -51         96    .........
  Commodity Credit Corporation export guarantees......................................        3        103       -426        343    .........  .........
  Rural development insurance fund....................................................       49    .........  .........       -3    .........  .........
  Rural housing insurance fund........................................................        2         10          7        -10    .........      122
  Rural community advancement program \2\.............................................  .........  .........  .........      -10    .........       49
  P.L. 480 Title I Food for Progress credits..........................................  .........       84        -38    .........  .........  .........
  Fisheries finance, guaranteed loans.................................................  .........  .........  .........  .........       -2    .........
  Federal family education (formerly GSL): \3\
    Technical reestimate..............................................................       97        421         60    .........  .........       63
    Volume reestimate.................................................................  .........  .........      535         99    .........     -216
  FHA-Mutual mortgage.................................................................  .........  .........  .........     -340    .........    1,264
  FHA-General and special risk........................................................     -175    .........     -110        -25        743    .........
  BIA-Indian guaranteed loans.........................................................  .........  .........  .........       31    .........      -17
  Maritime guaranteed loans (Title XI)................................................  .........  .........  .........  .........  .........      -85
  Veterans housing benefit fund guarantees............................................     -447        167        334       -706         38         34
  AID housing guaranty................................................................       -2         -1         -7    .........      -14    .........
  SBA-Business loans..................................................................  .........  .........      257        -16       -279       -545
  Export-Import Bank guarantees.......................................................      -11        -59         13    .........  .........  .........
                                                                                       -----------------------------------------------------------------
    Total.............................................................................     -616        995        727       -832      5,642         68
--------------------------------------------------------------------------------------------------------------------------------------------------------
* $500 thousand or less.
\1\ Additional information on credit reform subsidy rates is contained in the Federal Credit Supplement to the budget for 2000.
\2\ Includes rural water and waste disposal, rural community facilities, and rural business and industry programs.
\3\ 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 204]]


         Table 8-3. ESTIMATED 2000 SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS FOR DIRECT LOANS \1\
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                              Weighted
                                                                              average       Subsidy    Estimated
                            Agency and Program                              subsidy as a    budget       loan
                                                                           percentage of   authority    levels
                                                                           disbursements
----------------------------------------------------------------------------------------------------------------
Agriculture:
  Agricultural credit insurance fund.....................................          4.86           38         782
  Rural community advancement program....................................          5.99           72       1,200
  Rural electrification and telecommunications loans.....................          0.60            9       1,470
  Rural telephone bank...................................................          1.88            3         175
  Distance learning and telemedicine program.............................          0.35            1         200
  Rural housing insurance fund...........................................         12.24          156       1,274
  Rural development loan fund............................................         31.95           33         102
  Rural economic development loans.......................................         23.02            3          15
  P.L. 480...............................................................         82.46          114         138
 
Commerce:
  Fisheries finance......................................................          1.00            1          56
 
Education:
  Federal direct student loan program \2\................................         -5.16         -918      17,783
 
Housing and Urban Development:
  FHA-mutual mortgage insurance..........................................  .............  ..........          50
  FHA-General and special risk...........................................  .............  ..........          50
 
Interior:
  Bureau of reclamation loan.............................................         27.91           12          43
 
State:
  Repatriation loans.....................................................         80.00            1           1
 
Transportation:
  Minority business resource center......................................         11.00            2          14
  Federal-aid highways...................................................          9.00           79         884
 
Treasury:
  Community development financial institutions fund......................         31.05           17          53
 
Veterans Affairs:
  Miscellaneous veterans housing loans...................................          7.72   ..........          21
  Miscellaneous Veterans Programs loan fund..............................         35.02   ..........           3
  Veterans housing benefit program fund..................................         10.79           70         648
 
Federal Emergency Management Agency:
  Disaster assistance direct loan........................................          4.15            2          25
 
International Assistance Programs:
  Overseas private investment corporation................................         11.00           14         130
 
Small Business Administration:
  Disaster loans.........................................................         22.20           39         176
  Business loans.........................................................          8.54            4          47
 
Other Independent Agencies:
  Export Import Bank loans...............................................          1.90           32       1,687
                                                                          --------------------------------------
    Total................................................................         -0.57         -216      27,027
 
----------------------------------------------------------------------------------------------------------------
\1\ Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
\2\ Excludes savings from proposed modifications.


[[Page 205]]


       Table 8-4. ESTIMATED 2000 SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS FOR LOAN GUARANTEES \1\
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                              Weighted
                                                                              average       Subsidy    Estimated
                            Agency and Program                              subsidy as a    budget       loan
                                                                           percentage of   authority    levels
                                                                           disbursements
----------------------------------------------------------------------------------------------------------------
Agriculture:
  Agricultural credit insurance fund.....................................          1.57           35       2,226
  Commodity Credit Corporation export loans..............................          9.76          440       4,506
  Rural community advancement program....................................          2.28           29       1,285
  Rural housing insurance fund...........................................          0.56           20       3,400
 
Defense--Military:
  Defense, Family Housing Improvement Fund...............................          4.70           33         697
 
Education:
  Federal family education loan \2\......................................         12.12        3,371      27,780
 
Health and Human Services:
  Health Resources and Services..........................................          2.41            4          51
 
Housing and Urban Development:
  Indian housing loan guarantee fund.....................................          8.13            6          72
  Native American housing block grant....................................         11.07            5          45
  Community development loan guarantees..................................          2.30           29       1,261
  America's private investment companies.................................          3.60           36       1,000
  FHA-mutual mortgage insurance..........................................         -1.99       -2,048     120,000
  FHA-General and special risk \3\.......................................          0.48   ..........      18,100
 
Interior:
  Indian guaranteed loan.................................................          7.54            4          60
 
Transportation:
  Maritime guaranteed loan (Title XI)....................................          5.01            6         120
 
Veterans Affairs:
  Miscellaneous veterans housing loans...................................         48.25            3           7
  Veterans housing benefit program fund..................................          0.68          212      31,237
 
International Assistance Programs:
  Micro and small enterprise development.................................          4.94            1          30
  Urban and environmental credit.........................................          1.15            3          26
  Development credit authority...........................................          6.50           13         200
  Overseas private investment corporation................................          1.00           10       1,000
 
Small Business Administration:
  Business loans.........................................................          1.13          144      16,159
 
Other Independent Agencies:
  Export Import Bank loans...............................................          5.84          807      13,825
  Presidio Trust.........................................................          0.52            1         200
                                                                          --------------------------------------
    Total................................................................          1.47        3,165     243,287
                                                                          --------------------------------------
        ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS
 
GNMA:
  Guarantees of mortgage-backed securities loan guarantee................         -0.33         -422     200,000
----------------------------------------------------------------------------------------------------------------
\1\ Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
\2\ Excludes savings from proposed modifications.
\3\ Subsidy will be financed by $153 million of unobligated balances.


[[Page 206]]


                         Table 8-5.  SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES
                                            (In billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                      Actual                       Estimate
                                                     -----------------------------------------------------------
                                                        1995      1996      1997      1998      1999      2000
----------------------------------------------------------------------------------------------------------------
Direct Loans:
    Obligations.....................................      30.9      23.4      33.6      28.8      38.5      37.9
    Disbursements...................................      22.0      23.6      32.2      28.7      39.6      36.2
    Subsidy budget authority \1\....................       2.6       1.8       2.4       6.5       1.1      -0.2
 
Loan Guarantees: \2\
    Commitments.....................................     138.5     175.4     172.3     218.4     216.5     237.6
    Lender Disbursements............................     117.9     143.9     144.7     199.5     192.9     203.0
    Subsidy budget authority \1\....................       4.6       4.0       3.6       2.6       4.3       3.2
----------------------------------------------------------------------------------------------------------------
\1\ Excludes subsidy reestimates made prior to 1998, and student loan modifications proposed for 2000.
\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 a percentage of outstanding loans
                                                                              ------------------------------------                  \1\
                              Agency and Program                                                                  --------------------------------------
                                                                                  1998        1999        2000                      1999         2000
                                                                                actual      estimate    estimate   1998 actual    estimate     estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                            DIRECT LOAN WRITEOFFS
 
Agriculture:
  Agricultural credit insurance fund.........................................         320         327         330         3.39         3.61         3.96
  Rural Development Insurance Fund...........................................           4           3           3         0.10         0.08         0.08
  Rural Housing Insurance Fund...............................................           4          30          29         0.01         0.10         0.10
  Rural development loans....................................................           1           1           1         0.34         0.32         0.29
 
Commerce:
  Economic development loans.................................................  ..........           1           1  ...........         1.96         2.22
 
Education:
  Student financial assistance...............................................           7           9           8         5.10         6.18         4.87
  Federal direct student loan program........................................           1           2           5  ...........  ...........  ...........
 
Housing and Urban Development:
  Revolving fund (liquidating programs)......................................           5  ..........  ..........         2.27  ...........  ...........
  FHA--Mutual mortgage insurance.............................................  ..........           1           2  ...........         6.89         6.55
 
Interior:
  BIA--Revolving funds for loans.............................................           2           5           4         2.59         6.84         6.06
 
State:
  Repatriation loans.........................................................           1           1           1        25.00        25.00        25.00
 
Veterans Affairs:
  Veterans housing benefit program...........................................          49          49          24         3.38         3.14         1.61
 
Federal Emergency Management Agency:
  FEMA--Disaster Assistance..................................................           1  ..........  ..........         0.54  ...........  ...........
 
Small Business Administration:
  Disaster loans.............................................................          16          23          18         0.23         0.32         0.25
  Business loans.............................................................         100          54          20         9.18         7.44         6.25
 
Other Independent Agencies:
  Spectrum auction program...................................................       2,539  ..........  ..........        37.39  ...........  ...........
  Tennessee Valley Authority.................................................           2           1           1         4.65         2.06         1.73
                                                                              --------------------------------------------------------------------------
    Total, direct loan writeoffs.............................................       3,052         507         447         1.64         0.26         0.21
                                                                              --------------------------------------------------------------------------
 
                   GUARANTEED LOAN TERMINATIONS FOR DEFAULT
 
Agriculture:
  Agricultural credit insurance fund.........................................          66          87         101         0.93         1.20         1.31
  CCC Export guarantee programs..............................................          78         402         465         1.80         8.80         9.94
  Rural community advancement program........................................          16          33          33         0.79         1.31         0.94
  Rural Development Insurance Fund...........................................          54          32          19        23.78        17.53        17.11
  Rural Housing Insurance Fund...............................................          27          44          61         0.37         0.51         0.54
 
Education:
  Federal family education...................................................       4,095       3,390       3,734         4.07         3.28         3.44
 

[[Page 207]]

 
Health and Human Services:
  Health education assistance loan program...................................          31          49          48         1.04         1.67         1.70
 
Housing and Urban Development:
  FHA--Mutual mortgage insurance.............................................       5,310       6,527       5,581         1.39         1.59         1.19
  FHA--General and special risk..............................................       1,229       1,561       2,020         1.37         1.65         1.94
 
Transportation:
  Federal ship financing fund................................................  ..........          34  ..........  ...........         9.71  ...........
 
Veterans Affairs:
  Veterans housing benefit program...........................................       2,544       3,424       3,682         1.27         1.63         1.61
 
International Assistance Programs:
  Foreign military financing.................................................           2           1  ..........         0.03         0.01  ...........
  Microenterprise and other development......................................          -1           1           2        -3.22         2.50         3.47
  AID--Housing and other credit guaranty programs............................          39          25          12         1.74         1.09         0.51
  Overseas Private Investment Corporation....................................           7          63          66         0.25         2.14         1.92
 
Small Business Administration:
  Business loans.............................................................         492         486         516         1.31         1.24         1.21
 
Other Independent Agencies:
  Export-Import Bank.........................................................         330         237         421         1.51         1.05         1.82
                                                                              --------------------------------------------------------------------------
    Total, guaranteed loan terminations for default..........................      14,319      16,396      16,761         1.00         1.11         1.05
                                                                              --------------------------------------------------------------------------
    Total, direct loan writeoffs and guaranteed loan terminations............      17,371      16,903      17,208         1.07         1.01         0.96
                                                                              ==========================================================================
 
    ADDENDUM: WRITEOFFS OF DEFAULTED GUARANTEED LOANS THAT RESULT IN LOANS
                                  RECEIVABLE
 
Education:
  Federal family education...................................................         515         455         463         2.93         2.52         2.42
 
Health and Human Services:
  Health education assistance loan program...................................          20          20          20         3.80         3.73         3.61
 
Housing and Urban Development:
  FHA--Mutual mortgage insurance.............................................          53          34           1         8.26        10.39         5.40
  FHA--General and special risk..............................................         224         133         319         9.23         5.20        11.70
 
Veterans Affairs:
  Veterans housing benefit program...........................................         567         541         544        73.06        71.84        75.60
 
Small Business Administration:
  Business loans.............................................................         195         213         218         8.47        10.75        13.47
                                                                              --------------------------------------------------------------------------
    Total, writeoffs of loans receivable.....................................       1,574       1,396       1,565         5.04         4.47         4.91
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Average of loans outstanding for the year.


[[Page 208]]


                      Table 8-7. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS \1\
                                            (In millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                 Estimate
                             Agency and Program                                  1998    -----------------------
                                                                               Actual        1999        2000
----------------------------------------------------------------------------------------------------------------
                           DIRECT LOAN OBLIGATIONS
 
Agriculture: \2\
  Agricultural credit insurance fund........................................         803         946         782
  Distance learning and telemedicine........................................           5         150         200
  Rural electrification and telecommunications..............................       1,420       1,562       1,070
  Rural electrification and telecommunications..............................  ..........  ..........         400
  Rural telephone bank......................................................         175         158         175
  Rural water and waste disposal direct loans...............................         752         724         900
  Rural housing insurance fund..............................................       1,230       1,158       1,275
  Rural community facility direct loans.....................................         206         169         250
  Rural economic development................................................          25          15          15
  Rural development loan fund...............................................          35          33         102
  Rural business and industry direct loans..................................          50          50          50
  P.L. 480 Direct credit....................................................         228         965         138
 
Housing and Urban Development:
  FHA-General and special risk..............................................         120         120          50
  FHA-Mutual mortgage insurance.............................................         200         100          50
 
Interior:
  Bureau of Reclamation.....................................................          31          38          43
 
State:
  Repatriation loans........................................................           1           1           1
 
Transportation:
  Minority business resource center.........................................          15          14          14
  Transportation infrastructure finance and innovation program..............  ..........       1,600       1,800
 
Treasury:
  Community development financial institutions fund.........................          32          32          53
 
Federal Emergency Management Agency:
  Disaster assistance.......................................................          25          30          25
 
International Assistance Programs:
  Foreign military financing................................................         100         167  ..........
  Military debt reduction...................................................           5  ..........  ..........
                                                                             -----------------------------------
    Total, limitations on direct loan obligations...........................       5,458       8,032       7,393
                                                                             -----------------------------------
 
                         LOAN GUARANTEE COMMITMENTS
 
Agriculture: \2\
  Agricultural credit insurance fund........................................       1,653       1,880       2,227
  Rural water and waste water disposal guaranteed loans.....................          75          75          75
  Rural housing insurance fund..............................................       3,040       3,075       3,300
  Rural housing insurance fund..............................................  ..........  ..........         100
  Rural community facility guaranteed loans.................................          81         210         210
  Rural business and industry guaranteed loans..............................       1,099       1,078       1,000
 
Department of Defense:
  Defense export loan guarantee program.....................................      15,000      15,000      15,000
 
Health and Human Services:
  Health education assistance loans.........................................          85  ..........  ..........
  Health center.............................................................         160         151          51
 
Housing and Urban Development:
  Indian housing loan guarantee fund........................................          67          69          72
  Title VI Indian Federal guarantees........................................          45          54          45
  Community development loan guarantees.....................................       1,261       1,261       1,261
  America's private investment companies....................................  ..........  ..........       1,000
  FHA-General and special risk..............................................      17,400      18,100      18,100
  FHA-Loan guarantee recovery fund..........................................          10           8  ..........
  FHA-Mutual mortgage insurance.............................................     110,000     110,000     120,000
 
Interior:
  Indian guaranteed loans...................................................          35          60          60
 
Transportation:
  Maritime guaranteed loan (Title XI).......................................       1,000         120         120
 

[[Page 209]]

 
International Assistance Programs:
  Overseas private investment corporation...................................       1,800       1,750       1,100
 
Small Business Administration:
  Business loans............................................................      13,000      13,500      14,800
 
Other Independent Agencies:
  Presidio trust............................................................  ..........  ..........         200
                                                                             -----------------------------------
    Total, limitations on loan guarantee commitments........................     150,811     151,391     163,721
                                                                             ===================================
 
         ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS
 
GNMA:
  Guarantees of mortgage-backed securities..................................     130,000     150,000     200,000
                                                                             -----------------------------------
    Total, limitations on secondary guaranteed loan commitments.............     130,000     150,000     200,000
----------------------------------------------------------------------------------------------------------------
\1\ Data represents loan level limitations enacted or proposed to be enacted in appropriation acts. For
  information on actual and estimated loan levels supportable by new subsidy budget authority requested, see
  Tables 8-3 and 8-4.
\2\ Limitations for Agriculture are overridden by a general provision in the appropriations act.


[[Page 210]]


                          Table 8-8. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                Estimate
                            Agency and Account                                 1998    -------------------------
                                                                             Actual         1999         2000
----------------------------------------------------------------------------------------------------------------
                        Department of Agriculture
 
                           Farm Service Agency
 
Agricultural credit insurance fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........           2            2
   Change in outstandings................................................      -1,010       -1,007         -998
   Outstandings..........................................................       6,699        5,692        4,694
 
Agricultural credit insurance fund direct loan financing account:
   Obligations...........................................................         796          999          782
   Loan disbursements....................................................         816          859          867
   Change in outstandings................................................         457          289          236
   Outstandings..........................................................       2,715        3,004        3,240
 
Commodity credit corporation fund:
   Obligations...........................................................       7,189        8,813       10,524
   Loan disbursements....................................................       7,189        8,813       10,524
   Change in outstandings................................................         864         -393          127
   Outstandings..........................................................       2,633        2,240        2,367
 
                         Rural Utilities Service
 
Rural communication development fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -1           -1   ...........
   Outstandings..........................................................           8            7            7
 
Distance learning and telemedicine direct loan financing account:
   Obligations...........................................................           5          150          200
   Loan disbursements....................................................  ...........          47          136
   Change in outstandings................................................  ...........          44          122
   Outstandings..........................................................  ...........          44          166
 
Rural development insurance fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           4            3   ...........
   Change in outstandings................................................        -327         -305         -284
   Outstandings..........................................................       3,808        3,503        3,219
 
Rural electrification and telecommunications direct loan financing
 account:
   Obligations...........................................................       1,322        1,562        1,470
   Loan disbursements....................................................         942        1,549        1,265
   Change in outstandings................................................         800        1,463        1,163
   Outstandings..........................................................       5,106        6,569        7,732
 
Rural telephone bank direct loan financing account:
   Obligations...........................................................         168          158          175
   Loan disbursements....................................................          34           52           53
   Change in outstandings................................................          29           46           45
   Outstandings..........................................................         232          278          323
 
Rural water and waste disposal direct loans financing account:
   Obligations...........................................................         786          730          900
   Loan disbursements....................................................         613          937          751
   Change in outstandings................................................         547          896          700
   Outstandings..........................................................       2,807        3,703        4,403
 
Rural electrification and telecommunications liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          34           21            8
   Change in outstandings................................................      -1,170       -1,865       -2,949
   Outstandings..........................................................      27,076       25,211       22,262
 
Rural telephone bank liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          21           27           24
   Change in outstandings................................................         -92          -93          -96
   Outstandings..........................................................       1,172        1,079          983
 
                          Rural Housing Service
 

[[Page 211]]

 
Rural housing insurance fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           6   ...........  ...........
   Change in outstandings................................................      -1,243       -1,192       -1,143
   Outstandings..........................................................      19,704       18,512       17,369
 
Rural housing insurance fund direct loan financing account:
   Obligations...........................................................       1,226        1,158        1,275
   Loan disbursements....................................................       1,113        1,215        1,245
   Change in outstandings................................................         844          960          924
   Outstandings..........................................................       9,411       10,371       11,295
 
Rural community facility direct loans financing account:
   Obligations...........................................................         211          171          250
   Loan disbursements....................................................         137          193          217
   Change in outstandings................................................         113          176          195
   Outstandings..........................................................         606          782          977
 
                   Rural Business--Cooperative Service
 
Rural economic development loans liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........          -1
   Outstandings..........................................................           6            6            5
 
Rural economic development direct loan financing account:
   Obligations...........................................................          25           15           15
   Loan disbursements....................................................          16           22           17
   Change in outstandings................................................           8           15            7
   Outstandings..........................................................          50           65           72
 
Rural development loan fund direct loan financing account:
   Obligations...........................................................          35           33          102
   Loan disbursements....................................................          40           48           42
   Change in outstandings................................................          36           44           36
   Outstandings..........................................................         209          253          289
 
Rural business and industry direct loans financing account:
   Obligations...........................................................          21           50           50
   Loan disbursements....................................................          16           22           40
   Change in outstandings................................................          16           21           38
   Outstandings..........................................................          19           40           78
 
Rural development loan fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           1            1            1
   Change in outstandings................................................          -5           -4           -3
   Outstandings..........................................................          77           73           70
 
                       Foreign Agricultural Service
 
Expenses, Public Law 480, foreign assistance programs, Agriculture
 liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -300         -369         -363
   Outstandings..........................................................       9,146        8,777        8,414
 
P.L. 480 Direct credit financing account:
   Obligations...........................................................         228          965          138
   Loan disbursements....................................................         217          986          167
   Change in outstandings................................................         158          983          162
   Outstandings..........................................................       1,529        2,512        2,674
 
P.L. 480 Title I Food for Progress Credits, financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................         508          508          508
 

[[Page 212]]

 
Debt reduction--financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........         142           80
   Change in outstandings................................................  ...........         140           78
   Outstandings..........................................................          63          203          281
 
                          Department of Commerce
 
                   Economic Development Administration
 
Economic development revolving fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -4           -6           -6
   Outstandings..........................................................          54           48           42
 
             National Oceanic and Atmospheric Administration
 
Fisheries finance, direct loan financing account:
   Obligations...........................................................          34          229           56
   Loan disbursements....................................................          27          251           56
   Change in outstandings................................................          26          247           52
   Outstandings..........................................................          26          273          325
 
                     Department of Defense--Military
 
                        Operation and Maintenance
 
Defense vessel transfer program financing account:
   Obligations...........................................................  ...........         172          238
   Loan disbursements....................................................  ...........         172          238
   Change in outstandings................................................  ...........         155          156
   Outstandings..........................................................  ...........         155          311
 
                              Family Housing
 
Department of Defense, Family Housing Improvement, Direct Loan Financing
 Account:
   Obligations...........................................................  ...........  ...........          11
   Loan disbursements....................................................  ...........  ...........          11
   Change in outstandings................................................  ...........  ...........          11
   Outstandings..........................................................  ...........  ...........          11
 
                         Department of Education
 
                    Office of Postsecondary Education
 
Student financial assistance:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -4           17           20
   Outstandings..........................................................         137          154          174
 
College housing and academic facilities loans liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           4   ...........  ...........
   Change in outstandings................................................         -48          -35          -32
   Outstandings..........................................................         566          531          499
 
College housing and academic facilities loans financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           1            1            1
   Change in outstandings................................................           1            1            1
   Outstandings..........................................................          21           22           23
 
Federal direct student loan program, financing account:
   Obligations...........................................................      13,861       17,853       17,868
   Loan disbursements....................................................      12,140       16,117       16,014
   Change in outstandings................................................      10,458       14,691       13,690
   Outstandings..........................................................      31,670       46,361       60,051
 

[[Page 213]]

 
                           Department of Energy
 
                      Power Marketing Administration
 
Bonneville Power Administration fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................           2            2            2
 
                 Department of Health and Human Services
 
               Health Resources and Services Administration
 
Medical facilities guarantee and loan fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -7           -7          -10
   Outstandings..........................................................          17           10   ...........
 
               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................................................         -70          -59          -45
   Outstandings..........................................................       1,492        1,433        1,388
 
                    Community Planning and Development
 
Revolving fund (liquidating programs):
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -51          -40          -35
   Outstandings..........................................................         220          180          145
 
Community development loan guarantees liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -6           -4           -4
   Outstandings..........................................................          30           26           22
 
                             Housing Programs
 
Nonprofit sponsor assistance liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................           1            1            1
 
Flexible Subsidy Fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          35           21            7
   Change in outstandings................................................          26           17            3
   Outstandings..........................................................         769          786          789
 
FHA-Mutual mortgage and cooperative housing insurance funds liquidating
 account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........          -5   ...........
   Outstandings..........................................................           5   ...........  ...........
 
FHA-General and special risk insurance funds liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -6           -7           -7
   Outstandings..........................................................          72           65           58
 
FHA-General and special risk direct loan financing account:
   Obligations...........................................................           1           20           50
   Loan disbursements....................................................           1           20           50
   Change in outstandings................................................           1           18           45
   Outstandings..........................................................           1           19           64
 

[[Page 214]]

 
Housing for the elderly or handicapped fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           5   ...........  ...........
   Change in outstandings................................................         -84          -88          -87
   Outstandings..........................................................       8,144        8,056        7,969
 
FHA-Mutual mortgage insurance direct loan financing account:
   Obligations...........................................................           5           50           50
   Loan disbursements....................................................           4           40           40
   Change in outstandings................................................          -1           22           15
   Outstandings..........................................................           1           23           38
 
                 Government National Mortgage Association
 
Guarantees of mortgage-backed securities liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................         129          127          106
   Change in outstandings................................................          26           65           42
   Outstandings..........................................................         358          423          465
 
                        Department of the Interior
 
                          Bureau of Reclamation
 
Bureau of reclamation loan liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -3           -3           -3
   Outstandings..........................................................          69           66           63
 
Bureau of Reclamation direct loan financing account:
   Obligations...........................................................          30           38           43
   Loan disbursements....................................................          39           35           46
   Change in outstandings................................................          39           35           45
   Outstandings..........................................................         120          155          200
 
                          National Park Service
 
Construction and major maintenance:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................           6            6            6
 
                         Bureau of Indian Affairs
 
Revolving fund for loans liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -6           -6           -4
   Outstandings..........................................................          47           41           37
 
Indian direct loan financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -2           -2           -2
   Outstandings..........................................................          30           28           26
 
                             Insular Affairs
 
Assistance to territories:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -1           -1           -2
   Outstandings..........................................................          18           17           15
 
                           Department of State
 
                    Administration of Foreign Affairs
 
Repatriation loans financing account:
   Obligations...........................................................           1            1            1
   Loan disbursements....................................................           1            1            1
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................           4            4            4
 

[[Page 215]]

 
                       Department of Transportation
 
                         Office of the Secretary
 
Minority business resource center direct loan financing account:
   Obligations...........................................................           6            8           14
   Loan disbursements....................................................           4            8           14
   Change in outstandings................................................           1           -3            3
   Outstandings..........................................................           7            4            7
 
                      Federal Highway Administration
 
Right-of-way revolving fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           7           20           20
   Change in outstandings................................................          -2           -2           -4
   Outstandings..........................................................         182          180          176
 
Transportation infrastructure finance and innovation program direct loan
 financing account:
   Obligations...........................................................  ...........         811          884
   Loan disbursements....................................................  ...........         608          866
   Change in outstandings................................................  ...........         608          866
   Outstandings..........................................................  ...........         608        1,474
 
                     Federal Railroad Administration
 
Amtrak corridor improvement loans liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -1   ...........          -1
   Outstandings..........................................................           5            5            4
 
Alameda Corridor direct loan financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................         140          120   ...........
   Change in outstandings................................................         140          120   ...........
   Outstandings..........................................................         280          400          400
 
Railroad rehabilitation and improvement liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -4           -3           -5
   Outstandings..........................................................          56           53           48
 
Railroad rehabilitation and improvement direct loan financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................           4            4            4
 
                        Department of the Treasury
 
                           Departmental Offices
 
Community development financial institutions fund direct loan financing
 account:
   Obligations...........................................................           7            5           16
   Loan disbursements....................................................           1            5            9
   Change in outstandings................................................           1            5            9
   Outstandings..........................................................           5           10           19
 
                      Department of Veterans Affairs
 
                     Veterans Benefits Administration
 
Veterans Housing Benefit Program Fund Liquidating Account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -94         -109          -56
   Outstandings..........................................................         326          217          161
 
Veterans Housing Benefit Program Fund Direct Loan Financing Account:
   Obligations...........................................................       1,339        1,947          648
   Loan disbursements....................................................       1,339        1,947          648
   Change in outstandings................................................         130          327         -300
   Outstandings..........................................................       1,122        1,449        1,149
 

[[Page 216]]

 
Miscellaneous veterans housing loans direct loan financing account:
   Obligations...........................................................           3           11           22
   Loan disbursements....................................................           3           10           22
   Change in outstandings................................................           2           10           21
   Outstandings..........................................................          16           26           47
 
Miscellaneous veterans programs loan fund direct loan financing account:
   Obligations...........................................................           2            2            3
   Loan disbursements....................................................           2            2            2
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................  ...........  ...........  ...........
 
Miscellaneous veterans programs loan fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................           1            1            1
 
                     Environmental Protection Agency
 
Abatement, control, and compliance direct loan liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -9           -9           -8
   Outstandings..........................................................          76           67           59
 
Abatement, control, and compliance direct loan financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -4           -5           -5
   Outstandings..........................................................          56           51           46
 
                   Federal Emergency Management Agency
 
Disaster assistance direct loan liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................          37           37           37
 
Disaster assistance direct loan financing account:
   Obligations...........................................................  ...........          36           25
   Loan disbursements....................................................          24           36           25
   Change in outstandings................................................          20           34           23
   Outstandings..........................................................         147          181          204
 
                    International Assistance Programs
 
                    International Security Assistance
 
Foreign military loan liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           9            8            8
   Change in outstandings................................................        -762         -816         -495
   Outstandings..........................................................       5,392        4,576        4,081
 
Foreign military financing direct loan financing account:
   Obligations...........................................................         100          167   ...........
   Loan disbursements....................................................         291          433          470
   Change in outstandings................................................         131          171          157
   Outstandings..........................................................       1,582        1,753        1,910
 
Military debt reduction financing account:
   Obligations...........................................................           5   ...........  ...........
   Loan disbursements....................................................           5          100   ...........
   Change in outstandings................................................           5          100   ...........
   Outstandings..........................................................           9          109          109
 
                         Multilateral Assistance
 
International organizations and programs:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -2           -2           -2
   Outstandings..........................................................          30           28           26
 

[[Page 217]]

 
                   Agency for International Development
 
Economic assistance loans--liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -729         -547         -515
   Outstandings..........................................................      11,435       10,888       10,373
 
Debt reduction, financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........          53   ...........
   Change in outstandings................................................         -57           -4          -57
   Outstandings..........................................................         282          278          221
 
Microenterprise and small enterprise development credit direct loan
 financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -1   ...........  ...........
   Outstandings..........................................................           1            1            1
 
                 Overseas Private Investment Corporation
 
Overseas Private Investment Corporation liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -15           -8           -9
   Outstandings..........................................................          22           14            5
 
Overseas private investment corporation direct loan financing account:
   Obligations...........................................................          76          136          130
   Loan disbursements....................................................          26           60           70
   Change in outstandings................................................         -14           48           56
   Outstandings..........................................................          69          117          173
 
                      Small Business Administration
 
Business direct loan financing account:
   Obligations...........................................................          10           40           60
   Loan disbursements....................................................           7           30           30
   Change in outstandings................................................         -10            9           16
   Outstandings..........................................................          99          108          124
 
Disaster direct loan financing account:
   Obligations...........................................................         639          814          221
   Loan disbursements....................................................         595        1,009          770
   Change in outstandings................................................         -25          543           38
   Outstandings..........................................................       5,605        6,148        6,186
 
Disaster loan fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -203         -213         -410
   Outstandings..........................................................       1,254        1,041          631
 
Business loan fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          55           62           41
   Change in outstandings................................................        -258         -737          -99
   Outstandings..........................................................         990          253          154
 
                        Other Independent Agencies
 
                      District of Columbia Financing
 
Loans to the District of Columbia for capital projects:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -12          -12          -12
   Outstandings..........................................................          39           27           15
 
Repayable advances to the District of Columbia direct loan financing
 account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -223   ...........  ...........
   Outstandings..........................................................  ...........  ...........  ...........
 

[[Page 218]]

 
                 Export-Import Bank of the United States
 
Export-Import Bank of the United States liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           2   ...........  ...........
   Change in outstandings................................................        -667       -2,526         -482
   Outstandings..........................................................       5,721        3,195        2,713
 
Debt reduction financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................         514        2,059          118
   Change in outstandings................................................         514        2,059          118
   Outstandings..........................................................         514        2,573        2,691
 
Export-Import Bank direct loan financing account:
   Obligations...........................................................         103        1,286        1,687
   Loan disbursements....................................................       1,498        1,288        1,092
   Change in outstandings................................................       1,208          841          471
   Outstandings..........................................................       5,027        5,868        6,339
 
           Farm Credit System Financial Assistance Corporation
 
Financial assistance corporation assistance fund, liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -199          -33          -17
   Outstandings..........................................................         933          900          883
 
                    Federal Communications Commission
 
Spectrum auction direct loan financing account:
   Obligations...........................................................         594   ...........  ...........
   Loan disbursements....................................................         594   ...........  ...........
   Change in outstandings................................................      -2,071   ...........         -10
   Outstandings..........................................................       6,789        6,789        6,779
 
                              Bank Insurance
 
Bank insurance fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................         100          100          100
 
                             FSLIC Resolution
 
FSLIC resolution fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -32   ...........  ...........
   Outstandings..........................................................          63           63           63
 
                   National Credit Union Administration
 
Community development credit union revolving loan fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           3            4            3
   Change in outstandings................................................           1            2   ...........
   Outstandings..........................................................           7            9            9
 
                        Tennessee Valley Authority
 
Tennessee Valley Authority fund:
   Obligations...........................................................          16           22           22
   Loan disbursements....................................................          16           22           22
   Change in outstandings................................................           2           11            7
   Outstandings..........................................................          43           54           61
                                                                          --------------------------------------
Subtotal, direct loan transactions:
   Obligations...........................................................      28,844       38,452       37,930
   Loan disbursements....................................................      28,720       39,608       36,239
   Change in outstandings................................................       6,769       14,712       11,137
   Outstandings..........................................................     185,790      200,502      211,639
                                                                          --------------------------------------

[[Page 219]]

 
  ADDENDUM: DEFAULTED GUARANTEED LOANS THAT RESULT IN A LOAN RECEIVABLE
 
                        Department of Agriculture
 
                           Farm Service Agency
 
Commodity credit corporation export guarantee financing account:
   Claim payments........................................................          72          402          465
   Change in outstandings................................................          69          394          450
   Outstandings..........................................................       1,375        1,769        2,219
 
Commodity credit corporation guaranteed loans liquidating account:
   Claim payments........................................................           6   ...........  ...........
   Change in outstandings................................................         -76         -133          -80
   Outstandings..........................................................       4,923        4,790        4,710
 
                          Department of Commerce
 
             National Oceanic and Atmospheric Administration
 
Federal ship financing fund, fishing vessels liquidating account:
   Claim payments........................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................          24           24           24
 
                         Department of Education
 
                    Office of Postsecondary Education
 
Federal family education loan program, financing account:
   Claim payments........................................................       2,844        2,835        3,263
   Change in outstandings................................................       1,597        1,891        1,971
   Outstandings..........................................................       6,083        7,974        9,945
 
Federal family education loan liquidating account:
   Claim payments........................................................         953          287          188
   Change in outstandings................................................        -544         -867         -910
   Outstandings..........................................................      11,458       10,591        9,681
 
                 Department of Health and Human Services
 
               Health Resources and Services Administration
 
Health education assistance loans financing account:
   Claim payments........................................................          14           15           20
   Change in outstandings................................................          14           13           18
   Outstandings..........................................................          32           45           63
 
Health education assistance loans liquidating account:
   Claim payments........................................................          29           40           34
   Change in outstandings................................................          24            6   ...........
   Outstandings..........................................................         494          500          500
 
               Department of Housing and Urban Development
 
                             Housing Programs
 
FHA-Mutual mortgage and cooperative housing insurance funds liquidating
 account:
   Claim payments........................................................  ...........           3            2
   Change in outstandings................................................           6         -290            1
   Outstandings..........................................................         294            4            5
 
FHA-General and special risk insurance funds liquidating account:
   Claim payments........................................................         268          313          324
   Change in outstandings................................................        -166          -45         -298
   Outstandings..........................................................       2,044        1,999        1,701
 
FHA-General and special risk guaranteed loan financing account:
   Claim payments........................................................         197          381          472
   Change in outstandings................................................         171          310          369
   Outstandings..........................................................         381          691        1,060
 
FHA-Mutual mortgage insurance guaranteed loan financing account:
   Claim payments........................................................          30            6           11
   Change in outstandings................................................          62         -338           10
   Outstandings..........................................................         347            9           19
 

[[Page 220]]

 
                        Department of the Interior
 
                         Bureau of Indian Affairs
 
Indian loan guaranty and insurance fund liquidating account:
   Claim payments........................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................          40           40           40
 
Indian guaranteed loan financing account:
   Claim payments........................................................           1            3            3
   Change in outstandings................................................           1            3            3
   Outstandings..........................................................          44           47           50
 
                       Department of Transportation
 
                         Maritime Administration
 
Federal ship financing fund liquidating account:
   Claim payments........................................................  ...........          34   ...........
   Change in outstandings................................................  ...........          19           -9
   Outstandings..........................................................          46           65           56
 
                      Department of Veterans Affairs
 
                     Veterans Benefits Administration
 
Veterans Housing Benefit Program Fund Liquidating Account:
   Claim payments........................................................         121          103           88
   Change in outstandings................................................         -45          -32          -27
   Outstandings..........................................................         620          588          561
 
Veterans Housing Benefit Program Fund Guaranteed Loan Financing Account:
   Claim payments........................................................         546          439          475
   Change in outstandings................................................          53          -14            6
   Outstandings..........................................................         156          142          148
 
                    International Assistance Programs
 
                    International Security Assistance
 
Foreign military loan liquidating account:
   Claim payments........................................................          26           11           25
   Change in outstandings................................................  ...........           5           25
   Outstandings..........................................................           1            6           31
 
                   Agency for International Development
 
Housing and other credit guaranty programs liquidating account:
   Claim payments........................................................          56           31           15
   Change in outstandings................................................          -2         -400           -1
   Outstandings..........................................................         485           85           84
 
Microenterprise and small enterprise development guaranteed loan
 financing account:
   Claim payments........................................................           1            1            2
   Change in outstandings................................................           1            1            2
   Outstandings..........................................................           1            2            4
 
                 Overseas Private Investment Corporation
 
Overseas private investment corporation guaranteed loan financing
 account:
   Claim payments........................................................           8           50           50
   Change in outstandings................................................           3           35           30
   Outstandings..........................................................          21           56           86
 
                      Small Business Administration
 
Pollution control equipment fund liquidating account:
   Claim payments........................................................  ...........  ...........  ...........
   Change in outstandings................................................          -1   ...........          -1
   Outstandings..........................................................          45           45           44
 
Business guaranteed loan financing account:
   Claim payments........................................................         416          425          475
   Change in outstandings................................................         -36         -700         -128
   Outstandings..........................................................         834          134            6
 

[[Page 221]]

 
Business loan fund liquidating account:
   Claim payments........................................................          76           61           41
   Change in outstandings................................................          76           61           41
   Outstandings..........................................................       1,466        1,527        1,568
                                                                          --------------------------------------
Subtotal, defaulted guaranteed loans that result in a loan receivable:
   Claim payments........................................................       5,664        5,440        5,953
   Change in outstandings................................................       1,207          -81        1,472
   Outstandings..........................................................      31,214       31,133       32,605
                                                                          ======================================
Total:
   Obligations...........................................................      28,844       38,452       37,930
   Loan disbursements....................................................      34,384       45,048       42,192
   Change in outstandings................................................       7,976       14,631       12,609
   Outstandings..........................................................     217,004      231,635      244,244
----------------------------------------------------------------------------------------------------------------


[[Page 222]]


                        Table 8-9. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                Estimate
                            Agency and Account                                 1998    -------------------------
                                                                             Actual         1999         2000
----------------------------------------------------------------------------------------------------------------
                        Department of Agriculture
 
                           Farm Service Agency
 
Agricultural credit insurance fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................        -218         -213         -212
   Outstandings..........................................................         776          563          351
 
Agricultural credit insurance fund guaranteed loan financing account:
   Commitments...........................................................       1,653        1,880        2,227
   New guaranteed loans..................................................       1,493        1,842        2,182
   Change in outstandings................................................         253          535          742
   Outstandings..........................................................       6,292        6,827        7,569
 
Commodity credit corporation export guarantee financing account:
   Commitments...........................................................       5,000        4,721        4,506
   New guaranteed loans..................................................       2,733        4,721        4,506
   Change in outstandings................................................        -216          471         -255
   Outstandings..........................................................       4,332        4,803        4,548
 
Commodity credit corporation guaranteed loans liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -16   ...........  ...........
   Outstandings..........................................................  ...........  ...........  ...........
 
                  Natural Resources Conservation Service
 
Agricultural resource conservation demonstration guaranteed loan
 financing account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................          24           24           24
 
                         Rural Utilities Service
 
Rural communication development fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........          -1   ...........
   Outstandings..........................................................           5            4            4
 
Rural development insurance fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................        -148          -89          -54
   Outstandings..........................................................         227          138           84
 
Rural water and waste water disposal guaranteed loans financing account:
   Commitments...........................................................          15           75           75
   New guaranteed loans..................................................           4           20           69
   Change in outstandings................................................           4           19           67
   Outstandings..........................................................          11           30           97
 
Rural electrification and telecommunications liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -24          -20          -20
   Outstandings..........................................................         618          598          578
 
                          Rural Housing Service
 
Rural housing insurance fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................          -3           -3           -3
   Outstandings..........................................................          27           24           21
 
Rural housing insurance fund guaranteed loan financing account:
   Commitments...........................................................       2,862        3,075        3,400
   New guaranteed loans..................................................       2,416        2,927        3,125
   Change in outstandings................................................       2,167        2,585        2,669
   Outstandings..........................................................       7,206        9,791       12,460
 

[[Page 223]]

 
Rural community facility guaranteed loans financing account:
   Commitments...........................................................          65          210          210
   New guaranteed loans..................................................          47           81          131
   Change in outstandings................................................          34           74          119
   Outstandings..........................................................         155          229          348
 
                   Rural Business--Cooperative Service
 
Rural business and industry guaranteed loans financing account:
   Commitments...........................................................       1,171        1,096        1,000
   New guaranteed loans..................................................         801        1,019        1,019
   Change in outstandings................................................         597          879          841
   Outstandings..........................................................       1,855        2,734        3,575
 
                          Department of Commerce
 
                   Economic Development Administration
 
Economic development revolving fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................          -2           -1           -1
   Outstandings..........................................................          13           12           11
 
             National Oceanic and Atmospheric Administration
 
Fisheries finance, guaranteed loan financing account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................           8   ...........  ...........
   Change in outstandings................................................         -14          -22          -22
   Outstandings..........................................................          80           58           36
 
Federal ship financing fund, fishing vessels liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -17          -12          -10
   Outstandings..........................................................          68           56           46
 
                     Department of Defense--Military
 
                        Operation and Maintenance
 
Defense export loan guarantee financing account:
   Commitments...........................................................  ...........          25   ...........
   New guaranteed loans..................................................          15           11           19
   Change in outstandings................................................          15            7           15
   Outstandings..........................................................          15           22           37
 
                               Procurement
 
Arms Initiative Guaranteed Loan Financing Account:
   Commitments...........................................................          10           21           18
   New guaranteed loans..................................................          10           21           18
   Change in outstandings................................................          10           21           16
   Outstandings..........................................................          10           31           47
 
                              Family Housing
 
Department of Defense, Family Housing Improvement, Guaranteed Loan
 Financing Account:
   Commitments...........................................................  ...........         177          697
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................  ...........  ...........  ...........
 
                         Department of Education
 
                    Office of Postsecondary Education
 
Federal family education loan liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................      -7,465       -5,367       -4,075
   Outstandings..........................................................      16,118       10,751        6,676
 

[[Page 224]]

 
Federal family education loan program, financing account:
   Commitments...........................................................      26,820       26,182       27,780
   New guaranteed loans..................................................      21,966       23,170       24,550
   Change in outstandings................................................       9,016       10,685        9,007
   Outstandings..........................................................      84,402       95,087      104,094
 
Historically black college and university capital financing, guaranteed
 loan financing account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........           1            7
   Change in outstandings................................................  ...........           1            7
   Outstandings..........................................................  ...........           1            8
 
                 Department of Health and Human Services
 
               Health Resources and Services Administration
 
Health education assistance loans financing account:
   Commitments...........................................................          85   ...........  ...........
   New guaranteed loans..................................................          85   ...........  ...........
   Change in outstandings................................................          68          -16          -21
   Outstandings..........................................................       1,562        1,546        1,525
 
Health education assistance loans liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -66          -91          -96
   Outstandings..........................................................       1,412        1,321        1,225
 
Health center guaranteed loan financing account:
   Commitments...........................................................           9          100           51
   New guaranteed loans..................................................           9           73           48
   Change in outstandings................................................           9           73           48
   Outstandings..........................................................           9           82          130
 
Medical facilities guarantee and loan fund:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -60          -40          -30
   Outstandings..........................................................          82           42           12
 
               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................................................        -279         -279         -279
   Outstandings..........................................................       3,307        3,028        2,749
 
Indian housing loan guarantee fund financing account:
   Commitments...........................................................          22           69           72
   New guaranteed loans..................................................          24           34           40
   Change in outstandings................................................          21           34           40
   Outstandings..........................................................          38           72          112
 
Title VI Indian Federal guarantees financing account:
   Commitments...........................................................  ...........          54           45
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................  ...........  ...........  ...........
 
                    Community Planning and Development
 
Revolving fund (liquidating programs):
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........          -1           -1
   Outstandings..........................................................           2            1   ...........
 
Community development loan guarantees financing account:
   Commitments...........................................................         382        1,261        1,261
   New guaranteed loans..................................................         547        1,000        1,000
   Change in outstandings................................................         415          800          800
   Outstandings..........................................................       1,190        1,990        2,790
 

[[Page 225]]

 
Community development loan guarantees liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -33          -30          -25
   Outstandings..........................................................         165          135          110
 
America's private investment companies financing account:
   Commitments...........................................................  ...........  ...........       1,000
   New guaranteed loans..................................................  ...........  ...........         730
   Change in outstandings................................................  ...........  ...........         730
   Outstandings..........................................................  ...........  ...........         730
 
                             Housing Programs
 
FHA-Mutual mortgage and cooperative housing insurance funds liquidating
 account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................     -16,725       -5,150       -4,579
   Outstandings..........................................................      71,030       65,880       61,301
 
FHA-General and special risk insurance funds liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................      -5,815       -1,787       -2,536
   Outstandings..........................................................      36,590       34,803       32,267
 
FHA-General and special risk guaranteed loan financing account:
   Commitments...........................................................      15,513       18,100       16,507
   New guaranteed loans..................................................      15,074       17,153       16,118
   Change in outstandings................................................       7,034       12,151       10,568
   Outstandings..........................................................      52,697       64,848       75,416
 
FHA-Loan guarantee recovery fund--financing account:
   Commitments...........................................................           2            8   ...........
   New guaranteed loans..................................................           1            5            4
   Change in outstandings................................................           1            5            4
   Outstandings..........................................................           1            6           10
 
FHA-Mutual mortgage insurance guaranteed loan financing account:
   Commitments...........................................................     100,245       96,218      112,873
   New guaranteed loans..................................................      90,518       86,398       96,162
   Change in outstandings................................................      36,559       62,908       63,739
   Outstandings..........................................................     309,309      372,217      435,956
 
                 Government National Mortgage Association
 
Guarantees of mortgage-backed securities liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................    -434,033      -88,444       -6,954
   Outstandings..........................................................      96,009        7,565          611
 
Guarantees of mortgage-backed securities financing account:
   Commitments...........................................................     130,000      150,000      200,000
   New guaranteed loans..................................................     138,450      119,390      127,884
   Change in outstandings................................................     445,615       92,791       18,409
   Outstandings..........................................................     445,615      538,406      556,815
 
                        Department of the Interior
 
                         Bureau of Indian Affairs
 
Indian loan guaranty and insurance fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -17          -13           -8
   Outstandings..........................................................          40           27           19
 
Indian guaranteed loan financing account:
   Commitments...........................................................          35           60           60
   New guaranteed loans..................................................          28           45           45
   Change in outstandings................................................          11           24           15
   Outstandings..........................................................         113          137          152
 

[[Page 226]]

 
                       Department of Transportation
 
                         Maritime Administration
 
Federal ship financing fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................        -150          -94          -58
   Outstandings..........................................................         397          303          245
 
Maritime guaranteed loan (Title XI) financing account:
   Commitments...........................................................         686          120          120
   New guaranteed loans..................................................         686          120          120
   Change in outstandings................................................         430         -146         -175
   Outstandings..........................................................       2,457        2,311        2,136
 
                      Department of Veterans Affairs
 
                     Veterans Benefits Administration
 
Veterans Housing Benefit Program Fund Liquidating Account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................           9   ...........  ...........
   Change in outstandings................................................        -488         -454         -379
   Outstandings..........................................................      23,408       22,954       22,575
 
Veterans Housing Benefit Program Fund Guaranteed Loan Financing Account:
   Commitments...........................................................      39,862       32,635       31,237
   New guaranteed loans..................................................      40,980       33,455       32,311
   Change in outstandings................................................      30,202       19,860       17,189
   Outstandings..........................................................     176,777      196,637      213,826
 
Miscellaneous veterans housing loans guaranteed loan financing account:
   Commitments...........................................................  ...........  ...........           7
   New guaranteed loans..................................................  ...........  ...........           7
   Change in outstandings................................................  ...........  ...........           7
   Outstandings..........................................................  ...........  ...........           7
 
                    International Assistance Programs
 
                    International Security Assistance
 
Foreign military loan liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................        -387         -380         -373
   Outstandings..........................................................       5,304        4,924        4,551
 
                   Agency for International Development
 
Loan guarantees to Israel financing account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................       1,412   ...........  ...........
   Change in outstandings................................................       1,412   ...........  ...........
   Outstandings..........................................................       9,226        9,226        9,226
 
Development credit authority guaranteed loan financing account:
   Commitments...........................................................  ...........         120          320
   New guaranteed loans..................................................  ...........          31           95
   Change in outstandings................................................  ...........          31           95
   Outstandings..........................................................  ...........          31          126
 
Housing and other credit guaranty programs liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................          19           20           10
   Change in outstandings................................................         -50          -34          -46
   Outstandings..........................................................       1,834        1,800        1,754
 
Private sector revolving fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................          -8   ...........  ...........
   Outstandings..........................................................  ...........  ...........  ...........
 

[[Page 227]]

 
Microenterprise and small enterprise development guaranteed loan
 financing account:
   Commitments...........................................................         160          191          200
   New guaranteed loans..................................................          12           39           41
   Change in outstandings................................................          -1           18           17
   Outstandings..........................................................          31           49           66
 
Urban and environmental credit guaranteed loan financing account:
   Commitments...........................................................          18           14           26
   New guaranteed loans..................................................          64          107           35
   Change in outstandings................................................          64          107           35
   Outstandings..........................................................         407          514          549
 
Assistance for the New Independent States of the Former Soviet Union:
 Ukraine export credit insurance financing account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -81          -61   ...........
   Outstandings..........................................................          61   ...........  ...........
 
                 Overseas Private Investment Corporation
 
Overseas Private Investment Corporation liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -60          -53          -26
   Outstandings..........................................................          81           28            2
 
Overseas private investment corporation guaranteed loan financing
 account:
   Commitments...........................................................       2,418        2,600        2,100
   New guaranteed loans..................................................         760          950        1,000
   Change in outstandings................................................         632          550          500
   Outstandings..........................................................       2,613        3,163        3,663
 
                      Small Business Administration
 
Pollution control equipment fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................         -19          -11          -11
   Outstandings..........................................................          57           46           35
 
Business guaranteed loan financing account:
   Commitments...........................................................      10,970       14,770       16,471
   New guaranteed loans..................................................       9,671        7,336        7,597
   Change in outstandings................................................       3,488        4,039        4,167
   Outstandings..........................................................      33,695       37,734       41,901
 
Business loan fund liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................           1            1            1
   Change in outstandings................................................      -1,201         -698         -579
   Outstandings..........................................................       3,804        3,106        2,527
 
                        Other Independent Agencies
 
                 Export-Import Bank of the United States
 
Export-Import Bank of the United States liquidating account:
   Commitments...........................................................  ...........  ...........  ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................        -661         -493         -287
   Outstandings..........................................................       1,707        1,214          927
 
Export-Import Bank guaranteed loan financing account:
   Commitments...........................................................      10,447       12,737       15,172
   New guaranteed loans..................................................      10,102       12,229       11,802
   Change in outstandings................................................         329        1,782          405
   Outstandings..........................................................      20,072       21,854       22,259
 

[[Page 228]]

 
                   National Credit Union Administration
 
Credit union share insurance fund:
   Commitments...........................................................           1            1   ...........
   New guaranteed loans..................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........          -1   ...........
   Outstandings..........................................................           1   ...........  ...........
 
                              Presidio Trust
 
Presidio trust guaranteed loan financing account:
   Commitments...........................................................  ...........  ...........         150
   New guaranteed loans..................................................  ...........  ...........         150
   Change in outstandings................................................  ...........  ...........         150
   Outstandings..........................................................  ...........  ...........         150
                                                                          --------------------------------------
Subtotal, Guaranteed loans (gross)
   Commitments...........................................................     348,451      366,520      437,585
   New guaranteed loans..................................................     337,945      312,199      330,826
   Change in outstandings................................................      70,129      106,446      109,286
   Outstandings..........................................................   1,423,337    1,529,783    1,639,069
 
Less, secondary guaranteed loans: \1\
 
GNMA guarantees of FmHA/VA/FHA pools:
   Commitments...........................................................    -130,000     -150,000     -200,000
   New guaranteed loans..................................................    -138,450     -119,390     -127,884
   Change in outstandings................................................     -11,582       -4,347      -11,455
   Outstandings..........................................................    -541,624     -545,971     -557,426
                                                                          ======================================
Total, primary guaranteed loans:
   Commitments...........................................................     218,451      216,520      237,585
   New guaranteed loans..................................................     199,495      192,809      202,942
   Change in outstandings................................................      58,547      102,099       97,831
   Outstandings..........................................................     881,713      983,812    1,081,643
----------------------------------------------------------------------------------------------------------------
\1\ Loans guaranteed by FHA, VA, or FmHA are included above. GNMA places a secondary guarantee on these loans,
  so they are deducted here to avoid double counting.


[[Page 229]]


                Table 8-10. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs) \1\
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                Estimate
                                Enterprise                                     1998    -------------------------
                                                                             Actual         1999         2000
----------------------------------------------------------------------------------------------------------------
                                 LENDING
 
Student Loan Marketing Association:
   New transactions......................................................       8,310        8,295        8,766
   Net change............................................................      -4,791       -3,420       -5,787
   Outstandings..........................................................      29,468       26,048       20,261
 
Federal National Mortgage Association:
  FNMA corporation accounts:
   New transactions......................................................     136,759      159,075      106,308
   Net change............................................................      71,499      100,812       55,636
   Outstandings..........................................................     393,210      494,022      549,658
  FNMA mortgage-backed securities:
   New transactions......................................................     275,533      346,794      204,271
   Net change............................................................      60,509       98,275       58,480
   Outstandings..........................................................     627,451      725,726      784,206
 
Federal Home Loan Mortgage Corporation:
  FHLMC corporation accounts:
   New transactions......................................................     100,869       49,000       45,000
   Net change............................................................      59,357       20,000       20,000
   Outstandings..........................................................     216,522      236,522      256,522
  FHLMC participation certificates pools:
   New transactions......................................................     217,539      175,000      169,000
   Net change............................................................      20,672       21,581       22,530
   Outstandings..........................................................     490,687      512,268      534,798
 
Farm Credit System:
  Bank for Cooperatives:
   New transactions......................................................       8,267        7,171        6,892
   Net change............................................................        -192           17          102
   Outstandings..........................................................       1,835        1,852        1,954
  Agricultural credit bank:
   New transactions......................................................      41,710       45,000       50,000
   Net change............................................................        -185          874          897
   Outstandings..........................................................      14,776       15,650       16,547
  Farm Credit Banks:
   New transactions......................................................      36,673       36,936       37,754
   Net change............................................................       3,063        1,208        1,274
   Outstandings..........................................................      44,061       45,269       46,543
  Federal Agricultural Mortgage Corporation:
   New transactions......................................................         349          436          545
   Net change............................................................         234          292          366
   Outstandings..........................................................       1,048        1,340        1,706
 
Federal Home Loan Banks: \2\
   New transactions......................................................     952,121      952,121      952,121
   Net change............................................................      63,819       63,819       63,819
   Outstandings..........................................................     245,647      309,466      373,285
                                                                          --------------------------------------
Subtotal GSE lending (gross):
   New transactions......................................................   1,778,130    1,779,828    1,580,657
   Net change............................................................     273,985      303,458      217,317
   Outstandings..........................................................   2,064,705    2,368,163    2,585,480
 
Less guaranteed loans purchased by:
  Student Loan Marketing Association: \3\
   Net change............................................................      -4,791       -3,420       -5,787
   Outstandings..........................................................      29,468       26,048       20,261
  Federal National Mortgage Corporation:
   Net change............................................................       3,753   ...........  ...........
   Outstandings..........................................................      31,626       31,626       31,626
  Other:
   Net change............................................................      -1,134   ...........  ...........
   Outstandings..........................................................      14,525       14,525       14,525
                                                                          --------------------------------------
Total GSE lending (net):
   New transactions......................................................   1,778,130    1,779,828    1,580,657
   Net change............................................................     276,157      306,878      223,104
   Outstandings..........................................................   1,989,086    2,295,564    2,519,068
 

[[Page 230]]

 
                                BORROWING
 
Student Loan Marketing Association:
   Net Change............................................................      -6,713       -4,990       -5,384
   Outstandings..........................................................      33,517       28,527       23,143
 
Federal National Mortgage Association:
  FNMA corporation accounts:
   Net Change............................................................      72,579       63,774       56,010
   Outstandings..........................................................     430,582      494,356      550,366
  FNMA mortgage-backed securities:
   Net Change............................................................      60,509       98,275       58,480
   Outstandings..........................................................     627,451      725,726      784,206
 
Federal Home Loan Mortgage Corporation:
  FHLMC corporation accounts:
   Net Change............................................................      72,943       20,000       20,000
   Outstandings..........................................................     232,994      252,994      272,994
  FHLMC participation certificates pools:
   Net Change............................................................      20,672       21,581       22,530
   Outstandings..........................................................     490,687      512,268      534,798
 
Farm Credit System:
  Bank for Cooperatives:
   Net Change............................................................        -241          -10           47
   Outstandings..........................................................       1,826        1,816        1,863
  Agricultural credit bank:
   Net Change............................................................        -216          755          845
   Outstandings..........................................................      16,253       17,008       17,853
  Farm Credit Banks:
   Net Change............................................................       4,126        1,047        1,556
   Outstandings..........................................................      47,714       48,761       50,327
  Federal Agricultural Mortgage Corporation:
   Net Change............................................................         285          148          184
   Outstandings..........................................................       1,598        1,746        1,930
 
Federal Home Loan Banks:
   Net Change............................................................      51,717       61,761       62,221
   Outstandings..........................................................     336,262      398,023      460,244
 
Financing Corporation:
   Net Change............................................................           1            1            1
   Outstandings..........................................................       8,145        8,146        8,147
 
Resolution Funding Corporation:
   Net Change............................................................          -3           -2           -2
   Outstandings..........................................................      30,069       30,067       30,065
                                                                          --------------------------------------
Subtotal GSE borrowing (gross):
   Net change............................................................     275,659      262,340      216,488
   Outstandings..........................................................   2,257,098    2,519,438    2,735,936
 
Less borrowing from other GSEs:
   Net Change............................................................      14,398   ...........  ...........
   Outstandings..........................................................      65,557       65,557       65,557
 
Less purchase of Federal debt securities:
   Net Change............................................................        -841          412          580
   Outstandings..........................................................       8,123        8,535        9,115
 
Less borrowing to purchase loans guaranteed by:
  Student Loan Marketing Association: \4\
   Net change............................................................      -4,791       -3,420       -5,787
   Outstandings..........................................................      29,468       26,048       20,261
  Federal National Mortgage Corporation:
   Net change............................................................       3,753   ...........  ...........
   Outstandings..........................................................      31,626       31,626       31,626
  Other:
   Net change............................................................      -1,134   ...........  ...........
   Outstandings..........................................................      14,525       14,525       14,525
                                                                          --------------------------------------

[[Page 231]]

 
Total GSE borrowing (net):
   Net change............................................................     293,070      265,348      221,695
   Outstandings..........................................................   2,238,913    2,504,261    2,725,966
----------------------------------------------------------------------------------------------------------------
\1\ The estimates of borrowing and lending were developed by the GSEs based on certain assumptions that they
  made. The estimates are subject to periodic review and revision and do not represent offficial 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 1998 was $135
  billion, including federally guaranteed securities and GSE securities.
\3\ The change in debt outstanding is due solely to the amortization of discounts and premiums. No sale or
  redemption of debt securities is estimates to occur in 1999 or 2000.
\4\ All SLMA loans acquired are guaranteed by the Federal Government and therefore also counted as guaranteed
  loans.