[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

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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.