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


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                         8. CREDIT AND INSURANCE

  Federal programs offer direct loans and/or loan guarantees for a wide 
range of activities, primarily housing, education, business, and 
exports. At the end of 1999, there were $234 billion in Federal direct 
loans outstanding and $976 billion in guaranteed loans. The Federal 
Government also insures bank, thrift, and credit union deposits up to 
$100,000, guarantees private vested defined-benefit pensions, and 
insures against disasters, specified international investment risks, and 
various other risks.
  In addition, the net loans outstanding of Government-sponsored 
enterprises (GSEs)--privately owned companies and cooperatives that 
operate under Federal charters--totaled $2.4 trillion, including asset-
backed securities guaranteed by the GSEs. GSEs are chartered to carry 
out specified public purposes through financing activities in the 
housing, education, and agriculture sectors. GSEs are not part of the 
Federal Government, however, and their securities are not federally 
guaranteed. By law, the GSEs' securities carry a disclaimer of any U.S. 
obligation. Congress has authorized the Secretary of the Treasury, at 
his discretion, to purchase up to $2.25 billion of obligations issued by 
Fannie Mae and Freddie Mac, up to $4 billion by the Federal Home Loan 
Bank System, and up to $1 billion by Sallie Mae. Farmer Mac may sell up 
to $1.5 billion of its obligations to Treasury under specified, limited 
conditions.
  These diverse programs and GSEs are operating in the context of an 
accelerating evolution of financial markets that is generating many new 
risks, as well as new opportunities. Federal program managers will need 
to reassess their roles and improve their effectiveness to adapt to 
dynamic market conditions.
  The introduction to this chapter summarizes key changes in financial 
markets and their effects on Federal programs.
    The 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 re-engineering 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. It notes the rationale and goals of 
          these programs and the related activities of the GSEs.
    The final section assesses recent developments in Federal 
          deposit insurance, pension guarantees, and disaster insurance.

Evolving Financial Markets

  The Financial Services Modernization Act, signed November 12, 1999, 
replaces a legal structure created in the Great Depression with one that 
is more appropriate to the rapidly changing and integrated financial 
markets of today. The Act repeals restrictions on bank affiliation with 
securities firms and removes the remaining statutory limitations on the 
financial activities allowable in banking organizations for qualified 
bank holding companies. It permits securities and insurance agency 
activities to be conducted in bank and financial holding company 
subsidiaries, municipal securities underwriting to be conducted in a 
national bank or in bank subsidiaries, and merchant banking and 
insurance underwriting to be conducted in financial holding company 
subsidiaries.
  The financial sector has already undergone substantial change. The 
number of banking organizations has shrunk by a quarter in the last 
decade and is roughly half the level 20 years ago. Consolidation has 
raised the share of industry assets at the 100 largest banks to 70 
percent in 1998 from about 50 percent in the mid-1980s. With easing 
restrictions over the years, interstate banking and branching have 
become nationwide, and 51 securities affiliates are operating in bank 
holding companies. International lending by U.S. commercial banks 
resumed growth in the early 1990s following large losses on developing 
country loans in the 1980s, but has become increasingly concentrated in 
large banks. Meanwhile, U.S. banking assets of foreign banks have grown 
from 12 percent of all U.S. commercial banking assets in 1980 to a 23-25 
percent share during the 1990s.
  Financial innovation and integration have enabled funds to flow more 
readily to their most productive uses across the country and around the 
world. Capital market financing is available to smaller companies and 
for a broader range of purposes than before. Specialized financial firms 
and nonfinancial firms, particularly suppliers, are helping to funnel 
funds from capital markets to small clients in cities and in rural 
areas. Venture capital providers and sub-prime lenders are fueling the 
growth of new businesses. Data on small business lending show that 
institutions outside the local community have become an important source 
of credit for many businesses.
  The 1990s have been a time of robust growth in mortgage markets; the 
net change in home mortgages rose from $180 billion in 1995 to $424 
billion in the second quarter of 1999. Federal Reserve staff estimate 
that about 40 percent of the growth in outstanding home mortgage debt 
during the past five years financed the extraction of home equity. 
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.

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  Both intermediaries--banks and the many nonbank firms engaged in 
financial services--and capital markets have been reaching out to new 
clients that they did not serve a few years ago. Massive data bases and 
increasingly sophisticated analytical methods are finding creditworthy 
borrowers among people and businesses previously unlikely to receive 
private credit. Faster and cheaper information and communications 
systems also have revolutionized ``back office'' functions. These have 
been consolidated to achieve economies of scale and located anywhere in 
the world where capable workers are available. From these locations, 
satellite communications can bring the ``back office'' to any desktop 
computer. 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 1997 and 1998, the 
Asian crisis and further events in Russia and Brazil resulted in a 
flight to liquidity and safety. Market conditions also worsened in 1998 
when a heavily exposed hedge fund required a capital contribution from 
major lenders to avoid bankruptcy and further market disruption. These 
events drove down U.S. Treasury bond yields dramatically, and raised 
rates on all but the highest quality corporate bonds. Some credit 
markets 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.
  Conditions returned to near normal liquidity during 1999, but rate 
spreads between most private loans and securities and Treasury debt 
remained abnormally high. Problem loans at banks have increased about 70 
percent compared with 1998, and banks have tightened underwriting 
standards. As a result of these experiences, 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 Federal programs 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--a particular program. 
          If the Government is caught unaware, the result may be greater 
          cost for taxpayers.
    At the same time, managers of Federal programs can take 
          advantage of the growing private capability. 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. It 
now backs a recovered industry, but one with an increasing concentration 
of ``large complex banking organizations'' that have assumed the risks 
inherent in providing a growing array of increasingly sophisticated 
services, including many off-balance sheet activities, often on a 
worldwide basis. Regulators face challenges ranging from the complexity 
of assessing the risks of evolving financial services firms to the 
continuing need to monitor for fraud. In pensions, the Government 
guarantees defined benefit plans, but their role is diminishing as 
defined contribution plans attract 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 are they 
achieving their goals? And finally, could they be re-engineered to 
achieve greater benefits in relation to costs?

                     I.   A CROSS-CUTTING ASSESSMENT

The Federal Role

  In most lines of credit and insurance, the private market efficiently 
allocates resources to meet societal demands, and Federal intervention 
is unnecessary. However, Federal intervention may improve on the market 
outcome in some situations. The following are six standard situations 
where this may be the case \1\, together with some examples of Federal 
programs that address them.
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  \1\ Economics textbooks also list pure public goods, like national 
defense, where it is difficult or impossible to exclude people from 
sharing the full benefits of the goods or services once they have been 
produced. It is hard to imagine credit or insurance examples in this 
category.
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    Information failures occur when there is an asymmetry in the 
          information available to different agents in the marketplace. 
          A common Federal intervention in such cases is to require the 
          more knowledgeable agent, such as a financial institution, to 
          provide certain information to the other party, for example, 
          the borrower or investor. A different sort of information 
          failure occurs when the private market deems it too risky to 
          develop a new financial instrument or market. This is rare

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          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 better 
          health, these individuals do not receive the full benefits of 
          their education. Their colleagues at work, the residents of 
          their community, and the citizens of the Nation also benefit 
          from their greater knowledge and productivity.
    Economic disequilibrium is a third rationale for Federal 
          intervention. This is one rationale for deposit insurance. If 
          many banks and thrifts are hurt simultaneously by an economic 
          shock, such as accelerating inflation in the 1970s, and 
          depositors have a hard time knowing which ones may become 
          insolvent, deposit insurance prevents a contagious rush to 
          withdraw deposits that could harm the whole economy.
    Failure of competition, resulting from barriers to entry, 
          economies of scale, or foreign government intervention, may 
          also argue for Federal intervention--for example, by reducing 
          barriers to entry, as has often been done recently, by 
          negotiating to eliminate or reduce foreign government 
          subsidies, or by providing countervailing Federal credit 
          assistance to American exporters.
    Incomplete markets occur if producers do not provide credit 
          or insurance even though customers might be willing to pay for 
          it. One example would be catastrophic insurance, where there 
          is a small risk of a very large loss; a disaster that occurred 
          sooner rather than later could bankrupt the insurer even if 
          premiums were set at an appropriate level to cover long-term 
          cost. Another example is caused by ``moral hazard'' problems, 
          where the borrower or insured could behave so as to take 
          advantage of the lender or insurer. This is the case for 
          pension guarantees, where sponsors might underfund plans, and 
          for deposit insurance, where banks might take more risk to 
          earn a higher return. In these cases, the Government's legal 
          and regulatory powers provide an advantage in comparison with 
          a private insurer.
    In addition to correcting market failures, Federal credit 
          programs are often used to redistribute resources by providing 
          subsidies from the general taxpayer to disadvantaged regions 
          or segments of the population.
  In reviewing its credit and insurance programs, the Federal Government 
must continually reassess whether the direct and indirect benefits to 
the economy exceed the direct and indirect costs. This assessment should 
include the costs associated with redirecting scarce resources away from 
other investments. In some situations, the market may have recently 
become capable of providing financial services, and older Federal 
programs may need to be modified or ended to make room for private 
markets to develop. Private providers in similar circumstances might go 
bankrupt, merge, or change their line of business; for Federal programs, 
a policy decision and usually a change in law are 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 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, program managers 
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

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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.
  Implementation of the Federal Credit Reform Act of 1990 gave Federal 
credit program managers the incentive to reconcile the tension between 
helping certain groups or purposes and ``businesslike'' financial 
management. With the implementation of GPRA, they may begin to see 
program success and financial success as two facets of the same goal. 
The challenge is usually to identify ``boundary'' borrowers and to 
structure the loan and its servicing (including technical assistance) so 
as to pull those borrowers toward financial and programmatic success. In 
some cases, savings from improved credit program management may be 
reinvested to pull more borrowers across that boundary.

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

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its ability to provoke or harness private markets into meeting Federal 
goals.

Principles for Re-engineering

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





Program Justification

  1.           Credit assistance should be provided only when it has
                been demonstrated that private credit markets cannot
                achieve clearly defined Federal objectives. What is the
                objective? Is access to private credit available? If
                not, why not? If so, 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 down payments,
                capitalization for State, local, or nonprofit 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 of public
                for private credit. What features of program design
                minimize displacement? Encourage and supplement private
                lending? To what extent is credit for this objective
                expanded by this program compared with what would be
                available in the absence of the program? What is the
                economic cost of the lending bumped from the credit
                queue?

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

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

Program Operations

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


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  8.           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 workouts. Each contract should include
                incentives for good performance, and penalties,
                including loss of business, for poor performance. The
                duration and scope of each contract or agreement should
                be limited so as to maximize specialization and
                competition, unless those are offset by economies of
                scale in operations and monitoring.

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

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

Program Monitoring

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

  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.



The Federal Credit Policy Working Group

  A Federal Credit Policy Working Group Task Force, led by OMB and the 
Department of the Treasury's Financial Management Service, last year 
made recommendations for revising OMB Circular A-129, ``Policies for 
Federal Credit Programs and Non-Tax Receivables,'' which elucidates the 
above principles. OMB Circular A-129 provides guidance to agencies on 
budget and legislative policies to ensure effective credit programs, and 
prescribes agencies' responsibilities in managing all non-tax 
receivables so that debts owed to the Federal Government are collected 
efficiently. The major credit agencies reviewed Government-wide policy 
guidance on credit extension, receivables management, and delinquent 
debt collection. The revision of A-129 will be issued by OMB in 2000. 
Significant changes clarify credit budgeting guidance, reflect the 
requirements of the Debt Collection Improvement Act of 1996, require 
sale of seriously delinquent debt that is not referred to Treasury or to 
Justice for collection, and revise write-off procedures for seriously 
delinquent accounts.
  To help implement this guidance, GSA created a Financial Asset 
Services Multiple Award Schedule with 52 contracts from which agencies 
can readily acquire help in portfolio management. Available services 
include overall management for an asset sale, account servicing, post-
sale analyses, and review of credit reform analyses. Agencies using 
private sector advisors have included Treasury, Education, Navy, Housing 
and Urban Development, and the Small Business Administration.

                      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) supported $177 billion of loan and loan guarantee 
commitments in 1999, helping nearly two million households. Roughly one 
out of six single-family mortgages origi

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nated in the United States receives assistance from one of these 
programs.
    HUD's Federal Housing Administration (FHA) operates the 
          Mutual Mortgage Insurance Fund which insured $113 billion in 
          mortgages for 1.2 million households in 1999. Over 80 percent 
          of FHA's home purchase mortgages 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 1999, VA 
          provided $44 billion in guarantees to 396,399 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 moderate income rural residents 
          living in substandard housing. In 1999, $3 billion of 
          guarantees went to 39,752 households (2.8 percent of which 
          went to low income borrowers). The Budget includes a 
          legislative proposal to increase the premium charged on the 
          RHS single family guaranteed loans from one to 2 percent, 
          which would allow RHS to provide more loans at less cost to 
          the taxpayers.
  In addition, RHS offers a single-family direct loan program and both 
direct and guaranteed multi-family mortgages, along with supporting 
rural housing assistance grants. FHA insures mortgages for multi-family 
housing and other specialized properties. The VA provides financing to 
the public (``vendee'' or direct loans) when it sells property acquired 
from defaults. These direct loans are, in turn, pooled and sold as 
securities.

Housing Finance Challenges and Opportunities

  Private banks, thrifts, and mortgage bankers, which originate the 
mortgages that FHA insures and VA and RHS guarantee, may deal with all 
three programs, as well as with the Government National Mortgage 
Association (Ginnie Mae, an agency of the Department of Housing and 
Urban Development), 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 moving toward electronic loan 
origination and automated underwriting. Behind such underwriting are 
data warehouses that show default experience by type of loan, borrower 
characteristics, home location, originator, and servicer, and models 
relating these factors to default cost. These technological developments 
offer challenges and opportunities to the Federal mortgage guarantors 
and Ginnie Mae. Federal credit program managers are challenged to make 
programs electronically accessible to their clients and loan 
originators. They are motivated to assess and monitor their risks more 
closely as private firms are reaching out to the better risks among 
their potential clients. They also have an opportunity to provide better 
service at a lower cost, to target their efforts to help borrowers 
retain their homes, and to reach further to bring affordable housing and 
home ownership opportunities to those who are not currently served.

  The Housing Credit Consortium. In 1998, the FHA, VA, and RHS housing 
credit programs and Ginnie Mae formed The Federal Housing Credit 
Consortium to adapt to the rapid development of electronic underwriting 
and other technological developments in the private mortgage market. The 
Consortium's role is to keep abreast of changes in the housing credit 
market, accelerate adoption of best practices, and establish common 
standards where possible.
  The Consortium members are currently working to create a prototype 
data-sharing capability 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 the ability to monitor the changing risk and cost of 
guarantees and the performance of guaranteed loan originators and 
servicers. By analyzing information from the data warehouse and by 
sharing information with each other and the private sector, the 
Consortium will seek to improve loan origination, performance 
measurement, risk sharing and pricing, and asset disposition.
  The Consortium is working with Ginnie Mae to integrate and enhance 
Ginnie's two databases for use by 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 by region, economic conditions, size and 
type of business, and age of portfolio. The vast majority of the FHA and 
VA loans are placed in Ginnie Mae's Mortgage-Backed Securities program. 
About 65 percent of RHS's single-family loans is also placed in Ginnie 
Mae pools. Thus, although the current analytical system is designed to 
fill Ginnie Mae's needs, the same data produced by the system is useful 
to all three Federal programs. For example, CPADS enables FHA and VA to 
monitor and assess how well the firms that originate and service the 
loans they guarantee are performing. Ginnie Mae has shared CPADS with 
FHA and VA for many years. RHS continued its partnership with Ginnie Mae 
in 1999, and now has 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. 
IPADS and CPADS were integrated last year and an initial round of 
enhancements will be implemented this year. Further enhancements are 
planned in the future to enable

[[Page 194]]

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. Both FHA and VA 
now permit mortgage lenders to use approved automated underwriting 
systems, including Freddie Mac's ``Loan Prospector'' and Fannie Mae's 
``Desktop Underwriter,'' to originate these loans. FHA also has approved 
the pmiAURAsm system and is developing its own ``universal'' 
mortgage scorecard to be used on all FHA approved automated underwriting 
systems.
  In 1999, RHS developed an Internet-based system that will, with future 
planned enhancements, provide the capacity to accept electronic loan 
originations from their participating lenders. Using electronic loan 
origination will significantly improve loan processing efficiency and 
timeliness for both RHS and the lenders. RHS is also exploring using 
automated underwriting and credit scoring. These improvements will be 
implemented as soon as possible, but complete adoption 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 portfolios behave, but also how the federally 
guaranteed housing market as a whole performs. This information is 
critical for developing effective performance standards.
  FHA has created a loss mitigation program that scores lender 
performance on loss mitigation annually and provides financial 
incentives to lenders to hold down mortgage defaults and minimize FHA 
claim and property disposition costs relative to other lenders in each 
FHA insuring district. FHA processed over 20,000 new loss mitigation 
claims (partial claims, special lender forbearance, and loan recashing) 
in 1999. These options allowed families to stay in their homes, rather 
than have the properties go to pre-foreclosure sale or foreclosure, and 
provided significant savings to FHA.
  VA plans aggressive intervention to reduce the likelihood of 
foreclosure when loans are referred to VA after missing three payments, 
in order to help veterans retain their homes and avoid the expense and 
damage to their credit from foreclosure. VA was successful in 37 percent 
of their 1998 interventions, and their goal is to increase that to 40 
percent in 2001.
  RHS reviews at least 10 percent of the loans serviced by state-based 
lenders 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 nationally 
based 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.

  Managing Risk. 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. FHA has mitigated 
some of the risk on its adjustable-rate mortgages by tightening the 
underwriting standards to require borrowers to qualify at one percent 
above the initial rate and to prohibit interest rate buy downs.
  Asset Disposition. Common wisdom in the mortgage industry is to avoid 
foreclosure because that process involves significant losses, including 
costs for maintenance and marketing. Managers of Federal guarantee 
programs have found that the best practice is to allow the more 
experienced private sector to foreclose on, manage, and dispose of 
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 2001, 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 1999 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 the 
meantime FHA has turned over management and marketing of most of its 
single family properties to contractors, who, within the first six 
months of the contracts, are providing encouraging levels of returns on 
claims and timely turnaround on these properties.
  VA is continuing its efforts to reduce administrative costs through 
restructuring, consolidations, and a study of its property management 
function. The study, which will be completed at the end of fiscal year 
2000, will determine whether it would be cost effective to contract 
property management activities.


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RHS Direct Loans

  RHS 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, along with two regulations 
implemented between 1996 and 1997, reduced RHS's direct loan subsidy 
rate by 40 percent.
  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 
$114 million in direct loans in 1999, which will finance 2,100 units for 
very-low-income tenants. RHS committed $75 million in loan guarantees 
for multi-family housing in 1999. The loan level is proposed to increase 
to $200 million for 2001, financing 3,200 new units for low- to 
moderate- income tenants. The cost of this program is primarily due to 
the subsidized interest component because expected default rates are 
low. The Budget includes a legislative proposal to remove the 
requirement to provide subsidized interest on these loans; this would 
result in a negative subsidy. The Budget also provides $45 million, a 20 
percent increase over 2000, for the farm labor housing program ($30 
million in loans; $15 million in grants) as part of USDA's civil rights 
initiative, which will provide an estimated 925 units for minority farm 
workers and their families.

Fannie Mae and Freddie Mac

  Fannie Mae and Freddie Mac, the largest Government-sponsored 
enterprises (GSEs), are required by their charters to increase the 
liquidity of mortgage funds. They carry out this function by purchasing 
residential mortgages in the secondary market and funding these 
purchases by issuing mortgage-backed securities (MBS) and debt. As of 
September 1999, Fannie Mae and Freddie Mac had $2.0 trillion outstanding 
in mortgages that they had purchased or guaranteed. Of this, $835 
billion was retained in the GSEs' portfolios, and $1.2 trillion was 
issued as MBSs (excluding MBSs held in portfolio).
  As the dominant firms in the secondary mortgage market, the GSEs tend 
to set the standards for the entire mortgage industry. Their business 
activities also have a significant impact on the primary mortgage 
market; together, the two firms purchased 43 percent of all single-
family mortgages originated in 1998.
  The Federal Housing Enterprises Safety and Soundness Act of 1992 
reformed Federal regulation of Fannie Mae and Freddie Mac. The Act 
created the Office of Federal Housing Enterprise Oversight (OFHEO) to 
conduct safety and soundness examinations and enforce minimum and risk-
based capital requirements on Fannie Mae and Freddie Mac. OFHEO has 
solicited public comment on an extensive range of issues related to a 
risk-based capital regulation in two Notices of Proposed Rulemaking 
(NPRs). The comment period for the second risk-based capital NPR closes 
on March 10, 2000. After OFHEO has reviewed the comments on both NPRs, 
it will publish the final risk-based capital regulation or revise its 
proposal. The risk-based capital regulation will become enforceable one 
year after the final regulation is published.
  In recent years, the GSEs' rapid growth in earnings has been 
accompanied by even more rapid growth of their debt-financed holdings of 
mortgage assets. From September 1997 to September 1999, outstanding 
retained GSE holdings grew 76 percent in dollar volume. Increased 
retained portfolios may imply increased interest rate exposure. In 
recent years, both Fannie Mae and Freddie Mac have tried to limit the 
interest rate risk on their portfolios. However, hedges do not eliminate 
all risk of funding long-term, mostly fixed-rate assets with uncertain 
payment streams. Implementation of an appropriate risk-based capital 
regulation should help ensure that potential losses associated with 
these risks are manageable.
  The average credit quality of loans owned or guaranteed by the GSEs 
has remained steady in recent years. The performance of existing loans 
has benefitted from strong housing markets that have improved collateral 
values, and the credit risk to the GSEs from new or outstanding loans is 
limited by their extensive use of mortgage insurance and other credit 
enhancements. Although both GSEs are increasingly active purchasers of 
subprime loans (A-minus and Alt-A), outstanding volumes remain very 
small relative to their overall size. Risks on such loans are mitigated 
somewhat by higher fees and credit enhancements.
  Under the 1992 Act and their Federal charters, Fannie Mae and Freddie 
Mac have an affirmative obligation to promote access to mortgage credit 
for low- and moderate-income families and in underserved areas. 
Accordingly, the Secretary of Housing and Urban Development (HUD) 
establishes affordable housing goals for the GSEs. The current goals, 
which have been in effect since 1997, require each GSE to devote:
    42 percent of its mortgage purchases to finance dwelling 
          units that are affordable by low- and moderate-income families 
          (Low- and Moderate-Income Housing Goal);
    24 percent of its purchases to finance units in central 
          cities, rural areas, and other metropolitan areas with low and 
          moderate median income and high concentrations of minority 
          residents (Geographically Targeted Goal); and
    14 percent of its purchases to finance units that are 
          special affordable housing for very-low-income families and 
          low-income families living in low-income areas (Special 
          Affordable Housing Goal).
  Fannie Mae and Freddie Mac have met or exceeded these goals in each 
year. New affordable housing goals for the GSEs for the years 2000 
through 2003 would be set by a proposed rule that HUD is publishing for 
public comment. In this proposed rule, after a transition period, the 
level of the Low- and Moderate-Income

[[Page 196]]

Housing Goal would be 50 percent; the level of the Geographically 
Targeted Goal would be 31 percent; and the level of the Special 
Affordable Housing Goal would be 20 percent.
  If the trend toward bank consolidation continues, the resulting fewer, 
larger banks may have somewhat more market power than they have today in 
negotiating with the GSEs over guarantee fees and fees for automated 
underwriting services. Fannie Mae and Freddie Mac may also see increased 
competition from the Federal Home Loan Bank System. However, the GSEs' 
advantages in financing a retained mortgage portfolio were not affected 
by the financial modernization legislation enacted in 1999. Thus, the 
GSEs likely will remain each other's main competition.
  Another set of challenges is posed by the firms' own growth and 
earnings targets, which create significant market expectations for 
future performance, including continued record earnings. Once 
implemented, OFHEO's risk-based capital requirements may also affect the 
GSEs.

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 secure 
advances with residential mortgages and other housing related assets.
  The Financial Services Modernization Act of 1999 repealed the 
requirement that federally chartered thrifts be members of the FHLBS. 
Membership will be open to federally chartered and state-chartered 
thrifts, commercial banks, credit unions, and insurance companies on a 
voluntary basis. As of September 30, 1999, 7,226 financial institutions 
were FHLBS members, an increase of 420 over September 1998. About 72 
percent of members are commercial banks, 22 percent are thrifts, and the 
remaining 6 percent are credit unions and insurance companies. However, 
nearly 47 percent of outstanding FHLBS advances were held by federally 
chartered thrifts as of September 30, 1999.
  The FHLBS reported net income of $2.0 billion for the year ending 
September 30, 1999, up from $1.6 billion in the previous 12 months. 
System capital rose from $21 billion to $27 billion, but the ratio of 
capital to assets fell from 5.4 percent to 5.1 percent. Average return 
on equity was about 7.3 percent, after adjustment for payment of 
interest to the Resolution Funding Corporation (REFCORP). Outstanding 
advances to members reached $367 billion at September 30, 1999, a 48 
percent increase over the $246 billion outstanding a year earlier.
  The Financial Services Modernization Act requires the System to adopt 
a risk-based capital structure, and it changed the FHLBanks' annual 
payment toward the interest payments on bonds issued by the REFCORP from 
$300 million annually to 20 percent of net earnings. The FHLBanks are 
also required by law to pay the greater of 10 percent of net income or 
$100 million to the Affordable Housing Program (AHP) and to provide 
discounted advances for targeted housing and community investment 
lending through a Community Investment Program (CIP). The need to 
generate income to meet these obligations and provide a return to 
members was behind the substantial increase in the System's investment 
activity in recent years.
  The FHLBS' exposure to credit risk on advances has traditionally been 
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.
  Unlike the System's advance activities, its 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.
  The FHLBanks hold $1.8 billion in assets in pilot projects, 
approximately one-half of one percent of total System assets. The pilots 
offer members an alternative way of granting credit, which will be 
evaluated by the FHFB in 2000. In one pilot, the FHLBanks finance the 
loans and assume the interest-rate and prepayment risks, while the 
members originate and service the loans and assume most of 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 investment grade security.
  The FHLBanks' investment activities pose an important public policy 
issue regarding the degree to which their asset composition adequately 
reflects the mission of the System. However, over the last year, 
outstanding advances increased by six percentage points in relation to 
the System's outstanding debt. As of September 30, 1999, about 56 
percent of advances outstanding had a remaining maturity of greater than 
one year; that is down slightly from last year's level of 61 percent, 
but up from the 40 percent level two years ago. Although System 
investments other than advances rose to $155 billion, as a percentage of 
total assets, they fell to 29 percent on September 30, 1999. A year 
earlier, investments stood at $136 billion, or 35 percent of total 
assets. Non-advance investments are used to conduct extensive arbitrage; 
like other GSEs, the System issues debt securities at close to U.S. 
Treasury rates and invests the proceeds in higher yielding securities. 
In fact, in 1999 the FHLBS issued $3.1 trillion in debt securities. 
However, the majority of debt issued by the System is overnight or 
short-term, and total debt outstanding was about $477 billion at the end 
of 1999.

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  An enormous, liquid, and efficient capital market exists for 
conventional home mortgages today. As a result of increasing Government 
Sponsored Enterprise (GSE) and Federal agency sponsorship of secondary 
markets and the increasing presence of private securitizers, lenders 
have access to substantial liquidity sources, in addition to FHLBS 
advances, for financing home mortgages. However, the Financial Services 
Modernization Act increases access to the FHLBS for community financial 
institutions with $500 million or less in assets and permits advance 
borrowing that provides funds for small businesses, farms, and agri-
businesses.

                   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 (Direct Loan) 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 2001, more than 6 million borrowers will receive 9.4 million loans 
totaling nearly $42 billion. Of this amount, $33 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 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 market, 
and over 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 2001, FFEL lenders will disburse more 
than 6 million loans exceeding $26 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 William D. Ford 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 Direct 
Loans, the Federal Government provides loan capital directly to nearly 
1,300 schools, which then disburse loan funds to students--greatly 
streamlining loan delivery for students, parents, and schools. In 2001, 
the Direct Loan program will generate more than 3.2 million loans with a 
total value in excess of $15 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 a number of reforms 
to the guaranteed loan system that will ensure that financial returns to 
program participants are both reasonable and equitably distributed, 
improve the efficiency of loan default collection efforts, and return 
unneeded funds to the Federal Treasury. Proposed changes are estimated 
to save $3.8 billion over five years.
  As part of the Ticket to Work and Work Incentive Improvement Act of 
1999, the basis for interest subsidies to FFEL lenders was changed from 
the 91-day Treasury bill--the instrument upon which student interest 
rates are based--to 3-month commercial paper rates. This change, opposed 
by the Administration and a number of higher education organizations, 
was portrayed by both its congressional sponsors and advocates in the 
lending community as not increasing lender returns. In fact, the change 
increases lender yields in two ways. Under current economic forecasts, 
Federal interest subsidies to lenders are actually 11 basis points 
higher than they would have been under the previous formula. In 
addition, the move to commercial paper also reduces lender costs by 20 
basis points by eliminating the need for hedging--insurance against 
future interest rate changes. In order to reestablish the cost-
neutrality of the change to commercial paper, the Administration is 
therefore proposing to reduce lender subsidies by a total of 31 basis 
points.
  In addition, the Administration is proposing to eliminate interest 
subsidy payments on FFEL loans funded through tax-exempt securities that 
are currently subject to a 9.5 percent interest rate floor. Lenders with 
access to tax-exempt financing have a lower cost of funds than their 
private competitors; the proposed elimination of Federal interest 
subsidies on loans subject to this unnecessary floor provision will 
bring the return on tax-exempt-funded loans roughly in line with those 
realized on loans funded with private capital.
  The Administration is proposing to improve the management and 
collection of defaulted loans through two new initiatives. 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 to further reduce guaranty 
agency retention to 12 percent for collections stemming from the 
consolidation of defaulted loans, the Department's cost for similar 
loans, reflecting the lower cost associated with this type of 
collection.
  Beginning in 2001, all guaranty agencies will be able to participate 
in voluntary agreements created by the

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Higher Education Amendments of 1998 (HEA) to create a more flexible 
regulatory framework that recognizes the unique circumstances of 
individual agencies. For example, agencies could use these agreements to 
pilot streamlined or targeted default collection strategies that are not 
allowed under current regulations. (A small number of agencies are 
currently working with the Department of Education to establish pilot 
agreements that would go into effect during 2000.) The broad 
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 to 2001 recalls of $359 
million in future reserves enacted in the HEA and the Balanced Budget 
Act of 1997. The Administration is also proposing to recall $950 million 
in surplus reserves during fiscal year 2001.
  The Department of Education continues to improve program integrity and 
reduce default costs. The Department is taking advantage of new 
automated systems to review and analyze institutional eligibility 
information, and 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 more than 1,700 schools. This enhanced scrutiny has 
helped reduced the national student loan cohort default rate from 9.6 
percent for 1996 to 8.8 percent for 1997, the sixth 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 Federal performance-based organization (PBO). The 
PBO is designed to improve the management of all student aid programs, 
using its expanded procurement and contracting flexibilities. This new 
organization is focusing on re-engineering information systems and 
expanding electronic data exchange to improve customer service, enhance 
data quality, and lower costs. The PBO is working 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. The Omnibus Consolidated and Emergency Supplemental 
Appropriations for 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 dissolve 
the GSE within two years of the affiliation date (unless such period is 
extended by the Department of the Treasury).
  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 7, 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 62 percent, from $7.4 
billion in 1993 to $12.1 billion in 1999. This increase, across all of 
SBA's business credit programs, has occurred while staffing has been 
reduced by about 20 percent.
  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 $150,000 to a single page, 
allowing both lenders and SBA to process loans in less than two days. 
The SBAExpress program (the former FA$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 1993 to $4.6 billion in 1999.

Increasing Access to Credit

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

  Targeting ``new markets.'' With the $16.5 million appropriated in FY 
2000 (contingent upon authorization), 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-

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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, rigorous reserve requirements, and a 
companion technical assistance program to increase the borrower's 
probability of success.
  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's 2001 request proposes to standardize the 
guarantee fee and to increase the guarantee percentage on loans up to 
$150,000 in order to provide an incentive to lenders to make these 
loans. These changes would result in higher subsidy costs due to reduced 
fee revenue and higher claim payments in the event of default. However, 
SBA is also proposing a fee simplification plan which will make the 
combined impact of all changes subsidy rate neutral.

Integrating Private Sector Practices

  Reliance on private sector partners. With its portfolio growing from 
$20.7 billion in 1993 to more than $32.5 billion in 1999, 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 1999, 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) loan 
approval dollars in 1999. 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.
  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 2000 to modernize the Agency's information 
systems. An additional $13 million is requested for 2001. 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.

  Reform initiatives. In 2000, SBA will continue to shift from loan 
servicing to lender oversight. Initiatives already in progress include: 
(1) selling all direct loans and defaulted guaranteed loans, and (2) 
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 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 sale of its 
current portfolio of defaulted guaranteed loans and direct loans in 
1999, 2000, and 2001. In its first asset sale in 1999, SBA sold more 
than 4,000 loans for $195 million--a $90 million premium over the $105 
million that the agency estimated it would have collected if it held 
these loans to maturity. The portfolio included performing and non-
performing 7(a) and Certified Development Companies (CDC) loans. Two 
sales of approximately $1 billion each are currently scheduled for 2000; 
these will include 7(a), CDC and disaster assistance business and home 
loans. Drawing on experience of other Federal agencies, the SBA's 
analysis of its portfolio value stemming from its Liquidation 
Improvement Project, and the results of the initial asset sale, the 
Administration estimates that SBA's business loan assets can be sold at 
a gain to the Government. It is anticipated that the planned sales will 
also 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. The community facility 
programs are targeted to rural communities with fewer than 20,000 
residents (fewer than 10,000 for the water and wastewater programs).
  USDA also provides grants, direct loans, and loan guarantees to assist 
rural businesses, including cooperatives, to increase employment and 
diversify the rural economy. In 2001, USDA proposes to provide $1.3 
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

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$1.2 billion in 1999. The default rate for these programs is currently 
low.
  The 1996 Farm Bill created 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 1997, Congress provided increased 
flexibility through three funding ``streams,'' but blocked transfers 
among streams. In 1998, Congress consolidated the three streams into one 
RCAP account, but the 1998 through 2000 appropriation bills still did 
not allow transfers between funding streams. The Budget proposes $763 
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 
$40 billion loan portfolio in electric and telephone loans has been 
small, although several large defaults occurred in the electric program, 
primarily as a result of nuclear power construction loans, and $667 
million was written off in 1997. As we move into the 21st century 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. USDA's Rural Utilities Service (RUS) proposes to make $1.6 
billion in direct and guaranteed loans in 2001 to rural electric 
cooperatives, public bodies, nonprofit associations, and other utilities 
in rural areas for generating, transmitting, and distributing 
electricity. Included in this funding request is $400 million for 
private sector guarantees. The demand for loans to rural electric co-
operatives is expected to continue to rise as borrowers replace many of 
the 40-year-old electric plants.
  The Distance Learning and Telemedicine program provides grants ($25 
million in 2001) and loans ($300 million in 2001) to encourage and 
improve telemedicine and distance learning services in rural areas 
through the use of telecommunications, computer networks, and related 
advanced technologies by students, teachers, medical professionals, and 
rural residents. As part of the Digital Divide Initiative, RUS will 
create a pilot program to fund $2 million in grants and $100 million in 
Treasury rate loans in 2001 to be used in a grant/loan combination to 
finance installation of broadband transmission capacity (i.e. the fiber 
optic cable capacity needed to provide enhanced services such as the 
Internet or high speed modems) to and through rural communities. The 
other purpose for which RUS would provide a loan and grant combination 
would be local dial-up Internet service to underserved areas. These 
funds could be targeted to communities that currently lack Internet 
access via a local call. Recipients of these loans and grants would be 
current RUS telecommunication co-ops and businesses serving rural areas 
and rural communities.
  The Rural Telephone Bank (RTB) provides financing for rural 
telecommunications systems. The 2001 Budget re-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 full 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 certain 
Government-wide regulations, policies, and procedures. Funding for both 
administrative expenses and subsidy budget authority would be provided 
from the RTB's retained earnings beginning in 2001. The RTB would be 
free to establish its interest rates or charge administrative fees and 
institute an essentially private governance structure, which would allow 
the RTB to demonstrate its ability to be financially self-sufficient. 
This would be the necessary stepping stone to full privatization.

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.
  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, 
compared to just over $40 billion in loans disbursed and guaranteed.
  FSA-guaranteed farm loans are made to more creditworthy borrowers who 
have access to private credit markets. Because the private loan 
originators must retain 10 percent of the risk, they exercise care in 
examining borrower repayment ability despite the Federal guarantee. As a 
result of this incentive and the difference in borrower characteristics, 
guaranteed farm loans have not experienced losses as high as those on 
direct loans.
  The Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies Appropriations Act of 1999 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

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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.
  As part of USDA's Civil Rights Initiative, a reserve of loan funding 
is established each year for targeted lending to socially disadvantaged 
farmers and ranchers. In 1999, over $290 million in loans to socially 
disadvantaged producers were made, and that number is expected to more 
than double in 2000.

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 continue to exhibit 
stability in their incomes and balance sheets, thanks in part to record 
Government emergency assistance payments in 1999. Commodity prices 
remained low in 1999, and long term forecasts are for very gradual 
recovery. Farm income levels, including Government payments, have 
enabled most borrowers to maintain strong debt-to-asset ratios, and 
lenders to keep loan delinquencies well below problem thresholds. 
Farmland values gained modestly in 1999 as interest rates and 
inflationary expectations remain low. However, such aggregate facts mask 
the problems of a significant number of individual small farmers. 
Further, regulators have voiced concern over the extent to which credit 
card financing may be in use among farmers and ranchers, a statistic 
they are unable to monitor.
  Another sign of the generally stable condition of agricultural finance 
is the greater share of credit provided by commercial banks. From 1986 
to 1998, 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. USDA direct farm loan programs went from a market share 
of 12 percent to 5 percent though, if adjusted for its guaranteed loans 
issued through private banks, that percentage would more than double. 
FCS is expected to maintain 1998 market share levels in 1999.
The Farm Credit System

  The financial condition of the Farm Credit System banks and 
associations during 1999 continues an 11-year trend of improving 
financial health and performance. Nonperforming loans decreased to 1.5 
percent of the portfolio, down from 1.6 percent in 1998. Loan volume has 
gradually increased since 1992, although the $69.7 billion in September, 
1999 is well 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 margin between interest received and interest paid from 
less than one percent in 1987 to 2.75 percent in 1999.
  Improved asset quality and income enabled FCS to post record capital 
levels: by September 30, 1999, capital stood at $13.2 billion--an 
increase of 6 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 October 1999, there 
were only 6 FCS districts, 7 banks, and 178 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, 1999, the 
Insurance Fund's net assets were $1.3 billion, and are estimated to 
maintain the legally required level of at least 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 1999, in contrast, 180 
institutions were given the top ratings, only 5 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 none were in effect on 
September 30, 1999.

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  FCS loans outstanding as of September 1999 were $66 billion, up 6 
percent over 1998, and representing a 34 percent increase since 1990. 
Loans to farmers and other eligible producers comprise 74 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 
over 40 percent since 1992. Loans to finance processing, marketing, 
credit cooperatives, and rural utilities cooperatives accounted for 21 
percent of FCS's portfolio at fiscal year-end 1999. The remaining 3 
percent of the portfolio is made up of non-farm rural home loans (2 
percent) and international loans (3 percent).
  The System expects 1999 farm earnings to be a near-record $48 billion, 
up from $44 billion in 1998. These strong reported earnings, and farm 
income generally, have relied heavily on Government assistance payments 
in recent years. Federal payments of $12 billion in 1998 and $22 billion 
in 1999 to farmers and ranchers compensated for depressed commodity 
prices and declining exports. The Farm Credit System, while continuing 
to record strong earnings and capital growth, remains exposed to 
numerous risks, including concentration risk, changes in Government 
assistance payments, and the volatility of exports and crop prices.

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 and interest rate risk. As a 
direct purchaser of loans with no required subordination other than a 
maximum 75 percent loan-to-value ratio for loans to qualify for 
purchase, Farmer Mac is exposed to greater risk and must set appropriate 
fees and level of capital reserves. Loan purchases and guarantees have 
both increased since the passage of the 1996 Act. Both trends indicate 
positive progress in the slowly developing agricultural secondary 
markets.
  The 1996 Act gave Farmer Mac three additional years to reach its 
capital requirements, and two 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 1999 capital is estimated to be about $87 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.
  Overall, globalization of private capital markets has led private 
lending to dominate officially supported direct and guaranteed credit. 
Aggregate net resource flows to all developing countries grew from $152 
billion in 1992 to $275 billion in 1998. In comparison, resource flows 
from official direct or guaranteed credit were about the same in 1998 
($24 billion) as in 1992 ($25 billion).
  Federal international lending agencies coordinate for consistent 
policy design and credit implementation to level the playing field for 
U.S. exporters, deliver robust support for U.S. manufactured goods, 
stabilize international financial markets, and promote sustainable 
development.

  Coordination: International credit programs are coordinated through 
two groups to ensure consistency in policy design, and credit 
implementation. The Trade Promotion Coordinating Committee (TPCC), works 
within its membership and the Administration to developed a unified 
National Export Strategy to make the delivery of trade promotion support 
more effective and convenient for U.S. exporters.
  The Interagency Country Risk Assessment System (ICRAS) standardizes 
the way in which agencies budget for the risk of international lending. 
The cost of lending by the agencies is governed by ratings and premia 
established by the ICRAS. These premia use assumptions about default 
risk in international lending based on international bond market data. 
The premia for 2001 have been updated to reflect more recent data. 
Because the eighteen months of additional bond market data captured many 
bonds issued or traded during the height of the global financial crisis, 
the risk premia increased on average by 25 percent. All else being 
equal, the impact of the change in premia will constrain the level of 
lending an agency may be able to implement. However, the practical 
impact of the premia

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change will depend on a host of other factors such as maturity, risk 
mix, and fees.
  For the purpose of significantly improving the U.S. Government's 
reporting and analysis of foreign credits, including loans, guarantees, 
and insurance, the Treasury Department is coordinating the development, 
with interagency support, of the Foreign Credit Reporting System (FCRS). 
The system will provide government officials with desktop internet 
access to cross-cutting foreign credit information for policymaking and 
analytical purposes. While the system is currently under development, a 
prototype is expected during 2000, followed by a fully operational 
system in 2001.

  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.

  Supporting more manufacturing exports. In 1999, Eximbank supported 
exports totaling $13 billion with a budget of $676.5 million. Eximbank's 
role is important in developing markets where the international 
financial crisis has rolled back private finance, or in markets where 
there is officially supported ECA competition. The 2001 Budget proposes 
$963 million in credit resources for Eximbank, an increase of $207 
million or 27 percent above its 2000 budget of $756 million--so that 
Eximbank can:
    Partially offset the higher risks and costs, of 
          international lending. The revised ICRAS premia recognize the 
          risk in the marketplace, and so significantly increases the 
          cost of lending for Eximbank, especially at the maturities and 
          in the markets in which Eximbank is most needed.
    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. Eximbank currently finances 10 percent of 
          all U.S. capital equipment exports to the developing world. 
          More funding will allow Eximbank to provide significantly more 
          long-term financing for exports of U.S. manufactured capital 
          goods and aircraft.
    Finance exports to riskier markets. U.S. exporters 
          increasingly seek Eximbank financing to meet the demand in 
          riskier markets, but the higher cost of providing such 
          financing uses a greater proportion of Eximbank's budgetary 
          resources. Eximbank support is critical in these markets 
          because bank financing often is unavailable, and U.S. 
          exporters compete with government-financed foreign firms.
  USDA's GSM-102 and 103 programs guarantee credit extended by private 
U.S. exporters and U.S. financial institutions to facilitate exports to 
buyers in countries where credit is necessary to maintain or increase 
U.S. sales of agricultural products. 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.

  Stabilizing international financial markets. In today's global 
economy, the health and prosperity of the American economy depend 
importantly on the stability of the global financial system and the 
economic health of our major trading partners. The United States has 
several ways in which it can help to stabilize world financial markets. 
It can provide resources on a multilateral basis through the IMF 
(discussed in other sections of the Budget), or through a loan provided 
by the Exchange Stabilization Fund (ESF).
  The ESF may provide ``bridge loans'' to other countries in times of 
short-term liquidity problems and financial crises. In the past, 
``bridge loans'' from ESF provided dollars to a country over a short 
period before the disbursement under an IMF loan. A package of up to $20 
billion of ESF financial support was made available to Mexico during its 
crisis in 1995. Such support was essential in helping to stabilize 
Mexican and global financial markets. Mexico paid back its borrowings 
under this package ahead of schedule in 1997, and the United States 
earned almost $600 million in interest. There was zero subsidy cost for 
the United States as defined under credit reform, as the medium-term 
credit carried interest rates with an appropriate country risk premium 
built in.
  The United States was also willing to provide ESF support in response 
to the financial crises affecting some countries such as South Korea in 
1997 or Brazil in 1998. It did not prove necessary to develop an actual 
ESF credit facility for Korea, but the United States agreed to use up to 
$5 billion from the ESF as part of a multilateral guarantee of a Bank 
for International Settlements credit facility for Brazil. Such support 
helped to provide the international confidence needed by these countries 
to begin the stabilization process.

  Using credit to promote sustainable development. Credit has become an 
increasingly important tool in U.S. bilateral assistance to promote 
sustainable development. In 1999, OMB certified that USAID could 
adequately manage its credit programs as required in the 1998 Foreign 
Operations Appropriations Act. USAID's newest credit tool is the 
Development Credit Authority (DCA) that provides non-sovereign loans and

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loan guarantees in cases where credit is more effective than grants to 
achieve sustainable development, such as more effective financial 
markets or reductions in global climate change-causing emissions. A 
consolidation of all of USAID's credit programs is requested in the 2001 
Budget to create a unified Office of Development Credit. This office 
will encompass DCA activities as well as USAID's traditional 
microenterprise and urban environmental credit programs.
  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.

                        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 over $2.8 trillion of deposits at over 8,600 commercial banks 
and almost 1,700 savings institutions. The NCUA insures 10,841 credit 
unions with $323 billion in insured shares.

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. Only one thrift failed in 1999, becoming the first SAIF-member 
to fail since 1996. Five commercial banks failed during 1999. Eighteen 
credit unions with $67 million in assets failed during 1999. The FDIC 
currently classifies only 80 institutions with $8 billion in assets as 
``problem'' institutions, compared to nearly 318 institutions with $73 
billion in assets just five years ago.
  Banks have achieved record levels of earnings in recent years. As of 
September 30, 1999, BIF had estimated reserves of $29 billion, 1.38 
percent of insured deposits.
  The earnings of the thrift industry also have improved significantly 
in recent years. As of September 30, 1999, SAIF's reserves reached an 
estimated $10.2 billion or 1.44 percent of insured deposits. This total 
includes the $978 million SAIF Special Reserve that was established on 
January 1, 1999, in accordance with the Deposit Insurance Funds Act 
(DIFA) of 1996. The Special Reserve has now been eliminated by the 
Financial Services Modernization Act of 1999.
  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, 94 percent of 
commercial banks and 91 percent of thrifts did not pay insurance 
premiums in 1999.
  The National Credit Union Share Insurance Fund (NCUSIF) also remains 
strong with assets of $4.2 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 1999, 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 fifth consecutive year that the 
Fund paid a dividend to federally insured credit unions. The Board also 
waived premiums for 2000.
  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 on the deposit insurance funds. For example, the spate of 
mergers among large banks in the last several years has increased the 
probability that a failure of one of America's 25 largest banks would 
bankrupt the deposit insurance funds. Even in good economic times, 
occurrences of substantial fraud--such as the failure of First National 
Bank in Keystone, West Virginia, which is expected to cost the FDIC up 
to $850 million to resolve--can significantly reduce the deposit funds' 
balances. On the other hand, the President's signature of the Financial 
Services Modernization Act may make future failures less likely by 
allowing banks to diversify their activities, though this remains to be 
seen.

Legislative, Judicial and Regulatory Developments

  On November 12, 1999, the President signed the Financial Services 
Modernization Act of 1999 (P.L. 106-102), thereby making the most 
important legisla

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tive changes to the structure of the U.S. financial system since the 
1930s. This historic Act will stimulate greater innovation and 
competition in the financial services industry. Specifically, the Act 
repeals provisions of the Glass-Steagall Act that, since the Great 
Depression, have restricted affiliations between banks and securities 
firms. It also amends the Bank Holding Company Act to remove 
restrictions on affiliations between banks and insurance companies. 
Furthermore, it grants banks significant new authority to conduct many 
newly authorized activities through operating subsidiaries.
  The Act also ensures that the needs of all communities are met and 
consumer rights are protected. It preserves the significance of the 
Community Reinvestment Act (CRA), by requiring that financial 
institutions that take advantage of the new opportunities created by the 
Act, have a satisfactory record of meeting the needs of all the 
communities that they serve. Also under the Act, financial institutions 
must clearly disclose their privacy policies to customers up front and 
annually, allowing consumers to make informed choices about protecting 
their financial privacy. For the first time, consumers will have a right 
to know if their financial institution intends to share or sell their 
personal financial data, within the corporate family or with an 
unaffiliated third-party. Consumers will have the right to ``opt out'' 
of such information sharing with unaffiliated third parties.
  In 1999 the National Credit Union Administration promulgated rules to 
implement the historic Credit Union Membership Access Act, which was 
signed into law in 1998. These rules will allow credit unions to accept 
members from multiple employers with fewer than 3,000 employees; 
implement prompt corrective action; and implement changes to the 
National Credit Union Share Insurance Fund's equity ratio calculation 
and dividend policies.
  The Federal regulators of depository institutions (FDIC, the Federal 
Reserve Board, the Comptroller of the Currency, the Office of Thrift 
Supervision, and the NCUA) assisted banks, thrifts, and credit unions 
throughout the Nation in making a smooth transition to the Year 2000. 
During the Year 2000 transition, the Nation's payment systems functioned 
well, and currency supplies were adequate to meet demand. Credit cards, 
debit cards, checks and automated teller machines worked normally. The 
successful transition marks the end of three years of preparation for 
the century date change.

                           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 vested 
guaranteed 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 24 million in 1995. If the trend 
continues, by 2003 fewer than half of the participants in defined 
benefit plans will be active workers; the rest will be retirees.
  In 1999, PBGC posted a positive financial position for the fourth 
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 more actively to 
prevent and mitigate losses. Under its Early Warning Program, PBGC has 
negotiated 90 major settlements with companies, providing nearly $17.5 
billion in extra contributions and other protections that improved 
pension security for over 2 million people and reduced PBGC's future 
exposure. 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.
  PBGC's single-employer program fared well in 1999, with no major 
terminations. Overall investment returns were positive. Strong 
performance in its trust funds, which are invested in equities, offset 
losses in its revolving funds, which are invested in U.S. Government 
securities. Premium revenues dropped for the third year in a row, partly 
reflecting a previously enacted increase in the statutory interest rate 
for calculating underfunding.
  PBGC's multiemployer program, which guarantees pension benefits of 
certain unionized plans offered by several employers in an industry, 
remained financially strong despite a large loss from one plan. The 
Administration proposes to increase the maximum guarantee level on 
pension benefits paid to retirees in multiemployer plans 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. 
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 to phase-in the PBGC's variable rate 
premium for new plans, a lower flat-rate premium

[[Page 206]]

and no variable rate premium for the first five years of new plans of 
small employers. In addition, the Budget proposes expanding the PBGC's 
missing participant program to terminating multiemployer and terminating 
defined contribution plans, and simplifying the guarantee rules for 
business owners.

                           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 increased by nearly 70,000 policies in 
1999. The NFIP's ``Cover America'' initiative, which is a major 
marketing and advertising campaign, continues 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 now allows policyholders in nearly 
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, 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.
  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 2001 Budget proposes two additional reforms of this program. 
First, the Administration seeks authorization to use up to $50 million 
from FEMA's Disaster Relief Fund to begin the process of purchasing and/
or elevating insured properties that have flooded repeatedly over the 
last 10 years. This effort will ultimately result in lower claims 
payments. Second, the Budget includes a proposal to charge a $12 license 
fee for the use of FEMA's flood hazard maps 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 without Government reinsurance because losses tend to be 
correlated across geographic areas, and the companies are therefore 
exposed to large losses. For example, a drought will affect many farms 
at the same time. Damage from hail, on the other hand, tends to be more 
localized, and a private market for hail insurance has existed for over 
100 years.
  The USDA crop insurance program is a cooperative effort between the 
Federal Government and the private insurance industry. Private insurance 
companies sell and service crop insurance policies. The Federal 
Government reimburses private companies for part of the administrative 
expenses associated with providing 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 
participated in the program--140 percent more than in 1994. However, the 
1996 Farm Bill eliminated the requirement that farmers participating in 
USDA's commodity programs

[[Page 207]]

carry crop insurance, and participation dropped in 1997 to an estimated 
61 percent of eligible acres. That number increased to 67 percent in 
1999 due to the crop insurance purchase requirement attached to disaster 
benefits provided in 1999. That requirement is in place for just two 
years and 61 percent is considered the average expected participation 
level absent such requirements.
  The 1996 Farm Bill significantly changed USDA's commodity programs and 
associated price and income support for farmers. When the President 
signed the Farm Bill, he 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.
  In 1999, USDA unveiled a pilot ``whole farm'' revenue insurance plan 
to cover diversified farming and ranching operations with a single 
revenue insurance policy. The Adjusted Gross Revenue (AGR) policy 
insures the five-year average revenue of a farming or ranching operation 
on the basis of the producer's Schedule F for Farm Income on Federal tax 
returns. In addition to being USDA's first insurance policy to cover 
livestock, AGR marks a departure from the expensive, labor-intensive 
approach to crop insurance which currently requires considerable 
information collection, and farm visits for loss adjustment and 
compliance verification.
  Emergency funding in 1999 and 2000 added more crop insurance premium 
subsidies for those years and raised program participation to record 
levels. In the 1999 crop year, gross liability insured reached over $30 
billion in crop production value compared to $26 billion in 1998. The 
program is expected to sustain or increase these participation levels if 
the Administration's proposal to strengthen the farm safety net is 
enacted by Congress. The proposal, discussed in the main Budget volume, 
includes increased subsidies for producers purchasing crop insurance in 
order to provide incentives for greater coverage, as well as a pilot 
livestock insurance program, multi-year loss policies, increased risk 
management education, and outreach to producers.



[[Page 208]]



                    Table 8-1.  ESTIMATED FUTURE COST OF OUTSTANDING FEDERAL CREDIT PROGRAMS
                                            (in billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated                      Estimated
                                                     Outstanding  Future Costs of   Outstanding  Future Costs of
                      Program                           1998            1998           1999            1999
                                                                  Outstanding \1\                Outstanding \1\
----------------------------------------------------------------------------------------------------------------
Direct Loans \2\:
  Federal Student Loan Programs...................         47               2             65               2
  Farm Service Agency (excl.CCC), Rural                    46              14             45              12
   Development, Rural Housing.....................
  Rural Electrification Admin. and Rural Telephone         34               4             29               3
   Bank...........................................
  Housing and Urban Development...................         14               2             14               3
  Agency for International Development............         12               6             11               6
  Public Law 480..................................         11               7             11               8
  Export-Import Bank..............................         11               3             12               6
  Commodity Credit Corporation....................          8               2              7               3
  Federal Communications Commission...............          7               2              8               5
  Disaster Assistance.............................          7               1              7               2
  Other Direct Loan Programs......................         20               3             22               2
                                                   -------------------------------------------------------------
    Total Direct Loans............................        217              45            234              50
                                                   -------------------------------------------------------------
Guaranteed Loans \2\:
  FHA Mutual Mortgage Insurance Fund..............        380              -2            411              -3
  VA Mortgage.....................................        211               5            221               6
  Federal Family Education Loan Program...........        118              12            127              12
  FHA General/Special Risk Insurance Fund.........         89               7             93               7
  Small Business..................................         37               2             39               2
  Export-Import Bank..............................         22               1             25               1
  International Assistance........................         19               2             19               2
  Farm Service Agency and Rural Housing...........         14               0             17               0
  Commodity Credit Corporation....................          4               2              7               1
  Other Loan Guarantee Programs...................         20               0             16               0
                                                   -------------------------------------------------------------
    Total Guaranteed Loans........................        916              29            976              29
                                                   =============================================================
    Total Federal Credit..........................      1,133              74          1,210              80
----------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.

\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
  liabilities for loan guarantees.

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


[[Page 209]]


   Table 8-2.   FACE VALUE OF GOVERNMENT-SPONSORED ENTERPRISE LENDING
                        (in billions of dollars)
------------------------------------------------------------------------
                                                        Outstanding
                                                 -----------------------
                                                     1998        1999
------------------------------------------------------------------------

      Government Sponsored Enterprises: \1\

Fannie Mae......................................         989       1,141
Freddie Mac.....................................         702         843
Federal Home Loan Banks \2\.....................         246         367
Sallie Mae \3\..................................           0           0
Farm Credit System..............................          60          66
                                                 -----------------------
  Total.........................................       1,997       2,417
------------------------------------------------------------------------
\1\ Net of purchases of federally guaranteed loans.

\2\ The lending by the Federal Home Loan Banks measures their advances
  to member thrift and other financial institutions. In addition, their
  investment in private financial instruments at the end of 1999 was
  $155 billion, including federally guaranteed securities, GSE
  securities and money market instruments.

\3\ The face value of Federal Family Education Loans in the Student Loan
  Marketing Association's portfolio is included in the totals for that
  program under guaranteed loans in table 8-1.


[[Page 210]]


                                  Table 8-3.  REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED BETWEEN 1992--1999\1\
                                                                (In millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Program                                       1994       1995       1996       1997       1998       1999       2000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Loans:
  Agriculture credit insurance fund........................................      -72         28          2        -31         23    .........      321
  Agricultural conservation................................................       -1    .........  .........  .........  .........  .........  .........
  Rural electrification and telephone loans................................        *         61        -37         84    .........      -39    .........
  Rural telephone bank.....................................................        1    .........  .........       10    .........       -9         -1
  Rural housing insurance fund.............................................        2        152         46        -73    .........       71    .........
  Rural economic development loans.........................................  .........  .........  .........        1    .........       -1          *
  Rural development loan program...........................................  .........        1    .........  .........  .........       -6    .........
  Rural community advancement program \2\..................................  .........  .........  .........        8    .........        5    .........
  P.L. 480 Title I loan program............................................  .........  .........      -37         -1    .........  .........     -253
  Federal direct student loans:............................................  .........  .........  .........  .........  .........  .........  .........
    Technical reestimate \3\...............................................  .........  .........        3        -83        172       -361     -2,442
    Volume reestimate......................................................  .........  .........  .........  .........  .........  .........  .........
  Bureau of Reclamation direct loans.......................................  .........  .........  .........  .........  .........  .........        3
  BIA-Indian direct loans..................................................  .........  .........  .........  .........  .........        1          4
  DoT-High priority corridor loans.........................................  .........  .........  .........  .........       -3    .........  .........
  DoT-Alameda corridor loan................................................  .........  .........  .........  .........  .........  .........      -55
  Community Development Financial Institutions fund........................  .........  .........  .........  .........  .........  .........        *
  Veterans housing benefit program fund....................................      -39         30         76        -72        465       -111        -13
  FEMA-Disaster assistance.................................................  .........  .........  .........  .........  .........  .........       47
  Foreign military financing...............................................  .........  .........  .........       13          4          1        152
  Debt restructuring.......................................................  .........  .........  .........  .........  .........  .........        5
  SBA-Disaster loans.......................................................  .........  .........  .........  .........     -193        246    .........
  Export-Import Bank direct loans..........................................      -28        -16         37    .........  .........  .........     -177
  Spectrum auction program.................................................  .........  .........  .........  .........    4,592        980     -1,501

Loan Guarantees:
  Agriculture credit insurance fund........................................        5         14         12        -51         96    .........     -130
  Commodity Credit Corporation export guarantees...........................        3        103       -426        343    .........  .........     -253
  Rural development insurance fund.........................................       49    .........  .........       -3    .........  .........  .........
  Rural housing insurance fund.............................................        2         10          7        -10    .........      109    .........
  Rural community advancement program \2\..................................  .........  .........  .........      -10    .........       41    .........
  P.L. 480 Title I Food for Progress credits...............................  .........       84        -38    .........  .........  .........  .........
  Fisheries finance, guaranteed loans......................................  .........  .........  .........  .........       -2    .........  .........
  Federal family education: \4\
    Technical reestimate \3\...............................................       97        421         60    .........  .........       63        415
    Volume reestimate......................................................  .........  .........      535         99    .........     -216        362
  FHA-Mutual mortgage......................................................  .........  .........  .........     -340    .........    3,789    .........
  FHA-General and special risk \5\.........................................     -175    .........     -110        -25        743         79    .........
  BIA-Indian guaranteed loans..............................................  .........  .........  .........       31    .........  .........      -18
  Maritime guaranteed loans (Title XI).....................................  .........  .........  .........  .........  .........      -71         27
  Veterans housing benefit fund guarantees.................................     -447        167        334       -706         38        492        242
  AID housing guaranty.....................................................       -2         -1         -7    .........      -14    .........  .........
  Assistance to the New Independent States of the former Soviet Union......  .........  .........  .........  .........  .........  .........      -30
  SBA-Business loans.......................................................  .........  .........      257        -16       -279       -545       -239
  Export-Import Bank guarantees............................................      -11        -59         13    .........  .........  .........     -185
                                                                            ----------------------------------------------------------------------------
    Total..................................................................     -616        995        727       -832      5,642      4,518     -3,720
--------------------------------------------------------------------------------------------------------------------------------------------------------
* $500 thousand or less.
\1\ Additional information on credit reform subsidy rates is contained in the Federal Credit Supplement to the budget for 2001.
\2\ Includes rural water and waste disposal, rural community facilities, and rural business and industry programs.
\3\ 2000 figure includes interest on reestimate.
\4\ Volume reestimates in mandatory loan guarantee 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.
\5\ 1999 figuludes interest on reestimate.


[[Page 211]]


         Table 8-4. ESTIMATED 2001 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.....................................         10.26          114       1,080
  Farm storage facility loans............................................          2.85            4         150
  Watershed and flood prevention operations..............................          6.95            4          60
  Rural community advancement program....................................         12.91          172       1,332
  Rural electrification and telecommunications loans.....................          0.24            4       1,645
  Rural telephone bank...................................................          1.48            3         175
  Distance learning and telemedicine program.............................         -0.61           -2         400
  Farm labor.............................................................         52.59           16          30
  Rural housing insurance fund...........................................         19.15          284       1,485
  Rural development loan fund............................................         50.91           33          64
  Rural economic development loans.......................................         26.07            4          15
  P.L. 480...............................................................         71.51          114         160

Commerce:
  Fisheries finance......................................................          1.00            5         324

Defense--Military:
  Family housing improvement fund........................................         38.80           38          99

Education:
  School renovation......................................................         17.20        1,125       6,541
  Federal direct student loan program....................................         -3.04         -517      16,972

Housing and Urban Development:
  FHA-Mutual mortgage insurance..........................................  .............  ..........         250
  FHA-General and special risk...........................................  .............  ..........          50

Interior:
  Bureau of Reclamation loans............................................         52.99            9          27

State:
  Repatriation loans.....................................................         80.00            1           1

Transportation:
  Transportation infrastructure finance and innovation (TIFIA) program...          5.74           75       1,320

Treasury:
  Community development financial institutions fund......................         43.41            4          10

Veterans Affairs:
  Veterans housing benefit program.......................................          1.82           12         649
  Miscellaneous veterans housing program.................................          7.72   ..........           2
  Miscellaneous veterans programs........................................         35.02   ..........           3

Federal Emergency Management Agency:
  Disaster assistance direct loans.......................................          6.71            2          25

International Assistance Programs:
  Overseas Private Investment Corporation................................         11.00           14         127

Small Business Administration:
  Disaster loans.........................................................         17.46          142         871
  Business loans.........................................................          8.95            5          60

Other Independent Agencies:
  Export-Import Bank loans...............................................          7.50           72         960
                                                                          --------------------------------------
    Total................................................................        N/A           1,737      34,887
----------------------------------------------------------------------------------------------------------------
\1\ Additional information on credit subsidy rates is contained in the Federal Credit Supplement.


[[Page 212]]


       Table 8-5. ESTIMATED 2001 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.....................................          2.06           71       3,478
  Commodity Credit Corporation export loans..............................          8.52          323       3,792
  Rural community advancement program....................................          0.52            8       1,535
  Rural electrification and telecommunications loans.....................          0.01   ..........         400
  Rural housing insurance fund...........................................          0.18            7       3,900

Defense--Military:
  Family housing improvement fund........................................          8.86           45         507

Education:
  Federal family education loan..........................................         11.22        2,760      29,853

Health and Human Services:
  Health resources and services..........................................          2.11            1          51

Housing and Urban Development:
  Indian housing loan guarantee fund.....................................          8.13            6          72
  Title VI Indian loan guarantees........................................         11.07            5          43
  Community development loan guarantees..................................          2.30           28       1,217
  America's private investment companies.................................          3.60           36       1,000
  FHA-Mutual mortgage insurance..........................................         -2.57       -3,675     160,000
  FHA-General and special risk...........................................         -0.12          -21      21,000

Interior:
  Indian guaranteed loans................................................          6.73            5          82

Transportation:
  Minority business resource center......................................         11.00            2          14
  Transportation infrastructure finance and innovation (TIFIA) program...          2.00           18         880
  Maritime guaranteed loans (Title XI)...................................          4.97            2          40

Veterans Affairs:
  Veterans housing benefit program.......................................          0.51          154      30,334
  Miscellaneous veterans housing program.................................         48.25            6          13

International Assistance Programs:
  Development credit authority...........................................          7.04           15         213
  Overseas Private Investment Corporation................................          1.00           10       1,000

Small Business Administration:
  Business loans.........................................................          1.08          194      17,955

Other Independent Agencies:
  Export-Import Bank loans...............................................          6.70        1,007      15,040
  Presidio Trust.........................................................          0.46            1         200
                                                                          --------------------------------------
    Total................................................................        N/A           1,008     292,619
                                                                          --------------------------------------
        ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS

GNMA:
  Guarantees of mortgage-backed securities...............................         -0.36         -356     200,000
----------------------------------------------------------------------------------------------------------------
\1\ Additional information on credit subsidy rates is contained in the Federal Credit Supplement.


[[Page 213]]


                         Table 8-6.  SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES
                                            (In billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                 Actual                            Estimate
                                           ---------------------------------------------------------------------
                                              1995      1996      1997      1998      1999      2000      2001
----------------------------------------------------------------------------------------------------------------
Direct Loans:
    Obligations...........................      30.9      23.4      33.6      28.8      38.4      38.5      44.2
    Disbursements.........................      22.0      23.6      32.2      28.7      37.7      37.3      35.8
    Subsidy budget authority \1\..........       2.6       1.8       2.4       6.5       2.6      -4.3       1.7

Loan Guarantees: \2\
    Commitments...........................     138.5     175.4     172.3     218.4     252.4     255.1     289.0
    Lender Disbursements..................     117.9     143.9     144.7     199.5     224.7     234.0     257.9
    Subsidy budget authority \1\..........       4.6       4.0       3.6       2.6       4.3       3.2       0.8
----------------------------------------------------------------------------------------------------------------
\1\ Excludes subsidy reestimates made prior to 1998.
\2\ GNMA secondary guarantees of loans that are guaranteed by FHA, VA and RHS are excluded from the totals to
  avoid double-counting.


[[Page 214]]


                                     Table 8-7. DIRECT LOAN WRITE-OFFS AND GUARANTEED LOAN TERMINATIONS FOR DEFAULTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        In millions of dollars          As a percentage of outstanding
                                                                                 ------------------------------------              loans \1\
                               Agency and Program                                                                    -----------------------------------
                                                                                     1999        2000        2001        1999        2000        2001
                                                                                   actual      estimate    estimate    actual      estimate    estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              DIRECT LOAN WRITEOFFS

Agriculture:
  Agricultural credit insurance fund............................................         278         284         344        3.00        3.06        3.87
  Rural community advancement program...........................................  ..........           6          10  ..........        0.12        0.17
  Rural development insurance fund..............................................           2           3           3        0.05        0.09        0.09
  Rural housing insurance fund..................................................          95          92          91        0.33        0.32        0.32
  Rural development loans.......................................................           1           1           1        0.31        0.29        0.27

Commerce:
  Economic development loans....................................................           3           1           1        6.97        2.50        2.85

Education:
  Student financial assistance..................................................          15           9          10       23.43       14.75       17.54
  Federal direct student loan program...........................................          41          86         118        0.08        0.16        0.18

Housing and Urban Development:
  Revolving fund (liquidating programs).........................................           6  ..........  ..........        3.42  ..........  ..........
  FHA--Mutual mortgage insurance................................................  ..........  ..........           2  ..........  ..........        1.07

Interior:
  BIA--Indian direct loans......................................................           1           7           2        1.40       10.60        3.41

State:
  Repatriation loans............................................................           1           1           1       25.00       25.00       25.00

Veterans Affairs:
  Veterans housing benefit program..............................................          74          82          87        3.88        4.48        5.46

Federal Emergency Management Agency:
  FEMA--disaster assistance.....................................................           1  ..........  ..........        0.54  ..........  ..........

International Assistance Programs:
  Military debt reduction.......................................................  ..........          11           8  ..........      110.00      133.33
  Overseas Private Investment Corporation.......................................           1           1           1        1.28        1.27        1.23

Small Business Administration:
  Disaster loans................................................................          21          10  ..........        0.31        0.15  ..........
  Business loans................................................................          26          26          10        3.09        3.30        1.43

Other Independent Agencies:
  Bank insurance fund...........................................................          38  ..........  ..........       38.00  ..........  ..........
  Tennessee Valley Authority fund...............................................           1           1           1        2.12        1.96        1.69
                                                                                 -----------------------------------------------------------------------
    Total, direct loan writeoffs................................................         605         621         690        0.30        0.29        0.31
                                                                                 -----------------------------------------------------------------------

                    GUARANTEED LOAN TERMINATIONS FOR DEFAULT

Agriculture:
  Agricultural credit insurance fund............................................          61          94         104        0.80        1.17        1.19
  CCC export guarantee programs.................................................         248         425         390        3.68        6.83        7.23
  Rural community advancement program...........................................          33          33          33        1.10        0.93        0.71
  Rural electrification and telecommunications..................................         107  ..........  ..........       25.17  ..........  ..........
  Rural development insurance fund..............................................           1          18          11        0.76       17.06       17.05
  Rural housing insurance fund..................................................          40          62          79        0.40        0.56        0.58

Commerce:
  NOAA--Federal ship financing..................................................  ..........           2           2  ..........        1.85        2.68

Defense--Military:
  Defense export loan guarantee program.........................................  ..........  ..........           1  ..........  ..........       10.52

Education:
  Federal family education......................................................       2,555       3,824       4,014        2.01        2.95        2.97

Health and Human Services:
  Health education assistance loan program......................................          22          37          42        0.76        1.30        1.53

Housing and Urban Development:
  FHA--Mutual mortgage insurance................................................       5,876       3,779       4,538        1.42        0.85        0.87
  FHA--General and special risk.................................................       1,070       1,536       2,292        1.15        1.59        2.19

Interior:
  BIA--Indian loan guarantee....................................................           1           1           1        0.65        0.60        0.49

Transportation:
  Federal ship financing fund...................................................           4  ..........  ..........        1.24  ..........  ..........


[[Page 215]]


Veterans Affairs:
  Veterans housing benefit program..............................................       2,381       3,030       3,370        1.07        1.37        1.55

International Assistance Programs:
  Foreign military financing....................................................           1           5           8        0.02        0.10        0.18
  Microenterprise and other development.........................................           2           1           1        4.76        1.88        1.44
  AID--Housing and other credit guaranty programs...............................          56          32          40        2.44        1.41        1.83
  Overseas Private Investment Corporation.......................................           6          64          50        0.20        2.12        1.58

Small Business Administration:
  Business loans................................................................         699         684         684        1.77        1.66        1.52
  Pollution control equipment...................................................          11          11          11       23.91       27.16       37.28

Other Independent Agencies:
  Export-Import Bank............................................................       1,000         284         425        3.94        1.00        1.38
                                                                                 -----------------------------------------------------------------------
    Total, guaranteed loan terminations for default.............................      14,174      13,922      16,096        0.91        0.86        0.93
                                                                                 -----------------------------------------------------------------------
    Total, direct loan writeoffs and guaranteed loan terminations...............      14,779      14,543      16,786        0.84        0.80        0.86
                                                                                 =======================================================================

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

Education:
  Federal family education......................................................         587         459         473        2.68        2.03        1.98

Health and Human Services:
  Health education assistance loan program......................................          29          29          29        5.43        5.44        5.46

Housing and Urban Development:
  FHA--Mutual mortgage insurance................................................          17          85           1        2.66       25.07        1.96
  FHA--General and special risk.................................................         172         229         652        7.22        9.80       31.27

Interior:
  BIA--Indian loan guarantee....................................................           2  ..........  ..........        2.85  ..........  ..........

Veterans Affairs:
  Veterans housing benefit program..............................................         113          83          79       14.65       10.29        8.98

Small Business Administration:
  Business loans................................................................         320         173          71       15.01        8.48        3.67
                                                                                 -----------------------------------------------------------------------
    Total, writeoffs of loans receivable........................................       1,240       1,058       1,305        3.69        3.10        3.72
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Average of loans outstanding for the year.


[[Page 216]]


                      Table 8-8. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS \1\
                                            (In millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                 Estimate
                             Agency and Program                                  1999    -----------------------
                                                                               Actual        2000        2001
----------------------------------------------------------------------------------------------------------------
                           DIRECT LOAN OBLIGATIONS

Agriculture:
  Agricultural credit insurance fund........................................         872       1,797       1,080
  Distance learning and telemedicine........................................          55         200         400
  Rural electrification and telecommunications..............................       1,911       2,610       1,645
  Rural telephone bank......................................................         158         175         175
  Rural water and waste disposal direct loans...............................         707         679       1,032
  Rural housing insurance fund..............................................       1,167       1,360       1,515
  Rural community facility direct loans.....................................         162         167         250
  Rural economic development................................................          15          15          15
  Rural development loan fund...............................................          33          38          64
  Rural business and industry direct loans..................................          50          50          50
  P.L. 480 direct credit....................................................         282         907         160

Commerce:
  Fisheries finance.........................................................         229          28         324

Education:
  Historically black college and university capital financing...............         375         364         339

Housing and Urban Development:
  FHA-General and special risk..............................................          50          50          50
  FHA-Mutual mortgage insurance.............................................         100         100         250

Interior:
  Bureau of Reclamation.....................................................          38          43          27
  Assistance to American Samoa..............................................  ..........          19  ..........

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

Transportation:
  Minority business resource center.........................................          14          14  ..........
  Transportation infrastructure finance and innovation (TIFIA) program......         893        1080       1,320

Treasury:
  Community development financial institutions fund.........................          32          53          53

Federal Emergency Management Agency:
  Disaster assistance.......................................................          30          25          25

General Services Administration:
  Columbia Hospital for Women...............................................  ..........          14  ..........

International Assistance Programs:
  Military debt reduction...................................................           1          11  ..........
                                                                             -----------------------------------
    Total, limitations on direct loan obligations...........................       7,175       9,800       8,775
                                                                             -----------------------------------

                         LOAN GUARANTEE COMMITMENTS

Agriculture:
  Agricultural credit insurance fund........................................       2,551       4,042       3,478
  Rural electrification and telecommunications guaranteed loans.............         150         500         400
  Rural water and waste water disposal guaranteed loans.....................          75          75          75
  Rural housing insurance fund..............................................       3,075       3,300       3,900
  Rural community facility guaranteed loans.................................         210         210         210
  Rural business and industry guaranteed loans..............................       1,000         850       1,250

Commerce:
  Emergency oil and gas guaranteed loans....................................  ..........         500  ..........
  Emergency steel guaranteed loans..........................................  ..........       1,000  ..........

Defense--Military:
  Defense export loan guarantee.............................................      14,980      14,980      14,980

Health and Human Services:
  Health centers............................................................  ..........         100          51


[[Page 217]]


Housing and Urban Development:
  Indian housing loan guarantee fund........................................          81          72          72
  Title VI Indian federal guarantees........................................          55          55          43
  Community development loan guarantees.....................................       1,261       1,261       1,217
  America's private investment companies....................................  ..........         541       1,000
  FHA-General and special risk..............................................      18,100      18,100      21,000
  FHA-Loan guarantee recovery fund..........................................           8           7  ..........
  FHA-Mutual mortgage insurance.............................................     140,000     140,000     160,000

Interior:
  Indian....................................................................          60          60          82

Transportation:
  Minority business resource center.........................................  ..........  ..........          14
  Transportation infrastructure finance and innovation program loan                  600         720         880
   guarantees...............................................................
  Maritime guaranteed loan (Title XI).......................................       1,767       1,505          40

International Assistance Programs:
  Overseas private investment corporation...................................       2,333       2,333       1,000

Small Business Administration:
  Business loan guarantees..................................................      13,500      16,500      18,213

Other Independent Agencies:
  Presidio Trust............................................................  ..........         200         200
                                                                             -----------------------------------
    Total, limitations on loan guarantee commitments........................     199,806     206,911     228,105
                                                                             ===================================

         ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS

Housing and Urban Development:
  Guarantees of mortgage-backed securities..................................     200,000     200,000     200,000
                                                                             -----------------------------------
    Total, limitations on secondary guaranteed loan commitments.............     200,000     200,000     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 8-4 and 8-5.


[[Page 218]]


                          Table 8-9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                Estimate
                            Agency and Account                                 1999    -------------------------
                                                                             Actual         2000         2001
----------------------------------------------------------------------------------------------------------------
                        Department of Agriculture

                           Farm Service Agency

Agricultural credit insurance fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           1            2            2
   Change in outstandings................................................        -882         -967         -985
   Outstandings..........................................................       5,817        4,850        3,865

Farm storage facility direct loan financing account:
   Obligations...........................................................  ...........         350          150
   Loan disbursements....................................................  ...........         350          150
   Change in outstandings................................................  ...........         350           66
   Outstandings..........................................................  ...........         350          416

Agricultural credit insurance fund direct loan financing account:
   Obligations...........................................................         999        1,723        1,080
   Loan disbursements....................................................       1,278        1,637        1,026
   Change in outstandings................................................         728          949          267
   Outstandings..........................................................       3,443        4,392        4,659

Commodity Credit Corporation fund:
   Obligations...........................................................       8,358        9,399        9,257
   Loan disbursements....................................................       8,358        9,399        9,257
   Change in outstandings................................................         213          -79         -312
   Outstandings..........................................................       2,846        2,767        2,455

                  Natural Resources Conservation Service

Watershed and flood prevention operations direct loan financing account:
   Obligations...........................................................  ...........  ...........          60
   Loan disbursements....................................................  ...........  ...........           7
   Change in outstandings................................................  ...........  ...........           7
   Outstandings..........................................................  ...........  ...........           7

                         Rural Utilities Service

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

Distance learning and telemedicine direct loan financing account:
   Obligations...........................................................          55          200          400
   Loan disbursements....................................................           1          101          232
   Change in outstandings................................................           1           93          206
   Outstandings..........................................................           1           94          300

Rural development insurance fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           2   ...........  ...........
   Change in outstandings................................................        -338         -281         -258
   Outstandings..........................................................       3,470        3,189        2,931

Rural electrification and telecommunications direct loan financing
 account:
   Obligations...........................................................       1,763        2,610        1,645
   Loan disbursements....................................................       1,093        1,689        1,582
   Change in outstandings................................................         760        1,547        1,412
   Outstandings..........................................................       5,949        7,496        8,908

Rural telephone bank direct loan financing account:
   Obligations...........................................................         114          175          175
   Loan disbursements....................................................          58          117          145
   Change in outstandings................................................          49          107          134
   Outstandings..........................................................         246          353          487

Rural water and waste disposal direct loans financing account:
   Obligations...........................................................         721          679        1,032
   Loan disbursements....................................................         619          835          862
   Change in outstandings................................................         535          786          803
   Outstandings..........................................................       3,345        4,131        4,934


[[Page 219]]


Rural electrification and telecommunications liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          19            8           19
   Change in outstandings................................................      -1,209       -1,030       -1,189
   Outstandings..........................................................      25,867       24,837       23,648

Rural telephone bank liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          17           15           13
   Change in outstandings................................................        -186         -110         -106
   Outstandings..........................................................         986          876          770

                          Rural Housing Service

Rural housing insurance fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................      -1,331       -1,127       -1,052
   Outstandings..........................................................      18,373       17,246       16,194

Rural housing insurance fund direct loan financing account:
   Obligations...........................................................       1,169        1,371        1,515
   Loan disbursements....................................................       1,137        1,332        1,448
   Change in outstandings................................................         769          993        1,046
   Outstandings..........................................................      10,180       11,173       12,219

Rural community facility direct loans financing account:
   Obligations...........................................................         163          185          250
   Loan disbursements....................................................         168          226          178
   Change in outstandings................................................         141          204          153
   Outstandings..........................................................         747          951        1,104

                   Rural Business--Cooperative Service

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

Rural economic development direct loan financing account:
   Obligations...........................................................          15           15           15
   Loan disbursements....................................................          23           16           15
   Change in outstandings................................................          16            6            5
   Outstandings..........................................................          66           72           77

Rural development loan fund direct loan financing account:
   Obligations...........................................................          33           38           64
   Loan disbursements....................................................          44           42           41
   Change in outstandings................................................          40           36           33
   Outstandings..........................................................         249          285          318

Rural business and industry direct loans financing account:
   Obligations...........................................................          26           50           50
   Loan disbursements....................................................          20           31           51
   Change in outstandings................................................          19           23           37
   Outstandings..........................................................          38           61           98

Rural development loan fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........           1            1
   Change in outstandings................................................          -5           -4           -4
   Outstandings..........................................................          72           68           64

                       Foreign Agricultural Service

Expenses, P.L. 480, foreign assistance programs, Agriculture liquidating
 account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -336         -275         -539
   Outstandings..........................................................       8,810        8,535        7,996


[[Page 220]]


P.L. 480 direct credit financing account:
   Obligations...........................................................         282          907          160
   Loan disbursements....................................................         401          777          195
   Change in outstandings................................................         398          772          187
   Outstandings..........................................................       1,927        2,699        2,886

P.L. 480 Title I food for progress credits, financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................         508          508          508

Debt reduction--financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........          -2           -2
   Outstandings..........................................................          63           61           59

                          Department of Commerce

                   Economic Development Administration

Economic development revolving fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -11           -6           -4
   Outstandings..........................................................          43           37           33

             National Oceanic and Atmospheric Administration

Fisheries finance, direct loan financing account:
   Obligations...........................................................         229           28          324
   Loan disbursements....................................................          98          159          160
   Change in outstandings................................................          96          155          153
   Outstandings..........................................................         122          277          430

                     Department of Defense--Military

                              Family Housing

Family housing improvement, direct loan financing account:
   Obligations...........................................................  ...........          74           99
   Loan disbursements....................................................  ...........          11   ...........
   Change in outstandings................................................  ...........          11   ...........
   Outstandings..........................................................  ...........          11           11

                         Department of Education

               Office of Elementary and Secondary Education

School renovation, direct loan financing account:
   Obligations...........................................................  ...........  ...........       6,541
   Loan disbursements....................................................  ...........  ...........         327
   Change in outstandings................................................  ...........  ...........         281
   Outstandings..........................................................  ...........  ...........         281

                    Office of Postsecondary Education

College housing and academic facilities loans liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -47          -43          -43
   Outstandings..........................................................         519          476          433

College housing and academic facilities loans financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           4            1            4
   Change in outstandings................................................           4            1            4
   Outstandings..........................................................          25           26           30

Historically black college and university capital financing, direct loan
 financing account:
   Obligations...........................................................          11           25           25
   Loan disbursements....................................................           6           25           25
   Change in outstandings................................................           6           25           25
   Outstandings..........................................................          11           36           61


[[Page 221]]


                  Office of Student Financial Assistance

Student financial assistance:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -73           -6           -2
   Outstandings..........................................................          64           58           56

Federal direct student loan program, financing account:
   Obligations...........................................................      19,243       16,135       16,971
   Loan disbursements....................................................      18,070       14,636       15,429
   Change in outstandings................................................      12,465       12,646       12,535
   Outstandings..........................................................      45,830       58,476       71,011

                           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................................................          -2           -7           -8
   Outstandings..........................................................          15            8   ...........

               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................................................         -71          -71          -71
   Outstandings..........................................................       1,421        1,350        1,279

                    Community Planning and Development

Revolving fund (liquidating programs):
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -45          -35          -30
   Outstandings..........................................................         175          140          110

Community development loan guarantees liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -17           -4           -4
   Outstandings..........................................................          13            9            5

                             Housing Programs

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

Flexible subsidy fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          17           14           20
   Change in outstandings................................................          17           10           16
   Outstandings..........................................................         786          796          812

FHA-Mutual mortgage and cooperative housing insurance funds liquidating
 account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -1           -4   ...........
   Outstandings..........................................................           4   ...........  ...........


[[Page 222]]


FHA-General and special risk insurance funds liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -4           -4           -4
   Outstandings..........................................................          68           64           60

FHA-General and special risk direct loan financing account:
   Obligations...........................................................  ...........          17           17
   Loan disbursements....................................................           1           17           17
   Change in outstandings................................................           1           16           16
   Outstandings..........................................................           1           17           33

Housing for the elderly or handicapped fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           3   ...........  ...........
   Change in outstandings................................................         -98          -87          -86
   Outstandings..........................................................       8,045        7,958        7,872

FHA-Mutual mortgage insurance direct loan financing account:
   Obligations...........................................................           1          100          250
   Loan disbursements....................................................           1           90          227
   Change in outstandings................................................          -2           84          197
   Outstandings..........................................................           3           87          284

                 Government National Mortgage Association

Guarantees of mortgage-backed securities liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................         101          112          101
   Change in outstandings................................................           2          -18          -17
   Outstandings..........................................................         360          342          325

                        Department of the Interior

                          Bureau of Reclamation

Bureau of reclamation loan liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -3           -3           -4
   Outstandings..........................................................          66           63           59

Water and related resources:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........          -1
   Outstandings..........................................................           3            3            2

Bureau of Reclamation direct loan financing account:
   Obligations...........................................................          25           43           27
   Loan disbursements....................................................          26           30           27
   Change in outstandings................................................          26           29           24
   Outstandings..........................................................         146          175          199

                          National Park Service

Construction and major maintenance:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........          -1   ...........
   Outstandings..........................................................           6            5            5

                         Bureau of Indian Affairs

Revolving fund for loans liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -4           -3           -3
   Outstandings..........................................................          43           40           37

Indian direct loan financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -1           -7           -2
   Outstandings..........................................................          28           21           19


[[Page 223]]


                             Insular Affairs

Assistance to territories:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -1           -1           -1
   Outstandings..........................................................          16           15           14

Assistance to American Samoa direct loan financing account:
   Obligations...........................................................  ...........          19   ...........
   Loan disbursements....................................................  ...........          14            5
   Change in outstandings................................................  ...........          13            4
   Outstandings..........................................................  ...........          13           17

                           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

                       Department of Transportation

                         Office of the Secretary

Minority business resource center direct loan financing account:
   Obligations...........................................................           6           14   ...........
   Loan disbursements....................................................           3            7            7
   Change in outstandings................................................           1           -2           -3
   Outstandings..........................................................           8            6            3

                      Federal Highway Administration

Transportation infrastructure finance and innovation (TIFIA) program
 direct loan financing account:
   Obligations...........................................................         873          990        1,210
   Loan disbursements....................................................  ...........         992          858
   Change in outstandings................................................  ...........         992          858
   Outstandings..........................................................  ...........         992        1,850

Transportation infrastructure finance and innovation (TIFIA) program line
 of credit financing account:
   Obligations...........................................................          20           90          110
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................  ...........  ...........  ...........

Right-of-way revolving fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          36            3            3
   Change in outstandings................................................          12          -21          -21
   Outstandings..........................................................         194          173          152

                     Federal Railroad Administration

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

Alameda corridor direct loan financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................         120   ...........  ...........
   Change in outstandings................................................         120   ...........        -400
   Outstandings..........................................................         400          400   ...........

Railroad rehabilitation and improvement liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -3           -5           -4
   Outstandings..........................................................          53           48           44


[[Page 224]]


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...........................................................           8           10           10
   Loan disbursements....................................................           5            5            7
   Change in outstandings................................................           5            5            6
   Outstandings..........................................................          10           15           21

                      Department of Veterans Affairs

                     Veterans Benefits Administration

Veterans housing benefit program fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          10            9            9
   Change in outstandings................................................         -10          -28          -25
   Outstandings..........................................................         317          289          264

Veterans housing benefit program fund direct loan financing account:
   Obligations...........................................................       1,648        1,992          649
   Loan disbursements....................................................       1,648        1,992          649
   Change in outstandings................................................         484         -129         -290
   Outstandings..........................................................       1,588        1,459        1,169

Miscellaneous veterans housing loans direct loan financing account:
   Obligations...........................................................           2            2            2
   Loan disbursements....................................................           2            2            1
   Change in outstandings................................................           1            2            1
   Outstandings..........................................................          17           19           20

Miscellaneous veterans programs loan fund direct loan financing account:
   Obligations...........................................................           2            3            3
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................           1            1            1

                     Environmental Protection Agency

Abatement, control, and compliance direct loan financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................          -5           -5           -5
   Outstandings..........................................................          51           46           41

                   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...........................................................           3           25           25
   Loan disbursements....................................................           3           25           25
   Change in outstandings................................................           1           19            9
   Outstandings..........................................................         148          167          176

                     General Services Administration

                         Real Property Activities

Columbia hospital for women direct loan financing account:
   Obligations...........................................................  ...........          14   ...........
   Loan disbursements....................................................  ...........          14   ...........
   Change in outstandings................................................  ...........          14   ...........
   Outstandings..........................................................  ...........          14           14


[[Page 225]]


                    International Assistance Programs

                    International Security Assistance

Foreign military loan liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................           7            7            7
   Change in outstandings................................................        -582         -535         -444
   Outstandings..........................................................       4,805        4,270        3,826

Foreign military financing direct loan financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................         345          466          594
   Change in outstandings................................................          83          153          221
   Outstandings..........................................................       1,665        1,818        2,039

Military debt reduction financing account:
   Obligations...........................................................           1           11   ...........
   Loan disbursements....................................................           1           11   ...........
   Change in outstandings................................................           1   ...........          -8
   Outstandings..........................................................          10           10            2

                   Agency for International Development

Economic assistance loans--liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -775         -596         -530
   Outstandings..........................................................      10,660       10,064        9,534

Debt reduction, financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........          72            3
   Change in outstandings................................................         -65           15          -54
   Outstandings..........................................................         217          232          178

Microenterprise and small enterprise development credit direct loan
 financing account:
   Obligations...........................................................           2   ...........  ...........
   Loan disbursements....................................................           1            1            1
   Change in outstandings................................................  ...........  ...........  ...........
   Outstandings..........................................................           3            3            3

                 Overseas Private Investment Corporation

Overseas Private Investment Corporation liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -10           -5           -6
   Outstandings..........................................................          14            9            3

Overseas Private Investment Corporation direct loan financing account:
   Obligations...........................................................         136          136          127
   Loan disbursements....................................................           7           20           23
   Change in outstandings................................................           1            6           10
   Outstandings..........................................................          64           70           80

                      Small Business Administration

Business direct loan financing account:
   Obligations...........................................................          15           30           60
   Loan disbursements....................................................          15           30           60
   Change in outstandings................................................          -6           16           45
   Outstandings..........................................................          93          109          154

Disaster direct loan financing account:
   Obligations...........................................................         814          221          951
   Loan disbursements....................................................         755          650        1,192
   Change in outstandings................................................          53          169       -1,375
   Outstandings..........................................................       5,658        5,827        4,452

Disaster loan fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -187         -580         -487
   Outstandings..........................................................       1,067          487   ...........


[[Page 226]]


Business loan fund liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          34           32           22
   Change in outstandings................................................        -242         -127         -107
   Outstandings..........................................................         748          621          514

                        Other Independent Agencies

                 Export-Import Bank of the United States

Export-Import Bank liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................        -552         -349         -353
   Outstandings..........................................................       5,169        4,820        4,467

Debt reduction financing account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................          44          118   ...........
   Change in outstandings................................................          44          118   ...........
   Outstandings..........................................................         108          226          226

Export-Import Bank direct loan financing account:
   Obligations...........................................................         903          836          960
   Loan disbursements....................................................       2,375        1,117          790
   Change in outstandings................................................       2,027          424          -27
   Outstandings..........................................................       7,054        7,478        7,451

           Farm Credit System Financial Assistance Corporation

Financial Assistance Corporation assistance fund, liquidating account:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -33          -17          -15
   Outstandings..........................................................         900          883          868

                    Federal Communications Commission

Spectrum auction direct loan financing account:
   Obligations...........................................................         733            2            2
   Loan disbursements....................................................         733            2            2
   Change in outstandings................................................       1,498           -8          -36
   Outstandings..........................................................       8,287        8,279        8,243

                              Bank Insurance

Bank insurance fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -44         -100   ...........
   Outstandings..........................................................         100   ...........  ...........

                             FSLIC Resolution

FSLIC resolution fund:
   Obligations...........................................................  ...........  ...........  ...........
   Loan disbursements....................................................  ...........  ...........  ...........
   Change in outstandings................................................         -34          -11   ...........
   Outstandings..........................................................          75           64           64

                   National Credit Union Administration
Community development credit union revolving loan fund:
   Obligations...........................................................           2            6            4
   Loan disbursements....................................................           2            6            4
   Change in outstandings................................................  ...........           3            1
   Outstandings..........................................................           7           10           11

                        Tennessee Valley Authority

Tennessee Valley Authority fund:
   Obligations...........................................................          16           22           22
   Loan disbursements....................................................          16           22           22
   Change in outstandings................................................           4            8            8
   Outstandings..........................................................          47           55           63
                                                                          --------------------------------------

[[Page 227]]


Subtotal, direct loan transactions:
   Obligations...........................................................      38,392       38,548       44,243
   Loan disbursements....................................................      37,729       37,291       35,846
   Change in outstandings................................................      13,403       14,104        9,851
   Outstandings..........................................................     200,416      214,520      224,371
                                                                          --------------------------------------
  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........................................................         248          425          390
   Change in outstandings................................................         240          418          381
   Outstandings..........................................................         336          754        1,135

Commodity Credit Corporation guaranteed loans liquidating account:
   Claim payments........................................................  ...........  ...........  ...........
   Change in outstandings................................................         -82         -114         -158
   Outstandings..........................................................       4,210        4,096        3,938

                          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 Student Financial Assistance

Federal family education loan liquidating account:
   Claim payments........................................................         314          190          109
   Change in outstandings................................................      -2,122         -795         -724
   Outstandings..........................................................      13,187       12,392       11,668

Federal family education loan program, financing account:
   Claim payments........................................................       2,045        3,352        3,604
   Change in outstandings................................................         255        2,111        1,998
   Outstandings..........................................................       8,701       10,812       12,810

                 Department of Health and Human Services

               Health Resources and Services Administration

Health education assistance loans financing account:
   Claim payments........................................................           9           22           28
   Change in outstandings................................................           6           19           24
   Outstandings..........................................................          38           57           81

Health education assistance loans liquidating account:
   Claim payments........................................................          20           23           18
   Change in outstandings................................................           2          -21          -26
   Outstandings..........................................................         496          475          449
               Department of Housing and Urban Development

                             Housing Programs

FHA-Mutual mortgage and cooperative housing insurance funds liquidating
 account:
   Claim payments........................................................          11            5            3
   Change in outstandings................................................         -24         -266            2
   Outstandings..........................................................         270            4            6

FHA-General and special risk insurance funds liquidating account:
   Claim payments........................................................         172          136          170
   Change in outstandings................................................         -99         -393         -776
   Outstandings..........................................................       1,890        1,497          721

FHA-General and special risk guaranteed loan financing account:
   Claim payments........................................................         243          407          510
   Change in outstandings................................................         110          302          365
   Outstandings..........................................................         491          793        1,158


[[Page 228]]


FHA-Mutual mortgage insurance guaranteed loan financing account:
   Claim payments........................................................          35           14           26
   Change in outstandings................................................          21         -334           22
   Outstandings..........................................................         369           35           57

                        Department of the Interior

                         Bureau of Indian Affairs

Indian loan guaranty and insurance fund liquidating account:
   Claim payments........................................................  ...........  ...........  ...........
   Change in outstandings................................................          -3           -2           -2
   Outstandings..........................................................          29           27           25

Indian guaranteed loan financing account:
   Claim payments........................................................           3            1            1
   Change in outstandings................................................          -3   ...........  ...........
   Outstandings..........................................................          41           41           41

                       Department of Transportation

                         Maritime Administration

Federal ship financing fund liquidating account:
   Claim payments........................................................           4   ...........  ...........
   Change in outstandings................................................         -26           -5           -5
   Outstandings..........................................................          20           15           10

                      Department of Veterans Affairs

                     Veterans Benefits Administration

Veterans housing benefit program fund liquidating account:
   Claim payments........................................................         103           87           75
   Change in outstandings................................................         -46          -19          -14
   Outstandings..........................................................         574          555          541

Veterans housing benefit program fund guaranteed loan financing account:
   Claim payments........................................................         114          121          136
   Change in outstandings................................................          94           89           91
   Outstandings..........................................................         197          286          377

                    International Assistance Programs

                    International Security Assistance

Foreign military loan liquidating account:
   Claim payments........................................................          24           14           21
   Change in outstandings................................................          13           11           21
   Outstandings..........................................................          14           25           46

                   Agency for International Development

Housing and other credit guaranty programs liquidating account:
   Claim payments........................................................          56           32           40
   Change in outstandings................................................          15            8           14
   Outstandings..........................................................         500          508          522

Microenterprise and small enterprise development guaranteed loan
 financing account:
   Claim payments........................................................           2            1            1
   Change in outstandings................................................           2            1            1
   Outstandings..........................................................           3            4            5

                 Overseas Private Investment Corporation

Overseas Private Investment Corporation guaranteed loan financing
 account:
   Claim payments........................................................           5           50           50
   Change in outstandings................................................           2           45           33
   Outstandings..........................................................          17           62           95

                      Small Business Administration

Pollution control equipment fund liquidating account:
   Claim payments........................................................           3   ...........  ...........
   Change in outstandings................................................           2           -1           -1
   Outstandings..........................................................          47           46           45


[[Page 229]]


Business guaranteed loan financing account:
   Claim payments........................................................         630          643          656
   Change in outstandings................................................         -81          -15          241
   Outstandings..........................................................         753          738          979

Business loan fund liquidating account:
   Claim payments........................................................          69           41           28
   Change in outstandings................................................         -88         -168         -278
   Outstandings..........................................................       1,378        1,210          932
                                                                          --------------------------------------
Subtotal, defaulted guaranteed loans that result in a loan receivable:
   Claim payments........................................................       4,110        5,564        5,866
   Change in outstandings................................................      -1,812          871        1,209
   Outstandings..........................................................      33,585       34,456       35,665
                                                                          ======================================
Total:
   Obligations...........................................................      38,392       38,548       44,243
   Loan disbursements....................................................      41,839       42,855       41,712
   Change in outstandings................................................      11,591       14,975       11,060
   Outstandings..........................................................     234,001      248,976      260,036
----------------------------------------------------------------------------------------------------------------


[[Page 230]]


                       Table 8-10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                               Estimate
                          Agency and Account                                1999     ---------------------------
                                                                          Actual          2000          2001
----------------------------------------------------------------------------------------------------------------
                       Department of Agriculture

                          Farm Service Agency

Agricultural credit insurance fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................        -182          -205          -112
   Outstandings.......................................................         594           389           277

Agricultural credit insurance fund guaranteed loan financing account:
   Commitments........................................................       2,551         4,042         3,478
   New guaranteed loans...............................................       2,349         3,083         3,130
   Change in outstandings.............................................         731           959           724
   Outstandings.......................................................       7,023         7,982         8,706

Commodity Credit Corporation export guarantee financing account:
   Commitments........................................................       3,045         3,787         3,792
   New guaranteed loans...............................................         244         3,501         3,501
   Change in outstandings.............................................         -87        -1,050          -590
   Outstandings.......................................................       6,739         5,689         5,099

Commodity Credit Corporation guaranteed loans liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................        -214    ............  ............
   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.......................................................           4             4             4

Rural development insurance fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -96           -51           -31
   Outstandings.......................................................         131            80            49

Rural electrification and telecommunications guaranteed loans
 financing account:
   Commitments........................................................         150           500           400
   New guaranteed loans...............................................          16           133           176
   Change in outstandings.............................................          16           131           173
   Outstandings.......................................................          16           147           320

Rural water and waste water disposal guaranteed loans financing
 account:
   Commitments........................................................           6            75            75
   New guaranteed loans...............................................          20            69            44
   Change in outstandings.............................................          19            67            41
   Outstandings.......................................................          20            87           128

Rural electrification and telecommunications liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................        -152           -20           -20
   Outstandings.......................................................         409           389           369

                         Rural Housing Service

Rural housing insurance fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................          -4            -2            -3
   Outstandings.......................................................          23            21            18


[[Page 231]]


Rural housing insurance fund guaranteed loan financing account:
   Commitments........................................................       3,052         3,300         3,900
   New guaranteed loans...............................................       3,085         2,966         3,497
   Change in outstandings.............................................       2,566         2,287         2,661
   Outstandings.......................................................       9,772        12,059        14,720

Rural community facility guaranteed loans financing account:
   Commitments........................................................         107           210           210
   New guaranteed loans...............................................          59           131           165
   Change in outstandings.............................................          39           119           147
   Outstandings.......................................................         194           313           460

                  Rural Business--Cooperative Service

Rural business and industry guaranteed loans financing account:
   Commitments........................................................       1,281           869         1,250
   New guaranteed loans...............................................       1,027         1,134         1,059
   Change in outstandings.............................................         887           956           838
   Outstandings.......................................................       2,763         3,719         4,557

                        Department of Commerce

                        Departmental Management

Emergency oil and gas guaranteed loan financing account:
   Commitments........................................................  ............         500    ............
   New guaranteed loans...............................................  ............         500    ............
   Change in outstandings.............................................  ............         500           -50
   Outstandings.......................................................  ............         500           450

Emergency steel guaranteed loan financing account:
   Commitments........................................................  ............       1,000    ............
   New guaranteed loans...............................................  ............       1,000    ............
   Change in outstandings.............................................  ............       1,000          -100
   Outstandings.......................................................  ............       1,000           900

                  Economic Development Administration

Economic development revolving fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -10            -2    ............
   Outstandings.......................................................           3             1             1

            National Oceanic and Atmospheric Administration

Fisheries finance, guaranteed loan financing account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................          -9           -24           -24
   Outstandings.......................................................          71            47            23

Federal ship financing fund, fishing vessels liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -14           -10            -9
   Outstandings.......................................................          54            44            35

                    Department of Defense--Military

                       Operation and Maintenance

Defense export loan guarantee financing account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................           5    ............  ............
   Change in outstandings.............................................           1            -4            -5
   Outstandings.......................................................          16            12             7

                              Procurement

Arms initiative guaranteed loan financing account:
   Commitments........................................................  ............           8    ............
   New guaranteed loans...............................................  ............           8    ............
   Change in outstandings.............................................  ............           7            -2
   Outstandings.......................................................          10            17            15


[[Page 232]]


                            Family Housing

Family housing improvement guaranteed loan financing account:
   Commitments........................................................  ............         563           507
   New guaranteed loans...............................................  ............          29    ............
   Change in outstandings.............................................  ............          29    ............
   Outstandings.......................................................  ............          29            29

                        Department of Education

                Office of Student Financial Assistance

Federal family education loan liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................      -4,387        -4,084        -2,781
   Outstandings.......................................................      13,910         9,826         7,045

Federal family education loan program financing account:
   Commitments........................................................      27,497        28,326        29,853
   New guaranteed loans...............................................      21,914        25,261        26,472
   Change in outstandings.............................................      13,260         9,524         7,958
   Outstandings.......................................................     112,768       122,292       130,250

                Department of Health and Human Services

             Health Resources and Services Administration

Health education assistance loans financing account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -11           -23           -30
   Outstandings.......................................................       1,551         1,528         1,498

Health education assistance loans liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -69           -83           -87
   Outstandings.......................................................       1,343         1,260         1,173

Health center guaranteed loan financing account:
   Commitments........................................................  ............         100            51
   New guaranteed loans...............................................  ............         100            51
   Change in outstandings.............................................  ............         100            51
   Outstandings.......................................................           9           109           160

Medical facilities guarantee and loan fund:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -37           -30           -15
   Outstandings.......................................................          45            15    ............

              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.............................................        -281          -281          -281
   Outstandings.......................................................       3,026         2,745         2,464

Indian housing loan guarantee fund financing account:
   Commitments........................................................          12            72            72
   New guaranteed loans...............................................          17            40            40
   Change in outstandings.............................................           9            37            37
   Outstandings.......................................................          47            84           121

Title VI Indian federal guarantees financing account:
   Commitments........................................................  ............          55            43
   New guaranteed loans...............................................  ............          55            43
   Change in outstandings.............................................  ............          52            40
   Outstandings.......................................................  ............          52            92


[[Page 233]]


                  Community Planning and Development

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

Community development loan guarantees financing account:
   Commitments........................................................         432         1,261         1,217
   New guaranteed loans...............................................         468           650           825
   Change in outstandings.............................................         320           450           575
   Outstandings.......................................................       1,509         1,959         2,534

Community development loan guarantees liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -31           -25           -25
   Outstandings.......................................................         134           109            84

America's private investment companies financing account:
   Commitments........................................................  ............         541         1,000
   New guaranteed loans...............................................  ............         395           771
   Change in outstandings.............................................  ............         395           771
   Outstandings.......................................................  ............         395         1,166

                           Housing Programs

FHA-Mutual mortgage and cooperative housing insurance funds
 liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................     -15,164        -8,482        -6,897
   Outstandings.......................................................      55,866        47,384        40,487

FHA-General and special risk insurance funds liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................      -3,685        -2,852        -2,151
   Outstandings.......................................................      32,905        30,053        27,902

FHA-General and special risk guaranteed loan financing account:
   Commitments........................................................      16,924        15,905        16,677
   New guaranteed loans...............................................      16,074        15,330        16,551
   Change in outstandings.............................................       6,995         9,974        11,146
   Outstandings.......................................................      59,692        69,666        80,812

FHA-Loan guarantee recovery fund--financing account:
   Commitments........................................................           1             7    ............
   New guaranteed loans...............................................           1             4             4
   Change in outstandings.............................................           1             4             4
   Outstandings.......................................................           2             6            10

FHA-Mutual mortgage insurance guaranteed loan financing account:
   Commitments........................................................     123,546       122,658       158,993
   New guaranteed loans...............................................     113,174       122,341       149,883
   Change in outstandings.............................................      46,299        74,358        85,830
   Outstandings.......................................................     355,608       429,966       515,796

               Government National Mortgage Association

Guarantees of mortgage-backed securities liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................     -95,853    ............          -2
   Outstandings.......................................................         156           156           154

Guarantees of mortgage-backed securities financing account:
   Commitments........................................................     163,508       114,311        96,262
   New guaranteed loans...............................................     163,508       114,311        96,262
   Change in outstandings.............................................     123,697        30,255         7,437
   Outstandings.......................................................     569,312       599,567       607,004


[[Page 234]]


                      Department of the Interior

                       Bureau of Indian Affairs

Indian loan guaranty and insurance fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................          -8            -7            -6
   Outstandings.......................................................          32            25            19

Indian guaranteed loan financing account:
   Commitments........................................................          32            60            82
   New guaranteed loans...............................................          32            60            82
   Change in outstandings.............................................           7            33            53
   Outstandings.......................................................         120           153           206

                     Department of Transportation

                        Office of the Secretary

Minority business resource center guaranteed loan financing account:
   Commitments........................................................  ............  ............          14
   New guaranteed loans...............................................  ............  ............           7
   Change in outstandings.............................................  ............  ............           5
   Outstandings.......................................................  ............  ............           5

                    Federal Highway Administration

Transportation infrastructure finance and innovation (TIFIA) program
 loan guarantee financing account:
   Commitments........................................................         600           720           880
   New guaranteed loans...............................................  ............       1,320           880
   Change in outstandings.............................................  ............       1,320           880
   Outstandings.......................................................  ............       1,320         2,200

                        Maritime Administration

Federal ship financing fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -76           -52           -57
   Outstandings.......................................................         321           269           212

Maritime guaranteed loan (Title XI) financing account:
   Commitments........................................................       1,767         1,505            40
   New guaranteed loans...............................................       1,767         1,505            40
   Change in outstandings.............................................         954         1,334          -192
   Outstandings.......................................................       3,411         4,745         4,553

                    Department of Veterans Affairs

                   Veterans Benefits Administration

Veterans housing benefit program fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................          38    ............  ............
   Change in outstandings.............................................      -5,770        -4,425        -3,372
   Outstandings.......................................................      17,638        13,213         9,841

Veterans housing benefit program fund guaranteed loan financing
 account:
   Commitments........................................................      44,061        34,104        30,334
   New guaranteed loans...............................................      44,061        34,104        30,334
   Change in outstandings.............................................      16,263         2,647        -3,085
   Outstandings.......................................................     203,651       206,298       203,213

Miscellaneous veterans housing loans guaranteed loan financing
 account:
   Commitments........................................................  ............          20            13
   New guaranteed loans...............................................  ............          20            13
   Change in outstandings.............................................  ............          20            11
   Outstandings.......................................................  ............          20            31


[[Page 235]]


                   International Assistance Programs

                   International Security Assistance

Foreign military loan liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................        -380          -371          -357
   Outstandings.......................................................       4,924         4,553         4,196

                 Agency for International Development

Loan guarantees to Israel financing account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................  ............  ............  ............
   Outstandings.......................................................       9,226         9,226         9,226

Development credit authority guaranteed loan financing account:
   Commitments........................................................          93            69           213
   New guaranteed loans...............................................  ............          75           114
   Change in outstandings.............................................  ............          75           114
   Outstandings.......................................................  ............          75           189

Housing and other credit guaranty programs liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -74           -76           -84
   Outstandings.......................................................       1,760         1,684         1,600

Private sector revolving fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................  ............  ............  ............
   Outstandings.......................................................           1             1             1

Microenterprise and small enterprise development guaranteed loan
 financing account:
   Commitments........................................................          50            56    ............
   New guaranteed loans...............................................          39            44            30
   Change in outstandings.............................................          11            22            10
   Outstandings.......................................................          42            64            74

Urban and environmental credit guaranteed loan financing account:
   Commitments........................................................          12            11    ............
   New guaranteed loans...............................................         147            37            11
   Change in outstandings.............................................         127            11           -16
   Outstandings.......................................................         534           545           529

Assistance for the independent states of the former Soviet Union:
 Ukraine export credit insurance financing account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -61    ............  ............
   Outstandings.......................................................  ............  ............  ............

                Overseas Private Investment Corporation

Overseas Private Investment Corporation liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -12           -14           -55
   Outstandings.......................................................          69            55    ............

Overseas Private Investment Corporation guaranteed loan financing
 account:
   Commitments........................................................       2,333         2,333         1,000
   New guaranteed loans...............................................         426           600           800
   Change in outstandings.............................................         291           100           250
   Outstandings.......................................................       2,904         3,004         3,254

                     Small Business Administration

Pollution control equipment fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................         -11           -11           -11
   Outstandings.......................................................          46            35            24


[[Page 236]]


Business guaranteed loan financing account:
   Commitments........................................................      12,652        17,760        19,784
   New guaranteed loans...............................................      10,785         7,534         7,738
   Change in outstandings.............................................       3,072         4,150         4,261
   Outstandings.......................................................      36,767        40,917        45,178

Business loan fund liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................           2             1             1
   Change in outstandings.............................................      -1,152          -579          -432
   Outstandings.......................................................       2,652         2,073         1,641

                      Other Independent Agencies

                Export-Import Bank of the United States

Export-Import Bank liquidating account:
   Commitments........................................................  ............  ............  ............
   New guaranteed loans...............................................  ............  ............  ............
   Change in outstandings.............................................        -493          -350          -317
   Outstandings.......................................................       1,214           864           547

Export-Import Bank guaranteed loan financing account:
   Commitments........................................................      12,165        14,664        15,040
   New guaranteed loans...............................................       8,901        11,998        11,512
   Change in outstandings.............................................       1,437         6,015          -554
   Outstandings.......................................................      24,151        30,166        29,612

                 National Credit Union Administration

Credit union share insurance fund:
   Commitments........................................................           1             1             1
   New guaranteed loans...............................................           1             1             1
   Change in outstandings.............................................  ............  ............  ............
   Outstandings.......................................................           1             1             1

                            Presidio Trust

Presidio Trust guaranteed loan financing account:
   Commitments........................................................  ............  ............         100
   New guaranteed loans...............................................  ............  ............         100
   Change in outstandings.............................................  ............  ............         100
   Outstandings.......................................................  ............  ............         100
                                                                       -----------------------------------------
Subtotal, guaranteed loans (gross)
   Commitments........................................................     415,878       369,393       385,281
   New guaranteed loans...............................................     388,160       348,340       354,137
   Change in outstandings.............................................      88,677       123,817       102,364
   Outstandings.......................................................   1,545,214     1,669,031     1,771,395

Less, secondary guaranteed loans: \1\

GNMA guarantees of FmHA/VA/FHA pools:
   Commitments........................................................    -163,508      -114,311       -96,262
   New guaranteed loans...............................................    -163,508      -114,311       -96,262
   Change in outstandings.............................................     -27,844       -30,255        -7,435
   Outstandings.......................................................    -569,468      -599,723      -607,158
                                                                       =========================================
Total, primary guaranteed loans: \2\
   Commitments........................................................     252,370       255,082       289,019
   New guaranteed loans...............................................     224,652       234,029       257,875
   Change in outstandings.............................................      60,833        93,562        94,929
   Outstandings.......................................................     975,746     1,069,308     1,164,237
----------------------------------------------------------------------------------------------------------------
\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.
\2\ When guaranteed loans result in loans receivable, they are shown in the direct loan table.


[[Page 237]]


                Table 8-11. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs) \1\
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                Estimate
                                Enterprise                                     1999    -------------------------
                                                                             Actual         2000         2001
----------------------------------------------------------------------------------------------------------------
                                 LENDING

Student Loan Marketing Association:
   Net change............................................................       8,329       -3,927       -6,030
   Outstandings..........................................................      37,797       33,870       27,840

Federal National Mortgage Association:
  Portfolio programs:
   Net change............................................................     125,419       81,090       92,389
   Outstandings..........................................................     518,629      599,719      692,108
  Mortgage-backed securities:
   Net change............................................................      46,936       20,023       29,285
   Outstandings..........................................................     674,297      694,320      723,605

Federal Home Loan Mortgage Corporation:
  Portfolio programs:
   Net change............................................................      99,446       39,843       40,008
   Outstandings..........................................................     315,968      355,811      395,819
  Mortgage-backed securities:
   Net change............................................................      38,526       87,619      101,540
   Outstandings..........................................................     529,213      616,832      718,372

Farm Credit System:
  Agricultural credit bank: \2\
   Net change............................................................       1,481          452        1,176
   Outstandings..........................................................      18,093       18,545       19,721
  Farm credit banks:
   Net change............................................................       1,762        1,143        1,973
   Outstandings..........................................................      45,823       46,966       48,939
  Federal Agricultural Mortgage Corporation:
   Net change............................................................       1,009        1,261        1,576
   Outstandings..........................................................       2,057        3,318        4,894

Federal Home Loan Banks:
   Net change............................................................     121,375        2,043        2,043
   Outstandings..........................................................     366,842      368,885      370,928
                                                                          --------------------------------------
Subtotal GSE lending (gross):
   Net change............................................................     444,283      229,547      263,960
   Outstandings..........................................................   2,508,719    2,738,266    3,002,226

Less guaranteed loans purchased by:
  Student Loan Marketing Association:
   Net change............................................................       8,329       -3,927       -6,030
   Outstandings..........................................................      37,797       33,870       27,840
  Federal National Mortgage Association:
   Net change............................................................      20,484         -254        1,220
   Outstandings..........................................................      52,110       51,856       53,076
  Other:
   Net change............................................................       6,269   ...........  ...........
   Outstandings..........................................................      20,794       20,794       20,794
                                                                          --------------------------------------
Total GSE lending (net):
   Net change............................................................     409,201      181,872      268,770
   Outstandings..........................................................   2,398,018    2,652,540    2,900,516

                                BORROWING

Student Loan Marketing Association:
   Net Change............................................................       8,074       -4,466       -6,910
   Outstandings..........................................................      41,591       37,125       30,215

Federal National Mortgage Association:
  Portfolio programs:
   Net Change............................................................      94,297       84,687       92,494
   Outstandings..........................................................     524,879      609,566      702,060
  Mortgage-backed securities:
   Net Change............................................................      46,936       20,023       29,285
   Outstandings..........................................................     674,297      694,320      723,605


[[Page 238]]


Federal Home Loan Mortgage Corporation:
  Portfolio programs:
   Net Change............................................................     104,627       62,427       39,088
   Outstandings..........................................................     341,014      403,441      442,529
  Mortgage-backed securities:
   Net Change............................................................      38,526       87,619      101,540
   Outstandings..........................................................     529,213      616,832      718,372

Farm Credit System:
  Agricultural credit bank: \2\
   Net Change............................................................       1,389          486        1,266
   Outstandings..........................................................      19,468       19,954       21,220
  Farm credit banks:
   Net Change............................................................       2,373        1,818        2,169
   Outstandings..........................................................      50,087       51,905       54,074
  Federal Agricultural Mortgage Corporation:
   Net Change............................................................         975          288            9
   Outstandings..........................................................       2,573        2,861        2,870

Federal Home Loan Banks:
   Net Change............................................................     141,210   ...........  ...........
   Outstandings..........................................................     477,472      477,472      477,472
                                                                          --------------------------------------
Subtotal GSE borrowing (gross):
   Net change............................................................     349,182      142,934      124,681
   Outstandings..........................................................   1,425,742    1,568,676    1,693,357

Less borrowing from other GSEs:
   Net Change............................................................      30,390   ...........  ...........
   Outstandings..........................................................      96,387       96,387       96,387
Less purchase of Federal debt securities:
   Net Change............................................................        -292           14            9
   Outstandings..........................................................       1,668        1,682        1,691
Less borrowing to purchase loans guaranteed by:
  Student Loan Marketing Association:
   Net Change............................................................       8,329       -3,927       -6,030
   Outstandings..........................................................      37,797       33,870       27,840
  Federal National Mortgage Association:
   Net Change............................................................      20,484         -254        1,220
   Outstandings..........................................................      52,110       51,856       53,076
  Other:
   Net Change............................................................       6,269   ...........  ...........
   Outstandings..........................................................      20,794       20,794       20,794
                                                                          --------------------------------------
Total GSE borrowing (net):
   Net change............................................................     284,002      147,101      129,482
   Outstandings..........................................................   1,216,986    1,364,087    1,493,569
----------------------------------------------------------------------------------------------------------------
\1\ The estimates of borrowing and lending were developed by the GSEs based on certain assumptions but are
  subject to periodic review and revision and do not represent offficial GSE forecasts of future activity, nor
  are they reviewed by the President. 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 remaining Bank for Cooperatives was combined with the Agricultural credit bank as of July 1, 1999.
  Agricultural credit bank data for 1999 include data for Bank for Cooperatives.


[[Page 239]]


                                    Table 8-12. GOVERNMENT-SPONSORED ENTERPRISE PARTICIPATION IN THE CREDIT MARKET\1\
                                                              (dollar amounts in billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Actual
                                                      --------------------------------------------------------------------------------------------------
                                                         1965     1970     1975     1980     1985     1990     1995     1996     1997     1998     1999
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total net lending in credit market \2\...............     66.8     88.2    169.6    336.9    829.3    704.1    720.4    727.1    713.5    975.3  1,091.4

Government-sponsored enterprise loans................      1.2      4.9      5.3     21.4     57.9    115.4    125.7    141.5    112.8    293.1    284.0

GSE lending participation rate (percent).............      1.8      5.6      3.1      6.4      7.0     16.4     17.4     19.5     15.8     30.1     26.0
========================================================================================================================================================
Total net borrowing in credit market \2\.............     66.8     88.2    169.6    336.9    829.3    704.1    720.4    727.1    713.5    975.3  1,091.4

Government-sponsored enterprise borrowing............      1.4      5.2      5.5     24.1     60.7     90.0     68.2    161.2    107.9    276.2    346.8

GSE borrowing participation rate (percent)...........      2.1      5.9      3.2      7.2      7.3     12.8      9.5     35.7     15.1     36.6     31.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Government-sponsored enterprises (GSEs) are financial intermediaries. GSE borrowing (lending) is nevertheless compared with total credit market
  borrowing (lending) by nonfinancial sectors, because GSE borrowing (lending) is a proxy for the borrowing (lending) by nonfinancial sectors that the
  GSEs assist through intermediation. The GSEs assist the ultimate nonfinancial borrower by purchasing its loans from the initial, direct lender or by
  other methods, which they finance by issuing securities themselves in the credit market. Borrowing and lending include mortgage-backed securities,
  because the GSEs assist nonfinancial borrowers through this type of intermediation as well as by types of intermediation that involve financial
  instruments recognized on the GSEs' balance sheets. The data for this table are adjusted, with some degree of approximation, to remove double counting
  in making a comparison with other Federal and federally guaranteed transactions. GSE borrowing and lending are calculated net of transactions between
  components of GSEs and transactions in guaranteed loans; GSE borrowing is also calculated net of borrowing from other GSEs and purchases of Federal
  debt securities.

\2\ Total net borrowing (or lending) in credit market by domestic nonfinancial sectors, excluding equities. Credit market borrowing (lending) is the
  acquisition (loan) of funds other than equities through formal credit channels. Financial sectors are omitted from the series used in this table to
  avoid double counting, since financial intermediaries borrow in the credit market primarily in order to finance lending in the credit market.
  Equities, trade credit, security credit, and other sources of funds are also excluded from this series. Source: Federal Reserve Board flow of funds
  accounts. Estimates for 2000 and 2001 are not available.


[[Page 240]]


                                 Table 8-13. BORROWING BY FINANCING VEHICLES \1\
                                            (in millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                Estimate
                            Financing Vehicle                                  1999    -------------------------
                                                                             Actual         2000         2001
----------------------------------------------------------------------------------------------------------------

Financing Corporation (FICO):
   Net change............................................................           1            1            2
   Outstandings..........................................................       8,146        8,147        8,149

Resolution Funding Corporation (REFCORP):
   Net change............................................................          -2           -3           -2
   Outstandings..........................................................      30,067       30,064       30,062
                                                                          --------------------------------------
Subtotal, gross borrowing:
   Net change............................................................          -1           -2            0
   Outstandings..........................................................      38,213       38,211       38,211

Less purchases of Federal debt securities:
   Net change............................................................           7          551          595
   Outstandings..........................................................       6,617        7,168        7,763
                                                                          --------------------------------------
Total, net borrowing:
   Net change............................................................          -8         -549         -595
   Outstandings..........................................................      31,596       31,047       30,452
----------------------------------------------------------------------------------------------------------------
\1\ Financing vehicles are Government corporations established pursuant to law in order to provide financing for
  a Federal program but excluded from the on-budget and off-budget totals. FICO and REFCORP borrowed from the
  public in the past but have not loaned to the public. During the period covered by this table, the change in
  debt outstanding is due solely to the amortization of discounts and premiums. No sale or redemption of debt
  securities occurred in 1999 or is estimated to occur in 2000 or 2001.

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