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

                             8. CREDIT AND INSURANCE

       Federal credit programs offer direct loans and loan guarantees for a
    wide range of activities, primarily housing, education, business and
    rural development, and exports. At the end of 2000, there were $241
    billion in Federal direct loans outstanding and $1,043 billion in loan
    guarantees. Through its insurance programs, the Federal Government
    insures bank, thrift, and credit union deposits up to $100,000,
    guarantees private defined-benefit pensions, and insures against other
    risks such as natural disasters.
       The Federal Government also enhances credit availability for targeted
    sectors indirectly through Government-sponsored enterprises (GSEs)--
    privately owned companies and cooperatives that operate under Federal
    charters. GSEs provide direct loans and increase liquidity by
    guaranteeing and securitizing loans. Some GSEs have become major players
    in the financial market. In 2000, the face value of GSE lending totaled
    $2.6 trillion. The size of two housing GSEs, the Federal National
    Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
    Corporation (Freddie Mac), is particularly notable; they had $2.1
    trillion in combined lending. In return for fulfilling social roles,
    GSEs enjoy some privileges, which include eligibility of their
    securities to collateralize public deposits and be held in unlimited
    amounts by most banks and thrifts, exemption of their securities from
    SEC registration, exemption of their earnings from State and local
    income taxation, and ability to borrow from Treasury, at Treasury's
    discretion, in amounts ranging up to $4 billion. These privileges leave
    many people with the impression that their securities are risk-free.
    GSEs, however, are not part of the Federal Government, and their
    securities are not federally guaranteed. By law, the GSEs' securities
    carry a disclaimer of any U.S. obligation.
       The role and risk of these diverse programs critically depend on the
    state of financial markets. In recent years, financial markets have been
    changing faster because of rapid technological advances and active
    deregulation. The Federal Government, therefore, needs to reassess the
    extent and nature of credit and insurance programs more carefully in
    order to adapt those programs to rapidly changing financial markets.
       The rest of this chapter is organized as follows.
         The first section concerns the role of Federal credit and
              insurance programs. Federal programs play useful roles when
              market imperfections prevent the private market from
              efficiently providing credit and insurance. Financial
              evolution has partly corrected many imperfections and
              generally weakened the justification for Federal intervention.
         The second section identifies four key criteria for
              evaluating Federal programs: objectives, economic
              justification, availability of alternative means, and
              efficiency. It also discusses how Federal agencies may improve
              program efficiency.
         The third section reviews Federal credit programs and GSEs
              in four sectors: housing, education, business and community
              development, and exports. This section focuses on program
              objectives, recent developments, and future plans.
         The final section describes Federal deposit insurance,
              pension guarantees, and disaster insurance in a context
              similar to that for credit programs.

               I.  FEDERAL PROGRAMS IN CHANGING FINANCIAL MARKETS

    The Federal Role

       The roles of Federal credit and insurance programs can be broadly
    classified into two: helping disadvantaged groups and correcting market
    failures. Subsidized Federal credit programs redistribute resources from
    the general taxpayer to disadvantaged regions or segments of the
    population. Since disadvantaged groups can be assisted through other
    means, such as direct subsidies, the value of a credit or insurance
    program critically depends on the extent to which it corrects market
    failures.
       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 the market
    outcome in some situations. The market imperfections that justify some
    Federal involvement can be broadly classified as follows.
        Information opaqueness interferes with the optimal
              allocation of capital. For example, information about some
              borrowers can be opaque. In most cases, financial
              intermediaries efficiently gather and process information
              needed to evaluate the creditworthiness of borrowers. However,
              there may be little objective information about some groups of
              borrowers such as start-up businesses, start-up farmers, and
              students, who have very limited current income and credit
              history. Because it is difficult for those borrowers to prove
              their creditworthiness to a large number of lenders, they need
              to rely on the subjective judgements of a few lenders, which
              can be wrong. In this situation, many creditworthy borrowers
              may fail to obtain credit. Even for borrowers who are approved
              for credit, insufficient competition among a small number of
              lenders can result in higher

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              interest rates. Lacking adequate information, private lenders
              may also require risk premiums, in the form of higher
              borrowing costs, to compensate for uncertainty about
              borrowers' creditworthiness. With government intervention,
              such as loan guarantees, creditworthy borrowers may be more
              likely to obtain credit at a lower cost.
         Externalities cause either underinvestment or
              overinvestment in some sectors. Individuals and private
              entities do not make socially optimal decisions when they do
              not capture the full benefit (positive externalities) or bear
              the full cost (negative externalities) of their activities.
              Examples of positive and negative externalities are education
              and pollution. Other people benefit from high productivity and
              good citizenship of a well-educated person and suffer from
              pollution. Without Government intervention, people would
              invest less than the socially optimal amount in activities
              that generate positive externalities and more in activities
              that generate negative externalities. The Federal Government
              can encourage activities involving positive externalities by
              offering subsidized credit or other rewards and discourage
              activities involving negative externalities by imposing taxes
              or other penalties. Alternatively, the Government may offer
              credit or direct subsidies to encourage activities reducing
              negative externalities (e.g., pollution control).
         Resource constraints sometimes limit the private sector's
              ability to offer certain products. Deposit insurance is one
              example. Since the performance of banks is often affected by
              common factors such as macroeconomic conditions, bank failures
              tend to be clustered in bad times. Furthermore, if depositors
              become doubtful about the soundness of the banking system as a
              whole upon observing a large number of failures, they may rush
              to withdraw deposits, forcing even sound banks into
              liquidation. To prevent these undesirable withdrawals, which
              would harm the whole economy, deposit insurance needs to be
              backed by a sufficient fund to resolve a very large number of
              failures. It may be difficult for private insurers to secure
              such a large fund. Another example is catastrophic insurance,
              which also faces a small risk of a very large loss. Knowing
              that the insurer can run out of funds, people may be reluctant
              to purchase insurance because their claims might not be
              honored. Moreover, the insurer may not want to offer a
              reasonable policy because early occurrence of a disaster could
              bankrupt the company. In this situation, Government insurance
              is more effective than private insurance because the broad
              taxing authority of the Federal Government makes the insurance
              policy more credible. Another form of resource constraint is
              liquidity constraint. It is usually difficult for a private
              entity to raise a large fund in a short time. The funding
              difficulty can limit the private market's ability to extend
              credit and disrupt economic activity. The Federal Government
              can prevent economic disruption by providing liquidity in
              illiquid sectors or during illiquid periods.
         Imperfect competition justifies some Government
              intervention. Competition is imperfect in some markets because
              of barriers to entry, economies of scale, and foreign
              government intervention. If an entry barrier raised the cost
              of credit in some markets, the Federal Government might
              intervene. Foreign countries often subsidize their exporters
              and import-substituting industries. In these cases, the
              Federal Government may intervene to level the playing field
              for domestic exporters. Legal barriers to entry and geographic
              isolation can cause imperfect competition in some rural areas.
              If the lack of competition forces some rural residents to pay
              excessively high interest on loans, Government intervention
              can increase the availability of credit and lower the
              borrowing cost.

    Changing Financial Markets

       Financial markets have undergone many changes. The most fundamental
    developments are financial services deregulation and technological
    advances, which have promoted economic efficiency and competition.
    Technological advances have also enhanced liquidity, produced
    sophisticated risk management tools, and spurred globalization.
    Deregulation has promoted consolidation.

       Financial services deregulation has promoted competition by removing
    geographic and industry barriers. Historically, geographic restrictions
    were a major legal barrier that limited competition in the banking
    sector. Until the late 1970s, all states prohibited out-of-state bank
    holding companies from acquiring in-state banks, and many states
    restricted intrastate branching. Deregulation of interstate banking and
    intrastate branching actively took place at the state level in the 1980s
    and early 1990s. In 1994, the Congress enacted the Riegle-Neal
    Interstate Banking and Branching Act, which permits banks to establish
    interstate branches through mergers with other banks. Geographic
    restrictions were essentially removed in 1997, when the Act took full
    effect. The Financial Services Modernization Act of 1999 has repealed
    the provisions of the Glass-Steagall Act and the Bank Holding Company
    Act that restricted the affiliation between banks, securities firms, and
    insurance companies. The Act allows financial holding companies to
    engage in various financial activities, including traditional banking,
    securities underwriting, insurance underwriting, asset securitization,
    and financial advising. As a result, competition has become nationwide
    and across all financial products.
       Advances in communication and information processing technology have
    made the evaluation of borrowers' creditworthiness more accurate and
    lowered the cost of financial transactions. Lenders now have

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    easy access to large databases, powerful computing devices, and
    sophisticated analytical models. Thus, many lenders use credit scoring
    models that evaluate creditworthiness based on various borrower
    characteristics derived from extensive credit bureau data. As a result,
    lending decisions have become more accurate and objective. Powerful
    computing and communication devices have also lowered the cost of
    financial transactions by producing new transaction methods such as
    electronic fund transfers, Internet banking, and Internet brokerage.
       The development of reliable screening methods and efficient
    transaction methods have resulted in intense competition for
    creditworthy borrowers and narrowed lending margins. Financial
    institutions are more willing to compete for customers with diverse
    characteristics, customers in distant areas, and small profit
    opportunities. A notable example of increased competition is the credit
    card business, where offering lower rates to the best customers became
    much more common in recent years.
       Wider availability of information and lower transaction costs have
    led to many developments that increase competition, enhance liquidity,
    and improve efficiency in financial markets.

       Direct capital market access by borrowers has become more common.
    Advances in communication and information processing technology enabled
    many companies (less-established medium-sized companies, as well as
    large reputable ones) to validate their financial information at low
    costs and to borrow directly in capital markets, instead of relying on
    banks. The growth of the commercial paper (short-term financing
    instruments issued by corporations) market has been particularly
    notable. Between 1990 and 2000, the outstanding amount of commercial
    paper issued by nonfinancial firms increased by 132 percent (to $343
    billion), while the commercial and industrial loans at commercial banks
    increased by 70 percent (to $885 billion). This development has reduced
    the importance and the pricing power of financial intermediaries.
       Nonbank financial institutions such as finance companies and venture
    capital firms increased their market share, partly thanks to advanced
    communications and information processing technology that helped to
    level the playing field. Between 1990 and 2000, consumer loans and
    business loans at finance companies increased by 136 percent (to $439
    billion) and 92 percent (to $518 billion) respectively. During the same
    period, those at commercial banks grew by 42 percent (to $538 billion)
    and 70 percent (to $885 billion). The growth of venture capital firms
    was rather phenomenal. Between 1990 and 1999, their new investments,
    which were mostly in small firms' equity, jumped from $3.2 billion to
    $40.6 billion (1,169 percent).
       Internet-based financial intermediaries provide financial services
    more cheaply and widely. The Internet lowers the cost of financial
    transactions and reduces the importance of physical location. Internet
    brokers slashed the commission on stock trading. Internet-only banks,
    which started appearing recently, bid up deposit interest rates.
    Furthermore, their services are nationwide.
       Over the last two decades, technological advances have produced many
    new financial instruments that help to enhance liquidity and manage
    risk. In particular, asset-backed securities and derivative securities
    have gained much popularity.

       Securitization (pooling a certain type of asset and selling shares of
    the asset pool to investors) has enhanced liquidity in financial markets
    by enabling lenders to raise funds without borrowing or issuing equity.
    For example, mortgage bankers with little capital can originate a large
    amount of real estate loans and keep selling those loans. It also helps
    financial institutions to reduce risk exposure to a particular line of
    business. A bank with a large proportion of real estate loans can reduce
    its exposure to collapse of the real estate market by selling some of
    those loans to third parties. Commonly securitized assets include credit
    card loans, automobile loans, and residential mortgages, whose quality
    can be more objectively analyzed. In recent years, financial
    institutions began securitizing many other assets such as commercial
    mortgages and small-business loans, the riskiness of which is more
    difficult to evaluate.
       Financial derivatives, such as options and swaps, have improved
    investors' ability to manage risk (either increase or decrease risk
    exposure). Financial institutions are increasingly using financial
    derivatives, which are effective tools to manage various types of risk
    such as interest rate risk, credit risk, price risk, and even weather-
    related risk. In an interest rate swap, for example, a firm with a
    floating-rate (interest rate tied to a benchmark rate such as the one-
    year Treasury rate) asset periodically pays its counter-party the
    floating-rate return in exchange for a fixed interest rate. This firm's
    exposure to interest rate movements will decrease if it mostly has
    fixed-rate debts and increase if it mostly has floating-rate debt.
    Weather derivatives offer a hedge on weather by tying the securities
    returns to weather conditions.
       Globalization has been accelerating as a result of the reduced
    importance of geographic proximity and knowledge of local markets. Both
    commercial and investment banking institutions headquartered in Europe
    and Japan are actively competing in the U.S. market, and many U.S.
    financial institutions have branches worldwide. In 2000, foreign banks
    controlled about 11 percent of U.S. banking assets. On the other hand,
    deposits at foreign branches of U.S. banks accounted for about 16
    percent of their total deposits.
       Consolidation among financial institutions, especially banks, has
    been very active due to deregulation and increased competition. Many
    financial mega-merg

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    ers have taken place in recent years. The acquisition of Paine Webber by
    Union Bank of Switzerland exemplifies the merger between large
    investment firms. The merger between BankAmerica and NationsBank created
    the largest bank in the Nation with assets of $585 billion only to be
    surpassed soon by the merger between Chase Manhattan and J.P. Morgan
    forming a bank with assets of $660 billion. Because of active
    consolidation, the number of banks has sharply decreased, and the size
    of banks has increased. Between 1990 and 2000, the number of banks
    decreased by almost 4,000 or over 30 percent. The increased
    concentration of assets among the largest few banks is notable. The
    percentage of banking assets controlled by the largest 100 banks
    increased from 51 to 71 percent. The 20-percentage-point gain belongs
    largely to the largest 10 banks (16 percentage points). Consolidation
    across traditional industry boundaries has also been fairly active. The
    merger between Citicorp and Travelers Group in 1998 formed Citigroup
    encompassing the commercial banking (Citibank), insurance (Travelers),
    and securities (Salomon Smith Barney) businesses. Many inter-industry
    mergers were announced in 2000. Chase Manhattan (commercial bank) is
    acquiring Beacon Group (merger advisory firm), and Charles Schwab
    (brokerage giant) is taking over U.S. Trust (commercial bank). MetLife
    (insurance firm) plans to acquire Grand Bank (commercial bank).

    Implications for Federal Programs

       In general, financial evolution has increased the private market's
    capacity to serve the populations targeted by Federal programs and hence
    weakened the role of Federal credit and insurance programs. Thus, it may
    be desirable to focus on narrower target populations that still have
    difficulty in obtaining credit from private lenders and more specific
    objectives that have been less affected by financial evolution.

       Information about borrowers is more widely available and easier to
    process, thanks to technological advances. Credit scoring models, for
    example, enable lenders to make more accurate lending decisions. As a
    result, creditworthy borrowers are less likely to be turned down, while
    borrowers that are not creditworthy are less likely to be approved for
    credit. The Federal role of improving credit allocation, therefore, is
    generally not as strong as before. The benefit from financial evolution,
    however, may have been uneven across groups. Large financial
    institutions with global operation, which are products of consolidation
    and globalization, may want to focus more on large customers and
    business lines that utilize economies of scale and scope more fully.
    Thus, some small and distinct borrowers, who used to rely heavily on the
    private information of small institutions, can be underserved. The
    Federal Government may need to better target those groups, while
    reducing general involvement.
       Externalities have not been significantly affected by financial
    evolution. The private market fundamentally relies on decisions at the
    individual level. Thus, it is inherently difficult for the private
    market to correct problems related to externalities.
       Resource constraints have been alleviated. Securitization and
    financial derivatives facilitate fund raising and risk sharing. By
    securitizing loans and writing derivatives contracts, a lender can make
    a large amount of risky loans, while limiting its risk exposure. An
    insurer can distribute the risk of a natural disaster among a large
    number of investors through disaster-related derivatives.
       Imperfect competition is much less likely in general. Developments
    that contributed to increasing competition are financial deregulation,
    direct capital market access by borrowers, stronger presence of nonbank
    financial institutions, emergence of Internet-based financial
    institutions, and globalization. Consolidation has a potential negative
    effect on competition, especially in markets that were traditionally
    served by small institutions. Given that the Nation still has many banks
    and other financial institutions, the negative effect, if any, should be
    insignificant overall. It is possible, however, that some communities in
    remote rural areas and inner city areas have been adversely affected by
    consolidation.
       Uncertainties about the Federal Government's liability have increased
    in some areas. Consolidation has increased bank size, and deregulation
    has allowed banks to engage in many risky activities. Thus, the loss to
    the deposit insurance funds can turn out to be unusually large in some
    bad years. The potential loss needs to be limited by large insurance
    reserves and effective regulation. The large size of some GSEs is also a
    potential problem. Financial trouble of a large GSE could cause strong
    repercussions in financial markets, affecting Federally insured entities
    and economic activity.

                         II.  A CROSS-CUTTING ASSESSMENT

       To systematically assess Federal programs, policymakers and program
    managers need to consider the following questions. (1) Are the programs'
    objectives still worthwhile? (2) Is the program economically justified?
    (3) Is the credit or insurance program the best way to achieve the
    goals? (4) Is the program operating efficiently and effectively? If the
    answer is ``No'' to any of the first three questions, the program should
    be eliminated or phased out. For programs that pass the three tests, the
    focus should be on improving efficiency and effectiveness.

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    Objectives

       The first step in reassessing Federal credit and insurance programs
    is to identify clearly the objective of each program, such as an
    increase in homeownership, an increase in college graduates, an increase
    in jobs, or an increase in exports. The objective must be worthwhile to
    justify a program. For some programs, the objective might be unclear or
    of low importance. In some other cases, an initially worthwhile
    objective might have become obsolete. For example, the main objective of
    the Rural Telephone Bank is to increase telephone service in rural
    areas. This was a worthwhile objective when many rural residents had
    limited or costly access to telephone service. In the current
    environment with ample supply of telephone lines and intense competition
    among telephone companies, however, the objective is obsolete.

    Economic Justifications

       For a credit or insurance program to be economically justified, the
    program's benefits must exceed its costs. The benefits are the net
    effects of the program on intended outcomes compared with what would
    have occurred in the absence of the program. They exclude, for example,
    gains that would have been obtained with private credit in the absence
    of the program. Financial evolution may have significantly affected the
    net benefit from some programs. Suppose, for example, that financial
    evolution made information about borrowers transparent in some sectors
    where information opaqueness had been a major problem. Then the net
    benefit would be substantially smaller for the Federal programs that
    mainly intended to solve the information problem in those sectors.
       Many Federal credit and insurance programs involve subsidy costs, and
    all of them incur administrative costs. A subsidy cost occurs when the
    beneficiaries of a program do not pay enough to cover the cost to the
    Federal Government (e.g., they pay below-cost interest rates and below-
    cost fees). The administrative costs include the costs of loan
    origination, direct loan servicing, guaranteed loan monitoring, and
    collecting on delinquent loans. The net benefit of a program can be
    smaller than the combined cost of subsidy and administration either
    because it is inherently costly to pursue the program's goal or because
    the program is inefficiently managed (failure to maximize the benefit
    and minimize the cost). The program should be discontinued in the first
    case and restructured in the second case.

    Alternatives

       Even a program that is economically justified should be discontinued
    if there is a better way to achieve the same goals. The Federal
    Government has other means to achieve social and economic goals, such as
    providing direct subsidies, offering tax benefits, and encouraging
    private institutions to provide the intended services.
       In general, direct subsidies are more efficient than credit programs
    for the purpose of fulfilling social objectives such as helping low-
    income people, as opposed to economic objectives such as improving
    credit allocation. Direct subsidies are less likely to interfere with
    the efficient allocation of resources. Suppose that the Government makes
    a subsidized loan to be used for a specific project. Then the borrower
    will undertake the project if its return is greater than the subsidized
    rate. Thus, the subsidized loan can induce the borrower to undertake a
    normally unprofitable project and hence result in a social loss. On the
    other hand, a direct subsidy is a simple income transfer, which is less
    likely to cause a social loss.
       To a certain extent, the Federal Government can also correct market
    failures by improving the efficiency of the private market, instead of
    directly offering credit or insurance. For example, policies encouraging
    the standardization of information (e.g., standardization of loan
    origination documents) may improve the private lenders' ability to serve
    those sectors where information is opaque. Standardization helps to
    reduce opaqueness by facilitating information processing. With reduced
    opaqueness, loan sales should be easier, and the secondary market should
    develop more quickly. Then the lending market would be more liquid and
    competitive. A more specific example is the development of floodplain
    maps by the National Flood Insurance Program. Before the development of
    the maps, private insurance companies had little information on flood
    risks by geographic area. The lack of information was a main reason why
    private companies were unwilling to insure against flood risk. The
    availability of floodplain maps may have increased private companies'
    willingness to provide flood insurance.

    Improving Efficiency

       Some programs may be well-justified based on the three criteria
    above. However, few programs may be perfectly designed. It is almost
    impossible to take all relevant factors into consideration at the
    beginning. In addition, financial evolution can lower the efficiency of
    initially well-designed programs. Thus, improving efficiency is an
    everlasting concern. Although the ways to improve efficiency vary across
    programs, some general principles may apply to many programs.
       A critical part of credit programs is to set appropriate lending
    terms. The Government makes many loans at a subsidized rate, which could
    attract borrowers who would be able to obtain credit elsewhere at
    reasonable rates. For example, the Farm Service Agency offers
    agricultural loans at Treasury rates to borrowers who have been denied
    credit by private lenders. The disaster loan program of the Small
    Business Administration applies a lower rate to applicants without
    credit available elsewhere. Some creditworthy borrowers can be denied
    credit by chance. It is also possible that some borrowers might even be
    willfully denied credit by an unusually tough lender or due to
    inaccurately reported credit information. One solution to this problem
    is to make loans at the rate that private lenders offer to an average
    borrower and supplement the loans with direct subsidies to the
    disadvantaged. Proper lending terms re

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    quiring less subsidy should improve the efficiency of Federal programs
    by reducing the possibility of encouraging uneconomic projects and
    increasing the Federal agencies' ability to serve a larger population
    within their budget limits.
       The Federal Government can manage credit and insurance programs more
    efficiently by utilizing the private market's expertise. In the areas
    where the private market has expertise that the Government does not, it
    is important to utilize the private market's expertise to effectively
    implement Federal programs. For example, if private lenders more
    accurately evaluate the creditworthiness of a certain group of borrowers
    using private information and special knowledge, the Government needs to
    have private lenders involved in credit programs and, with appropriate
    risk-sharing incentives, delegate credit evaluation for the group to
    them.
       If the expertise of the private market is not critical, however, the
    Government should streamline delivery systems. A good example is the
    guaranteed student loan program. Neither lending institutions nor
    guaranteeing agencies are involved in credit evaluation. Schools make
    lending decisions based on eligibility. In this case, involvement of
    multiple layers of institutions can unnecessarily increase
    administrative costs. In addition, if the Government fails to set the
    loan criteria and lending margin optimally, private institutions may
    make excessive profits at the expense of taxpayers.
       Outreach is very important to improve the efficiency of Federal
    programs. The net benefit will increase if program managers more
    successfully identify borrowers who would not get private credit. They
    need to reach out to underserved populations (e.g., low-income,
    minority) and neighborhoods (e.g., rural, inner city). They need to
    encourage 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 credit programs
    can also play a more useful role when there is temporary inefficiency in
    the private market. The financial market can occasionally face a
    liquidity crisis or become overly pessimistic (e.g., at the time of the
    Asian financial crisis and the near collapse of Long-Term Capital, a
    hedge fund). On those occasions, Federal agencies can promote the
    extension of credit to creditworthy borrowers.
       Federal programs will become more cost effective if program managers
    more successfully identify the most creditworthy borrowers among those
    who would be denied credit by private lenders. More accurate screening
    would lower the default rate and hence the subsidy cost. Achieving this
    goal may require well-developed analytical tools.
       To efficiently run Federal programs in a rapidly changing financial
    market, Federal agencies need to catch up with new technology. Federal
    agencies and private financial institutions compete for some borrowers
    and make financial transactions such as loan sales. Private institutions
    are using increasingly sophisticated tools to screen borrowers and price
    financial assets. If Federal agencies do not use advanced tools, they
    can be left with riskier loan pools or inadvertently sell loans at
    below-market prices. To catch up with new technology, it is critical to
    have a staff with advanced analytical training. Sometimes, it may be
    more cost effective to contract out analytical work than to maintain a
    large analytical staff. Even when contracting out is more cost
    effective, Federal agencies need some analysts with enough training to
    competently evaluate the performance of contractors. Inability to
    effectively evaluate the performance of contractors may result in
    serious waste.
       Federal agencies also need to monitor other developments that may
    affect program efficiency. For example, many loans guaranteed by the
    Government are securitized. Securitization may reduce the lenders'
    incentives to screen and monitor borrowers if they believe that
    guaranteeing agencies do not properly track the performance of
    securitized loans. To prevent this adverse effect, the Government needs
    well-organized databases and modern monitoring systems.

                          III.  CREDIT IN FOUR SECTORS

    Housing Credit Programs and GSEs

       The Federal Government makes direct loans, provides loan guarantees,
    and enhances liquidity in the housing market to promote homeownership
    among low- and moderate-income people and to help finance rental housing
    for low-income people. While direct loans are largely limited to low-
    income borrowers, loan guarantees are offered to a much larger segment
    of the population, including moderate-income borrowers. Increased
    liquidity achieved through GSEs benefits virtually all borrowers in the
    housing market, although it helps low- and moderate-income borrowers
    more.
       The main government agencies and GSEs involved in housing finance are
    the Department of Housing and Urban Development (HUD), the Department of
    Veterans Affairs (VA), the Department of Agriculture (USDA), Fannie Mae,
    Freddie Mac, and the Federal Home Loan Bank System. In 2000, HUD, VA,
    and USDA supported $123 billion of direct loans and loan guarantees,
    helping 1.3 million households and contributing to a record high
    homeownership rate of 67.7 percent. Roughly one out of six single-family
    mortgages originated in the United States receives assistance from one
    of these programs.

    Federal Housing Administration

       HUD's Federal Housing Administration (FHA) operates the Mutual
    Mortgage Insurance Fund. FHA mortgage insurance is directed to expanding
    access to homeownership for people who lack the savings, income, or
    credit history to qualify for a conventional home mortgage. In 2000, FHA
    insured $86 billion in mortgages for almost 900 thousand households. The
    volume was

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    lower than in 1999, when low interest rates spurred mortgage
    originations and refinancing. FHA also faces increased competition from
    private lenders who are now more willing to offer loans to borrowers
    with weaker credit standing at competitive terms. Over 80 percent of
    FHA's home purchase mortgages went to first-time home buyers, and 42
    percent went to minority households. These percentages have doubled over
    the past decade.
       FHA recently reduced its upfront insurance premiums by one-third, and
    brought its annual premium structure in line with the private mortgage
    insurance industry by authorizing annual premium cancellation at 78
    percent loan-to-value ratio. In addition, the Budget proposes to allow
    FHA to insure a new financial product that has gained popularity in the
    conventional market--hybrid adjustable-rate mortgages.
       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 also has authority to assess financial
    penalties on lenders who fail to engage in loss mitigation. FHA
    increased loss mitigation activity by over 50 percent in 2000,
    processing over 30,000 new loss mitigation claims (partial claims,
    special lender forbearance, and loan recasting ). 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 because management and marketing of real property are very costly.
       In 1999, Congress passed legislation giving new authority to FHA to
    pay claims prior to foreclosure. This accelerated claims process, when
    fully implemented in 2002-2003, will allow FHA to pass along defaulted
    notes to the private sector for servicing and/or disposition, thereby
    reducing foreclosures and eliminating most of the real property that FHA
    must acquire and dispose. Currently, FHA contracts with private
    companies for the management and marketing of most of its single-family
    properties.
       There is some evidence that the mortgage industry has seen an
    increase in the number of predatory loans. Predatory loans, which carry
    excessive fees or other unfair pricing structure, harm unsuspecting
    buyers. Predatory loans are more prevalent in the subprime market where
    conventional loans are made to higher-risk borrowers. The Government can
    improve mortgage-market efficiency by squeezing out predatory practices
    through increased regulation and disclosure. In addition to predatory
    lending, the mortgage industry also has seen increased incidences of
    fraud. For example, FHA recently had to implement emergency foreclosure
    moratoria in several cities to protect consumers from a scam known as
    ``property flipping,'' in which a lender and an appraiser conspire to
    sell a home at a falsely inflated price. Government credit programs are
    more susceptible to property flipping because of the opportunity created
    by the Government guarantee. Improved program controls and better
    information systems would reduce the Government's risk in this area.

    VA Housing Program

       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 2000, VA provided $20 billion in guarantees
    to assist 176,000 borrowers. Both the volume of guarantees and the
    number of borrowers were lower than those in 1999 as higher interest
    rates decreased loan originations and refinancing in the housing market.
       Since the main purpose of this program is to help veterans, lending
    terms are more favorable than market rates. In particular, VA guarantees
    zero down payment loans. As a result, the default rate is relatively
    high. The subsidy rate, however, declined slightly in 2000, thanks to
    efforts to reduce foreclosure rates and the strong housing market.
       In order to help veterans retain their homes and avoid the expense
    and damage to their credit resulting from foreclosure, VA plans
    aggressive intervention to reduce the likelihood of foreclosures when
    loans are referred to VA after missing three payments. VA was successful
    in 30 percent of their 2000 interventions, and their goal is to increase
    that to 34 percent in 2002. Future military base closures, however, may
    negatively affect the default rate in the VA guaranteed housing program.
    Guaranteed loans issued to active duty military and military reservists
    are vulnerable to the impact of base closures on the neighboring
    community.
       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 in 2001, will determine
    whether it would be cost effective to contract property management
    activities. The Administration will also propose eliminating the
    ``vendee'' home loan program, which allows the general public to receive
    direct loan financing from VA when purchasing a defaulted VA home and
    which is not mission related.

    Rural Housing Service

       USDA's Rural Housing Service (RHS) offers direct and guaranteed loans
    and grants to help very low- to moderate-income rural residents buy and
    maintain adequate, affordable housing. The single family guaranteed loan
    program guarantees up to 90 percent of a private loan for moderate-
    income rural residents. The program's emphasis is on reducing the number
    of moderate-income rural residents living in substandard housing. In
    2000, $2.02 billion of guarantees went to 27,408 households, of which
    29.4 percent went to low-income borrowers (income is 80 percent or less
    than median area income). For 2001, Congress statutorily increased the
    premium charged on the RHS single-family guarantees from 1 to 2 percent,
    which should allow RHS to provide more loans at less cost to the
    taxpayers.

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       In the single family housing guaranteed loan program, lender
    monitoring and external audits have helped to identify program
    weaknesses, train servicers, and identify troubled lenders. RHS's
    guaranteed loan program is also moving toward automated underwriting. In
    2000, RHS continued to enhance an Internet based system that will, with
    future planned improvements, provide the capacity to accept electronic
    loan originations from their participating lenders. Utilizing electronic
    loan origination technology will add significant benefits to loan
    processing efficiency and timeliness for both RHS and the lenders.
       RHS continues to operate under the ``best practice'' for asset
    disposition for its guaranteed loan program. For single family
    guarantees, the lender is paid the loss claim, including costs incurred
    for up to three 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.
       RHS programs differ from other Federal housing loan guarantee
    programs, which generally either are out of reach for the income levels
    of RHS loan recipients or do not reach rural areas due to their outreach
    structure. For instance, HUD's FHA guarantee program is not means-
    tested, but there is an individual loan limit. RHS is means-tested, and
    there is a loan limit. FHA loans are available in any area, but often
    RHS borrowers are unable to afford an FHA loan. In addition, the RHS
    direct loan program offers deeper assistance to very-low-income
    homeowners by subsiding the interest rate down to 1 percent for such
    borrowers. RHS offers the Federal Government's only direct single family
    housing loan program. The program helps the ``on the cusp'' borrower
    obtain a mortgage, and encourages graduation to private credit as the
    borrower's income increases over time.
       RHS single family direct loans have a fluctuating interest rate
    depending on the borrower's income. It can be anywhere from 1 percent up
    to the note rate. Each loan is reviewed annually to determine the
    interest rate that should be charged on the loan in that year. The
    determination is based on the borrower's actual annual income that year.
    The program cost is balanced between interest subsidy and defaults. For
    2002, RHS expects to provide $1.1 billion in loans with a subsidy cost
    of 13.16 percent. Its most recent and on-going servicing improvement
    effort has been the implementation of the Dedicated Loan Origination
    Service System (DLOS), which centralized the servicing of the direct
    loan program. DLOS, in conjunction with 2 major regulations implemented
    between 1996 and 1997, reduced RHS's direct loan subsidy rate by 40
    percent.
       RHS also offers multifamily housing loans. Direct loans are offered
    to private developers to construct and rehabilitate multi-family rental
    housing for very-low- to low-income residents, elderly households, or
    handicapped individuals. These loans to developers are very heavily
    subsidized; the interest rate is between 1 and 2 percent. The Farm Labor
    Housing direct loans, which are similarly priced, help developers to
    provide rental units for minority farm workers and their families. RHS
    rental assistance grants supplement both of these loan programs in the
    form of project based rents for very low-income rural households. RHS
    also started offering guaranteed multifamily housing loans beginning in
    1996. The cost of this guarantee program is relatively low because
    default rates are expected to be low. In total, the Budget provides $257
    million in direct and guaranteed loans for rural multi-family rental
    housing, helping to construct over 8,600 new units for very-low- to
    moderate-income tenants in rural America.

    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--Fannie Mae and 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. Automated
    valuation models relate these factors to default cost, and provide
    comparative analysis of home sales data to estimate property collateral
    values without relying on a human appraiser. After loan origination,
    software programs grade delinquent loans in terms of their credit and
    collateral risk and allow servicers to devote resources to the highest-
    risk loans.
       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 challenged 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 homeownership opportunities to
    those who are not currently served.

       Data Sharing. Federal credit program managers are benefitting and
    would benefit more from additional data-sharing capability across the
    Government, which provides access to integrated information on program
    designs, borrower characteristics, and lender and loan performance.
       Loan Origination. Electronic underwriting provides convenient, faster
    service at a lower cost to both lenders and borrowers. Currently, both
    FHA and VA permit mortgage lenders to use approved automated under

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    writing systems, including Freddie Mac's ``Loan Prospector'' and Fannie
    Mae's ``Desktop Underwriter,'' to originate these loans. FHA, however,
    will soon deploy its ``Total Scorecard.'' By transitioning FHA's third
    party lenders to its own automated scorecard, FHA will improve its
    program controls and credit management.
       Performance Measurement. As in underwriting, private firms are
    heavily involved in servicing Government-backed mortgages. Measurement
    of the private sector's servicing capacity is thus critical. The
    Government needs to improve its systems to measure this performance. For
    example, monthly data would not only give housing programs a better
    understanding of how their guarantee portfolios behave, but also serve
    as an early warning system and feedback mechanism. The Government could
    adjust underwriting standards in quick response to changing market
    conditions.
       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 to avoid adverse selection and larger losses.
    Currently, premiums vary only slightly with one dimension of risk, the
    initial loan-to-value ratio.
       Asset Disposition. Common wisdom in the mortgage industry is to avoid
    foreclosure because that 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 manage delinquent loans and dispose of
    properties.

    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 and to promote access to mortgage credit for
    households that historically have been underserved by private markets.
    They carry out this function by guaranteeing or purchasing residential
    mortgages. The guaranteed loans are packaged as mortgage-backed
    securities (MBS), which lenders hold or sell to investors, including
    Fannie Mae and Freddie Mac. The two GSEs finance their acquisitions of
    loan and MBS assets by issuing debt. As of September 2000, Fannie Mae
    and Freddie Mac had $2.2 trillion outstanding in mortgages that they had
    purchased or guaranteed. Of this, $936 billion was held in the GSEs'
    asset portfolios, and $1.3 trillion served as collateral for outstanding
    MBSs not 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' purchases and securitizations of
    single-family mortgages equaled 43 percent of originations of such loans
    in calendar year 1999.
       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 (leverage)
    and risk-based capital requirements on Fannie Mae and Freddie Mac.
    Examinations of the GSEs and enforcement of leverage capital ratios have
    proceeded since OFHEO's inception, while risk-based capital requirements
    have undergone an extensive rulemaking process. OFHEO expects to publish
    a final risk-based capital rule this year. The rule would become
    enforceable one year later. In October 2000, Fannie Mae and Freddie Mac
    announced that they would voluntarily issue subordinated debt on a
    regular basis and expand their public disclosures relating to risk
    exposures.
       Fannie Mae and Freddie Mac have achieved strong growth in profits in
    recent years, in large part by rapidly growing their debt-financed
    holdings of mortgage assets. From September 1997 to September 2000,
    their mortgage asset portfolios more than doubled 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 by issuing long-term
    callable debt and by entering into interest rate swaps and other hedging
    transactions. Hedges, however, do not eliminate all the risk associated
    with funding long-term, mostly fixed-rate assets that have uncertain
    payment streams. Implementation of an appropriate risk-based capital
    regulation should help limit the potential losses associated with
    interest rate risk.
       To fund their rapidly growing asset portfolios, Fannie Mae and
    Freddie Mac have increased sharply their outstanding debt. The GSEs'
    combined debt outstanding rose from $196 billion at the end of calendar
    year 1992 to $1.07 trillion at the end of calendar year 2000, an average
    growth rate of nearly 24 percent a year.
       The GSEs' management of counterparty default risk is of increasing
    importance because their risk management techniques transform exposure
    to credit or interest rate risk into counterparty default risk. Such
    risk management techniques include the use of credit enhancements and
    derivatives; supplementing primary mortgage insurance with supplementary
    insurance at the pool level; and the use of interest rate and currency
    swaps.
       The average credit quality of mortgages owned or guaranteed by Fannie
    Mae and Freddie Mac has remained steady in recent years. The performance
    of existing loans has benefitted from strong housing markets

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    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 the firms' overall
    size. In 2000, Fannie Mae and Freddie Mac began purchasing mortgages
    with loan-to-value (LTV) ratios greater than 97 percent. As the subprime
    and high-LTV shares of mortgages financed by the GSEs expand, increasing
    attention must be paid to their practices for pricing and managing the
    associated risks.
       The above risk assessments must be considered in the context of the
    GSEs' public purpose to promote access to mortgage credit for low- and
    moderate-income families in underserved areas, as specified in the 1992
    act and their Federal charters. The Secretary of Housing and Urban
    Development (HUD) establishes affordable housing goals for the GSEs. A
    final rule published October 31, 2000 established goals for the GSEs for
    calendar years 2001-2003. The rule requires each GSE to devote:
         50 percent of its mortgage purchases to finance dwelling
              units that are affordable by low- and moderate-income families
              (Low- and Moderate-Income Housing Goal);
         31 percent of its purchases to finance units in central
              cities, rural areas, and other metropolitan areas with low and
              moderate income and high concentrations of minority residents
              (Geographically Targeted Goal); and
         20 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 Goal).
      The 1997-2000 goals were 42 percent, 24 percent, and 14 percent of
    each GSE's purchases, respectively. As of 1999, Fannie Mae and Freddie
    Mac have met or exceeded the affordable housing goals in each year.
       Fannie Mae and Freddie Mac face challenges to sustaining their high
    rates of profit growth. A small number of large originators account for
    a large proportion of the single-family mortgages that the GSEs buy and
    securitize. Larger firms may have somewhat greater market power in
    negotiating with the GSEs over guarantee fees. Further, total mortgage
    debt financed by Fannie Mae and Freddie Mac has been increasing more
    quickly than residential mortgage debt outstanding, which suggests that
    their charters could eventually limit the GSEs' ability to expand their
    mortgage asset portfolios. There also may be limits to the amount of
    mortgage securities the GSEs can finance with debt at attractive margins
    and the amount of counterparty risk exposure to Fannie Mae and Freddie
    Mac that other market participants are willing to absorb. The benefit of
    government sponsorship, however, is one factor that may help Fannie Mae
    and Freddie Mac to maintain relatively high profitability.

    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 advances (secured
    loans) 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 is open to federally chartered and state-chartered thrifts,
    commercial banks, credit unions, and insurance companies on a voluntary
    basis. As of September 30, 2000, 7,720 financial institutions were FHLBS
    members, an increase of 494 over September 1999. About 73 percent of
    members are commercial banks, 20 percent are thrifts, and the remaining
    7 percent are credit unions and insurance companies. However, 57.8
    percent of outstanding FHLBS advances were held by thrifts as of
    September 30, 2000.
       The FHLBS reported net income after adjustment for payment of
    interest to the Resolution Funding Corporation (REFCorp) of $2.1 billion
    for the year ending September 30, 2000, up from $1.7 billion in the
    previous 12 months. System capital rose from $26.9 billion to $30.6
    billion, while the ratio of capital to assets fell from 5.1 percent to
    4.9 percent. Average return on equity was about 7.5 percent (after
    REFCorp). Outstanding advances to members reached $430 billion at
    September 30, 2000, an 18 percent increase over the $365 billion
    outstanding a year earlier.
       The Financial Services Modernization Act requires the System to adopt
    a risk-based capital structure, and the Federal Housing Finance Board
    (Finance Board) approved a final capital rule on December 20, 2000, to
    implement this requirement. The Financial Services Modernization Act
    changed the FHLBanks' annual payment towards the interest payments on
    bonds issued by the REFCorp from $300 million annually to 20 percent of
    net earnings. The FHLBanks are required 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. The need to
    generate income to meet the REFCorp and AHP obligations and still
    provide a competitive return on members' investment was a driving force
    behind the substantial increase in the System's investment activity in
    recent years.
       The 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 to a member.
       The System's investment activities, including mortgage purchase
    programs, create more risks. To control the System's risk exposure on
    advances and other assets, the Finance Board has established regulations
    and

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    policies that the FHLBanks must follow to evaluate and manage their
    credit and interest-rate risk. FHLBanks must file periodic compliance
    reports, and the Finance Board conducts an annual on-site examination of
    each FHLBank. Each FHLBank's board of directors must establish risk-
    management policies that comport with Finance Board guidelines.
       The FHLBanks held $14.7 billion in mortgage loans at September 30,
    2000, approximately 2.3 percent of total assets. The mortgage purchase
    programs offer members alternative ways of granting credit. In one of
    these programs, the FHLBanks finance mortgage 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
    an FHLBank under these mortgage purchase programs are required, pursuant
    to the terms of the program, to be credit enhanced to at least the level
    of an investment-grade security. In addition, an FHLBank must hold risk-
    based capital against mortgage assets that have credit risk equivalent
    to an instrument rated lower than double A.
       The FHLBanks' investment activities also pose important public policy
    issues about the degree to which their asset composition adequately
    reflects the mission of the System. Advances and mortgage loans were
    equivalent to about 77 percent of the System's outstanding debt,
    unchanged from one year earlier. As of September 30, 2000, about 52
    percent of advances had a remaining maturity of greater than one year--
    down from 56 percent one year earlier. Although System investments other
    than advances rose to $178 billion as of September 30, 2000, compared
    with $156 billion one year earlier, as a percentage of total assets,
    they fell to 28 percent on September 30, 2000, from 29 percent one year
    earlier. Like other GSEs, the System issues debt securities at close to
    U.S. Treasury rates and invests the proceeds in higher-yielding
    securities. In 2000, the FHLBS issued $3.9 trillion in debt securities.
    However, the majority of the debt issued by the System is overnight or
    short-term, and total debt outstanding was about $577 billion at the end
    of 2000.
       An enormous, liquid, and efficient capital market exists for
    conventional home mortgages today. As a result of Government Sponsored
    Enterprises (GSEs), Ginnie Mae, and the increasing presence of private
    securitizers, lenders have access to substantial liquidity sources, in
    addition to FHLBS advances, for financing home mortgages. The Financial
    Services Modernization Act further increases access to the FHLBS for
    community financial institutions with $517 million or less in assets by
    permitting advance borrowings that provide funds for small businesses,
    small farms, and small agri-businesses.

                        Education Credit Programs and GSEs

       The Federal Government guarantees loans through intermediary agencies
    and makes direct loans to students to encourage post-secondary
    education. The Student Loan Marketing Association (Sallie Mae), a GSE,
    securitizes guaranteed student loans.

    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 participate in either or
    both programs. Loans are available to students and their parents
    regardless of income. Borrowers with low family incomes are eligible for
    higher interest subsidies. For need-based Stafford Loans, the Federal
    Government subsidizes interest costs while borrowers are in school,
    during a six-month grace period, and during certain deferment periods.
       In 2002, more than 6 million borrowers will receive nearly 10 million
    loans totaling almost $48 billion. Of this amount, $37 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 an
    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 2002, FFEL lenders will disburse more than 6
    million loans exceeding $31 billion in principal. Lenders bear two
    percent of the default risk, and the Federal Government is 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, originally included
    in the 1992 Budget as a demonstration project, was authorized by the
    Student Loan Reform Act of 1993. Under Direct Loans, the Federal
    Government provides loan capital directly to over 1,200 schools, which
    then disburse loan funds to students. In 2002, the Direct Loan program
    will generate more than 3 million loans with a total value in excess of
    $17 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.
       While projected loan volumes continue to increase under both the FFEL
    and FDSL programs, lifetime subsidy costs are projected to decrease in
    both programs. For 2002, the weighted average subsidy rate for FFEL
    program is estimated at 12.18 percent and the rate for FDSL is estimated
    at -8.73 percent. These subsidy

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    rates are lower than previous projections as a result of changes in
    interest rates, as well as decreased lifetime default rates and improved
    collections on defaults. The difference in subsidy rates is primarily a
    result of net interest income on FDSL; the interest income exceeds the
    Government's cost of funds under current economic assumptions. FFEL does
    not provide the Government with interest income because it is a
    guaranteed loan program.
       Consolidation Loans, which allow borrowers to combine one or more
    FFEL, Direct Loan, or other Federal student loan into a single loan with
    a fixed interest rate, have grown dramatically in recent years. In 1995,
    Consolidation Loans totaled $3.6 billion, accounting for roughly 13
    percent of overall student loan volume. In 2000, the program had grown
    to over $11 billion, making up a quarter of all student loan volume.
    This trend, which reflects an over 200 percent increase from 1995 to
    2000, is expected to peak in 2001, when projected Consolidation Loans
    will total more than $14 billion, or nearly 30 percent of overall loan
    volume. With temporary Direct Loan interest rate discounts ending on
    September 30, 2001, consolidation volume is projected to drop back to
    $11 billion in 2002, after which it is expected to grow at approximately
    4 percent annually.
       As one of Education's performance management objectives, modernizing
    student aid benefit delivery is a key priority. Accordingly, in 1998
    Congress created Student Financial Assistance (SFA) as the Government's
    first Federal performance-based organization. SFA is working to improve
    the management of all student aid programs, using its expanded
    procurement and contracting flexibility, with a focus on re-engineering
    information systems and expanding electronic data exchange to improve
    customer service, enhance data quality, and lower costs. SFA is working
    with students, lenders, guaranty agencies, and others to implement 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.
       For Fiscal Year 2002, the Administration is proposing to address the
    shortage of qualified, skilled math and science teachers in elementary
    and secondary schools by increasing the amount of forgivable guaranteed
    and direct student loans from $5,000 to $17,500 for teachers who majored
    or minored in science, math, technology, or engineering and who commit
    to teach for five years in high-need schools. This proposal builds upon
    the teacher loan forgiveness program authorized in the 1998 Higher
    Education Amendments. High-need schools would include those with a high
    concentration of low-income students and those in which there is a large
    proportion of out-of-field math and science teachers.

    Sallie Mae

       The Student Loan Marketing Association (Sallie Mae) was charted by
    Congress in 1972 as a for-profit, share-holder-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 USA
    Education, Inc. and must wind down and be liquidated by September 30,
    2008. The Omnibus Consolidated and Emergency Supplemental Appropriations
    for 1999 allows the USA Education, Inc. 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 guaranteed 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 nearly 40 percent of all outstanding
    guaranteed student loans.

             Business and Rural Development Credit Programs and GSEs

       The Federal Government guarantees small business loans to promote
    entrepreneurship. The Government also offers direct loans and loan
    guarantees to farmers who may have difficulty obtaining credit elsewhere
    and to rural communities that need to develop and maintain
    infrastructure. Two GSEs, the Farm Credit System (FCS) and the Federal
    Agricultural Mortgage Corporation (Farmer Mac), increase liquidity in
    the agricultural lending market.

    Small Business Administration

       The Small Business Administration (SBA), created in 1953, provides
    financial assistance to the small business sector. Traditionally, small
    firms have faced difficulty obtaining long-term loans in the private
    marketplace because they tend to have limited credit history and cash
    flows. SBA's role as a ``gap'' lender is to correct these market
    imperfections and provide credit access during economic downturns.
       The Administration's 2002 Budget anticipates that the SBA will make
    available in excess of $17.5 billion through its lending programs. The
    7(a) General Business Loan program, SBA's primary lending vehicle, will
    support approximately $10.7 billion in loans. SBA will supplement the
    capital of Small Business Investment Companies (SBICs), which provide
    equity capital and long-term loans to small businesses, with $3.1
    billion in participating securities and guaranteed debentures.

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    Just as SBA's Section 504 Certified Development Company program has
    operated with a zero subsidy rate for several years, the 2002 Budget
    proposes to make the 7(a) and SBIC programs self-financing through fee
    increases, saving $141 million in government subsidies. The budget
    proposes a program level of $3.75 billion for the 504 program. The
    Administration's fee proposal acknowledges that some small businesses
    may have trouble accessing capital but do not require the government to
    subsidize their cost of borrowing.
       While the Administration continues to support government guaranteed
    lending for small businesses, the advent of interstate banking combined
    with passage of the Gramm-Leach-Bliley Financial Modernization Act of
    1999, have also significantly expanded small businesses' access to
    capital. In addition, the venture capital market has matured over the
    last twenty years and may no longer need the same level of government
    intervention. The venture capital market has grown from approximately
    $800 million in capitalized funds in the late 1960s, to $35 billion in
    the late 1980s, and to over $124 billion in 1998.

       More Emphasis on Small Loans. The budget also supports $20.5 million
    in Microloans ($35,000 and under) with $20 million in associated
    technical assistance to increase borrowers' probability of success. In
    recent years, the amount of 7(a) support for small loans (under
    $150,000) has decreased from $2.1 billion in 1995 to less than $1
    billion in 1999. To further help people whose business needs for small
    loans are not met by private lenders, the SBA has implemented changes
    enacted in 2001 intended to expand the number of small 7(a) loans, by
    making these loans more cost effective for borrowers and lenders.
       Reliance on Private Sector Partners. 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 2000, has experienced the greatest shift to private sector
    partnership. Under the Preferred Lender Program (PLP), SBA's most
    experienced lenders have authority to approve, service, and liquidate
    SBA-guaranteed loans without a credit review by SBA. Loans approved
    through PLP lenders comprised 7 percent of all 7(a) loan approval
    dollars in 2000. SBA also requires all PLP and non-PLP lenders to
    service and liquidate their SBA-guaranteed loans.
       Management Reform Initiative. Because the loan servicing function is
    performed more efficiently and effectively in the private sector,
    Federal agencies are using a variety of debt collection tools to
    transform their functions from loan servicing to portfolio management
    and oversight. In SBA's case, the asset sales program is allowing the
    agency to redirect loan servicing resources to more effectively monitor
    the performance of its loan portfolio and mitigate the government's
    risk. SBA is now at a point where further efficiencies can be achieved
    by consolidating or contracting out the loan servicing function and
    closing redundant operations. To accomplish this, the budget requests $2
    million to provide training and relocation assistance to SBA employees
    to assist with this agency-wide transformation.
       Improving Lender Oversight. Over the past several years, SBA has
    substantially increased the size of its loan portfolio, delegated
    eligibility and credit approval authority for a majority of SBA loans
    through the Preferred Lender Program (PLP), and assigned responsibility
    for servicing and liquidating SBA loans to its private sector partners.
    At the same time, SBA has reduced the level of staff devoted to
    performing these functions within the Agency. These trends require SBA
    to (1) improve its oversight of lenders involved in the various SBA loan
    programs to ensure that SBA lenders exercise adequate fiduciary
    responsibility in their management of the loans guaranteed by the SBA;
    and (2) adopt risk management techniques to better identify and
    understand the performance characteristics of the SBA portfolio in order
    to make informed policy decisions about SBA loan programs. Lender
    Oversight will evaluate individual SBA lenders through analysis of a
    variety of factors including overall financial performance and related
    trends and ratio analysis, industry concentrations analysis, peer
    lending performance comparisons, SBA portfolio performance analysis, and
    selected credit reviews. The oversight program also encompasses on-site
    safety and soundness examinations and off-site monitoring of the Small
    Business Lending Companies (SBLCs), and compliance reviews of SBA
    lenders. Lender Oversight will also evaluate the various SBA loan
    programs to identify performance trends, identify predictors of risk,
    compare lender performance, and promote best practices.
       Systems Modernization Initiative. To improve its data collection and
    program and portfolio management responsibilities, SBA will continue its
    Systems Modernization initiative, requesting $8 million in 2002 to
    invest in the Agency's information systems. This funding will allow SBA
    to continue improving internal accounting systems, develop the necessary
    in-house systems to support lender monitoring, and enhance SBA's
    centralized corporate database to allow better program management and
    improve loan processing efficiency for lenders and SBA staff.
       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
    its first asset sale in 1999, SBA sold more than 4,000 loans for $195
    million--a substantial premium over what the Agency's outside expert
    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. SBA conducted two sales of
    approximately $1 billion each in 2000, which included 7(a), CDC, and
    disaster assistance business and home loans. Drawing on the experience

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    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 sales, the Administration estimates that SBA's
    business loan assets can be sold at a gain to the Government.

    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 residents for the water and wastewater
    programs). These community programs have very low default rates. The
    cost associated with them is due primarily to subsidized interest rates
    that are below the prevailing Treasury rates.
       USDA also provides grants, direct loans, and loan guarantees to
    assist rural businesses, including cooperatives, to increase employment
    and diversify the rural economy. In 2002, USDA proposes to provide $1
    billion in loan guarantees to rural businesses. The 2002 Budget includes
    an increase in the premium charged on the Business and Industry (B&I)
    guaranteed loans. The fee will be raised to 3.25 percent (2.25 percent
    for targeted areas), which is reflected in the 2.74 percent subsidy
    rate. This allows more loans to be made at less cost to the taxpayers.
       The Budget does not include funding for the Direct B&I program. The
    B&I direct program has had authority to provide $50 million in loans
    since 1997 (the first year of the program) , but has yet to utilize the
    full amount. Further, the subsidy rate has gone from being negative in
    1997 through 2000 to 6 percent in 2001, and to 28 percent for 2002,
    indicating a much higher default rate than originally anticipated (the
    rate rose dramatically, even though lower discount rates between 2001
    and 2002 make direct loans less expensive). Direct B&I borrowers must
    have been rejected from a private bank in order to qualify. The high
    default rate indicates that the program is not providing long-term,
    stable jobs to rural America. The borrowers are defaulting, and the
    businesses are failing.
       These community programs are all part of the Rural Community
    Advancement Program (RCAP). Under RCAP, States have increased
    flexibility within the three funding streams for Water and Wastewater,
    Community Facilities, and Business and Industry. USDA State Directors
    have the authority to transfer up to 25 percent of the funding between
    any of the programs contained within a stream in order to tailor RCAP
    assistance to the specific rural economic development needs of
    individual States. USDA also provides loans through the Intermediary
    Relending Program (IRP), which provides loan funds at a 1 percent
    interest rate to an intermediary such as a State or local government
    agency that, in turn, provides funds for economic and community
    development projects in rural areas. In 2002, USDA expects to retain or
    create 58,000 new jobs through the B&I guarantee and the IRP loan
    programs.

    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 in rural America. 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. In 1997, $667 million, largely nuclear power
    construction loans, was written off, but this case was an exception.
       The subsidy rates for the electric and telecommunication programs are
    lower than previous years mainly due to the lower Treasury rate in the
    economic assumptions. The default rates for both programs are very low.
    With the increase of deregulation, however, there is the possibility of
    increased defaults in the electric program since deregulation may erode
    loan security and the ability of some borrowers to repay. As information
    on the impact of deregulation increases, this risk will be factored into
    the default rates.
       Maintaining the goal of ``affordable, universal service'' is of
    concern to USDA. Many rural cooperatives are by nature high cost
    providers of electricity because there are fewer subscribers per line-
    mile than in urban areas. USDA's Rural Utilities Service (RUS) proposes
    to make $2.6 billion in direct and guaranteed loans in 2002 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 $100 million for
    private sector guarantees. The demand for loans to rural electric
    cooperatives is expected to continue to rise as borrowers replace many
    of the 40-year-old electric plants. With the $2.6 billion in loans, RUS
    borrowers are expected to upgrade 187 rural electric systems, which will
    benefit over 2.8 million customers and create or preserve approximately
    60,200 jobs.
       USDA's RUS proposes to make $495 million in direct loans in 2002 to
    companies providing telecommunications in rural areas. The uses of the
    telecommunication loans are changing from bringing service to new
    customers to upgrading existing service with new technology. With the
    $495 million in loans, RUS borrowers are expected to provide over 50
    telecommunication systems with funding for advanced telecommunications
    services benefiting over 300 thousand rural customers and providing
    broadband and high-speed Internet access.
       The Rural Telephone Bank (RTB) provides financing for rural
    telecommunications systems. The 2002 Budget proposes the elimination of
    funding to support new loans. This is expected to generate increased
    member and borrower support for statutorily authorized privatization.
    The RTB is financially able to privatize by the end of 2002, and this
    provides enough time to perform a privatization study and prepare for
    privatization. The

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    RTB is provided full salaries and expenses to service existing loans, to
    perform a privatization study, and prepare for privatization by the end
    of 2002.
       The Distance Learning and Telemedicine program provides grants and
    loans 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. With the $25 million in
    grants and $300 million in loans, RUS borrowers are expected to provide
    distance learning facilities to 300 schools, libraries, and rural
    education centers and telemedicine equipment to 150 rural health care
    providers, benefitting millions of residents in rural America.
       RUS is proposing the creation of a new program to fund $2 million in
    grants and $100 million in Treasury rate loans in 2002 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 cooperatives and businesses
    serving rural areas and rural communities.

    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 1990.
       FSA guaranteed farm loans are made to more creditworthy borrowers who
    have access to private credit markets. Because the private loan
    originators must retain 10 percent of the risk, they exercise care in
    examining borrower repayment ability. As a result, guaranteed farm loans
    have not experienced losses as high as those on direct loans.
       The 1999 Appropriations Bill changed portions of the servicing
    requirements for delinquent borrowers. A borrower who has received an
    FSA loan write-down or write-off may now be eligible for an additional
    farm operating loan when the borrower is current under a debt
    reorganization plan or in certain emergency circumstances. Property
    acquired through foreclosure on direct loans must now be sold at auction
    within 105 days of acquisition, and leasing of inventory property is no
    longer permitted except to beginning farmers. Prior to the 1996 Farm
    Bill, acquired property remained in inventory on average for five years
    before the FSA could dispose of it.

    The Farm Credit System and Farmer Mac

       The Farm Credit System (FCS or System) and the Federal Agricultural
    Mortgage Corporation (Farmer Mac) are GSEs that enhance credit
    availability for the agricultural sector. The FCS raises its loan funds
    by selling securities in national and international markets, while
    Farmer Mac provides a secondary market for agricultural real estate and
    rural housing mortgages. 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, although new regulations permitting national
    charters for System could loosen those restrictions in 2001. The
    downturn in the agricultural economy in the 1980s led the FCS to the
    brink of insolvency. Legislation in 1987 provided temporary 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 income and balance sheets, thanks in part to record
    Government emergency assistance payments in 1999 and 2000. Commodity
    prices remained low in 2000, and long term forecasts are for very
    gradual recovery. Farm income levels, including Government payments,
    have enabled most borrowers to maintain low debt-to-asset ratios, and
    lenders to keep loan delinquencies well below problem thresholds.
    Farmland values gained modestly in 2000, as inflationary expectations
    remain low. However, such aggregate facts may mask the problems of
    certain sectors within the farm economy.
       Another sign of the generally stable condition of agricultural
    finance is the greater share of credit provided by commercial banks.
    From 1986 to 1999, commercial banks' share of all farm debt increased
    from 26 percent to 41 percent, while the share for FCS declined from 29
    percent to 26 percent. The United States Department of Agriculture
    (USDA) direct farm loan programs went from a market share of 15 percent
    to 5 percent though, if adjusted for its guaranteed loans issued through
    private banks, that percentage would more than double. USDA expects that
    both commercial banks and the FCS have maintained their market share in
    2000.

    The Farm Credit System

       The financial condition of the Farm Credit System banks and
    associations during 2000 continued a 12-year trend of improving
    financial health and performance. Non-performing loans decreased to 1.5
    percent of the portfolio in September 2000, down from 1.6 percent in
    1999. Loan volume has gradually increased since 1995, although the $73.0
    billion in September 2000 was still below the high of over $80 billion
    in the early 1980s. Competitive pressures have narrowed

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    the FCS's net interest margin from 3.03 percent in 1995 to 2.74 percent
    in 2000.
       Improved asset quality and income enabled FCS to post record capital
    levels: by September 30, 2000, capital stood at $14 billion--an increase
    of 7 percent for the year. Not 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).
    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 using marginal cost loan pricing and asset/liability
    management practices designed to reduce its interest rate risk.
    Substantial consolidation continues in the structure of the FCS. In
    January 1995 there were 9 banks plus 232 associations; by October 2000,
    there were 7 banks and 158 associations.
       The 1987 legislation established the FCS Insurance Corporation 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 and the joint and several
    liability of all System banks for FCS obligations. On September 30,
    2000, the Insurance Fund's net assets were $1.4 billion and are
    estimated to maintain the legally required level of at least two percent
    of outstanding debt in 2001.
       Improvement in the FCS's financial condition is also reflected in the
    evaluations of FCS member institutions by the Farm Credit Administration
    (FCA), its Federal regulator. The FCA Financial Institution Rating
    System (FIRS) rates each of the System's institutions for capital, asset
    quality, management, earnings, liquidity, and sensitivity (CAMELS). At
    the beginning of 1995, 197 institutions carried the best CAMELS ratings
    of ``1'' or ``2,'' 36 were rated ``3,'' 1 institution was rated ``4''
    and no institutions received the lowest rating of ``5.'' By September
    2000, in contrast, 165 institutions were given the top ratings, only 1
    was rated ``3,'' and none was rated ``4'' or ``5.'' As of September 30,
    2000, there were no FCS institutions under an enforcement action.
       FCS loans outstanding as of September 2000 were $73 billion, up 4
    percent over 1999, and representing a 28 percent increase since 1995.
    Loans to farmers and other eligible producers comprise 72 percent of the
    System's portfolio. The volume of lending secured by farmland has
    increased about 25 percent while farm-operating loans have increased
    over 37 percent since 1995. Loans to finance processing, marketing,
    credit cooperatives, and rural utilities cooperatives accounted for 22
    percent of FCS's portfolio at fiscal year-end 1999. The remaining 6
    percent of the portfolio is made up of non-farm rural home loans (2.5
    percent) and international loans (3.5 percent).
       The USDA expects 2000 net farm income to be $45 billion, up slightly
    from 1999. These strong reported earnings and farm income generally have
    relied heavily on Government assistance payments in recent years.
    Federal payments of $22 billion in 2000 (and totaling nearly $70 billion
    since 1996) 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 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 powers increase commercial banks'
    incentives to participate in Farmer Mac authorities, which has increased
    Farmer Mac's ability to achieve its statutory mission. However, these
    authorities also subject Farmer Mac to additional risk. As a direct
    purchaser of loans, it must rely wholly on its own underwriting
    standards. Because Farmer Mac is now exposed to greater risk, it must
    set appropriate fees and ensure adequate capital reserves.
       Both loan purchases and guarantees have increased since the passage
    of the 1996 Act. Both trends indicate positive progress in developing an
    agricultural secondary market. The 1996 Act also gave Farmer Mac three
    additional years to reach its capital requirements. At year-end 2000,
    Farmer Mac's core capital reached $101 million--and was fully compliant
    with the revised regulatory capital requirements.

                          International Credit Programs

    International Credit Programs

       Seven Federal agencies, the Department of Agriculture (USDA), the
    Department of Defense, the Department of State, the Department of the
    Treasury, the Agency for International Development (AID), the Export-
    Import Bank, and the Overseas Private Investment Corporation (OPIC),
    provide direct loans, loan guarantees, and insurance to a variety of
    foreign private and sovereign borrowers. These programs are intended to
    level the playing field for U.S. exporters, deliver robust support for
    U.S. manufactured goods, sta

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    bilize international financial markets, and promote sustainable
    development.

       Leveling the playing field. Federal lending counters subsidies that
    foreign governments, largely in Europe and Japan, provide their
    exporters usually through export credit agencies (ECAs). The U.S.
    government has worked since the 1970's to constrain official credit
    support through a multilateral agreement in the Organization for
    Economic Cooperation and Development (OECD). This agreement has
    significantly constrained direct interest rate subsidies and tied-aid
    grants. Further negotiations resulted in a multilateral agreement which
    standardized the fees for sovereign lending across all ECA's beginning
    in April 1999. Fees for non-sovereign lending, however, continue to vary
    widely across ECAs and markets, thereby providing implicit subsidies.
       The Export-Import Bank attempts to strategically ``level the playing
    field'' and to fill gaps in the availability of private export credit.
    The Export-Import Bank provides export credits, in the form of direct
    loans or loan guarantees, to U.S. exporters who meet basic eligibility
    criteria and who request the Bank's assistance. USDA's ``GSM'' programs
    similarly help to level the playing field. Like programs of other
    agricultural exporting nations, they guarantee payment from countries
    and entities that want to import U.S. agricultural products but cannot
    easily obtain credit. The U.S. has been negotiating in the OECD the
    terms of agricultural export financing, the outcome of which could
    affect the GSM programs.

       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 can
    contribute to orderly exchange arrangements and a stable system of
    exchange rates by providing resources on a multilateral basis through
    the IMF (discussed in other sections of the Budget), and through
    financial support 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 to that country under an IMF loan. Also,
    a package of up to $20 billion of medium-term 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
    reflecting an appropriate country risk premium.
       The United States also expressed a willingness to provide ESF support
    in response to the financial crises affecting some countries such as
    South Korea in 1997 and Brazil in 1998. It did not prove necessary to
    provide an ESF credit facility for Korea, but the United States agreed
    to guarantee through the ESF up to $5 billion of a $13.2 billion 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. Development Credit Authority (DCA) is a
    legislative authority allowing the use of credit by USAID to support its
    development activities abroad. DCA provides non-sovereign loans and loan
    guarantees in targeted cases where credit serves more effectively than
    traditional grant mechanisms to achieve sustainable development. DCA is
    intended to mobilize host-country private capital to finance sustainable
    development in line with USAID's strategic objectives. Through the use
    of partial loan guarantees and risk sharing with the private sector, DCA
    stimulates private-sector lending for financially viable development
    projects, thereby leveraging host-country capital and strengthening sub-
    national capital markets in the developing world.
       A consolidation of all of USAID's credit programs is requested in the
    2002 Budget to create the unified Development Credit Authority. This
    unit will encompass DCA activities as well as USAID's traditional
    microenterprise and urban environmental credit programs.
       OPIC also supports a mix of development, employment, and export goals
    by promoting U.S. direct investment in developing countries. OPIC
    pursues these goals through political risk insurance, direct loans, and
    guarantee products, which provide finance, as well as associated skills
    and technology transfers. These programs are intended to create more
    efficient financial markets, eventually encouraging the private sector
    to supplant OPIC finance in developing countries. OPIC has also created
    a number of investment funds that provide equity to local companies with
    strong development potential.

       Ongoing 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 the Administration to develop a 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

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    international bond market data. The premia for 2002 have been updated to
    reflect more recent data. The risk premia decreased in most risk
    categories. All else being equal, this change will expand the level of
    lending an agency may be able to implement. The reduction in premia, for
    example, will reduce the lending costs of the Export-Import Bank in
    2002. However, the impact of the change will depend on a host of other
    factors such as risk mix, maturity, and fees.
       For the purpose of significantly improving the U.S. Government's
    reporting, analysis, and management 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). When complete, the system will provide government
    officials with desktop Internet access to cross-cutting foreign credit
    information for policymaking and analytical purposes.

       Increased Role of the Private Sector. Globalization has facilitated
    international capital flows and reduced the risk of international
    transactions. As a result, international capital flows through private
    entities dwarf officially supported direct and guaranteed credit. For
    example, net foreign direct investment in emerging markets grew from $35
    billion in 1992 to $149 billion in 1999 or 2.1 percent of emerging
    market GDP in 1999. In comparison, net official capital flows to
    emerging markets accounted for less than 0.1 percent of their GDP in
    1999.
       Because the private sector is rapidly expanding its size and role in
    emerging markets, the Administration is redirecting resources from some
    international credit programs to other needs. The President's Budget
    includes savings in credit subsidy funding for the Export-Import Bank
    and the Overseas Private Investment Corporation (OPIC). The Budget
    proposes savings of approximately 25 percent in Export-Import Bank's
    credit subsidy requirements through policy changes that focus the Bank
    on U.S. exporters who truly cannot access private financing, as well as
    through lower estimates of international risk for 2002. Compared to the
    other major ECAs, the U.S. provides the most unrestricted financing in
    more markets. Export-Import Bank could adapt to reduced resources, while
    remaining competitive, by increasing fees in countries where the U.S.
    fees are lower, or in countries where foreign export support is not
    present.
       These changes could include a combination of increased risk sharing
    with the private sector, higher user fees, and more stringent value-
    added tests. The Budget also eliminates OPIC credit subsidy for 2002.
    OPIC has been unable to spend all of its existing subsidy budget
    authority in either of the past two fiscal years and will carry enough
    subsidy into 2002 to fully fund its current level of credit programs.
       This redirection effort anticipates that the role of the Export-
    Import Bank and OPIC will become more focused on correcting market
    imperfections as the private sector's ability to bear emerging market
    risks becomes larger, more sophisticated, and more efficient.

                             IV.  INSURANCE PROGRAMS

    Deposit Insurance

       Federal deposit insurance was established in the depression of the
    1930s, which prompted the need to protect small depositors and prevent
    bank failures from causing widespread disruption in financial markets.
    Before the establishment of Federal deposit insurance, failures of some
    depository institutions often caused depositors to lose confidence in
    the banking system as a whole and rush to withdraw deposits from other
    institutions. Such sudden withdrawals would seriously disrupt the
    economy.
       The Federal Deposit Insurance Corporation (FDIC) insures the deposits
    in 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 nearly $3.0
    trillion of deposits at over 8,600 commercial banks and almost 1,400
    savings institutions. The NCUA insures 10,527 credit unions with $348
    billion in insured shares.

    Current Industry and Insurance Fund Conditions

       The 1980s and early 1990s were a turbulent period for the banking
    industry, 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, which were largely designed to
    improve the safety and soundness of the banking system. 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 2000, becoming only the second SAIF-member
    to fail since 1996. Four BIF members failed during 2000; since 1996, BIF
    failed assets have averaged approximately $600 million per year. During
    2000, 33 Federally insured credit unions with $126 million in assets
    failed (including assisted mergers). The FDIC currently classifies only
    90 institutions with $19 billion in assets as ``problem institutions,''
    compared to nearly 194 institutions with $31 billion in assets five
    years ago.
       Banks have achieved record levels of earnings in recent years, with
    industry net income totaling $19.3 billion in the third quarter of 2000,
    the third highest quarter ever. As of September 30, 2000, BIF had
    estimated reserves of $31 billion, 1.36 percent of insured

    [[Page 157]]

    deposits. The earnings of the thrift industry also have improved
    significantly in recent years. As of September 30, 2000, SAIF's reserves
    reached an estimated $10.7 billion or 1.45 percent of insured deposits.
       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, 93 percent of
    commercial banks and 89 percent of thrifts did not pay insurance
    premiums in 2000. The National Credit Union Share Insurance Fund
    (NCUSIF) also remains strong with assets of $4.5 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. Premiums were waved in
    advance for 2000 because the income generated from the 1 percent deposit
    eliminated the need for an assessment. 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.
    It is anticipated that the fund will pay a dividend for 2001.
       Due to strong growth in the U.S. economy in recent years, depository
    institutions and their Federal insurance funds are in good financial
    condition. However, this trend may not 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. In addition to the uncertainty surrounding
    future economic conditions, industry consolidation, banks' increased
    reliance on sophisticated financial instruments, and legislative changes
    also make it increasingly difficult to predict future deposit insurance
    losses. As a result of consolidation, for example, a few large banks
    control a substantial share of banking assets. The failure of even one
    of these large institutions could seriously strain an insurance fund.
       In addition to consolidation, industry trends indicate that banks are
    increasingly using sophisticated financial instruments such as asset-
    backed securities and financial derivatives, which may either mitigate
    or exacerbate risk level. Whether or not these sophisticated financial
    instruments add to risk, they complicate the work of regulators who must
    gauge an institution's financial health--and the potential for deposit
    insurance losses that a troubled institution may represent. The landmark
    Financial Services Modernization Act of 1999 (P.L. 106-102) allows new
    business combinations in the financial sector, enabling banks to expand
    into other financial businesses such as insurance and securities. Over
    time, such expansions could either make depository institutions safer by
    improving asset diversification or make them less safe by increasing
    their exposure to riskier lines of business. A recent development
    related to inter-industry mergers is that securities firms are
    indirectly offering insured accounts to their customers through their
    banking affiliates (sweeping accounts). Regulators need to pay attention
    to this development because sweeping accounts increase insured deposits.
    Finally, regulators must always guard against fraud, which can also
    significantly impact insurance fund balances. The failure of First
    National Bank in Keystone, West Virginia, for instance, is expected to
    cost the FDIC up to $850 million to resolve.

    On-going Issues

       The deposit insurance system is in good condition and continues to
    play a critical role in ensuring confidence in our financial system.
    During a period of economic health, it may be appropriate to question
    whether the system works in the most consistent and efficient matter.
    Are depositors adequately protected? Are industries over or underpaying
    for deposit insurance coverage? Does the system encourage economically
    efficient outcomes? To this end, in 2000 the FDIC initiated a public
    discussion of deposit insurance issues. Options such as merging the BIF
    and SAIF, refining premium structures, and indexing premiums are being
    considered. The Administration and Congress will continue to contemplate
    these issues in the context of a rapidly evolving financial sector.

                                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
    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 2000, PBGC posted a positive financial position for the fifth
    straight year after 21 years of being in a deficit position. This was
    due to good economic conditions and favorable investment returns. Risk
    remains, however, because good economic conditions and favorable
    investment returns may not continue indefinitely.

    [[Page 158]]

     The risk has been reduced somewhat by steps taken by the Congress and
    PBGC. Congress enacted legislation to make insurance premiums more
    reflective of risk. Under its Early Warning Program, PBGC has negotiated
    90 major settlements with companies, which have provided 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.
       PBGC's single-employer program fared well in 2000, with no major
    terminations. (However, PBGC took over three large pension plans in the
    last few months: Grand Union, Outboard Marine, and TWA, the last under
    an agreement negotiated beforehand. Most of these plans' liability had
    been accounted for previously and so these takeovers make no substantial
    change in PBGC's financial position.) In 2000, overall investment
    returns were positive, in both PBGC's revolving funds, which are
    invested in U.S. Government securities, and in its trust funds, which
    hold mostly equities. Returns on PBGC's equity portfolio, however, were
    lower than those in 1999. Premium revenues dropped for the fourth year
    in a row, partly reflecting a previously enacted increase in the
    statutory interest rate for calculating underfunding.
       PBGC's multi-employer program, which guarantees pension benefits of
    certain unionized plans offered by several employers in an industry,
    remained financially strong. Legislation enacted in December, 2000
    raised the maximum guarantee level on pension benefits paid to retirees
    in multi-employer plans for the first time since 1980. The maximum was
    increased from $5,580 to $12,870 per year for retirees with 30 years of
    service.
       PBGC is working to speed its setting of the dollar levels of benefits
    in the pension plans it takes over. The time taken for final calculation
    is expected to drop to three years in 2002, down from an average of 4.9
    years in 2000. PBGC also is working to send first benefit checks more
    speedily. In 1999, only 83 percent of pensioners got their first benefit
    checks within three months of completing their applications.

                                Disaster Insurance

    Flood Insurance

       The Federal Government provides flood insurance through the National
    Flood Insurance Program (NFIP), which is administered by the Federal
    Emergency Management Agency (FEMA). Flood insurance is available to
    homeowners and businesses in communities that have adopted and enforced
    appropriate floodplain management measures. Coverage is limited to
    buildings and their contents. By 2002, the program is projected to have
    approximately 4.5 million policies from more than 19,000 communities
    with $610 billion of insurance in force.
       Prior to the creation of the program in 1968, many factors made it
    cost prohibitive for private insurance companies alone to make
    affordable flood insurance available. In response, the NFIP was
    established to make insurance coverage widely available. The NFIP also
    requires building standards and other mitigation efforts to reduce
    losses, and operates a flood hazard mapping program to quantify the
    geographic risk of flooding. The NFIP has substantially met these goals.
       The number of policies in the program has grown significantly over
    time. The number of enrolled policies grew from 2.4 to 4.3 million
    between 1990 and 2000, and by nearly 82,000 policies in 2000. FEMA is
    using three strategies to increase the number of flood insurance
    policies in force: lender compliance, program simplification, and
    expanded marketing. The NFIP also has a multi-pronged strategy for
    reducing future flood damage. FEMA is educating financial regulators
    about the mandatory flood insurance requirement for properties with
    mortgages from federally regulated lenders. Further, the NFIP offers
    mitigation insurance to allow flood victims to rebuild to code, thereby
    reducing future flood damage costs. Last, FEMA adjusts premium rates to
    encourage community and State mitigation activities beyond those
    required by the NFIP.
       Despite these efforts, the program faces major financial challenges.
    In some years, the program's financing account, which is a cash fund,
    has expenses greater than its revenue, preventing it from building
    sufficient long-term reserves. This is because a large portion of the
    policy-holders pay subsidized premiums. FEMA charges subsidized premiums
    for properties built before a community adopts the NFIP building
    standards. Properties built subsequently are charged true actuarial
    rates. The creators of the NFIP assumed that eventually the NFIP would
    become self-sustaining as older properties left the program. The share
    of subsidized properties in the program has fallen from 70 percent in
    1978, but it is still substantial--30 percent today.
       Until the mid-1980s, Congress appropriated funds periodically to
    support subsidized premiums. However, the program has not received
    appropriations since 1986. During the 1990s, FEMA increasingly relied on
    Treasury borrowing to finance its expenses (the NFIP may borrow up to
    $1.5 billion). At the end of year 2000, FEMA had outstanding borrowing
    from Treasury of $345 million.
       The 2002 Budget proposes two cost-saving reforms that should improve
    the financial condition of the NFIP. First, flood insurance coverage
    would no longer be available for several thousand ``repetitive loss''
    properties. These properties are located in the flood plain and are
    flooded regularly, but are not required to pay risk-based premiums. As a
    result, they have been rebuilt multiple times with the subsidized
    support of other flood insurance policy holders and U.S. taxpayers. The
    Budget seeks to begin removing the worst offending repetitive loss
    properties from the program in 2002. Policyholders whom FEMA has
    identified as repetitive

    [[Page 159]]

    loss claimants will be allowed to make one more claim before having
    their policies terminated. Second, subsidized premium rates for vacation
    homes, rental properties, and other non-primary residences and
    businesses would be phased out over five years. FEMA charges many of
    these policyholders less than actuarial rates, which undermines the
    financial stability of the insurance program. Structures that are
    removed or that drop out of the program because of these two reforms
    would be ineligible for future Federal disaster assistance, including
    FEMA Individual and Family Grants and Small Business Administration
    disaster loans. Savings from these proposals are estimated at $12
    million in 2002 and are expected to grow significantly in the future.

    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 reluctant to offer multi-peril crop
    insurance without Government reinsurance because of the difficulty of
    limiting risk exposure; insurance companies are exposed to large losses
    because losses tend to occur across a wide geographic area. For example,
    a drought usually affects 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 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--a 140 percent increase over 1994. However,
    the 1996 Farm Bill eliminated the requirement that farmers participating
    in USDA's commodity programs carry crop insurance, and participation
    dropped in 1997 to an estimated 61 percent of eligible acres. That
    proportion increased to 72 percent in 2000 and is expected to reach 80
    percent in 2001, boosted by the reforms of the 2000 Agriculture Risk
    Protection Act (ARPA).
       ARPA strengthened the program by increasing premium subsidies for
    higher coverage policies, equalizing the subsidy rates for all plans of
    insurance, expanding the list of insurable commodities to include
    livestock, and increasing flexibility of crop insurance companies'
    marketing methods. ARPA also includes significant changes to improve
    program integrity through increased compliance oversight. Further, ARPA
    shifts USDA's role toward that of a regulator, while stimulating new
    product development within the private sector and ensuring a research
    and development emphasis on specialty and underserved crops.
       USDA continues to expand revenue coverage. Revenue insurance programs
    are now available in 36 states and further expansion is being studied.
    Moreover, the concept of covering all crop and livestock operations of a
    farm under a single policy, the so-called ``whole farm coverage''
    approach, is being evaluated through a pilot program. 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'' Farm
    Income on Federal tax returns, instead of its yield history.

    [[Page 160]]

    [[Page 161]]

                        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                           1999            1999           2000            2000
                                                                      Outstanding \1\                Outstanding \1\
    ----------------------------------------------------------------------------------------------------------------
    Direct Loans:\2\
      Federal student loan programs...................         65               2             80              -3
      Farm Service Agency (excl. CCC), Rural                   45              12             42              11
       development, Rural housing.....................
      Rural Utilities Service and Rural telephone bank         29               3             33               2
      Housing and Urban Development...................         14               3             13               2
      Agency for International Development............         11               6             11               5
      P. L. 480.......................................         11               8             11               8
      Export-Import Bank..............................         12               6             11               5
      Commodity Credit Corporation....................          7               3              8               5
      Federal Communications Commission...............          8               5              8              -1
      Disaster assistance.............................          7               2              6               1
      Other direct loan programs......................         22               2             18               3
                                                       -------------------------------------------------------------
        Total Direct Loans............................        234              50            241              37
                                                       -------------------------------------------------------------
    Guaranteed Loans:\2\
      FHA-mutual mortgage insurance...................        411              -3            450              -1
      Veterans housing................................        221               6            224               5
      Federal family education loan...................        127              12            144              12
      FHA-general and special risk....................         93               7             99               8
      Small business..................................         39               2             34               2
      Export-Import Bank..............................         25               6             30               5
      International assistance........................         19               2             19               1
      Farm Service Agency and Rural housing...........         17     ...............         20     ...............
      Commodity Credit Corporation....................          7               1              6               1
      Other guaranteed loan programs..................         16     ...............         16               3
                                                       -------------------------------------------------------------
        Total Guaranteed Loans........................        976              34          1,043              37
                                                       =============================================================
          Total Federal Credit........................      1,210              84          1,284              75
    ----------------------------------------------------------------------------------------------------------------
    \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 162]]

      Table 8-2.   FACE VALUE OF GOVERNMENT-SPONSORED ENTERPRISE LENDING\1\
                            (in billions of dollars)
    ------------------------------------------------------------------------
                                                            Outstanding
                                                     -----------------------
                                                         1999        2000
    ------------------------------------------------------------------------

            Government Sponsored Enterprises:

    Fannie Mae......................................       1,141       1,231
    Freddie Mac.....................................         838         913
    Federal Home Loan Banks \2\.....................         357         435
    Sallie Mae \3\..................................  ..........  ..........
    Farm Credit System..............................          66          67
                                                     -----------------------
        Total.......................................       2,402       2,646
    ------------------------------------------------------------------------
    \1\ Net of purchases of federally guaranteed loans.
    \2\ The lending by the Federal Home Loans Banks measures their advances
      to member thrift and other financial institutions. In addition, their
      investment in private financial instruments at the end of 2000 was
      $178 billion, including federally guaranteed securities, GSE
      securities, and money market instruments.
    \3\ The face value and Federal costs of Federal Family Education Loans
      in the Student Loan Marketing Association's portfolio are included in
      the totals for that program under guaranteed loans in table 8-1.

    [[Page 163]]

                                      Table 8-3.  REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED BETWEEN 1992-2000 \1\
                                                                    (In millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                Program                                1994       1995       1996       1997       1998       1999       2000        2001
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Direct Loans:

    Agriculture:
      Agriculture credit insurance fund...........................      -72         28          2        -31         23    .........       331         -22
      Agricultural conservation...................................       -1    .........  .........  .........  .........  .........  ..........  ..........
      Rural electrification and telecommunications loans..........        *         61        -37         84    .........      -39    ..........      -117
      Rural telephone bank........................................        1    .........  .........       10    .........       -9    ..........        -2
      Rural housing insurance fund................................        2        152         46        -73    .........       71    ..........        78
      Rural economic development loans............................  .........  .........  .........        1    .........       -1           *          -2
      Rural development loan program..............................  .........        1    .........  .........  .........       -6    ..........        -1
      Rural community advancement program \2\.....................  .........  .........  .........        8    .........        5    ..........       105
      P.L. 480....................................................  .........  .........      -37         -1    .........  .........  ..........  ..........

    Commerce:
      Fisheries finance...........................................  .........  .........  .........  .........  .........  .........  ..........       -19

    Education:
      Federal direct student loans:
        Technical reestimate......................................  .........  .........        3        -83        172       -383      -2,158         559
        Volume reestimate.........................................  .........  .........  .........  .........  .........       22    ..........        -5
      College housing and academic facilities loans...............  .........  .........  .........  .........  .........  .........  ..........        -1

    Interior:
      Bureau of Reclamation loans.................................  .........  .........  .........  .........  .........  .........         3           1
      Bureau of Indian Affairs direct loans.......................  .........  .........  .........  .........  .........        1           5           *

    Transportation:
      High priority corridor loans................................  .........  .........  .........  .........       -3    .........  ..........  ..........
      Alameda corridor loan.......................................  .........  .........  .........  .........  .........  .........       -58    ..........
      Transportation infrastructure finance and innovation........  .........  .........  .........  .........  .........  .........  ..........        18

    Treasury:
      Community development financial institutions fund...........  .........  .........  .........  .........  .........  .........         1    ..........

    Veterans Affairs:
      Veterans housing benefit program fund.......................      -39         30         76        -72        465       -111         -52        -108

    Environmental Protection Agency:
      Abatement, control and compliance...........................  .........  .........  .........  .........  .........  .........  ..........         3

    Federal Emergency Management Agency:
      Disaster assistance.........................................  .........  .........  .........  .........  .........  .........        47          35

    International Assistance Programs:
      Foreign military financing..................................  .........  .........  .........       13          4          1         152        -165
      Debt reduction..............................................  .........  .........  .........  .........  .........  .........        36           *

    Small Business Administration:
      Business loans..............................................  .........  .........  .........  .........  .........  .........  ..........         1
      Disaster loans..............................................  .........  .........  .........  .........     -193        246        -398        -282

    Other Independent Agencies:
      Export-Import Bank direct loans.............................      -28        -16         37    .........  .........  .........      -177         158
      Federal Communications Commission spectrum auction..........  .........  .........  .........  .........    4,592        980      -1,501      -9,618

    Loan Guarantees:

    Agriculture:
      Agriculture credit insurance fund...........................        5         14         12        -51         96    .........       -31         205
      Commodity Credit Corporation export guarantees..............        3        103       -426        343    .........  .........  ..........  ..........
      Rural development insurance fund............................       49    .........  .........       -3    .........  .........  ..........  ..........
      Rural housing insurance fund................................        2         10          7        -10    .........      109    ..........       152
      Rural community advancement program \2\.....................  .........  .........  .........      -10    .........       41    ..........        61
      P.L. 480 title I food for progress credits..................  .........       84        -38    .........  .........  .........  ..........  ..........

    Commerce:
      Fisheries finance...........................................  .........  .........  .........  .........       -2    .........  ..........        -3

    Education:
      Federal family education loan: \3\
        Technical reestimate......................................       97        421         60    .........  .........     -140         667      -3,482
        Volume reestimate.........................................  .........  .........      535         99    .........      -13         -60         -44

    Health and Human Services:
      Heath center loan guarantees................................  .........  .........  .........  .........  .........  .........         3    ..........
      Health education assistance loans...........................  .........  .........  .........  .........  .........  .........  ..........       -72

    Housing and Urban Development:
      Indian housing loan guarantee...............................  .........  .........  .........  .........  .........  .........  ..........        -5
      FHA-mutual mortgage insurance...............................  .........  .........  .........     -340    .........    3,789    ..........     2,413
      FHA-general and special risk \4\............................     -175    .........     -110        -25        743         79    ..........      -228

    [[Page 164]]

    Interior:
      Bureau of Indian Affairs guaranteed loans...................  .........  .........  .........       31    .........  .........  ..........       -14

    Transportation:
      Maritime guaranteed loans (title XI)........................  .........  .........  .........  .........  .........      -71          30          -1

    Veterans Affairs:
      Veterans housing benefit fund program.......................     -447        167        334       -706         38        492         229        -770

    International Assistance Programs:
      U.S. Agency for International Development:
        Housing guaranty..........................................       -2         -1         -7    .........      -14    .........  ..........  ..........
        Micro and small enterprise development....................  .........  .........  .........  .........  .........  .........  ..........         1
        Urban and environmental credit............................  .........  .........  .........  .........  .........  .........  ..........       -12
        Assistance to the new independent states of the former      .........  .........  .........  .........  .........  .........  ..........       -26
         Soviet Union.............................................

    Small Business Administration:
      Business loans..............................................  .........  .........      257        -16       -279       -545        -235        -527

    Other Independent Agencies:
      Export-Import Bank guarantees...............................      -11        -59         13    .........  .........  .........      -191      -1,520
                                                                   -----------------------------------------------------------------------------------------
        Total.....................................................     -616        995        727       -832      5,642      4,518      -3,641     -13,256

    --------------------------------------------------------------------------------------------------------------------------------------------------------
    * $500 thousand or less.
    \1\ Excludes interest on reestimates. Additional information on credit reform subsidy rates is contained in the Federal Credit Supplement to the Budget
      for 2002.
    \2\ Includes rural water and waste disposal, rural community facilities, and rural business and industry programs.
    \3\ 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.
    \4\ 1999 figure includes interest on reestimate.

    [[Page 165]]

                                       Table 8-4.  DIRECT LOAN SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 2000-2002
                                                                    (in millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          2000 Actual                    2001 Enacted                  2002 Proposed
                                                                --------------------------------------------------------------------------------------------
                         Agency and Program                                 Subsidy                        Subsidy                        Subsidy
                                                                  Subsidy    budget     Loan     Subsidy    budget     Loan     Subsidy    budget     Loan
                                                                 rate \1\  authority    level   rate \1\  authority    level   rate \1\  authority    level
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Agriculture:
      Agricultural credit insurance fund.......................      5.92         68     1,149      8.47         66       779      6.78         58       855
      Farm storage facility loans..............................      2.85          2        80      2.14          4       175      2.42          3       125
      Apple loans..............................................       N/A  .........  ........      5.01          5       100       N/A  .........  ........
      Emergency boll weevil program............................       N/A  .........  ........     60.00          6        10       N/A  .........  ........
      Rural community advancement program......................      8.42         80       950     12.76        172     1,348      6.62         70     1,058
      Rural electrification and telecommunications loans.......     -0.19         -5     2,559     -0.47        -14     3,010     -0.43        -13     3,010
      Rural telephone bank.....................................      1.88          3       175      1.48          3       175  ........  .........  ........
      Distance learning and telemedicine loans.................      0.35          1       200     -0.61         -3       400     -0.07  .........       400
      Farm labor housing.......................................       N/A  .........  ........     52.59         17        33     47.31         13        28
      Rural housing insurance fund.............................     13.44        189     1,399     19.35        239     1,235     16.23        200     1,233
      Rural development loan program...........................     43.43         17        38     50.91         22        44     43.21         16        38
      Rural economic development loans.........................     23.02          3        15     26.07          6        23     24.16          4        15
      P.L. 480.................................................     82.46        120       145     71.51        113       159     81.73        114       139

    Commerce:
      Fisheries finance........................................      1.00  .........        28      0.80          1        74    -12.45         -3        24

    Defense--Military:
      Defense vessel transfer program..........................  ........  .........  ........     18.12          4        21     17.49          4        21
      Family housing improvement fund..........................     51.27         32        62     58.59         79       136     22.33         52       233

    Education:
      Federal direct student loans.............................     -9.09     -1,442    15,854     -8.82     -1,796    20,363     -8.73     -1,564    17,948

    Housing and Urban Development:
      FHA-mutual mortgage insurance............................  ........  .........         3  ........  .........       250  ........  .........       250
      FHA-general and special risk.............................  ........  .........        50  ........  .........        50  ........  .........        50

    Interior:
      Bureau of Reclamation loans..............................     27.91         11        43     44.44          9        27     26.92          7        26
      Assistance to American Samoa.............................  ........  .........  ........     15.58          3        19       N/A  .........  ........

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

    Transportation:
      Minority business resource center........................     10.00          2        14       N/A  .........  ........       N/A  .........  ........
      Transportation infrastructure finance and innovation.....      5.74         52       765      5.69         84     1,475      4.97        109     2,200
      Railroad rehabilitation and improvement..................  ........  .........  ........  ........  .........       150  ........  .........       100

    Treasury:
      Community development financial institutions fund........     39.99          6        15     43.41          9        20     38.60          6        15

    Veterans Affairs:
      Veterans housing benefit program.........................      1.81         40     1,435      2.16         37     1,697     24.69         30       119
      Miscellaneous veterans housing loans.....................      7.72  .........         2      7.72  .........         3      7.72  .........         3
      Miscellaneous veterans programs..........................      2.23  .........         2      1.88  .........         3      2.18  .........         3

    Federal Emergency Management Agency:
      Disaster assistance loans................................      3.27          1        25      6.71          2        25  ........  .........        25

    General Services Administration:
      Columbia Hospital for Women..............................     42.85          6        14       N/A  .........  ........       N/A  .........  ........

    International Assistance Programs:
      Overseas Private Investment Corporation..................     11.00          5        45     11.00          5        45     11.00  .........        45

    Small Business Administration:
      Disaster assistance......................................     22.20        174       783     17.46         76       827     10.95  .........       150
      Business loans...........................................      8.54          2        27      8.95          2        34      6.78          2        21

    Other Independent Agencies:
      Export-Import Bank direct loans..........................      1.39         49     1,084     21.77         30       135     25.66         39       152
      Federal Communications Commission spectrum auction.......      8.25  .........         1       N/A  .........  ........       N/A  .........  ........
                                                                --------------------------------------------------------------------------------------------
        Total..................................................       N/A       -583    26,963       N/A       -818    32,846       N/A       -852    28,287
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    N/A = Not applicable.
    \1\ Additional information on credit subsidy rates is contained in the Federal Credit Supplement.

    [[Page 166]]

                                     Table 8-5.  LOAN GUARANTEE SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 2000-2002
                                                                    (in millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          2000 Actual                    2001 Enacted                  2002 Proposed
                                                                --------------------------------------------------------------------------------------------
                         Agency and Program                                 Subsidy                        Subsidy                        Subsidy
                                                                  Subsidy    budget     Loan     Subsidy    budget     Loan     Subsidy    budget     Loan
                                                                 rate \1\  authority    level   rate \1\  authority    level   rate \1\  authority    level
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Agriculture:
      Agricultural credit insurance fund.......................      3.37         90     2,674      2.12         49     2,313      4.20        126     3,000
      Commodity Credit Corporation export guarantees...........      6.80        209     3,081      8.04        305     3,792      6.80        266     3,904
      Rural community advancement program......................      2.21         27     1,219      0.77         21     2,985      1.95         25     1,285
      Rural electrification and telecommunications loans.......      0.01  .........        53      0.01  .........       100      0.08  .........       100
      Rural housing insurance fund.............................      0.61         20     3,300      0.31          9     3,236      1.36         44     3,238

    Commerce:
      Emergency steel guarantee................................     14.00  .........  ........     12.54  .........       516       N/A  .........  ........
      Emergency oil and gas guarantee..........................     24.50  .........  ........     34.79  .........         5       N/A  .........  ........

    Defense:
      Arms initiative..........................................      2.36  .........        18      0.05  .........        12       N/A  .........  ........
      Family housing improvement fund..........................      6.72         13       202      5.72         28       492      5.96         32       537

    Education:
      Federal family education loan............................     14.20      3,763    26,503     11.62      3,853    33,160     12.18      4,226    34,675

    Health and Human Services:
      Health center loan guarantees............................      5.20  .........         5      2.11          1        32      4.88          1        21

    Housing and Urban Development:
      Indian housing loan guarantee............................      8.13          1        15      8.13          6        72      2.47          6       234
      Title VI Indian Federal guarantees.......................     11.07  .........         2     11.07          6        55     11.07          6        53
      Community development loan guarantees....................      2.30         29     1,261      2.30         29     1,258      2.30         14       609
      FHA-mutual mortgage insurance............................     -1.99     -1,864   140,000     -2.15     -2,246   160,000     -2.07     -2,501   160,000
      FHA-general and special risk.............................      1.31        -62    18,100     -0.12         38    21,000     -1.45       -230    21,000

    Interior:
      Indian guaranteed loans..................................      7.54          4        60      6.73          4        60      6.00          4        75

    Transportation:
      Minority business resource center........................       N/A  .........  ........      2.69          2        14      2.70  .........        18
      Transportation infrastructure finance and innovation.....  ........  .........  ........      3.78          8       200      3.76          8       200
      Maritime guaranteed loans (title XI).....................      6.36         56       886      4.94         20       413      4.97  .........  ........

    Veterans Affairs:
      Veterans housing benefit program.........................      0.70        216    21,616      0.47        144    30,643      0.54        157    29,317
      Miscellaneous veterans housing loans.....................     48.25         45        93     48.25  .........        13     48.25  .........        20

    International Assistance Programs:
      USAID-micro and small enterprise development.............      4.76          2        50      4.94  .........        55  ........  .........  ........
      USAID-urban and environmental credit.....................     13.80          2        11     12.10  .........        16  ........  .........  ........
      USAID-development credit authority.......................      6.40          4  ........      7.04          8       133      7.04         25       355
      Overseas Private Investment Corporation..................      1.65         19     1,152      1.50         19     1,267      1.65  .........     1,152

    Small Business Administration:
      Business loans...........................................      1.20        142    13,152      1.08        163    16,187  ........  .........    17,575

    Other Independent Agencies:
      Export-Import Bank guarantees............................      7.90        925    11,705      7.45        983    13,181      6.32        716    11,335
      Presidio Trust...........................................      0.52  .........       200      0.46  .........       200      0.12  .........       200
                                                                --------------------------------------------------------------------------------------------
        Total..................................................       N/A      3,641   245,358       N/A      3,450   291,410       N/A      2,925   288,903

     ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS

    GNMA:
      Guarantees of mortgage-backed securities.................     -0.29       -312   200,000     -0.36       -356   200,000     -0.33       -354   200,000
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    N/A = Not applicable.
    \1\ Additional information on credit subsidy rates is contained in the Federal Credit Supplement.

    [[Page 167]]

                             Table 8-6.  SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES
                                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                     Actual                             Estimate
                                             -----------------------------------------------------------------------
                                                1995     1996     1997     1998     1999     2000     2001     2002
    ----------------------------------------------------------------------------------------------------------------
    Direct Loans:
        Obligations.........................     30.9     23.4     33.6     28.8     38.4     37.1     42.4     39.3
        Disbursements.......................     22.0     23.6     32.2     28.7     37.7     35.5     39.6     37.3
        New subsidy budget authority........  .......  .......  .......     -0.8      1.6     -0.4     -0.8     -0.8
        Reestimated subsidy budget authority  .......  .......  .......      7.3      1.0     -4.4    -12.4  .......
        Total subsidy budget authority \1\..      2.6      1.8      2.4      6.5      2.6     -4.8    -13.2     -0.8

    Loan Guarantees: \2\
        Commitments.........................    138.5    175.4    172.3    218.4    252.4    192.6    255.5    259.2
        Lender disbursements................    117.9    143.9    144.7    199.5    224.7    180.8    216.4    230.3
        New subsidy budget authority........  .......  .......  .......      3.3  .......      3.3      3.2      2.6
        Reestimated subsidy budget authority  .......  .......  .......     -0.7      4.3      0.3     -5.3  .......
        Total subsidy budget authority \1\..      4.6      4.0      3.6      2.6      4.3      3.6     -2.1      2.6
    ----------------------------------------------------------------------------------------------------------------
    \1\ Prior to 1998 new and reestimated subsidy budget authority were not separated.
    \2\ GNMA secondary guarantees of loans that are guaranteed by FHA, VA and RHS are excluded from the totals to
      avoid double-counting.

    [[Page 168]]

                                         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                                                                    -----------------------------------
                                                                                         2000        2001        2002        2000        2001        2002
                                                                                       actual      estimate    estimate    actual      estimate    estimate
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                  DIRECT LOAN WRITEOFFS

    Agriculture:
      Agricultural credit insurance fund............................................         249         247         230        2.73        2.85        2.86
      Rural community advancement program...........................................           2  ..........  ..........        0.04  ..........  ..........
      Rural electrification and telecommunications loans............................         159          33  ..........        0.50        0.10  ..........
      Rural development insurance fund..............................................           4           4           3        0.11        0.12        0.10
      Rural housing insurance fund..................................................          76          80          79        0.26        0.28        0.28

    Commerce:
      Economic development revolving fund...........................................  ..........           1           1  ..........        2.85        3.22

    Housing and Urban Development:
      Revolving fund (liquidating programs).........................................           5           3           2        3.16        2.40        2.10
      FHA--Mutual mortgage insurance................................................  ..........           2           3  ..........        2.24        1.31
      Guarantees of mortgage-backed securities......................................         212          45          16       90.59       51.72       28.07

    Interior:
      Indian direct loan............................................................           1           2           1        1.47        3.22        1.78

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

    Veterans Affairs:
      Veterans housing benefit program..............................................           6           6           8        0.33        0.30        0.35

    International Assistance Programs:
      Overseas Private Investment Corporation.......................................           2           1           1        3.22        1.85        1.85

    Small Business Administration:
      Disaster loans................................................................          90          99          41        1.42        1.93        1.10
      Business loans................................................................          50          48          18        7.22       10.41        5.27

    Other Independent Agencies:
      Tennessee Valley Authority....................................................           1           1           1        1.96        1.78        1.58
                                                                                     -----------------------------------------------------------------------
        Total, direct loan writeoffs................................................         858         573         405        0.42        0.26        0.17
                                                                                     -----------------------------------------------------------------------

                        GUARANTEED LOAN TERMINATIONS FOR DEFAULT

    Agriculture:
      Agricultural credit insurance fund............................................         124         118         121        1.48        1.19        1.05
      Commodity Credit Corporation export loans.....................................         208         380         334        3.48        5.99        5.43
      Rural community advancement program...........................................          84          73          50        2.66        1.66        0.80
      Rural electrification and telecommunications loans............................          27  ..........  ..........        5.54  ..........  ..........
      Rural development insurance fund..............................................          -1  ..........  ..........       -0.83  ..........  ..........
      Rural housing insurance fund..................................................          68          90         106        0.64        0.72        0.73

    Commerce:
      Emergency oil and gas guaranteed loan program.................................  ..........  ..........           2  ..........  ..........       50.00
      Emergency steel guaranteed loan program.......................................  ..........  ..........         103  ..........  ..........       22.19
      Fisheries Finance.............................................................           2           2           1        1.90        2.19        1.23

    Defense--Military:
      Family housing improvement fund...............................................  ..........           2           2  ..........        4.76        1.75

    Education:
      Federal family education loan.................................................       2,677       3,570       4,131        1.94        2.40        2.64

    Health and Human Services:
      Health education assistance loans.............................................          23          40          44        0.80        1.45        1.68
      Health center loan guarantees.................................................           4  ..........  ..........      100.00  ..........  ..........

    Housing and Urban Development:
      Indian housing loan guarantee.................................................  ..........  ..........           1  ..........  ..........        1.21
      FHA--Mutual mortgage insurance................................................       5,667       6,176       5,734        1.31        1.28        1.07
      FHA--General and special risk.................................................       1,341       1,510       1,585        1.40        1.51        1.55

    Interior:
      Indian guaranteed loan........................................................  ..........           1           2  ..........        0.47        0.80

    Transportation:
      Maritime guaranteed loan (Title XI)...........................................          59          68  ..........        1.57        1.59  ..........

    Veterans Affairs:
      Veterans housing benefit program..............................................       2,256       2,542       2,927        1.01        1.10        1.22

    [[Page 169]]

    International Assistance Programs:
      Foreign military financing....................................................           1           3           5        0.02        0.06        0.12
      Micro and small enterprise development........................................           1           1           1        1.88        1.40        1.16
      Urban and environmental credit program........................................          32          42          48        1.41        1.98        2.48
      Development credit authority..................................................  ..........           1           1  ..........        1.85        0.63
      Overseas Private Investment Corporation.......................................          92          58          50        3.00        1.78        1.43

    Small Business Administration:
      Business loans................................................................         707         684         692        1.93        2.17        2.26
      Pollution control equipment...................................................           7           8           6       16.66       22.85       21.42

    Other Independent Agencies:
      Export-Import Bank............................................................         454         364         464        1.64        1.14        1.38
                                                                                     -----------------------------------------------------------------------
        Total, guaranteed loan terminations for default.............................      13,833      15,733      16,410        0.86        0.92        0.91
                                                                                     -----------------------------------------------------------------------
        Total, direct loan writeoffs and guaranteed loan terminations...............      14,691      16,306      16,815        0.81        0.85        0.83
                                                                                     =======================================================================

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

    Education:
      Federal family education loan.................................................         604         579         592        2.64        2.66        2.75

    Health and Human Services:
      Health education assistance loans.............................................          16          16          16        2.94        2.85        2.75

    Housing and Urban Development:
      FHA--Mutual mortgage insurance................................................          42          19          43       10.79       20.43      119.44
      FHA--General and special risk.................................................         149         323         687        6.09       15.10       54.30

    Interior:
      Indian guaranteed loan........................................................           1           1           2        1.49        1.58        3.27

    Transportation:
      Federal ship financing fund...................................................  ..........          17  ..........  ..........      212.50  ..........

    Veterans Affairs:
      Veterans housing benefit program..............................................         182          52          72       34.14       14.81       15.89

    Small Business Administration:
      Business loans................................................................         245         124          61       11.48        5.64        2.54
                                                                                     -----------------------------------------------------------------------
        Total, writeoffs of loans receivable........................................       1,239       1,131       1,473        3.62        3.47        4.59
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Average of loans outstanding for the year.

    [[Page 170]]

                          Table 8-8. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS \1\
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                     Estimate
                                 Agency and Program                                  2000    -----------------------
                                                                                   Actual        2001        2002
    ----------------------------------------------------------------------------------------------------------------
                               DIRECT LOAN OBLIGATIONS

    Agriculture:
      Apple loans...............................................................  ..........         100  ..........
      Agricultural credit insurance fund........................................       1,770         780         855
      Emergency boll weevil.....................................................  ..........          10  ..........
      Distance learning and telemedicine........................................         200         400         300
      Rural electrification and telecommunications..............................       2,559       3,010       3,010
      Rural telephone bank......................................................         175         175  ..........
      Rural water and waste disposal direct loans...............................         739         879         809
      Rural housing insurance fund..............................................       1,399       1,265       1,261
      Rural community facility direct loans.....................................         161         419         249
      Rural economic development................................................          15          15          15
      Rural development loan fund...............................................          38          38          38
      Rural business and industry direct loans..................................          50          50  ..........
      P.L. 480 direct credit....................................................         145         159         139

    Commerce:
      Fisheries finance.........................................................          28          74          24

    Education:
      Historically black college and university capital financing...............         346         311         281

    Housing and Urban Development:
      FHA-general and special risk..............................................          50          50          50
      FHA-mutual mortgage insurance.............................................         100         250         250

    Interior:
      Bureau of Reclamation.....................................................          43          27          26
      Assistance to American Samoa..............................................  ..........          19  ..........

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

    Transportation:
      Minority business resource center.........................................          14  ..........  ..........
      Transportation infrastructure finance and innovation program..............       1,600       1,800       2,000
      Transportation infrastructure finance and innovation program line of               200         200         200
       credit...................................................................

    Treasury:
      Community development financial institutions fund.........................          53          53          15

    Veterans Affairs:
      Miscellaneous veterans programs loan fund.................................           2           3           3

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

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

    International Assistance Programs:
      Military debt reduction...................................................          10  ..........  ..........
                                                                                 -----------------------------------
        Total, limitations on direct loan obligations...........................       9,737      10,113       9,551
                                                                                 -----------------------------------

                             LOAN GUARANTEE COMMITMENTS

    Agriculture:
      Agricultural credit insurance fund........................................       3,778       2,318       3,000
      Rural electrification and telecommunications guaranteed loans.............          53         100         100
      Rural water and waste water disposal guaranteed loans.....................          75          75          75
      Rural housing insurance fund..............................................       3,300       3,236       3,238
      Rural community facility guaranteed loans.................................         210         210         210
      Rural business and industry guaranteed loans..............................         892       2,700       1,000

    Commerce:
      Emergency oil and gas.....................................................         500         500         495
      Emergency steel...........................................................       1,000       1,000         484

    Defense--Military:
      Defense export loan guarantee.............................................      14,980      14,980      14,980
      Arms initiative...........................................................          18          12  ..........

    Health and Human Services:
      Health center.............................................................           5          32          21

    [[Page 171]]

    Housing and Urban Development:
      Indian housing loan guarantee fund........................................         135          72         234
      Title VI Indian Federal guarantees........................................          55          55          53
      Community development loan guarantees.....................................       1,261       1,258         609
      America's private investment companies....................................         541  ..........  ..........
      FHA-general and special risk..............................................      18,100      21,000      21,000
      FHA-loan guarantee recovery fund..........................................           7           4  ..........
      FHA-mutual mortgage insurance.............................................     140,000     160,000     160,000

    Interior:
      Indian guaranteed loan program............................................          60          60          75

    Transportation:
      Minority business resource center.........................................  ..........          14          18
      Transportation infrastructure finance and innovation program loan           ..........         200         200
       guarantee................................................................
      Maritime guaranteed loan (title XI).......................................       1,000  ..........  ..........

    Small Business Administration:
      Business..................................................................      14,874      16,187      17,575

    Other Independent Agencies:
      Presidio Trust............................................................         200         200         200
                                                                                 -----------------------------------
        Total, limitations on loan guarantee commitments........................     201,044     224,213     223,567
                                                                                 ===================================

             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 172]]

                              Table 8-9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
                                                (in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                    Estimate
                                Agency and Account                                 2000    -------------------------
                                                                                 Actual         2001         2002
    ----------------------------------------------------------------------------------------------------------------
                            Department of Agriculture

                               Farm Service Agency

    Agricultural credit insurance fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -750         -710         -638
       Outstandings..........................................................       5,067        4,357        3,719

    Farm storage facility direct loan financing account:
       Obligations...........................................................          80          175          125
       Loan disbursements....................................................          32          174          126
       Change in outstandings................................................          32          163           90
       Outstandings..........................................................          32          195          285

    Apple loans direct loan financing account:
       Obligations...........................................................  ...........         100   ...........
       Loan disbursements....................................................  ...........         100   ...........
       Change in outstandings................................................  ...........         100          -33
       Outstandings..........................................................  ...........         100           67

    Agricultural credit insurance fund direct loan financing account:
       Obligations...........................................................       1,770          780          855
       Loan disbursements....................................................       1,149          780          855
       Change in outstandings................................................         466           49           39
       Outstandings..........................................................       3,909        3,958        3,997

    Emergency boll weevil direct loan financing account:
       Obligations...........................................................  ...........          10   ...........
       Loan disbursements....................................................  ...........          10   ...........
       Change in outstandings................................................  ...........          10           -1
       Outstandings..........................................................  ...........          10            9

    Commodity Credit Corporation fund:
       Obligations...........................................................       9,691        8,689        9,171
       Loan disbursements....................................................       9,691        8,689        9,171
       Change in outstandings................................................         618       -1,226         -443
       Outstandings..........................................................       3,464        2,238        1,795

                             Rural Utilities Service

    Rural communication development fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -1           -1           -1
       Outstandings..........................................................           6            5            4

    Distance learning and telemedicine direct loan financing account:
       Obligations...........................................................           6          400          300
       Loan disbursements....................................................           1           32          113
       Change in outstandings................................................           1           29          102
       Outstandings..........................................................           2           31          133

    Rural development insurance fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           1   ...........  ...........
       Change in outstandings................................................        -201         -191         -179
       Outstandings..........................................................       3,269        3,078        2,899

    Rural electrification and telecommunications direct loan financing
     account:
       Obligations...........................................................       2,559        3,010        3,010
       Loan disbursements....................................................       1,390        1,856        2,207
       Change in outstandings................................................       1,182        1,673        1,985
       Outstandings..........................................................       7,131        8,804       10,789

    Rural telephone bank direct loan financing account:
       Obligations...........................................................         175          175   ...........
       Loan disbursements....................................................          31          116          129
       Change in outstandings................................................          22          105          115
       Outstandings..........................................................         268          373          488

    [[Page 173]]

    Rural water and waste disposal direct loans financing account:
       Obligations...........................................................         765          885          809
       Loan disbursements....................................................         668          740          800
       Change in outstandings................................................         597          684          734
       Outstandings..........................................................       3,942        4,626        5,360

    Rural electrification and telecommunications liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          18           19           18
       Change in outstandings................................................      -2,134       -1,996       -1,786
       Outstandings..........................................................      23,733       21,737       19,951

    Rural telephone bank liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          12            8            7
       Change in outstandings................................................         -62         -114          -71
       Outstandings..........................................................         924          810          739

                              Rural Housing Service

    Rural housing insurance fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................      -1,007         -954         -897
       Outstandings..........................................................      17,366       16,412       15,515

    Rural housing insurance fund direct loan financing account:
       Obligations...........................................................       1,321        1,326        1,261
       Loan disbursements....................................................       1,241        1,283        1,283
       Change in outstandings................................................         873          795          717
       Outstandings..........................................................      11,053       11,848       12,565

    Rural community facility direct loans financing account:
       Obligations...........................................................         199          422          249
       Loan disbursements....................................................         154          209          264
       Change in outstandings................................................         117          184          232
       Outstandings..........................................................         864        1,048        1,280

                       Rural Business--Cooperative Service

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

    Rural economic development direct loan financing account:
       Obligations...........................................................          15           23           15
       Loan disbursements....................................................          12           15           19
       Change in outstandings................................................           3            4            6
       Outstandings..........................................................          69           73           79

    Rural development loan fund direct loan financing account:
       Obligations...........................................................          38           44           38
       Loan disbursements....................................................          42           42           43
       Change in outstandings................................................          35           34           34
       Outstandings..........................................................         282          316          350

    Rural business and industry direct loans financing account:
       Obligations...........................................................          30           50   ...........
       Loan disbursements....................................................          24           38           30
       Change in outstandings................................................          21           35           26
       Outstandings..........................................................          59           94          120

    Rural development loan fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........           1   ...........
       Change in outstandings................................................          -3           -2           -3
       Outstandings..........................................................          70           68           65

    [[Page 174]]

                           Foreign Agricultural Service

    Expenses, Public Law 480, foreign assistance programs, Agriculture
     liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -268         -954         -235
       Outstandings..........................................................       8,542        7,588        7,353

    P.L. 480 direct credit financing account:
       Obligations...........................................................         145          159          139
       Loan disbursements....................................................         133          443          180
       Change in outstandings................................................         128          431          169
       Outstandings..........................................................       2,055        2,486        2,655

    P.L. 480 title I food for progress credits, financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -4          -57          -57
       Outstandings..........................................................         504          447          390

    Debt reduction--financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........          84           60
       Change in outstandings................................................          -6           79           52
       Outstandings..........................................................          57          136          188

                              Department of Commerce

                       Economic Development Administration

    Economic development revolving fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -6           -4           -4
       Outstandings..........................................................          37           33           29

                 National Oceanic and Atmospheric Administration

    Fisheries finance direct loan financing account:
       Obligations...........................................................          28           74           24
       Loan disbursements....................................................          19           74           24
       Change in outstandings................................................           8           59            7
       Outstandings..........................................................         137          196          203

                         Department of Defense--Military

                            Operation and Maintenance

    Defense vessel transfer program financing account:
       Obligations...........................................................  ...........          21           21
       Loan disbursements....................................................  ...........          21           21
       Change in outstandings................................................  ...........          19           15
       Outstandings..........................................................  ...........          19           34

                                  Family Housing

    Family housing improvement direct loan financing account:
       Obligations...........................................................          32          143          233
       Loan disbursements....................................................  ...........          11           51
       Change in outstandings................................................  ...........          11           51
       Outstandings..........................................................  ...........          11           62

                             Department of Education

                        Office of Postsecondary Education

    College housing and academic facilities loans liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           4   ...........  ...........
       Change in outstandings................................................         -39          -39          -34
       Outstandings..........................................................         484          445          411

    College housing and academic facilities loans financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           3   ...........  ...........
       Change in outstandings................................................           3           -1           -1
       Outstandings..........................................................          26           25           24

    [[Page 175]]

    Historically black college and university capital financing direct loan
     financing account:
       Obligations...........................................................          35           30           30
       Loan disbursements....................................................          10            9           15
       Change in outstandings................................................          10            9           14
       Outstandings..........................................................          21           30           44

                      Office of Student Financial Assistance

    Student financial assistance:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          25           25           25
       Change in outstandings................................................          -6          -17          -13
       Outstandings..........................................................         394          377          364

    Federal direct student loan program financing account:
       Obligations...........................................................      15,854       20,363       17,948
       Loan disbursements....................................................      16,383       19,027       16,539
       Change in outstandings................................................      12,738       16,364       12,776
       Outstandings..........................................................      57,713       74,077       86,853

                               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................................................          -4           -8           -3
       Outstandings..........................................................          11            3   ...........

                   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..........................................................       1,350        1,279        1,208

                        Community Planning and Development

    Revolving fund (liquidating programs):
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................         -33          -33          -27
       Outstandings..........................................................         142          109           82

    Community development loan guarantees liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........  ...........  ...........
       Outstandings..........................................................          13           13           13

                                 Housing Programs

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

    Flexible subsidy fund:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          17           20           12
       Change in outstandings................................................         -58          -55          -63
       Outstandings..........................................................         703          648          585

    [[Page 176]]

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

    FHA-general and special risk insurance funds liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................         -24          -24          -10
       Outstandings..........................................................          44           20           10

    FHA-general and special risk direct loan financing account:
       Obligations...........................................................  ...........           4            4
       Loan disbursements....................................................  ...........           4            4
       Change in outstandings................................................  ...........           3   ...........
       Outstandings..........................................................           1            4            4

    Housing for the elderly or handicapped fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           6            5            5
       Change in outstandings................................................        -120         -146         -182
       Outstandings..........................................................       7,923        7,777        7,595

    FHA-mutual mortgage insurance direct loan financing account:
       Obligations...........................................................           3          250          250
       Loan disbursements....................................................           3          248          245
       Change in outstandings................................................          -3          177          105
       Outstandings..........................................................  ...........         177          282

                     Government National Mortgage Association

    Guarantees of mortgage-backed securities liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          42           38            2
       Change in outstandings................................................        -251          -44          -16
       Outstandings..........................................................         109           65           49

                            Department of the Interior

                              Bureau of Reclamation

    Bureau of Reclamation loan liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -3           -4           -4
       Outstandings..........................................................          63           59           55

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

    Bureau of Reclamation direct loan financing account:
       Obligations...........................................................          26           22           26
       Loan disbursements....................................................          21           33           29
       Change in outstandings................................................          20           31           27
       Outstandings..........................................................         166          197          224

                              National Park Service

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

                             Bureau of Indian Affairs

    Revolving fund for loans liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -5           -3           -4
       Outstandings..........................................................          39           36           32

    [[Page 177]]

    Indian direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -1           -3           -3
       Outstandings..........................................................          27           24           21

                                 Insular Affairs

    Payments to the United States territories, fiscal assistance:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -1           -2           -2
       Outstandings..........................................................          15           13           11

    Assistance to American Samoa direct loan financing account:
       Obligations...........................................................  ...........          19   ...........
       Loan disbursements....................................................  ...........          16            3
       Change in outstandings................................................  ...........          15            2
       Outstandings..........................................................  ...........          15           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...........................................................           3   ...........  ...........
       Loan disbursements....................................................           3            4   ...........
       Change in outstandings................................................  ...........  ...........          -4
       Outstandings..........................................................           7            7            3

                          Federal Highway Administration

    Transportation infrastructure finance and innovation program direct loan
     financing account:
       Obligations...........................................................       1,496        1,800        2,000
       Loan disbursements....................................................         300          239          599
       Change in outstandings................................................         300          239          599
       Outstandings..........................................................         300          539        1,138

    Transportation infrastructure finance and innovation program line of
     credit financing account:
       Obligations...........................................................          30          200          200
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........  ...........  ...........
       Outstandings..........................................................  ...........  ...........  ...........

    Right-of-way revolving fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          20           10           10
       Change in outstandings................................................         -26          -14          -14
       Outstandings..........................................................         129          115          101

                         Federal Railroad Administration

    Amtrak corridor improvement loans liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........          -1           -1
       Outstandings..........................................................           5            4            3
    Alameda corridor direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          88         -488   ...........
       Outstandings..........................................................         488   ...........  ...........

    [[Page 178]]

    Railroad rehabilitation and improvement liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -4           -4           -4
       Outstandings..........................................................          49           45           41

    Railroad rehabilitation and improvement direct loan financing account:
       Obligations...........................................................           4          150          100
       Loan disbursements....................................................  ...........         150          100
       Change in outstandings................................................  ...........         150           92
       Outstandings..........................................................           4          154          246

                            Department of the Treasury

                               Departmental Offices

    Community development financial institutions fund direct loan financing
     account:
       Obligations...........................................................          15           20           15
       Loan disbursements....................................................           4            7            3
       Change in outstandings................................................           4            6            1
       Outstandings..........................................................          15           21           22

                          Department of Veterans Affairs

                         Veterans Benefits Administration

    Veterans housing benefit program fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          12            9            8
       Change in outstandings................................................        -153          -16          -14
       Outstandings..........................................................         164          148          134

    Veterans housing benefit program fund direct loan financing account:
       Obligations...........................................................       1,435        1,697        1,710
       Loan disbursements....................................................       1,435        1,697        1,710
       Change in outstandings................................................         -44          504           98
       Outstandings..........................................................       1,556        2,060        2,158

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

                         Environmental Protection Agency

                         Environmental Protection Agency

    Abatement, control, and compliance direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -5           -5           -4
       Outstandings..........................................................          46           41           37

                       Federal Emergency Management Agency

                       Federal Emergency Management Agency

    Disaster assistance direct loan liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........         -29   ...........
       Change in outstandings................................................          -8          -29   ...........
       Outstandings..........................................................          29   ...........  ...........

    Disaster assistance direct loan financing account:
       Obligations...........................................................  ...........          25           25
       Loan disbursements....................................................  ...........          54           25
       Change in outstandings................................................         -12           52           13
       Outstandings..........................................................         136          188          201

    [[Page 179]]

                         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           14

                        International Assistance Programs

                        International Security Assistance

    Foreign military loan liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           8           10           12
       Change in outstandings................................................        -582         -456         -394
       Outstandings..........................................................       4,223        3,767        3,373

    Foreign military financing direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................         418          579          326
       Change in outstandings................................................         105          206         -127
       Outstandings..........................................................       1,770        1,976        1,849

    Military debt reduction financing account:
       Obligations...........................................................          10   ...........  ...........
       Loan disbursements....................................................          10   ...........  ...........
       Change in outstandings................................................           9   ...........  ...........
       Outstandings..........................................................          19           19           19

                       Agency for International Development

    Economic assistance loans liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -700       -1,003         -786
       Outstandings..........................................................       9,960        8,957        8,171

    Debt reduction financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........         155          133
       Change in outstandings................................................         -52           94           76
       Outstandings..........................................................         165          259          335

    Private sector revolving fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........  ...........  ...........
       Outstandings..........................................................           1            1            1

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

                     Overseas Private Investment Corporation

    Overseas Private Investment Corporation liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -1           -1   ...........
       Outstandings..........................................................           1   ...........  ...........

    Overseas Private Investment Corporation direct loan financing account:
       Obligations...........................................................         104          127          180
       Loan disbursements....................................................           4           23           38
       Change in outstandings................................................          -8           -5            4
       Outstandings..........................................................          57           52           56

    [[Page 180]]

                          Small Business Administration

                          Small Business Administration

    Business direct loan financing account:
       Obligations...........................................................          30           60           25
       Loan disbursements....................................................         -15           48           18
       Change in outstandings................................................         -33           33            3
       Outstandings..........................................................          60           93           96

    Disaster direct loan financing account:
       Obligations...........................................................         221          951          300
       Loan disbursements....................................................         942          947          485
       Change in outstandings................................................        -446       -1,022       -1,100
       Outstandings..........................................................       5,212        4,190        3,090

    Disaster loan fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -382         -554         -103
       Outstandings..........................................................         685          131           28

    Business loan fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          20           22           18
       Change in outstandings................................................        -263         -199          -78
       Outstandings..........................................................         485          286          208

                            Other Independent Agencies

                     Export-Import Bank of the United States

    Export-Import Bank of the United States liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -709         -906         -373
       Outstandings..........................................................       4,460        3,554        3,181

    Debt reduction financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           7           26           24
       Change in outstandings................................................          -6           25           23
       Outstandings..........................................................         102          127          150

    Export-Import Bank direct loan financing account:
       Obligations...........................................................         933          135          152
       Loan disbursements....................................................       1,123        1,458        1,513
       Change in outstandings................................................         413          720          697
       Outstandings..........................................................       6,666        7,386        8,083

               Farm Credit System Financial Assistance Corporation

    Financial Assistance Corporation assistance fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................         -17          -15          -15
       Outstandings..........................................................         883          868          853

                        Federal Communications Commission

    Spectrum auction direct loan financing account:
       Obligations...........................................................           1   ...........  ...........
       Loan disbursements....................................................           1   ...........  ...........
       Change in outstandings................................................         -66          -38          -38
       Outstandings..........................................................       8,177        8,139        8,101

                                  Bank Insurance
                                 FSLIC Resolution

    FSLIC resolution fund:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -7           -4   ...........
       Outstandings..........................................................           4   ...........  ...........

    [[Page 181]]

                       National Credit Union Administration
    Community development credit union revolving loan fund:
       Obligations...........................................................          11           11           11
       Loan disbursements....................................................           5            3            3
       Change in outstandings................................................           3   ...........  ...........
       Outstandings..........................................................          11           11           11

                            Tennessee Valley Authority

    Tennessee Valley Authority fund:
       Obligations...........................................................          15           21           21
       Loan disbursements....................................................          15           21           21
       Change in outstandings................................................           4            7            6
       Outstandings..........................................................          53           60           66
                                                                              --------------------------------------
    Subtotal, direct loan transactions:
       Obligations...........................................................      37,099       42,378       39,254
       Loan disbursements....................................................      35,463       39,610       37,333
       Change in outstandings................................................       9,227       11,676       11,075
       Outstandings..........................................................     208,061      219,737      230,812
                                                                              --------------------------------------
      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........................................................         208          380          334
       Change in outstandings................................................         128          355          290
       Outstandings..........................................................         464          819        1,109

    Commodity Credit Corporation guaranteed loans liquidating account:
       Claim payments........................................................  ...........  ...........  ...........
       Change in outstandings................................................         -79         -152         -164
       Outstandings..........................................................       4,131        3,979        3,815

                       Rural Business--Cooperative Service

    Rural business and industry guaranteed loans financing account:
       Claim payments........................................................          57           40   ...........
       Change in outstandings................................................          57           40   ...........
       Outstandings..........................................................          57           97           97

                              Department of Commerce

                 National Oceanic and Atmospheric Administration

    Federal ship financing fund fishing vessels liquidating account:
       Claim payments........................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........          -2           -2
       Outstandings..........................................................          14           12           10

                             Department of Education

                      Office of Student Financial Assistance

    Federal family education loan liquidating account:
       Claim payments........................................................         284          116           73
       Change in outstandings................................................      -1,351         -956         -798
       Outstandings..........................................................      16,558       15,602       14,804

    Federal family education loan program financing account:
       Claim payments........................................................       2,082        3,027        3,589
       Change in outstandings................................................        -440          572          819
       Outstandings..........................................................       5,343        5,915        6,734

                     Department of Health and Human Services

                   Health Resources and Services Administration

    Health education assistance loans financing account:
       Claim payments........................................................          15           27           31
       Change in outstandings................................................          15           23           26
       Outstandings..........................................................          53           76          102

    [[Page 182]]

    Health education assistance loans liquidating account:
       Claim payments........................................................          24           25           24
       Change in outstandings................................................           4           -5           -6
       Outstandings..........................................................         500          495          489

                   Department of Housing and Urban Development

                                 Housing Programs

    FHA-mutual mortgage and cooperative housing insurance funds liquidating
     account:
       Claim payments........................................................          20           50          148
       Change in outstandings................................................        -224           -7           -6
       Outstandings..........................................................          46           39           33

    FHA-general and special risk insurance funds liquidating account:
       Claim payments........................................................         457          208          211
       Change in outstandings................................................          70         -698         -950
       Outstandings..........................................................       1,960        1,262          312

    FHA-general and special risk guaranteed loan financing account:
       Claim payments........................................................         226          462          526
       Change in outstandings................................................          61          -48          -51
       Outstandings..........................................................         552          504          453

    FHA-mutual mortgage insurance guaranteed loan financing account:
       Claim payments........................................................          55          360          588
       Change in outstandings................................................        -258         -102   ...........
       Outstandings..........................................................         102   ...........  ...........

                            Department of the Interior

                             Bureau of Indian Affairs

    Indian loan guaranty and insurance fund liquidating account:
       Claim payments........................................................  ...........           1            1
       Change in outstandings................................................          -2           -1           -3
       Outstandings..........................................................          27           26           23

    Indian guaranteed loan financing account:
       Claim payments........................................................  ...........           1            2
       Change in outstandings................................................          -4   ...........           1
       Outstandings..........................................................          37           37           38

                           Department of Transportation

                             Maritime Administration

    Federal ship financing fund liquidating account:
       Claim payments........................................................  ...........  ...........  ...........
       Change in outstandings................................................          -3          -17   ...........
       Outstandings..........................................................          17   ...........  ...........

    Maritime guaranteed loan (title XI) financing account:
       Claim payments........................................................          32           30   ...........
       Change in outstandings................................................          32           30   ...........
       Outstandings..........................................................          32           62           62

                          Department of Veterans Affairs

                         Veterans Benefits Administration

    Veterans housing benefit program fund liquidating account:
       Claim payments........................................................          27           36           35
       Change in outstandings................................................        -288   ...........  ...........
       Outstandings..........................................................         286          286          286

    Veterans housing benefit program fund guaranteed loan financing account:
       Claim payments........................................................         177          140          145
       Change in outstandings................................................        -188          113           90
       Outstandings..........................................................           9          122          212

                        International Assistance Programs

                        International Security Assistance

    Foreign military loan liquidating account:
       Claim payments........................................................          27            8           31
       Change in outstandings................................................           1          -14           28
       Outstandings..........................................................          14   ...........          28

    [[Page 183]]

                       Agency for International Development

    Housing and other credit guaranty programs liquidating account:
       Claim payments........................................................          32           38           44
       Change in outstandings................................................           8           -1           38
       Outstandings..........................................................         508          507          545

    Microenterprise and small enterprise development guaranteed loan
     financing account:
       Claim payments........................................................           1            1            1
       Change in outstandings................................................           1            1            1
       Outstandings..........................................................           4            5            6

                     Overseas Private Investment Corporation

    Overseas Private Investment Corporation liquidating account:
       Claim payments........................................................          13            8            5
       Change in outstandings................................................          12            3   ...........
       Outstandings..........................................................          24           27           27

    Overseas Private Investment Corporation guaranteed loan financing
     account:
       Claim payments........................................................          79           50           45
       Change in outstandings................................................          13           20           31
       Outstandings..........................................................          30           50           81

                          Small Business Administration

                          Small Business Administration

    Pollution control equipment fund liquidating account:
       Claim payments........................................................           1            1            1
       Change in outstandings................................................           1            1            1
       Outstandings..........................................................          49           50           51

    Business guaranteed loan financing account:
       Claim payments........................................................         681          656          670
       Change in outstandings................................................          64          194          258
       Outstandings..........................................................         817        1,011        1,269

    Business loan fund liquidating account:
       Claim payments........................................................          26           28           22
       Change in outstandings................................................         -58          -78           22
       Outstandings..........................................................       1,320        1,242        1,264
                                                                              --------------------------------------
    Subtotal, defaulted guaranteed loans that result in a loan receivable:
       Claim payments........................................................       4,524        5,693        6,526
       Change in outstandings................................................      -2,428         -729         -375
       Outstandings..........................................................      32,954       32,225       31,850
                                                                              ======================================
    Total:
       Obligations...........................................................      37,099       42,378       39,254
       Loan disbursements....................................................      39,987       45,303       43,859
       Change in outstandings................................................       6,799       10,947       10,700
       Outstandings..........................................................     241,015      251,962      262,662
    ----------------------------------------------------------------------------------------------------------------

    [[Page 184]]

                           Table 8-10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
                                                (in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                   Estimate
                              Agency and Account                                2000     ---------------------------
                                                                              Actual          2001          2002
    ----------------------------------------------------------------------------------------------------------------
                           Department of Agriculture

                              Farm Service Agency

    Agricultural credit insurance fund liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................        -123          -102           -67
       Outstandings.......................................................         471           369           302

    Agricultural credit insurance fund guaranteed loan financing account:
       Commitments........................................................       3,778         2,318         3,000
       New guaranteed loans...............................................       2,591         2,700         2,879
       Change in outstandings.............................................       1,578         1,647         1,786
       Outstandings.......................................................       8,601        10,248        12,034

    Commodity Credit Corporation export guarantee financing account:
       Commitments........................................................       3,081         3,792         3,904
       New guaranteed loans...............................................       2,844         3,792         3,904
       Change in outstandings.............................................       1,011          -297           -74
       Outstandings.......................................................       6,483         6,186         6,112

                    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.............................................  ............  ............  ............
       Outstandings.......................................................           4             4             4

    Rural development insurance fund liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................           1    ............  ............
       Change in outstandings.............................................         -22           -24           -18
       Outstandings.......................................................         109            85            67

    Rural electrification and telecommunications guaranteed loans
     financing account:
       Commitments........................................................          53           100           100
       New guaranteed loans...............................................         152            52           105
       Change in outstandings.............................................         152            50           102
       Outstandings.......................................................         168           218           320

    Rural water and waste water disposal guaranteed loans financing
     account:
       Commitments........................................................          11            75            75
       New guaranteed loans...............................................          13            12            43
       Change in outstandings.............................................           6             4            41
       Outstandings.......................................................          19            23            64

    Rural electrification and telecommunications liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -27           -25           -24
       Outstandings.......................................................         382           357           333

                             Rural Housing Service

    Rural housing insurance fund liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................          -3            -2            -2
       Outstandings.......................................................          20            18            16

    Rural housing insurance fund guaranteed loan financing account:
       Commitments........................................................       2,250         3,267         3,238
       New guaranteed loans...............................................       2,243         2,870         3,004
       Change in outstandings.............................................       1,527         2,023         2,017
       Outstandings.......................................................      11,299        13,322        15,339

    [[Page 185]]

    Rural community facility guaranteed loans financing account:
       Commitments........................................................          87           210           210
       New guaranteed loans...............................................          63           135           155
       Change in outstandings.............................................          31           122           137
       Outstandings.......................................................         225           347           484

                      Rural Business--Cooperative Service

    Rural business and industry guaranteed loans financing account:
       Commitments........................................................       1,008         2,793         1,000
       New guaranteed loans...............................................         967         2,091         1,777
       Change in outstandings.............................................         516         1,811         1,453
       Outstandings.......................................................       3,180         4,991         6,444

                            Department of Commerce

                            Departmental Management

    Emergency oil and gas guaranteed loan financing account:
       Commitments........................................................  ............           5    ............
       New guaranteed loans...............................................  ............           5    ............
       Change in outstandings.............................................  ............           5            -2
       Outstandings.......................................................  ............           5             3

    Emergency steel guaranteed loan financing account:
       Commitments........................................................  ............         516    ............
       New guaranteed loans...............................................  ............         516    ............
       Change in outstandings.............................................  ............         516          -103
       Outstandings.......................................................  ............         516           413

                      Economic Development Administration

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

                National Oceanic and Atmospheric Administration

    Fisheries finance guaranteed loan financing account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................          -8            -7            -6
       Outstandings.......................................................          54            47            41

    Federal ship financing fund fishing vessels liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................          -8            -4            -4
       Outstandings.......................................................          43            39            35

                        Department of Defense--Military

                           Operation and Maintenance

    Defense export loan guarantee financing account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................          -4            -4            -4
       Outstandings.......................................................          12             8             4

                                  Procurement

    Arms initiative guaranteed loan financing account:
       Commitments........................................................          18            12    ............
       New guaranteed loans...............................................          18            10             2
       Change in outstandings.............................................          18            10             1
       Outstandings.......................................................          28            38            39

                                Family Housing

    Family housing improvement guaranteed loan financing account:
       Commitments........................................................         202           492           537
       New guaranteed loans...............................................          29            29           118
       Change in outstandings.............................................          29            27           116
       Outstandings.......................................................          29            56           172

    [[Page 186]]

                            Department of Education

                    Office of Student Financial Assistance

    Federal family education loan liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................      -3,211        -3,049        -1,936
       Outstandings.......................................................      10,114         7,065         5,129

    Federal family education loan program financing account:
       Commitments........................................................      29,427        33,160        34,675
       New guaranteed loans...............................................      26,602        29,501        30,742
       Change in outstandings.............................................      16,105        11,504         9,298
       Outstandings.......................................................     134,111       145,615       154,913

                    Department of Health and Human Services

                 Health Resources and Services Administration

    Health education assistance loans financing account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -16           -28           -33
       Outstandings.......................................................       1,535         1,507         1,474

    Health education assistance loans liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -71           -91           -97
       Outstandings.......................................................       1,267         1,176         1,079

    Health center guaranteed loan financing account:
       Commitments........................................................           5            32            21
       New guaranteed loans...............................................           5            32            21
       Change in outstandings.............................................           1            32            21
       Outstandings.......................................................           5            37            58

    Medical facilities guarantee and loan fund:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -21           -21            -3
       Outstandings.......................................................          24             3    ............

                     Health Care Financing Administration

    Health maintenance organization loan and loan guarantee fund:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................          -2            -1    ............
       Outstandings.......................................................           1    ............  ............

                  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.............................................        -284          -284          -284
       Outstandings.......................................................       2,742         2,458         2,174

    Indian housing loan guarantee fund financing account:
       Commitments........................................................          15            23           234
       New guaranteed loans...............................................          18            18            18
       Change in outstandings.............................................          13            15            14
       Outstandings.......................................................          60            75            89

    Title VI Indian Federal guarantees financing account:
       Commitments........................................................           2            55            53
       New guaranteed loans...............................................           1            15            41
       Change in outstandings.............................................           1            14            38
       Outstandings.......................................................           1            15            53

    [[Page 187]]

                      Community Planning and Development

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

    Community development loan guarantees financing account:
       Commitments........................................................         412         1,258           609
       New guaranteed loans...............................................         322           500           400
       Change in outstandings.............................................         183           250           200
       Outstandings.......................................................       1,692         1,942         2,142

    Community development loan guarantees liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -27           -25           -23
       Outstandings.......................................................         107            82            59
                               Housing Programs

    FHA-mutual mortgage and cooperative housing insurance funds
     liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................      -8,247        -6,707        -5,407
       Outstandings.......................................................      47,619        40,912        35,505

    FHA-general and special risk insurance funds liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................      -3,144        -1,978        -2,710
       Outstandings.......................................................      29,761        27,783        25,073

    FHA-general and special risk guaranteed loan financing account:
       Commitments........................................................       9,308        17,381        15,522
       New guaranteed loans...............................................      12,507        15,175        15,732
       Change in outstandings.............................................       9,436         3,717         5,604
       Outstandings.......................................................      69,128        72,845        78,449

    FHA-loan guarantee recovery fund financing account:
       Commitments........................................................           3             4    ............
       New guaranteed loans...............................................           1             4             3
       Change in outstandings.............................................           1             4             3
       Outstandings.......................................................           3             7            10

    FHA-mutual mortgage insurance guaranteed loan financing account:
       Commitments........................................................      94,161       127,609       134,736
       New guaranteed loans...............................................      86,274       106,016       119,712
       Change in outstandings.............................................      46,352        66,970        47,674
       Outstandings.......................................................     401,960       468,930       516,604

                   Government National Mortgage Association

    Guarantees of mortgage-backed securities liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -10           -11           -12
       Outstandings.......................................................         146           135           123

    Guarantees of mortgage-backed securities financing account:
       Commitments........................................................     105,518        96,262       103,199
       New guaranteed loans...............................................     105,518        96,262       103,199
       Change in outstandings.............................................      33,429        17,518        11,580
       Outstandings.......................................................     602,741       620,259       631,839

                          Department of the Interior

                           Bureau of Indian Affairs

    Indian loan guaranty and insurance fund liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................          -3            -5            -8
       Outstandings.......................................................          29            24            16

    [[Page 188]]

    Indian guaranteed loan financing account:
       Commitments........................................................          60            60            75
       New guaranteed loans...............................................          52            60            75
       Change in outstandings.............................................          42            44            48
       Outstandings.......................................................         162           206           254

                         Department of Transportation

                            Office of the Secretary

    Minority business resource center guaranteed loan financing account:
       Commitments........................................................  ............          14            18
       New guaranteed loans...............................................  ............          14            18
       Change in outstandings.............................................  ............          14            11
       Outstandings.......................................................  ............          14            25

                        Federal Highway Administration

    Transportation infrastructure finance and innovation program loan
     guarantee financing account:
       Commitments........................................................  ............         200           200
       New guaranteed loans...............................................  ............  ............         200
       Change in outstandings.............................................  ............  ............         200
       Outstandings.......................................................  ............  ............         200

                            Maritime Administration

    Federal ship financing fund liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -73           -65           -60
       Outstandings.......................................................         248           183           123

    Maritime guaranteed loan (title XI) financing account:
       Commitments........................................................         886           620           200
       New guaranteed loans...............................................         886           620           200
       Change in outstandings.............................................         666           391            10
       Outstandings.......................................................       4,077         4,468         4,478

                        Department of Veterans Affairs

                       Veterans Benefits Administration

    Veterans housing benefit program fund liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................           1    ............  ............
       Change in outstandings.............................................      -4,898        -3,608        -2,632
       Outstandings.......................................................      12,740         9,132         6,500

    Veterans housing benefit program fund guaranteed loan financing
     account:
       Commitments........................................................      21,616        30,643        30,447
       New guaranteed loans...............................................      21,616        30,643        30,448
       Change in outstandings.............................................       7,917        14,076        12,293
       Outstandings.......................................................     211,568       225,644       237,937

    Miscellaneous veterans housing loans guaranteed loan financing
     account:
       Commitments........................................................  ............          13            20
       New guaranteed loans...............................................  ............          13            20
       Change in outstandings.............................................  ............          13            18
       Outstandings.......................................................  ............          13            31

                       International Assistance Programs

                       International Security Assistance

    Foreign military loan liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................        -374          -357          -350
       Outstandings.......................................................       4,551         4,194         3,844

                     Agency for International Development

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

    [[Page 189]]

    Development credit authority guaranteed loan financing account:
       Commitments........................................................         141           119           200
       New guaranteed loans...............................................           6           110           125
       Change in outstandings.............................................           6            96           111
       Outstandings.......................................................           6           102           213

    Housing and other credit guaranty programs liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -76          -208          -116
       Outstandings.......................................................       1,684         1,476         1,360

    Microenterprise and small enterprise development guaranteed loan
     financing account:
       Commitments........................................................          56            72    ............
       New guaranteed loans...............................................          44            36            36
       Change in outstandings.............................................          22            15            15
       Outstandings.......................................................          64            79            94

    Urban and environmental credit guaranteed loan financing account:
       Commitments........................................................          11            16    ............
       New guaranteed loans...............................................          37            16    ............
       Change in outstandings.............................................          11           -15           -34
       Outstandings.......................................................         545           530           496
                    Overseas Private Investment Corporation

    Overseas Private Investment Corporation liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................         -25           -39            -5
       Outstandings.......................................................          44             5    ............

    Overseas Private Investment Corporation guaranteed loan financing
     account:
       Commitments........................................................       1,152         1,267         1,152
       New guaranteed loans...............................................         426           500           525
       Change in outstandings.............................................         194           250           280
       Outstandings.......................................................       3,098         3,348         3,628

                         Small Business Administration

                         Small Business Administration

    Pollution control equipment fund liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................          -7            -8            -6
       Outstandings.......................................................          39            31            25

    Business guaranteed loan financing account:
       Commitments........................................................      13,152        16,187        17,575
       New guaranteed loans...............................................      12,149        10,488         9,111
       Change in outstandings.............................................      -5,028        -4,167         3,068
       Outstandings.......................................................      31,739        27,572        30,640

    Business loan fund liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................           1             1    ............
       Change in outstandings.............................................        -642          -432          -340
       Outstandings.......................................................       2,010         1,578         1,238

                          Other Independent Agencies

                    Export-Import Bank of the United States

    Export-Import Bank of the United States liquidating account:
       Commitments........................................................  ............  ............  ............
       New guaranteed loans...............................................  ............  ............  ............
       Change in outstandings.............................................        -110          -291          -240
       Outstandings.......................................................       1,104           813           573

    Export-Import Bank guaranteed loan financing account:
       Commitments........................................................      11,705        13,181        11,335
       New guaranteed loans...............................................      10,930        10,448        10,858
       Change in outstandings.............................................       4,527         4,251          -282
       Outstandings.......................................................      28,678        32,929        32,647

    [[Page 190]]

                     National Credit Union Administration

    Credit union share insurance fund:
       Commitments........................................................           4             6             4
       New guaranteed loans...............................................           4             3             4
       Change in outstandings.............................................           3             2            -2
       Outstandings.......................................................           4             6             4

                                Presidio Trust

    Presidio Trust guaranteed loan financing account:
       Commitments........................................................  ............  ............         100
       New guaranteed loans...............................................  ............  ............          50
       Change in outstandings.............................................  ............  ............          49
       Outstandings.......................................................  ............  ............          49
                                                                           -----------------------------------------
    Subtotal, Guaranteed loans (gross)
       Commitments........................................................     298,122       351,762       362,439
       New guaranteed loans...............................................     286,321       312,687       333,525
       Change in outstandings.............................................      97,310       103,535        81,304
       Outstandings.......................................................   1,645,785     1,749,320     1,830,624

    Less, secondary guaranteed loans: \1\

    GNMA guarantees of FmHA/VA/FHA pools:
       Commitments........................................................    -105,518       -96,262      -103,199
       New guaranteed loans...............................................    -105,518       -96,262      -103,199
       Change in outstandings.............................................     -33,419       -17,507       -11,568
       Outstandings.......................................................    -602,887      -620,394      -631,962
                                                                           =========================================
    Total, primary guaranteed loans: \2\
       Commitments........................................................     192,604       255,500       259,240
       New guaranteed loans...............................................     180,803       216,425       230,326
       Change in outstandings.............................................      63,891        86,028        69,736
       Outstandings.......................................................   1,042,898     1,128,926     1,198,662
    ----------------------------------------------------------------------------------------------------------------
    \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 191]]

                    Table 8-11. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs) \1\
                                                (in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                    Estimate
                                    Enterprise                                     2000    -------------------------
                                                                                 Actual         2001         2002
    ----------------------------------------------------------------------------------------------------------------
                                     LENDING

    Student Loan Marketing Association:
       Net change............................................................        -584       -5,380       -2,759
       Outstandings..........................................................      37,213       31,833       29,074

    Federal National Mortgage Association:
      Portfolio programs:
       Net change............................................................      68,971      105,638       99,358
       Outstandings..........................................................     587,600      693,238      792,596
      Mortgage-backed securities:
       Net change............................................................      31,807      106,111       92,254
       Outstandings..........................................................     706,104      812,215      904,469

    Federal Home Loan Mortgage Corporation:
      Portfolio programs:
       Net change............................................................      45,656       50,627       60,637
       Outstandings..........................................................     361,624      412,251      472,888
      Mortgage-backed securities:
       Net change............................................................      30,029       51,773       76,056
       Outstandings..........................................................     559,242      611,015      687,071

    Farm Credit System:
      Agricultural credit bank:
       Net change............................................................       1,178          482          674
       Outstandings..........................................................      19,270       19,752       20,426
      Farm credit banks:
       Net change............................................................         870        1,548        1,919
       Outstandings..........................................................      46,693       48,241       50,160
      Federal Agricultural Mortgage Corporation:
       Net change............................................................       1,261        1,576        1,106
       Outstandings..........................................................       3,318        4,894        6,000

    Federal Home Loan Banks:
       Net change............................................................      77,663        2,222        2,222
       Outstandings..........................................................     444,505      446,727      448,949
                                                                              --------------------------------------
    Subtotal GSE lending (gross):
       Net change............................................................     256,851      314,597      331,467
       Outstandings..........................................................   2,765,569    3,080,166    3,411,633

    Less guaranteed loans purchased by:
      Student Loan Marketing Association:
       Net change............................................................        -584       -5,380       -2,759
       Outstandings..........................................................      37,213       31,833       29,074
      Federal National Mortgage Association:
       Net change............................................................      10,825   ...........  ...........
       Outstandings..........................................................      62,935       62,935       62,935
      Other:
       Net change............................................................       1,037   ...........  ...........
       Outstandings..........................................................      21,831       21,831       21,831
                                                                              --------------------------------------
    Total GSE lending (net):
       Net change............................................................     245,573      319,977      334,226
       Outstandings..........................................................   2,643,590    2,963,567    3,297,793

                                    BORROWING

    Student Loan Marketing Association:
       Net Change............................................................         -90       -5,418       -2,600
       Outstandings..........................................................      41,501       36,083       33,483

    Federal National Mortgage Association:
      Portfolio programs:
       Net Change............................................................      82,159      103,992      101,399
       Outstandings..........................................................     607,039      711,031      812,430
      Mortgage-backed securities:
       Net Change............................................................      31,807      106,111       92,250
       Outstandings..........................................................     706,104      812,215      904,465

    [[Page 192]]

    Federal Home Loan Mortgage Corporation:
      Portfolio programs:
       Net Change............................................................      65,780       54,831       60,022
       Outstandings..........................................................     406,794      461,625      521,647
      Mortgage-backed securities:
       Net Change............................................................      30,029       51,773       76,056
       Outstandings..........................................................     559,242      611,015      687,071

    Farm Credit System:
      Agricultural credit bank:
       Net Change............................................................       1,503          524          734
       Outstandings..........................................................      20,971       21,495       22,229
      Farm credit banks:
       Net Change............................................................       2,032        1,453        1,865
       Outstandings..........................................................      52,115       53,568       55,433
      Federal Agricultural Mortgage Corporation:
       Net Change............................................................         288            9          204
       Outstandings..........................................................       2,861        2,870        3,074

    Federal Home Loan Banks:
       Net Change............................................................      99,585   ...........  ...........
       Outstandings..........................................................     577,057      577,057      577,057
                                                                              --------------------------------------
    Subtotal GSE borrowing (gross):
       Net change............................................................     313,093      313,275      329,930
       Outstandings..........................................................   2,973,684    3,286,959    3,616,889

    Less borrowing from other GSEs:
       Net Change............................................................      23,957   ...........  ...........
       Outstandings..........................................................     120,344      120,344      120,344
    Less purchase of Federal debt securities:
       Net Change............................................................         -43           28           28
       Outstandings..........................................................       1,620        1,648        1,676
    Less borrowing to purchase loans guaranteed by:
      Student Loan Marketing Association:
       Net Change............................................................        -584       -5,380       -2,759
       Outstandings..........................................................      37,213       31,833       29,074
      Federal National Mortgage Association:
       Net Change............................................................      10,825   ...........  ...........
       Outstandings..........................................................      62,935       62,935       62,935
      Other:
       Net Change............................................................       1,037   ...........  ...........
       Outstandings..........................................................      21,831       21,831       21,831
                                                                              ======================================
    Total GSE borrowing (net):
       Net change............................................................     277,901      318,627      332,661
       Outstandings..........................................................   2,729,741    3,048,368    3,381,029
    ----------------------------------------------------------------------------------------------------------------
    \1\ The estimates of borrowing and lending were developed by the GSEs based on certain assumptions but are
      subject to periodic review and revision and do not represent official GSE forecasts of future activity, 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.

    [[Page 193]]

                                       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     2000
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Total net lending in credit market..........     66.8     88.2    169.6    336.9    829.3    705.2    705.6    716.1    722.1    993.4  1,111.8    937.9

    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    245.6

    GSE lending participation rate (percent)....      1.8      5.6      3.1      6.4      7.0     16.4     17.8     19.8     15.6     29.5     25.5     26.2
    ========================================================================================================================================================
    Total net borrowing in credit market........     66.8     88.2    169.6    336.9    829.3    705.2    705.6    716.1    722.1    993.4  1,111.8    937.9

    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    277.9

    GSE borrowing participation rate (percent)..      2.1      5.9      3.2      7.2      7.3     12.8      9.7     35.7     14.9     36.6     31.2     29.6
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \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 2001 and 2002 are not available.

    [[Page 194]]

                                     Table 8-13. BORROWING BY FINANCING VEHICLES \1\
                                                (in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                    Estimate
                                Financing Vehicle                                  2000    -------------------------
                                                                                 Actual         2001         2002
    ----------------------------------------------------------------------------------------------------------------

    Financing Corporation (FICO):
       Net change............................................................           1            2            1
       Outstandings..........................................................       8,147        8,149        8,150

    Resolution Funding Corporation (REFCORP):
       Net change............................................................          -2           -2           -2
       Outstandings..........................................................      30,064       30,062       30,060
                                                                              --------------------------------------
    Subtotal, gross borrowing:
       Net change............................................................          -1   ...........          -1
       Outstandings..........................................................      38,211       38,211       38,210

    Less purchases of Federal debt securities:
       Net change............................................................         552          594          644
       Outstandings..........................................................       7,169        7,763        8,407
                                                                              --------------------------------------
    Total, net borrowing:
       Net change............................................................        -553         -594         -645
       Outstandings..........................................................      31,042       30,448       29,803
    ----------------------------------------------------------------------------------------------------------------
    \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 2000 or is estimated to occur in 2001 or 2002.