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

    [[Page 177]]

                             9. 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 2001, there were $242
    billion in Federal direct loans outstanding and $1,084 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 2001, the face value of GSE lending totaled
    $3.1 trillion. In return for serving social purposes, 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 fast 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 analyzes 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. Recognizing that improving efficiency is an
              everlasting concern, this section pays particular attention to
              the issue, and also discusses Federal loan sales as a special
              issue in improving efficiency.
        The third section reviews Federal credit programs and GSEs
              in four sectors: housing, education, business and community
              development, and exports. This section discusses program
              objectives, recent developments, and future plans for each
              program.
        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 areas: 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 cases, private lending and insurance business efficiently
    meets societal demands by allocating resources to the most productive
    uses, and Federal intervention is unnecessary or can even be
    distortionary. 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. 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 limited incomes and credit histories. Because it is
              difficult for those borrowers to prove their creditworthiness
              to a large number of lenders, they must rely on the subjective
              judgements of a few lenders. In this situation, many
              creditworthy borrowers may fail to obtain credit. Even for
              borrowers who are approved for credit, insufficient
              competition can result in higher inter

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              est rates. Government intervention, such as loan guarantees,
              enable these groups of borrowers to obtain credit more easily
              and cheaply and provides an opportunity for the lender to
              become more comfortable with that group of borrowers.
              Similarly, the private sector efficiently insures against
              various risks. Insurance companies estimate the expected loss
              based on probabilities of loss-generating events and charge
              adequate premiums. Private insurers, however, are reluctant to
              insure against an event for which they cannot reasonably
              estimate the probability and the magnitude of loss. Without
              these estimates, they cannot adequately set the premium.
              Terrorism emerged as one of these cases after the September 11
              attacks. In these cases, Government intervention limiting
              uncertainties for the private sector may be necessary to
              ensure the provision of insurance.
        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. The general public benefits from high productivity
              and good citizenship of a well-educated person and suffers
              from pollution. Without Government intervention, people will
              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 such as tax
              benefits 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 economic 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. Some catastrophic events can also
              threaten the solvency of private insurers. For some events
              involving a small risk of a very large loss, therefore,
              Government insurance commanding more resources can be more
              credible and effective. Another form of resource constraint is
              a liquidity constraint. It is usually difficult for a private
              entity to raise a large amount in a short time. The funding
              difficulty can limit the private market's ability to extend
              credit and thereby 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. For example, legal barriers to entry
              or 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 lending programs aiming to increase the
              availability of credit and lower the borrowing cost for those
              rural residents may improve economic efficiency.

    Changing Financial Markets

      Financial markets have undergone many changes in recent years. The
    most fundamental developments are financial services deregulation and
    technological advances, which have promoted competition and economic
    efficiency. Deregulation and technological advances have led to many
    important developments. Deregulation has promoted consolidation by
    removing legal barriers to business combinations. By increasing the
    availability of information and lowering transaction costs,
    technological advances have significantly contributed to enhancing
    liquidity, refining risk management tools, and spurring globalization.
    The current economic downturn, however, can temporarily interrupt these
    trends.
      Financial services deregulation has promoted competition by removing
    geographic and industry barriers. Active deregulation at the state level
    substantially removed restrictions on interstate banking and intrastate
    branching in the 1980s and early 1990s. At the Federal level, the full
    implementation of the Riegle-Neal Interstate Banking and Branching Act
    in 1997 essentially removed geographic barriers. 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 easy access
    to large databases, powerful computers, and sophisticated analytical
    models. Thus, many lenders use

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    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
    lower-risk customers has become much more common in recent years.
      Consolidation among financial institutions, especially banks, has been
    very active due to deregulation and increased competition. Because of
    active consolidation, the number of banks has sharply decreased, and the
    concentration of assets has increased. At the end of calendar 2000,
    there were about 8,300 commercial banks, which represented a decrease by
    over 4,000 or 33 percent from the end of calendar 1990. The top 10 banks
    controlled 37 percent of banking assets at the end of calendar 2000,
    compared with 21 percent at the end of calendar 1990. Consolidation
    across traditional industry boundaries has produced financial holding
    companies that control multiple types of financial institutions. The
    leading example is Citigroup encompassing the commercial banking
    (Citibank), insurance (Travelers), and securities (Salomon Smith Barney)
    businesses.
      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 well-known ones) to validate their financial information at low
    costs and to borrow directly in capital markets, instead of relying on
    banks. In particular, commercial paper (short-term financing instruments
    issued by corporations) has been very popular. In the 1990s, growth of
    commercial paper substantially outpaced growth of bank business loans.
    The current economic slowdown, however, has had a much larger negative
    effect on growth of commercial paper than on growth of bank business
    loans.
      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. Over the last decade, both consumer loans and
    business loans have been growing at finance companies faster than at
    commercial banks. The growth of venture capital firms was rather
    phenomenal. Between calendar 1995 and calendar 2000, their new
    investments, which were mostly in small firms' equity, increased more
    than 17-fold (from $6 billion to $104 billion). Due to the economic
    downturn and the slumping stock market, venture capital investments in
    calendar 2001 decreased to less than half of the calendar 2000 level,
    but were still several times as much as those in the mid-1990s.
      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. The Electronic Signatures in
    Global and National Commerce Act of 2000, which eliminates legal
    barriers to the use of electronic technology to sign contracts, should
    accelerate the growth of transactions over the Internet.
      Securitization (pooling a certain type of asset and selling shares of
    the asset pool to investors) is a financial instrument produced by
    technological advances. Increased transparency of asset quality created
    demand for securitized assets. Securitization has enhanced liquidity in
    financial markets by enabling lenders to raise funds without borrowing
    or issuing equity. It also helps financial institutions to reduce risk
    exposure to a particular line of business. 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 to a very limited extent 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, swaps, and futures, have
    improved investors' ability to manage risk (either increase or decrease
    risk exposure). Financial institutions and some other types of companies
    are increasingly using these relatively new instruments to manage
    various types of risk such as interest rate risk, credit risk, price
    risk, and even catastrophe-related risk. The interest rate swap, for
    example, is an effective tool to reduce a firm's exposure to interest
    rate movements. However, a firm can also use an interest rate swap to
    take interest risk. Interest rate swaps are widely used now. After the
    September 11 attacks, catastrophe bonds drew some attention as a
    potential means to manage a large risk. This derivative offers yields
    higher than market interest rates. If a specified catastrophe occurs,
    however, the bondholders lose a part or all of the principal, depending
    on the size of the damage. In this contract, the higher yield and the
    loss of principal respectively are equivalent to the insurance premium
    and the insurance payout. In this way, the potential large loss can be
    spread among a large number of investors, instead of a few insurance
    companies. The size of the catastrophe bond market, however, is still
    very small.
      Globalization has been accelerating as a result of the reduced
    importance of geographic proximity and knowledge of local markets. Both
    commercial and in

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    vestment banking institutions headquartered in Europe and Japan are
    actively competing in the U.S. market, and many U.S. financial
    institutions have branches worldwide.
      The current economic downturn has increased loan delinquency rates and
    bankruptcies. The delinquency rate of business loans at banks averaged
    2.9 percent during the first three quarters of calendar 2001, compared
    with 2.2 percent in calendar 2000. The increases in delinquency rates
    were modest for consumer loans (from 3.6 to 3.7 percent) and real estate
    loans (from 1.9 to 2.1 percent). Between 2000 and 2001, however,
    personal bankruptcy filings increased 14.1 percent, which was much
    faster than the 6.6 percent increase in business bankruptcy filings.
    Jitters about credit quality reduced the supply of business credit in
    the private market, especially from nonbank sources such as commercial
    paper. The stock market bust also increased the cost of equity
    financing, especially for start-ups that relied on venture capital. For
    households, credit conditions remained relatively easy, partly thanks to
    the continued strength of the housing market.

    Implications for Federal Programs

      In general, financial evolution has increased the private market's
    capacity to serve the populations traditionally 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 on 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 screen many borrowers at low cost and 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, can be uneven across groups
    and over time. Large financial institutions with global operations,
    which are products of consolidation, may want to focus more on large
    customers and business lines that utilize economies of scale and scope
    more fully. Thus, some small borrowers, who used to rely heavily on the
    private information of small institutions, can be underserved. In an
    economic downturn, lenders can be overly cautious, leaving out some
    creditworthy borrowers. The Federal Government may need to better target
    those underserved 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 or man-made catastrophe
    among a large number of investors through catastrophe-related
    derivatives, although the extent of risk sharing in this way is limited
    due to the small size of the catastrophe bond market.
      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. The current economic downturn also makes it more
    difficult to estimate the costs of credit and insurance programs because
    they can change abruptly.

                        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 may be 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
    were 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, and guaranteed loan monitoring. 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 helping the private market to improve efficiency, 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.

    Improving Efficiency

      Some programs may be well-justified based on the three criteria above.
    However, few programs may be perfectly designed or managed. 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 and well managed programs. Thus, improving
    efficiency is an everlasting concern. Although the ways to improve
    efficiency vary across programs, there are some general categories and
    principles that apply to most programs.

      Pricing (setting appropriate lending terms or insurance premiums) is a
    critical part of credit and insurance programs. If program managers fail
    to accurately estimate the default and prepayment probabilities for a
    credit program and the loss probability for an insurance program, the
    program may be mispriced, and the actual subsidy may substantially
    deviate from the intended subsidy. To improve the estimation accuracy,
    using advanced analytical tools is important, especially for some
    programs, for which pricing involves many complications. An
    inappropriate intended subsidy rate can also impair program efficiency.
    If a program's subsidy is too small, the intended population may be
    discouraged from using the program. On the other hand, an excessive
    subsidy may attract unintended customers.
      Some programs are inherently difficult to price. To price deposit
    insurance, for example, the Federal Deposit Insurance Corporation (FDIC)
    needs to estimate

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    bank failure probabilities, which are highly changeable. An unexpected
    event can cause many failures, and the banking business changes over
    time, introducing new risks. FDIC recently made a constructive proposal
    to improve deposit insurance pricing. Agencies dealing with complicated
    pricing need to continuously endeavor to refine pricing. In many cases,
    utilizing both historical experience and sophisticated analytical tools
    may be necessary. Private sector participation may also help the pricing
    of complicated programs. Federal agencies can make risk-sharing
    arrangements with private firms that may have better pricing expertise
    and derive information from the private firms' pricing.
      The subsidy rate and the manner in which subsidies are provided can
    also affect program efficiency. The Farm Service Agency (FSA) offers
    agricultural loans at Treasury rates to borrowers who have been denied
    credit by private lenders. Since Treasury rates are lower than market
    rates for creditworthy borrowers, this pricing strategy can attract
    borrowers who can obtain credit elsewhere. It is possible that some
    creditworthy borrowers are denied credit by chance or by
    misrepresentation. One solution to this problem is to make loans at the
    market rate for average borrowers, which would still subsidize the
    intended population with low credit ratings. When further subsidies to
    the disadvantaged are desirable, the Government may supplement the loans
    with direct subsidies.
      Another pricing issue arises when the Government relies on private
    intermediaries. The student loan guarantee program sets the interest
    rate that participating lenders receive, which differs from the rate
    that students pay. While an unattractively low lender rate set by the
    Government would reduce participation, an excessively high rate would
    unnecessarily increase the cost of the program. A similar problem exists
    for the crop insurance program. Private insurance companies sell and
    service crop insurance policies, and the Federal Government reimburses
    the private companies for the administrative expenses and reinsures them
    for excess insurance losses. Excessive profits of private companies are
    also possible in this case. One way to deal with this problem is to
    carefully examine the profit of participating intermediaries. An
    alternative is to set the price through competitive bidding.

      Targeting the right population is also an important element of program
    efficiency. The net benefit will increase if program managers more
    successfully identify the populations that would benefit more from
    credit and insurance programs and reach out to them. Right populations
    include borrowers who have worthwhile projects but have difficulty in
    obtaining private credit (e.g., beginning farmers, new businesses, new
    exporters), populations underserved by the private market (e.g., low-
    income, minority), underserved neighborhoods (e.g., rural, inner city),
    and legislatively targeted populations (e.g., students, veterans). In
    addition to making credit available, program managers need to actively
    inform potential borrowers of the credit availability and provide high-
    quality customer services, so that ignorance or inconvenience does not
    deter the targeted populations from accessing the program. 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 Management, a hedge fund). Economic downturns can also
    reduce the credit available from private sources, as evidenced by
    declines in commercial paper and venture capital investment in 2001. On
    those occasions, Federal agencies can promote the extension of credit to
    creditworthy borrowers. While outreaching, program managers should avoid
    overreaching, which would waste taxpayers' money.
      While targeting may not be a problem for some well-defined programs,
    such as deposit insurance and student loan programs, it can be a major
    concern for many programs that serve broader purposes, such as housing,
    business, and international programs. Given that private lenders have
    been reaching out to more traditionally underserved homebuyers, for
    example, there are ever increasing needs for Federal housing agencies to
    improve their focus on the populations that may still be underserved by
    the private market, such as minorities and inner city residents. In the
    agricultural sector, FSA provides loan guarantees to many borrowers who
    have access to private credit. To improve program efficiency, FSA needs
    to focus on borrowers who would benefit most from the government program
    (for example, helping more small, beginning farmers and fewer large,
    established farmers). The Small Business Administration (SBA) faces a
    similar problem. Given that the definition of small business is not
    really tight, access to private credit may differ widely across small
    businesses. It is an ongoing challenge for SBA to focus more narrowly on
    start-ups and very small businesses, which may have more difficulty in
    obtaining credit without Government assistance.
      Even when the target population is fairly well defined, a program can
    extend its role beyond the original mission. The housing program of the
    Department of Veterans Affairs (VA), of which the main purpose is to
    help veterans, offers direct loans to the purchasers of foreclosed VA
    homes, who are not veterans. The loans do not necessarily increase the
    cost to the government if the favorable lending terms positively
    influence sale prices. Nevertheless, the loans to the general public can
    be considered as overreaching. The program also allows veterans to
    obtain the subsidized loans more than once. Provided that the primary
    goal of the program is to help disadvantaged veterans right out of the
    military, repeated offers of subsidized loans may be unnecessary in many
    cases. Rural Utilities Service (RUS) offers credit to utility providers
    serving rural areas. Once the eligibility is determined, however,
    requalification is not required for new loans. This lax rule enables
    some borrowers, where rural areas have become urban after the first
    loan, to obtain new loans to support both rural and urban areas.

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      Targeting too narrowly can also be a problem. Export credit provided
    by the Export-Import Bank is highly concentrated to a few large
    exporters. Overseas Private Investment Corporation (OPIC) has been
    primarily assisting large U.S. companies investing abroad. In these
    cases, reaching out to smaller exporters and investors might improve
    program efficiency.

      Risk management needs to be effective to limit the cost of credit and
    insurance programs. Careful screening of borrowers would reduce the
    default risk. Although the goal of most credit programs is not to lend
    to the most creditworthy borrowers, it is important to identify
    relatively more creditworthy borrowers even among those who might be
    denied credit by private lenders. Other key elements of risk management
    include monitoring existing borrowers and collecting defaulted loans.
    One way to improve screening, monitoring, and collecting is to use
    advanced analytical tools such as credit scoring and to maintain useful
    data bases. In some cases, the private sector may perform those tasks
    more efficiently. Then delegation would be an effective strategy. For
    example, if banks are better at screening some opaque borrowers because
    of their extensive experience with those borrowers, Federal agencies may
    delegate the screening of those borrowers to banks with appropriate
    risk-sharing arrangements.
      Technological advances have significantly improved the screening of
    borrowers, especially in the housing market, where standardizing
    information is relatively easy. Private lenders process loans
    efficiently using automated and sophisticated tools. Federal agencies
    targeting the populations that are largely served by the private sector
    need to be alert to catch up with rapid technological advances. Falling
    behind, they could be left with riskier borrowers. Analytical models
    also play an important role in monitoring borrowers and insurance
    policyholders. Pension Benefit Guarantee Corporation (PBGC) has an Early
    Warning Program designed to identify weak industries and companies. The
    program, which facilitates early intervention and negotiations, has been
    fairly successful in reducing insurance losses.
      Since standardizing information is still difficult for small business,
    banks with extensive business relationships may have advantages in
    screening borrowers. The Small Business Administatin (SBA), which
    guarantees small business loans, delegates credit evaluation with some
    risk-sharing arrangements. SBA has been strengthening the delegation
    through its Preferred Lender Program, which has shown some success in
    reducing default rates. However, since designing optimal risk-sharing
    arrangements is a challenging task, SBA and other Federal agencies
    delegating credit evaluation to private lenders should keep trying to
    develop finer risk-sharing arrangements.
      Delegation of loan servicing is generally desirable, but it should be
    accompanied by close monitoring of contractors. VA lets private
    servicers track the performance of VA loans. VA, however, is not
    notified of delinquencies until loans are 60 to 90 days overdue. Closer
    monitoring might help to reduce the default rate of VA loans. The
    performance of private contractors may also be improved through
    performance-based contracting. The Department of Education (ED) relies
    on private contractors for collecting defaulted student loans. ED lets
    multiple debt collectors compete for the loan volume by assigning more
    loans to the best performers. This performance-based contracting has
    helped to increase the collection of defaulted loans.

      Cost control is a concern for all types of organizations. For Federal
    credit and insurance programs, key elements include delivery and
    servicing costs, in addition to the general administration cost. There
    are many ways for Federal agencies to save costs. They may streamline
    the delivery system, computerize loan servicing, and eliminate redundant
    servicing facilities. In cases where the private sector is more
    efficient in some specific functions such as loan servicing, it may be
    best to contract out those functions. When several Federal agencies
    serve similar purposes, inter-agency cooperation can result in a
    substantial cost saving.
      The student loan guarantee program involves multiple layers of private
    and public institutions. There may be an opportunity to streamline the
    delivery system and save on administrative cost. SBA operates multiple
    loan servicing centers throughout the Nation. Given that advances in
    communication technology have reduced the importance of physical
    presence for loan servicing, consolidating some of those facilities
    might reduce costs without sacrificing customer service.
      ED contracts out the servicing of direct student loans. Since many
    private institutions are more experienced with loan servicing than the
    Government, contracting out can be more cost-effective in many cases. To
    realized the potential cost savings, however, Federal agencies need to
    use well-designed competitive bidding and incentive arrangements, as
    well as to monitor the quality of service. Without these appropriate
    steps, contracting out could represent more of a private opportunity for
    a windfall gain than of the Government's opportunity for a cost saving.
    The Federal Housing Administration and SBA have been selling loans to
    private financial institutions. Provided that private institutions are
    more efficient in loan servicing, loan sales should help to save
    servicing and administrative costs. Well-designed competitive bidding is
    important in this case, as well.
      There are several Federal agencies that are involved in home-purchase
    financing and several agencies that provide export-related credit. In
    these cases, substantial cost saving can be achieved through sharing
    data bases, exchanging expertise, and consolidating redundant
    operations. Housing agencies have been sharing data, but to a limited
    extent. International credit agencies use a common risk assessment
    system. There may remain many cost-saving opportunities that can be
    realized through fuller cooperation.

      Initiative plays an important role in a rapidly changing environment.
    Information technology and fi

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    nancial markets have been changing rapidly. To achieve the maximum
    efficiency, program managers need to closely watch and quickly adapt
    their programs to new developments. Tardy responses to changes in
    information technology may mean missed opportunities for improving risk
    management and reducing costs. Financial market developments also have
    important implications. 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. Private lenders
    are more willing to serve many customers to whom they did not want to
    lend in the past. Thus, some Federal credit programs may need to focus
    more narrowly on customers who are still underserved by private lenders.
    Without agencies' initiative, needed adjustments might be substantially
    delayed.
      Federal agencies have been active in initiating automation and
    Internet-based services. PBGC has a pilot project that enables
    participants in certain PBGC-trusteed plans to calculate their
    approximate benefits online. VA recently developed web-based application
    that allows lenders to obtain appraiser assignments and loan numbers for
    VA loan applications. ED has undertaken an automation and modernization
    initiative to streamline the management of student financial assistance
    programs. Rural Utilities Service has made many forms available for
    download at its website.
      Many agencies have proposed to develop analytical models to improve
    risk management. SBA has been developing a loan monitoring system and an
    advanced subsidy-estimation model. Rural Housing Service have been
    working on models to evaluate the creditworthiness of borrowers.
    However, the progress has been slow in many cases.
      There have also been proposals for regulatory changes. FDIC recently
    made reform proposals ranging from merging bank and thrift insurance
    funds to refining risk-based premiums. FHA recently proposed a rule that
    would help to reduce fraudulent practices in the housing market. In
    general, however, credit and insurance agencies have not been very
    active in proposing regulatory changes. Given that individual agencies
    are on the frontiers of detecting changes in market conditions, they may
    need to take a more active role in bringing about regulatory changes
    that would improve the effectiveness and efficiency of their programs.

    Federal Loan Asset Sales: A Current Issue in Improving Efficiency

      Federal loan asset sales provide an opportunity for agencies to
    achieve many of the efficiency gains already discussed. For programs
    where loan asset sales are appropriate, sales can free up existing
    agency resources to better serve their target population, lower the risk
    exposure of the Federal government, and create better overall management
    of Federal loan assets. In addition, while outsourcing specific
    functions, such as loan servicing, to the private sector has shown cost
    savings to the Government, outsourcing requires careful monitoring of
    the contractor. By selling the asset outright to the private sector,
    Federal agencies can further reduce administrative costs.
      At the end of 2000, the Federal Government held loan assets valued at
    $241 billion. Of the $241 billion, $208 billion were direct loans, and
    $33 billion were guaranteed loans acquired by the Federal Government
    after default. Both types of loans are eligible to be sold. Sale of
    Federal loan assets can provide several benefits to the Federal
    Government: revenues from sales, administrative cost savings, and
    management improvements. In a time of tight budgetary resources, it
    makes good sense to free up agency resources for redirection to core
    Governmental functions and outsource activities that are more
    efficiently done by the private sector. Agencies can use the freed-up
    financial and human resources to better target new lending to the right
    population, better manage the remaining portfolio, and improve
    technological areas where they are lagging, such as loan servicing and
    credit screening.
      The Debt Collection Improvement Act of 1996 (DCIA), which authorizes
    agencies to sell debt that is over 90 days delinquent, grew out of an
    increased recognition of the Government's inefficiency at managing
    poorly performing assets. For example, some agencies did not have a
    policy in place to take action when borrowers were delinquent or in
    default. The lack of an adequate policy resulted in unnecessarily large
    losses to the Government. In implementing the DCIA, OMB Circular A-129
    imposes a more stringent rule requiring agencies to sell loans that are
    over one year delinquent and loans for which collection action has been
    terminated. Circular A-129 also recommends that agencies develop plans
    for selling performing loans, thereby using asset sales as a portfolio
    management tool.
      To effectively conduct loan sales, agencies need to establish policies
    and procedures for tracking both performing and non-performing loans.
    These efforts will also help to improve overall portfolio management,
    resulting in reduced default rates and better cost estimates for future
    loans. Agencies may also acquire knowledge that helps to decide
    outsourcing of some functions such as loan servicing and liquidation.
      The bulk of Federal loan assets are held by five Federal credit
    agencies: Department of Veterans Affairs, Department of Agriculture,
    Department of Education, the Federal Housing Administration (FHA), and
    the Small Business Administration (SBA). To date, two agencies, FHA and
    SBA, have conducted loan asset sales, selling non-performing loans,
    which satisfies the DCIA provisions of selling delinquent loans, and
    selling performing loans as well. Successful sales to date by these two
    agencies have shown that loan assets can be priced advantageously to
    both the Government and the private sector due to the private sector's
    expertise and scale economies in loan servicing. Both agencies are
    currently planning future sales. The sales to date

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    have generated revenue for the Government, while reducing the costs of
    maintaining and liquidating those assets. Other benefits of asset sales
    include the transfer of resources from certain credit program functions
    that are not inherently Governmental to core Governmental functions that
    are essential in carrying out the mission and overall improvements in
    asset management.

                          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 2001, HUD, VA,
    and USDA supported $219 billion of direct loans and loan guarantees,
    contributing to a record high homeownership rate of 68.1 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 several insurance
    funds, the largest of which is the Mutual Mortgage Insurance Fund. FHA
    mortgage insurance is directed to expanding access to homeownership for
    people who lack the financial resources or credit history to qualify for
    a conventional home mortgage. In 2001, FHA insured $107 billion in
    mortgages for almost 1 million households, 10 percent more households
    than in 2000. The dollar volume of mortgages exceeded 2000 by 24
    percent, partially driven by the rapid increase in house prices and low
    interest rates.
      FHA has contributed significantly to the recent homeownership gains,
    but its target population of first-time home buyers is most at risk of
    surrendering these gains. After increasing significantly since 1994, the
    share of FHA's home purchase mortgages going to first-time home buyers
    and minority households dropped slightly in 2001. FHA helped its
    borrowers retain their homes by increasing use of loss mitigation tools
    (such as lender forbearance, loan modification, and partial claims) by
    62 percent over the previous year. The Budget will further protect home
    buyers from losing their homes by expanding HUD homeownership counseling
    to nearly twice as many families. HUD delivers both pre- and post-
    purchase counseling services through a network of counseling agencies.
      Congress enacted a 2002 Budget proposal to allow FHA to insure a
    financial product that has gained popularity in the conventional
    market--hybrid adjustable-rate mortgages. Congress also clarified HUD's
    legal authority to operate FHA Credit Watch--a lender monitoring program
    that rates lenders by the performance of the loans they underwrite and
    allows FHA to sever relationships with those showing poor performance.
    Credit Watch is critical to protect the FHA Mutual Mortgage Insurance
    Fund from unexpected losses due to mismanagement and fraud.
      FHA combats fraud on many fronts, including predatory lending. The
    President's Management Agenda sets out several critical tasks for FHA to
    improve its risk management. FHA issued a proposed rule in 2001 that
    would prevent the predatory practice of property flipping, in which a
    lender and an appraiser conspire to sell a home at a falsely inflated
    price, thereby victimizing the borrower and exposing FHA to excessive
    losses. The Department is considering other regulatory changes to help
    prevent predatory lending.
      FHA Neighborhood Watch helps home buyers help themselves by providing
    an internet-accessible lender monitoring system. The system tracks each
    lender's defaults, by neighborhood, enabling a mortgage shopper to
    identify lenders with good records of mortgage performance in the
    shopper's local area. Lenders with high rates of defaulted loans are
    flagged as potential problems. The system also helps the industry self-
    police; other financial institutions are unlikely to purchase FHA loans
    from a lender identified by Neighborhood Watch as high risk.

    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 2001, VA provided $31 billion in guarantees
    to assist 252,700 borrowers. Both the volume of guarantees and the
    number of borrowers increased substantially from 2000 as lower interest
    rates increased loan originations and refinancings 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 2001, 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

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    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 40 percent of their 2001
    interventions, and its goal is to maintain the 40 percent level in 2003.
    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 and consolidations.

    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 low to
    moderate-income rural residents. The program's emphasis is on reducing
    the number of rural residents living in substandard housing. In 2001,
    $2.4 billion of guarantees went to 31,000 households, of which 30
    percent went to low-income borrowers (with income 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 allowed RHS to provide more guarantees at less cost to the
    taxpayers.
      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
    2001, 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 RHS, the lenders, and
    customers. 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 to dispose of the property.
      RHS programs differ from other Federal housing loan guarantee
    programs. RHS programs are means-tested and more accessible to low-
    income, rural residents. In addition, the RHS direct loan program offers
    deeper assistance to very-low-income homeowners by reducing the interest
    rate down to 1 percent for such borrowers. The program helps the ``on
    the cusp'' borrower obtain a mortgage, and requires graduation to
    private credit as the borrower's income increases over time. The
    interest rate depends on the borrower's income. Each loan is reviewed
    annually to determine the interest rate that should be charged on the
    loan in that year based on the borrower's actual annual income.
      The program cost is balanced between interest subsidy and defaults.
    For 2003, RHS expects to provide $1 billion in loans with a subsidy cost
    of 19.37 percent. Its most recent and ongoing servicing improvement
    effort has been the implementation of the Dedicated Loan Origination
    Service System (DLOS), which centralized the servicing and monitoring 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 has reduced default rates and losses. RHS also
    has less than 1,200 Real Estate Owned (REO) properties, which is less
    than 0.02 percent of the portfolio.
      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 (for
    renewals and new construction, the cost will be $712 million in 2003).
    RHS also offers guaranteed multifamily housing loans. RHS will address
    management issues in its multifamily housing portfolio in 2003 by
    restricting the $60 million loan level to repair and rehabilitation of
    it's existing portfolio (17,800 projects, 459,000 units). They will also
    conduct a study on how to fund new construction in a more cost efficient
    manner with the expectation that new construction will be a priority for
    the funds in future budgets. Farm labor housing will have a program
    level of $53 million and will provide for new construction.

    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 with

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    out 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
    underwriting 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. RHS is currently
    developing its own system and scorecard.
      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 or loan servicing requirements 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 to reflect risk accurately.
    Federal loan guarantee programs are assessing the impact of private
    sector customization on their loan portfolios, and adopting a similar
    pricing structure to avoid riskier customer composition and larger
    losses. FHA recently authorized annual premium cancellation at 78
    percent loan-to-value ratio. Proceeding cautiously, FHA will next
    explore varied pricing for its mortgage insurance based on risk factors
    such as impaired credit or limited resources, for borrowers who
    currently do not qualify for FHA insurance, to help achieve the
    President's goal of increasing homeownership. More flexible pricing
    would let FHA extend its reach and thereby enable more borrowers to
    purchase a first home at a reasonable mortgage cost.
      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. By 2003, FHA will move out of the property management
    business for the majority of its defaulted loans by implementing its
    statutory authority to accelerate the mortgage insurance claim process.
    The accelerated claim process will enable FHA to sell defaulted notes to
    the private sector for servicing and/or disposition, thereby reducing
    foreclosures and eliminating much of the acquisition of real property
    and increasing net recoveries by FHA.

    Fannie Mae and Freddie Mac

      Fannie Mae and Freddie Mac were chartered by Congress to increase the
    liquidity of mortgages and to promote access to mortgage credit for
    households that historically have been underserved by private markets.
    They carry out this mission by purchasing and/or guaranteeing
    residential mortgages. The guaranteed loans are packaged for sale as
    mortgage-backed securities (MBS), which are held by general investors,
    mortgage lenders, and Fannie Mae and Freddie Mac themselves. The two
    GSEs finance their acquisitions of loans and MBS assets by issuing debt.
    In September 2001, Fannie Mae and Freddie Mac had $2.6 trillion
    outstanding in mortgages that they had purchased or guaranteed. Of this,
    $1.2 trillion was held in the GSEs' asset portfolios, and $1.4 trillion
    served as collateral for outstanding MBS not held in portfolio.
    Together, the two firms' purchases of single-family mortgages averaged
    63 percent of all conventional conforming mortgages originated in
    calendar years 1998-2000 measured by dollar value.
      Fannie Mae and Freddie Mac have grown faster than the mortgage market
    in recent years. From September 1997 to September 2001, their combined
    mortgage asset portfolios increased 150 percent in dollar volume, and
    their guarantees of MBS increased 40 percent. To fund their rapidly
    growing asset portfolios, Fannie Mae and Freddie Mac have increased
    their outstanding debt. The GSEs' combined debt outstanding rose from
    $518 billion at September 1997 to $1.26 trillion at the end of September
    2001, an annualized growth rate of nearly 25 percent a year.

    [[Page 188]]

      Increased guarantee volume and retained portfolios imply increased
    credit and interest rate exposure. In recent years, both Fannie Mae and
    Freddie Mac have tried to limit their credit and interest rate risk
    using various risk management techniques such as credit enhancements,
    additional pool-level insurance supplementing primary mortgage
    insurance, long-term callable debt, interest rate swaps, and other
    hedging transactions. These risk management tools, however, do not
    eliminate all the risk associated with funding long-term, mostly fixed-
    rate assets that have uncertain payment streams. Furthermore, the
    hedging transactions transform credit or interest rate risk into
    counterparty risk (the risk that the counterparty of a hedging
    transaction fails to honor the contract). Thus, the GSEs' management of
    counterparty risk is of increasing importance.
      The credit quality of mortgages owned or guaranteed by Fannie Mae and
    Freddie Mac has benefited in recent years from strong housing markets
    that have improved collateral values. More typical growth in house
    prices and a weaker economy might raise credit costs from the very low
    levels of recent years. The credit risk to the GSEs from new or
    outstanding loans is limited by their required use of mortgage insurance
    and other credit enhancements for loans with high loan-to-value (LTV)
    ratios. Both GSEs are increasingly active purchasers of subprime loans,
    and mortgages with very high LTV ratios, which now range up to 100
    percent. These loans tend to have more credit risk than the GSEs'
    traditional mortgage purchases.
      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. Risk-based capital requirements were
    published in September 2001 and become fully enforceable in September
    2002.
      Fannie Mae and Freddie Mac took steps in 2001 to help the market
    identify any future change in their riskiness. The GSEs have committed
    to issue subordinated debt on a regular basis. Following a three-year
    phase-in period, subordinated debt will equal about 1.5 percent of their
    on-balance-sheet assets. Because holders of subordinated debt have a
    junior claim on the assets of the GSEs, subordinated debt prices tend to
    be more sensitive to marginal changes in risk. The price of the GSEs'
    subordinated debt, therefore, could provide a market signal of an
    increase in their riskiness.
      Because of the benefits derived from their unique Federal charters,
    Fannie Mae and Freddie Mac have lower costs of senior debt and obtain
    better pricing on securities' issuance. The Congressional Budget Office
    (CBO) estimates that, in 2000, these implicit subsidies combined with
    the GSEs' tax and regulatory exemptions were worth $10.7 billion.
    According to the study (``Federal Subsidies and the Housing GSEs,'' May
    2001), the GSEs passed along 64 percent of the $10.7 billion in implicit
    subsidy and tax and regulatory benefits to mortgage borrowers, while 36
    percent accrued to the benefit of the shareholders and other
    stakeholders of Fannie Mae and Freddie Mac.
      One of the GSEs' public purposes is to promote access to mortgage
    credit for low- and moderate-income families in underserved areas.
    Accordingly, the Secretary of Housing and Urban Development (HUD)
    establishes affordable housing goals for the GSEs. The goals effective
    for calendar years 2001-2003 require the following:
        50 percent of the total number of dwelling units financed by
              each GSE's mortgage purchases are affordable by low- and
              moderate-income families (Low- and Moderate-Income Housing
              Goal);
        31 percent of the total number of dwelling units financed by
              each GSE's mortgage purchases are in central cities, rural
              areas, and other metorpolitan areas with low and moderate
              income and high concentrations of minority residents
              (Geographically Targeted Goal); and
        20 percent of the total number of dwelling units financed by
              each GSE's mortgage purchases are special affordable housing
              for very-low-income families and low-income families living in
              low-income areas (Special Affordable Goal).
      Fannie Mae and Freddie Mac have met or exceeded the affordable housing
    goals since they were established in 1996. The GSEs' achievements,
    however, do not surpass the level of affordable lending in the
    conventional market. By the most recent estimate available, the
    conventional market's loans to low- and moderate-income families and
    families in underserved areas exceed the purchases of such mortgages by
    Fannie Mae and Freddie Mac. (See the table ``Mortgages to Target
    Populations.'')

    [[Page 189]]

                                             Mortgages to Target Populations
                                                        (Percent)
    ----------------------------------------------------------------------------------------------------------------
                                                                         Low- and                         Special
                                                                         Moderate-    Geographically    Affordable
                                                                          Income         Targeted         Housing
    ----------------------------------------------------------------------------------------------------------------

    Private market average*.........................................              56              33              28
    Freddie Mac in 2000.............................................              50              29              21
    Fannie Mae in 2000..............................................              49              31              19
    HUD Goal for GSEs in 2000.......................................              42              24              14
    ----------------------------------------------------------------------------------------------------------------
    Source: Department of Housing and Urban Development (HUD).

    * Private market average 1995-98, the most recent market average available from HUD for the conventional
      conforming market. ``HUD's Regulation of Fannie Mae and Freddie Mac; Final Rule,'' Federal Register, October
      31, 2000, page 65055.

    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 Gramm-Leach-Bliley (GLB) 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, 2001, 7,897 financial institutions were FHLBS members, an
    increase of 177 over September 2000. About 73 percent of members are
    commercial banks, 19 percent are thrifts, and the remaining 8 percent
    are credit unions and insurance companies. However, 53.2 percent of
    outstanding FHLBS advances were held by thrifts as of September 30,
    2001.
      The FHLBS reported net income of $2.1 billion for the year ending
    September 30, 2001, down from $2.2 billion in the previous 12 months.
    System capital rose from $30.6 billion to $33.1 billion, while the ratio
    of capital to assets remained unchanged at 4.8 percent. Average return
    on equity was about 6.6 percent. Outstanding advances reached $466.8
    billion in September 2001, an 8.6 percent increase over the $429.8
    billion outstanding a year earlier. As of September 30, 2001, about 64
    percent of advances had a remaining maturity of greater than one year--
    up from 52 percent one year earlier.
      The GLB Act requires the System to adopt a risk-based capital
    structure. On October 26, 2001, the Federal Housing Finance Board
    (Finance Board) approved a revised final capital standards rule. The
    rule covers System governance, stock issuance, and risk-based and
    leverage capital requirements. These new capital standards, when fully
    implemented, will replace the current ``subscription'' capital structure
    for the Federal Home Loan Banks (FHLBanks) with one that includes both
    risk-based and minimum leverage requirements. Each Bank will also be
    required to adopt and implement a capital plan consistent with
    provisions of the GLB Act and Finance Board regulations.
      The GLB Act changed the FHLBanks' annual payment towards the interest
    payments on bonds issued by the Resolution Funding Corporation (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 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, the Finance Board has established
    regulations and policies that the FHLBanks must follow to evaluate and
    manage their credit and interest-rate risk. FHLBanks must file periodic
    compliance reports, and the 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 $22.6 billion in mortgage loans on September 30,
    2001, approximately 3.3 percent of total assets. The mortgage purchase
    programs offer members alternative ways of doing mortgage business. 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

    [[Page 190]]

    of the System. Although System investments other than advances rose to
    $194 billion through September 2001, compared to $178 billion a year
    earlier, as a percentage of total assets, those investments remained at
    28 percent. Like other Government Sponsored Enterprises (GSEs), the
    System issues debt securities at close to U.S. Treasury rates and
    invests the proceeds in higher-yielding securities. In 2001, the FHLBS
    issued $4.9 trillion in debt securities. However, the majority of the
    debt issued by the System is overnight or short-term, but 73 percent of
    debt outstanding had an original maturity of one year or longer, and
    total debt outstanding was about $611 billion at the end of 2001.
      An enormous, liquid, and efficient capital market exists for
    conventional home mortgages today. As a result of 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 GLB Act further increases access to the
    FHLBS for community financial institutions with $527 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 one or both
    programs. Loans are available to students 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 after graduation, and during certain deferment
    periods.
      In 2003, more than 6 million borrowers will receive nearly 11 million
    loans totaling $53 billion. Of this amount, nearly $41 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 3,500 lenders, 36 State and
    private guaranty agencies, roughly 50 participants in the secondary
    market, and approximately 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 2003, FFEL lenders will disburse
    more than 7 million loans exceeding $35 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 was authorized by the
    Student Loan Reform Act of 1993. Under Direct Loans, the Federal
    Government provides loan capital directly to roughly 1,200 schools,
    which then disburse loan funds to students. In 2003, the Direct Loan
    program will generate more than 3 million loans with a total value of
    over $18 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 with any residual balances forgiven.
      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 2001, the program had grown
    to more than $17 billion, making up approximately 33 percent of all
    student loan volume. This trend, which reflects a nearly five fold
    increase from 1995 to 2001, is expected to stabilize. Consolidation
    Loans are projected to be $17 billion in 2002 and decrease to $12
    billion in 2003. The 2001 spike in Consolidation Loan volume resulted
    from lower interest rates and a special discount offered to Direct Loan
    consolidators.
      For Fiscal Year 2003, the Administration is proposing to address the
    shortage of qualified, skilled math, science, and special education
    teachers in elementary and secondary schools by increasing the amount of
    forgivable guaranteed and direct student loans from $5,000 to $17,500
    for highly qualified teachers who teach math, science, or special
    education 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, science, and special education
    teachers.

    Sallie Mae

      The Student Loan Marketing Association (Sallie Mae) was charted by
    Congress in 1972 as a for-profit, shareholder-owned, Government-
    sponsored enterprise (GSE). Sallie Mae was privatized in 1997 pursuant
    to the au

    [[Page 191]]

    thority 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 approximately 42 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, helps
    entrepreneurs start, sustain, and grow small businesses. As a ``gap
    lender'' SBA works to correct market imperfections and provide access to
    credit where private lenders are reluctant to do so without a government
    guarantee.
      The Administration's 2003 Budget anticipates that SBA's lending
    programs will make available capital resources of over $16 billion. The
    7(a) General Business Loan program will support approximately $4.85
    billion in guaranteed loans, while the 504 Certified Development Company
    program will support $4.5 billion in guaranteed loans. SBA will
    supplement the capital of Small Business Investment Companies (SBICs),
    which provide equity capital and long-term loans to small businesses,
    with $7 billion in participating securities and guaranteed debentures.
    In addition, SBA expects to provide $26 million in microloans, along
    with $17 million in technical assistance to increase the probability of
    borrower success.
      To continue to meet the needs of small businesses, SBA will focus
    program management in three areas: 1) providing economic relief to small
    businesses, 2) improving risk management, and 3) operating more
    efficiently.
      In the aftermath of the September 11th attacks, legislation was
    enacted to temporarily reduce fees for borrowers and lenders
    participating in the 7(a) General Business Loan program. As a result,
    the annual fee in the 7(a) program is reduced in half from 0.50 percent
    to 0.25 percent and up-front fees in the 7(a) program have been reduced
    in half to one percent for loans below $150,000. For loans between
    $150,000 and $700,000, the up-front fee was reduced to 2.5 percent (a
    reduction of one percentage point), and for loans above 700,000, the up-
    front fee remains at 3.5 percent.
      As a result of the fee reductions, the subsidy rate for the 7(a)
    program has increased to 1.76 percent in 2003 from 1.07 percent in 2002.
    This increase in cost translates into a reduced program level of $4.85
    billion in 2003 from $9.3 billion in 2002. Given the additional cost and
    limited resources, the Administration will target funds to creditworthy
    small businesses most likely to be underserved by the commercial
    markets. While SBA can guaranty loans up to $1 million, the greatest
    need for government assistance is for loans below $150,000. Loans below
    $150,000 are usually for very small or start-up businesses. Lenders,
    however, are generally reluctant to make these loans due to high
    administrative costs and low financial returns. The SBA guarantee, along
    with the reduction in fees, will encourage banks to increase the number
    of loans they make that are below $150,000.
      Measuring and mitigating risks in SBA's $50 billion business loan
    portfolio is one of the agency's greatest challenges. As SBA delegates
    more authority to the private sector to administer SBA guaranteed loans,
    oversight functions become increasingly important. SBA has taken steps
    to improve oversight with the establishment of the Office of Lender
    Oversight, which will be responsible for evaluating individual SBA
    lenders. This office will employ a variety of analytical techniques to
    ensure strong performance, including overall financial performance
    analysis, industry concentration analysis, peer lending performance
    comparisons, SBA portfolio performance analysis, and selected credit
    reviews. The oversight program will also encompass on-site safety and
    soundness examinations and off-site monitoring of the Small Business
    Lending Companies (SBLCs) and compliance reviews of SBA lenders. This
    office will develop incentives for lenders to minimize defaults and
    performance measures to monitor results.
      SBA has been developing a Loan Monitoring System (LMS) which will
    support lender oversight functions by improving SBA's data collection
    and processing capabilities, providing a better interface with lenders,
    and helping to increase lender accountability. However,

    [[Page 192]]

    after five years and more than $30 million, the LMS project is behind
    schedule, over cost, and under performing. SBA will attempt to refocus
    the project to ensure successful implementation. The agency will refocus
    the project and by March 2002, develop a detailed plan for effective
    implementation.
      Improving risk management also means improving SBA's ability to more
    accurately estimate the cost of subsidizing small business loans. This
    will enable the agency to allocate resources more effectively, determine
    program risk more precisely, and increase the ability to target programs
    to the neediest populations. The Administration has made significant
    progress in improving the accuracy of the subsidy estimate in the 7(a)
    program. Reflecting long-term changes in the program, the 2003 budget
    uses an improved estimation method, resulting in a reduced program cost.
    To refine the estimation in future years, SBA is developing an
    econometric model, which integrates a variety of programmatic and
    economic changes that affect loan performance. SBA is also reviewing the
    cost estimation method for the 504 Certified Development Company
    Program.
      To operate more efficiently, SBA will automate loan origination
    activities in the disaster loan program with a paperless loan
    application. As a result, loan-processing costs, times, and errors will
    decrease, while government responsiveness to the needs of disaster
    victims will increase. While still in the design stage, SBA expects to
    begin full implementation of the paperless disaster loan application in
    2003. Additionally, because loan-servicing functions can be better
    performed by the private sector, SBA is privatizing these activities.
    The agency will therefore, focus its resources on core programs such as
    providing access to capital, technical assistance, and federal
    contracting opportunities. SBA is selling its current portfolio of
    defaulted guaranteed loans and direct loans. The agency has already sold
    more than $4 billion in such loans and will begin to reflect human
    resource and cost efficiencies that result from these sales.
      Still, with all of these management improvements, Government should
    only foster, not replace private-sector investment. As such, the
    Administration continues to seek alternative and innovative ways to
    support small business development. For instance, the advent of
    interstate banking and the Gramm-Leach-Bliley Financial Modernization
    Act of 1999 have expanded small businesses' access to capital. Banks
    have greater liberties to engage in merchant banking activities,
    including venture capital investments, allowing them to support small
    businesses in a variety of ways. While the Small Business Investment
    Company program has been effective in providing patient capital to small
    businesses, the venture capital market has matured over the last twenty
    years and may no longer need the same level of government intervention.
      Another way to support small business development is to provide
    financing opportunities beyond the limited 7(a) loan program, which
    historically has served less than one-tenth of one percent of the
    Nation's small businesses annually and provided less than one percent of
    annual small business lending. The Administration will work with the
    Congress, the lending community, and the small business communities to
    explore new approaches to insure that a greater number of the Nation's
    small businesses have adequate access to capital. One possible model is
    Capital Access Programs (CAPs). Many States participate in CAPs, but the
    programs are managed largely by private parties. Under a CAP program,
    the bank and the borrower pay an up-front insurance premium typically
    between three and seven percent of the loan amount into a reserve
    account, which is matched by the participating state government. CAPs or
    other innovative state programs that place greater emphasis on market
    solutions may point the way toward modernizing and complementing SBA's
    lending programs.

    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 the poorest communities. These 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.
    The program level for the Water and Waste (W&W) loan and grant program
    in the 2003 President's Budget is $1.5 billion. These funds are
    available to communities of 10,000 or less residents. The program
    finances drinking water, sewer, solid waste disposal, and storm drainage
    facilities through direct or guaranteed loans and grants. In order to
    qualify, applicant communities must be unable to finance their needs
    through their own resources or with credit from commercial lenders.
    Priority is given to loans serving smaller communities that have greater
    financial need, based on their median household income, poverty levels,
    and size of service population as determined by the USDA's field office
    staff. The community typically receives a combination of loans and
    grants depending on how much they can afford. The grant is usually for
    35-45 percent of the project cost (it can be up to 75 percent). Loans
    are for 40 years with interest rates based on a three-tiered structure
    (poverty, intermediate, and market) depending on community income. The
    community facility programs are targeted to rural communities with fewer
    than 20,000 residents and have a program level of $477 million in 2003.
    USDA also provides grants, direct loans, and loan guarantees to assist
    rural businesses, including cooperatives, to increase employment and
    diversify the rural economy. In 2003, USDA proposes to provide $700
    million in loan guarantees to rural businesses (these loans serve
    communities of 50,000 or less).
      These community programs are all part of the Rural Community
    Advancement Program (RCAP). Under RCAP, States have increased
    flexibility within the three

    [[Page 193]]

    funding streams for Water and Wastewater, Community Facilities, and
    Business and Industry (B&I). 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 44,000 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
    remain low mainly due to low interest rates projected in the Budget. The
    default rates for both programs are very low. With increased
    deregulation, however, there is the possibility of increased defaults in
    the electric program because competition resulting from deregulation may
    erode the ability of some borrowers to repay. As information on the
    impact of deregulation increases, this risk will be factored into the
    default rates. The number of electric loans has been increasing due to
    large increases in loan level appropriated over the last several years.
    The average size for electric loans has also been increasing. The number
    and the size of telecommunications loans have remained steady.
      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 2003 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 225 rural electric systems, which will
    benefit over 3.4 million customers and create or preserve approximately
    50,000 jobs.
      USDA's RUS proposes to make $495 million in direct loans in 2003 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 fund over 50
    telecommunication systems for advanced telecommunications services. This
    funding will provide broadband and high-speed Internet access and
    benefit over 300 thousand rural customers.
      The Rural Telephone Bank (RTB) provides financing for rural
    telecommunications systems. The 2003 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 2003, and this
    provides enough time to perform a privatization study and prepare for
    privatization. The RTB is provided full salaries and expenses to service
    existing loans, to perform a privatization study, and prepare for
    privatization by the end of 2003.
      The Distance Learning and Telemedicine program provides grants and
    loans to improve telemedicine and distance learning services in rural
    areas and encourage students, teachers, medical professionals, and rural
    residents to use telecommunications, computer networks, and related
    advanced technologies. With the $25 million in grants and $50 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, benefiting
    millions of residents in rural America. The loan level has been reduced
    to $50 million from $300 million due to low demand (average loan total
    per year is less than $20 million).
      There are various legislative actions that are impacting or will
    impact RUS. This includes the Local TV Act that provides authorization
    for RUS to provide loans to bring local television to rural customers.
    Funding was provided in the 2002 appropriations. The various Farm Bills
    being debated by Congress include changes to existing programs and
    authorization and/or funding for new programs.

    Loans to Farm Operators

      Farm Service Agency (FSA) assists low-income family farmers in
    starting and maintaining viable farming operations. Emphasis is placed
    upon aiding beginning and socially disadvantaged farmers. FSA offers
    operating loans and ownership loans, both of which may be either direct
    or guaranteed loans. Operating loans provide credit to farmers and
    ranchers for annual production expenses and purchases of livestock,
    machinery, and equipment. 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
    exam

    [[Page 194]]

    ining 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 some 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 subsidy rates for these programs have been fluctuating over the
    past several years. These fluctuations are mainly due to the interest
    component of the subsidy rate. The default rates for these programs tend
    to be below ten percent. Guaranteed farm ownership loans have
    experienced a decreasing default rate. Though some direct loan programs
    have experienced an increase in the default rate in the last few years,
    the overall default rate for direct loan programs, which was as high as
    20 percent in 1996, has been reduced to 11 percent as of October 2001.
    In 2001, FSA provided loans and loan guarantees to over 29,000 family
    farmers totaling $3.2 billion. The number of loans provided by these
    programs have fluctuated over the past several years. The average size
    for farm loans has been increasing. The majority of assistance provided
    in the operating loan program is to existing FSA farm borrowers. In the
    farm ownership program, new customers receive the bulk of the benefits
    furnished.
      In the last few year, the demand for FSA direct and guaranteed loans
    have been high due to crop/livestock price decreases and some regional
    production problems. In 2003, USDA's FSA proposes to make $3.8 billion
    in direct and guaranteed loans through discretionary programs and $3.6
    billion in guaranteed loans through mandatory programs.

    The Farm Credit System and Farmer Mac

      The Farm Credit System (FCS or System) and the Federal Agricultural
    Mortgage Corporation (Farmer Mac) are Government-sponsored Enterprises
    (GSEs) that enhance credit availability for the agricultural sector. The
    FCS provides production, equipment, and mortgage lending to farmers and
    ranchers, aquatic producers, their cooperatives, and related businesses,
    while Farmer Mac provides a secondary market for agricultural real
    estate and rural housing mortgages. Both GSEs face a business risk
    because their borrowers are generally dependent on a single economic
    sector, agriculture. The downturn in the agricultural sector in the
    1980s caused severe financial difficulties within the FCS. Legislation
    in 1987 provided temporary Federal assistance to 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
    significant Government emergency assistance payments from 1998 through
    2001. The current economic downturn may not have a significant effect on
    the agricultural economy because the farm economic cycle doesn't quite
    coincide with the general economic cycle. Commodity prices remained low
    in 2001, 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 (up 4.6 percent) due to a combination of government
    payments and urban influences. However, such aggregate facts may mask
    the problems of certain sectors within the farm economy.
      From 1986 to 2000, commercial banks' share of all farm debt increased
    from 26.5 percent to 41.6 percent, while the share for the FCS declined
    from 29.2 percent to 26.4 percent. The United States Department of
    Agriculture (USDA) direct farm loan programs went from a market share of
    15.4 percent to 4.0 percent, though that percentage would more than
    double if adjusted for its guaranteed loans issued through private
    institutional lenders. USDA expects that both commercial banks and the
    FCS have maintained their market share in 2001.

    The Farm Credit System

      The financial condition of the Farm Credit System banks and
    associations during 2001 continued a 13-year trend of improving
    financial health and performance. Non-performing assets were 1.22
    percent of the portfolio in September 2001, unchanged from December
    2000, and down from 1.62 percent in 1999. Loan volume has increased
    since 1995 to $80.1 billion in September 2001, which is close to the
    high of $81.9 billion in the early 1980s. Competitive pressures have
    narrowed the FCS's net interest margin from 3.03 percent in 1995 to 2.79
    percent in 2000. The net interest margin has remained relatively stable
    about at the 2000 level in 2001. However, the net interest margin is
    expected to increase in the near-term, given that the Federal Reserve
    has significantly lowered short-term interest rates.
      Improved asset quality and income enabled FCS to post record capital
    levels: on September 30, 2001, capital stood at $15.7 billion--an
    increase of 9.2 percent for the year. Not included in this capital are
    investments set aside to repay the remaining amount ($1.3 billion) of
    Federal assistance provided through the Farm Credit System Financial
    Assistance Corporation. The System has adopted an annual repayment
    mechanism requiring FCS institutions to pre-fund its interest and
    principal repayment obligations for the Federal assistance. 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

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    structure of the FCS. In January 1995, there were nine banks and 232
    associations; by October 2001, the numbers reduced to seven banks and
    115 associations. From October 2000 to October 2001, the number of
    associations fell by 43 because of mergers and acquisitions.
      The 1987 legislation established the Farm Credit System Insurance
    Corporation to insure timely payment of interest and principal on FCS
    obligations. The Insurance Fund's 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, 2001, the Insurance Fund's net assets were $1.5
    billion, and were slightly below the statutory minimum of two percent of
    outstanding debt. The Insurance Corporation will resume premium
    collection from System institutions in 2002 to ensure that the Insurance
    Fund grows in concert with the growth in the System's outstanding debt
    caused by continued growth in its loan portfolio.
      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. Each of the System institutions are rated
    under the FCA Financial Institution Rating System 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, one institution was rated 4, and no
    institutions received the lowest rating of 5. In September 2001, in
    contrast, 121 institutions were given the top ratings, only one small
    association was rated 3, and none were rated 4 or 5. As of September 30,
    2001, there were no FCS institutions under an enforcement action.
      The System had $80.1 billion in gross loans outstanding as of
    September 30, 2001. Total loans outstanding have grown by $7.1 billion,
    or 9.8 percent, over the year ended September 30, 2001, and by $19.2
    billion, or 31.5 percent, over the past five years. The volume of
    lending secured by farmland has increased 34.2 percent, while farm-
    operating loans have increased 40.8 percent since 1996. Total members
    served increased about 3 percent during the past year.
      Agricultural producers represented by far the largest borrower group,
    with $61.1 billion including loans to rural homeowners and leases, or
    more than three-quarters of the total dollar amount of loans
    outstanding. As required by law, all borrowers are also stockholder-
    owners of System institutions. The System has more than 430,000
    stockholders; about 84 percent of these are farmers with voting stock.
    About half of the System's total loan volume outstanding (49.6 percent)
    is in long-term real estate loans, one-quarter (26.7 percent) in short-
    and intermediate-term loans to agricultural producers, and 20.4 percent
    to cooperatives. International loans (export financing) represent 3.3
    percent of the System's loan portfolio. Rural home loans make up about
    2.5 percent of total loans (included in long-term real estate loans).
    Loans to finance rural utilities (included in cooperative loans)
    comprise more than $6.5 billion, or 8.1 percent of overall loan volume;
    this segment has roughly doubled over the past five years. Lease
    receivables (included in both the long-term real estate loans and the
    short- and intermediate-term loan categories) account for about 3.6
    percent of the overall System portfolio.
      The USDA expects 2001 net farm income to be $49.4 billion, up 4.3
    billion, or 6.5 percent, from 2000. These strong expected earnings
    generally have relied heavily on government assistance payments in
    recent years. Federal payments averaging over $20 billion from 1999 to
    2001 (totaling over $90 billion from 1996 to 2001) to farmers and
    ranchers compensated for depressed commodity prices and declining
    exports. The System, while continuing to record strong earnings and
    capital growth, remains exposed to numerous risks, including
    concentration risk, changes in government assistance payments, the
    volatility of exports and crop prices, and lower non-farm earnings of
    farm households associated with weakness in the general economy.

    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
    Agricultural Credit Act of 1987, there have been several amendments to
    Farmer Mac's chartering statute. Perhaps the most significant amending
    legislation for Farmer Mac was the Farm Credit System Reform Act of 1996
    that transformed Farmer Mac from a guarantor of securities backed by
    loan pools into a direct purchaser of mortgages, enabling it to form
    pools to securitize. The 1996 Act increased Farmer Mac's ability to
    achieve its statutory mission. Since the passage of the 1996 Act, loan
    purchases and guarantees have steadily increased, indicating positive
    progress in the development of a viable secondary market for
    agricultural mortgages.
      Farmer Mac continues to meet statutory minimum core capital
    requirements. Additionally, the FCA implemented in 2001 a risk-based
    capital regulation that determines the minimum level of regulatory
    capital necessary to enable Farmer Mac to maintain positive capital
    during the most stressful credit and interest rate risk conditions.

                          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 that 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, GSM programs 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 an IMF loan to the country. 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 is an important tool in U.S. bilateral assistance to promote
    sustainable development. In 2002, all of USAID's credit programs were
    consolidated to create the unified Development Credit Authority.
    Development Credit Authority (DCA) is a legislative authority allowing
    the use of credit by USAID to support its development activities abroad.
    This unit encompasses DCA activities as well as USAID's traditional
    microenterprise and urban environmental credit programs. 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. The demand for DCA's facilities is prevalent in
    these emerging economies, but the utilization rate for these facilities
    is still very low. In 2003, DCA will be working towards strengthening
    their institutional capacity to conduct project oversight, risk
    analysis, and credit budgeting.
      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

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    by the agencies is governed by ratings and ICRAS default estimates. The
    methodology establishes assumptions about default risks in international
    lending using averages of international bond market data. The strength
    of this method is its link to the market.
      For 2003, OMB has updated the methodology using more sophisticated
    financial analyses and comprehensive market data. In particular, the new
    method better isolates the expected cost of default implicit in interest
    rates charged by private investors to sovereign borrowers. All else
    equal, this change will expand the level of international lending an
    agency can support with a given appropriation. For example, the Export-
    Import Bank will be able to generally provide higher lending levels
    using lower appropriations in 2003.

    Adapting to Changing Market Conditions

      Overall, officially supported finance and transfers account for a tiny
    fraction of international capital flows. Furthermore, the private sector
    is continuously adapting its size and role in emerging markets finance
    to changing market conditions. In response, the Administration is
    working to adapt international lending at Export-Import Bank and OPIC to
    dynamic private sector finance. The Export-Import Bank for example is
    developing a sharper focus on lending that would otherwise not occur
    without Federal assistance. Measures under development include reducing
    risks, collecting fees from program users, and improving the focus on
    exporters who truly cannot access private export finance.
      OPIC in the past has focused too narrowly on providing financing and
    insurance services to large U.S. companies investing abroad. As a
    result, OPIC did not pay adequate attention to its mission of promoting
    development through mobilizing private capital. OPIC is developing and
    will implement policy changes that reflect the Administration's mandate
    to return to its development mission.
      These changes at the Export-Import Bank and at OPIC will place more
    emphasis on correcting market imperfections as the private sector's
    ability to bear emerging market risks becomes larger, more
    sophisticated, and more efficient.
      The Budget requests a lower level for the Export-Import Bank than in
    prior years, but this level supports a projected increase over the
    Bank's level of lending in 2002. The Budget also restores OPIC credit
    subsidy for 2003.

                             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 a combined $3.2
    trillion of deposits at almost 8,200 commercial banks and over 1,500
    savings institutions. The NCUA insures 10,145 credit unions with $387
    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.
      Despite the sluggish economic growth in the past year, depository
    institutions and their Federal insurance funds are in good financial
    condition overall. One thrift failed in 2001, becoming only the fourth
    SAIF-member to fail since 1996, but it was the largest failure of an
    FDIC-insured institution since June 1993. Three BIF members failed
    during 2001. Since 1997, assets associated with BIF failures have
    averaged $100 million per year. During 2001, 25 Federally insured credit
    unions with $22 million in assets failed (including assisted mergers).
    The FDIC currently classifies 94 institutions with $18 billion in assets
    as ``problem institutions,'' compared to 90 institutions with $19
    billion in assets a year ago.
      Bank earnings declined, but remained strong in 2001. The industry net
    income totaled $17.4 billion in the third quarter of 2001, a decline of
    9.9 percent from the third quarter of 2000. The largest factor in the
    earnings decline was a $4.8 billion (71.7 percent) increase in
    provisions for loan losses. Thrift earnings, on the other hand,
    continued to increase in 2001. Net income during fiscal year 2001 was
    $800 million higher than a year ago. These favorable conditions,
    however, may not last indefinitely. Many economic and institutional
    developments indicate that the industry currently faces numerous
    challenges. The current economic

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    slowdown could put pressure on industry profits and, ultimately, on the
    deposit insurance funds.
      For both BIF and SAIF, the reserve ratio (ratio of insurance reserves
    to insured deposits) declined in 2001, but remained comfortably higher
    than the 1.25-percent statutory target. As of September 30, 2001, BIF
    had estimated reserves of $32 billion, or 1.32 percent of insured
    deposits. During the same period, SAIF had reserves of $10.8 billion, or
    1.39 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 assessable deposits for the riskiest
    institutions. Due to the strong financial condition of the industry and
    the insurance funds, 92 percent of commercial banks and 90 percent of
    thrifts did not pay insurance premiums in 2001.
      The National Credit Union Share Insurance Fund (NCUSIF) also remains
    strong with assets of $4.9 billion. Each insured credit union is
    required to deposit and maintain an amount equal to 1 percent of its
    member share accounts in the fund. Premiums were waved during 2001
    because sufficient investment income was generated. After the end of the
    fiscal year, the NCUA Board approved a dividend to reduce the Fund's
    equity ratio to 1.30 percent. This was the sixth consecutive year that
    the Fund paid a dividend to federally insured credit unions.
      As a result of consolidation, a few large banks control a substantial
    share of banking assets. Thus, the failure of even one of these large
    institutions could strain the insurance fund. Banks are increasingly
    using sophisticated financial instruments such as asset-backed
    securities and financial derivatives, which could have unforeseen
    effects on risk levels. Whether or not these new instruments add to
    risk, they do complicate the work of regulators who must gauge each
    institution's financial health and the potential for deposit insurance
    losses that a troubled institution may represent.
      The Gramm-Leach-Bliley Act of 1999 allows new affiliations in the
    financial sector, enabling banks, security firms and insurance companies
    to be commonly owned. Over time, such expanded affiliations may make
    depository institutions safer by improving asset diversification. A
    recent development related to inter-industry mergers is that securities
    firms are indirectly offering insured accounts to their customers
    through their banking affiliates. Regulators will need to pay attention
    to this development because these account conversions increase insured
    deposits. For instance, since the end of March 2000, these types of
    conversions have added an estimated $73.3 billion to BIF-insured
    deposits and $4.4 billion to SAIF-insured deposits, accounting for
    almost 30 percent of the growth in all insured deposits.

    On-going Issues

      While the deposit insurance system is in good condition, the
    Administration is developing proposals to strengthen the system further.
    The FDIC has been prohibited from charging premiums to ``well
    capitalized'' institutions since 1996. Therefore, under the current
    pricing structure, only eight percent of banks and 10 percent of thrifts
    pay regular insurance premiums. A stronger system might require all
    institutions pay at least a nominal amount for federal deposit insurance
    and would assess new deposits.
      Under the current system, the FDIC is required to maintain a
    designated reserve ratio (DRR, the ratio of insurance fund reserves to
    total insured deposits) of 1.25 percent. If the DRR falls below 1.25
    percent and cannot be restored to 1.25 percent within a year, all
    institutions could be required to pay premiums averaging 23 basis
    points. This current structure requires institutions to face a cliff of
    high premium payments when they are weakest. Again, a stronger system
    might replace the current fixed reserve ratio with a flexible range.
    Merging the funds would also make them stronger and better diversified
    than either fund standing alone. Additionally, given that many
    institutions currently hold both bank- and thrift-insured deposits,
    merging the funds would eliminate the need to track bank and thrift
    deposits separately and would help streamline mergers and acquisitions.
    The Administration, however, is not considering any proposals to raise
    the current deposit limit above $100,000.

                               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, which include both
    retired workers (inactive members) and active workers, has increased
    slightly since 1980. However, the number of active workers in defined-
    benefit plans declined from 27 million in 1988 to an estimated 22
    million in 1999, a decrease of 18 percent. If the trend continues, by
    2003 the number of inactive participants will exceed the number of
    active workers.
      The financial position of the PBGC, while still strong, weakened in
    2001 for the first time in eight years, largely due to losses from plan
    terminations and equity investments. Risk remains because of economic
    uncertainties. The risk has been reduced somewhat by steps

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    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 experienced its largest loss in fifteen
    years, reflecting losses on equity investments, termination of
    Northwestern Steel and Wire's plans, and new probable terminations.
    Other large terminations during the year, booked previously, included
    some of the largest plans that PBGC has trusteed: TWA, Grand Union,
    Bradlees, and Laclede Steel. (In early 2002, Outboard Marine, also
    booked previously, terminated its plans.) In 2001, overall investment
    returns in the single-employer program were slightly negative, with
    negative returns in its trust funds, which hold mostly equities, and
    positive returns in PBGC's revolving funds, which are invested in U.S.
    Government securities. Premium revenues increased slightly. PBGC's
    multi-employer program, which guarantees pension benefits of certain
    unionized plans offered by several employers in an industry, remained
    financially strong, but experienced a loss for the year attributable to
    future financial assistance.
      PBGC continues to speed up issuance of benefit determinations so that
    when a participant retires, PBGC can put him or her into pay status with
    a final rather than estimated benefit amount, thereby providing the
    participant certainty and avoiding the processing complexities and costs
    associated with benefit adjustments. The average calculation time for
    benefit determinations issued in 2001 was 3.6 years, down from 4.9 years
    in 2000. Improved automated benefit calculation programs are reducing
    the cost of putting participants into pay status and helping to speed
    the process. This automation will help PBGC administer benefits for the
    89,000 participants taken in trusteeship in 2001, the largest increase
    in new participants in PBGC's history. PBGC is working to send first
    benefit checks more speedily. In 2001, 94 percent of pensioners got
    their first benefit checks within three months of completing their
    applications. PBGC also has established a pilot project that enables
    participants in certain plans to estimate their benefits online at
    PBGC's website.

                               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 flood plain management measures. Coverage is limited to
    buildings and their contents. By 2003, the program is projected to have
    approximately 4.6 million policies from more than 19,000 communities
    with $656 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 2001, and by about 78,000 policies in 2001. FEMA is
    using three strategies to increase the number of flood insurance
    policies in force: lender compliance, program simplification, and
    expanded marketing. FEMA is educating financial regulators about the
    mandatory flood insurance requirement for properties with mortgages from
    federally regulated lenders. The NFIP also has a multi-pronged strategy
    for reducing future flood damage. The NFIP offers mitigation insurance
    to allow flood victims to rebuild to code, thereby reducing future flood
    damage costs. Further, 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 mostly because a large portion of
    the policyholders pay subsidized premiums. FEMA charges subsidized
    premiums for properties built before a community adopts the NFIP
    building standards. Properties built subsequently are charged
    actuarially fair 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,
    but remains substantial; it was 70 percent in 1978 and is 29 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 relied on Treasury
    borrowing to help finance its loss expenses (the NFIP may borrow up to
    $1.5 billion). By February 2001, FEMA had repaid all of its accumulated
    debt to Treasury, but as of the end of 2001, outstanding borrowing stood
    at $600 million mainly due to Tropical Storm Allison.
      The 2003 Budget proposes several reforms to the program intended to
    improve its financial condition and to increase individual
    accountability for building in flood prone areas. Reforms include
    phasing out premium subsidies for vacation properties, including ero

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    sion as a risk factor in determining flood premiums, ending state
    taxation of flood insurance, and requiring that properties with
    Federally backed mortgages be insured to value.

    Crop Insurance

      Subsidized Federal crop insurance administered by USDA's Risk
    Management Agency (RMA) 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. 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.
    In crop year 2001, 207.6 million acres were insured, with an estimated
    $2,884 million in total premium income, including $1,723 million in
    premium subsidy.
      The dollar volume of total gains for the insurance companies went from
    $201 million to $378 million (a 88 percent increase) between 1999 and
    2001. While the companies should have an incentive to participate in the
    crop insurance program, there should be some constraints on windfall
    profits. With that in mind, the 2003 Budget includes a legislative
    proposal that would cap the underwriting gains to 12.5 percent of each
    company's premiums for the year. This is expected to save $115 million
    in 2003.
      There are various types of insurance programs. The most basic type of
    coverage is Catastrophic Crop Insurance (CAT), which compensates the
    farmer for losses up to 50 percent of the individual's average yield at
    55 percent of the expected market price. The CAT premium is entirely
    subsidized, and farmers pay only a small administrative fee. Commercial
    insurance companies deliver the product to the producer in all states.
    Additional coverage is available to producers who wish to insure crops
    above the basic coverage. Premium rates for additional coverage depend
    on the level of coverage selected and vary from crop to crop and county
    to county. The additional levels of insurance coverage are more
    attractive to farmers due to availability of optional units, other
    policy provisions not available with CAT coverage, and the ability to
    obtain a level of protection that permits them to use crop insurance as
    loan collateral and to achieve greater financial security. 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. Approximately 73 percent of eligible acres
    participated in one or more crop insurance programs in 2001.
      Revenue insurance programs protect against loss of revenue stemming
    from low prices, poor yields, or a combination of both. The plans
    available are Revenue Coverage (CRC), Revenue Assurance (RA), and the
    Income Protection (IP) plan. These three plans have many similar
    features and some very distinctive features. All provide a guaranteed
    revenue by combining coverage on both yield and price variability. CRC
    and RA also provide protection against crop price changes. Indemnities
    are due when any combination of yield and price result in revenue that
    is less than the revenue guarantee. Revenue protection for all products
    is provided by extending traditional multi-peril crop insurance
    protection, based on actual production history, to include price
    variability. The price component common to CRC, RA, and IP uses the
    commodity futures market for price discovery. These programs all seek to
    help ensure a certain level of annual income and are offered through
    private insurance companies. For 1999, a Group Risk Income Protection
    plan was developed by the private sector to provide protection against
    decline in county revenue, based on futures market prices and NASS
    county average yields, as adjusted by FCIC. FCIC is also piloting an
    Adjusted Gross Revenue (AGR) program, which is designed to insure a
    portion of producers' gross revenue based on their Schedule F Farm and
    Income Tax reports.
      USDA continues to expand revenue coverage. RMA plans to roll out Round
    IV of the Dairy Options Pilot Program (DOPP) during 2002, which includes
    reaching producers in a total of 300 counties in 40 states. RMA's
    partners in the program are registered commodities brokers who are
    authorized by the Commodity Futures Trading Commission to buy put
    options on behalf of DOPP participants on the Chicago Mercantile
    Exchange. In September 2001, RMA published an interim rule that allows
    RMA to reimburse developers of private crop insurance products for their
    research and development costs and maintenance costs. In November 2001,
    two livestock pilot programs were approved--the Livestock Gross Margin
    and Livestock Risk Protection. The pilot livestock programs will cover
    swine in the State of Iowa and will be made available beginning in 2002.

    [[Page 201]]

    [[Page 202]]

                        Table 9-1.  ESTIMATED FUTURE COST OF OUTSTANDING FEDERAL CREDIT PROGRAMS
                                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                         Estimated                      Estimated
                                                         Outstanding  Future Costs of   Outstanding  Future Costs of
                          Program                           2000            2000           2001            2001
                                                                      Outstanding \1\                Outstanding \1\
    ----------------------------------------------------------------------------------------------------------------
    Direct Loans:\2\
      Federal student loan programs...................         80              10             90              11
      Farm Service Agency (excl. CCC), Rural                   46              11             46              10
       development, Rural housing.....................
      Rural Utilities Service and Rural telephone bank         33               2             31               2
      Housing and Urban Development...................         13               2             12               2
      Agency for International Development............         11               5             10               4
      P. L. 480.......................................         11               8             11               2
      Export-Import Bank..............................         11               5             12               4
      Commodity Credit Corporation....................          8               5              7               3
      Federal Communications Commission spectrum                8              -1              6     ...............
       auction........................................
      Disaster assistance.............................          6               1              4     ...............
      Other direct loan programs......................         13               3             13     ...............
                                                       -------------------------------------------------------------
        Total Direct Loans............................        241              50            242              38
                                                       -------------------------------------------------------------
    Guaranteed Loans:\2\
      FHA-mutual mortgage insurance...................        450              -1            459               1
      Veterans housing................................        224               5            237               5
      Federal family education loan...................        144              12            159              14
      FHA-general and special risk....................         99               8             99               8
      Small business..................................         34               2             37               3
      Export-Import Bank..............................         30               5             31               4
      International assistance........................         19               1             19               2
      Farm Service Agency and Rural housing...........         20     ...............         22     ...............
      Commodity Credit Corporation....................          6               1              5     ...............
      Other guaranteed loan programs..................         16               3             16               2
                                                       -------------------------------------------------------------
        Total Guaranteed Loans........................      1,043              37          1,084              39
                                                       =============================================================
          Total Federal Credit........................      1,284              75          1,326              77
    ----------------------------------------------------------------------------------------------------------------
    \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 203]]

      Table 9-2.   FACE VALUE OF GOVERNMENT-SPONSORED ENTERPRISE LENDING\1\
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                            Outstanding
                                                     -----------------------
                                                         2000        2001
    ------------------------------------------------------------------------

            Government Sponsored Enterprises:

    Fannie Mae......................................       1,231       1,460
    Freddie Mac.....................................         913       1,101
    Federal Home Loan Banks \2\.....................         433         477
    Sallie Mae \3\..................................  ..........  ..........
    Farm Credit System..............................          68          75
                                                     -----------------------
        Total.......................................       2,645       3,113
    ------------------------------------------------------------------------
    \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 2001 was
      $194 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 9-1.

    [[Page 204]]

                                      Table 9-3.  REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED BETWEEN 1992-2001 \1\
                                                     (Budget authority and outlays, in millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                             Program                             1994       1995       1996       1997       1998       1999      2000      2001      2002
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Direct Loans:

    Agriculture:
      Agriculture credit insurance fund.....................      -72         28          2        -31         23    .........       331      -656       921
      Farm storage facility loans...........................  .........  .........  .........  .........  .........  .........  ........  ........        -2
      Apple loans...........................................  .........  .........  .........  .........  .........  .........  ........  ........        -1
      Agricultural conservation.............................       -1    .........  .........  .........  .........  .........  ........  ........  ........
      Rural electrification and telecommunications loans....        *         61        -37         84    .........      -39    ........       -17  ........
      Rural telephone bank..................................        1    .........  .........       10    .........       -9    ........        -1  ........
      Rural housing insurance fund..........................        2        152         46        -73    .........       71    ........        19  ........
      Rural economic development loans......................  .........  .........  .........        1    .........       -1           *  ........  ........
      Rural development loan program........................  .........        1    .........  .........  .........       -6    ........  ........  ........
      Rural community advancement program \2\...............  .........  .........  .........        8    .........        5    ........        37  ........
      P.L. 480..............................................  .........  .........      -37         -1    .........  .........  ........       -23       110
      P.L. 480 title I food for progress credits............  .........  .........  .........  .........  .........  .........  ........  ........        28

    Commerce:
      Fisheries finance.....................................  .........  .........  .........  .........  .........  .........  ........       -19        -1

    Education:
      Federal direct student loans: \3\
        Technical reestimate................................  .........  .........        3        -83        172       -383      -2,158       560  ........
        Volume reestimate...................................  .........  .........  .........  .........  .........       22    ........        -6  ........
      College housing and academic facilities loans.........  .........  .........  .........  .........  .........  .........  ........        -1         *

    Interior:
      Bureau of Reclamation loans...........................  .........  .........  .........  .........  .........  .........         3         3        -7
      Bureau of Indian Affairs direct loans.................  .........  .........  .........  .........  .........        1           5        -1         2

    Transportation:
      High priority corridor loans..........................  .........  .........  .........  .........       -3    .........  ........  ........  ........
      Alameda corridor loan.................................  .........  .........  .........  .........  .........  .........       -58  ........       -50
      Transportation infrastructure finance and innovation..  .........  .........  .........  .........  .........  .........  ........        18  ........

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

    Veterans Affairs:
      Veterans housing benefit program fund.................      -39         30         76        -72        465       -111         -52      -107      -697
      Native American veteran housing.......................  .........  .........  .........  .........  .........  .........  ........  ........        -2

    Environmental Protection Agency:
      Abatement, control and compliance.....................  .........  .........  .........  .........  .........  .........  ........         3        -1

    Federal Emergency Management Agency:
      Disaster assistance...................................  .........  .........  .........  .........  .........  .........        47        36  ........

    General Services Administration:
      Columbia hospital for women...........................  .........  .........  .........  .........  .........  .........  ........  ........        -6

    International Assistance Programs:
      Foreign military financing............................  .........  .........  .........       13          4          1         152      -166       119
      U.S. Agency for International Development:
        Micro and small enterprise development..............  .........  .........  .........  .........  .........  .........  ........  ........         *
      Overseas Private Investment Corporation:
        OPIC direct loans...................................  .........  .........  .........  .........  .........  .........  ........  ........        -9
      Debt reduction........................................  .........  .........  .........  .........  .........  .........        36        -4  ........

    Small Business Administration:
      Business loans........................................  .........  .........  .........  .........  .........  .........  ........         1        -2
      Disaster loans........................................  .........  .........  .........  .........     -193        246        -398      -282       347

    Other Independent Agencies:
      Export-Import Bank direct loans.......................      -28        -16         37    .........  .........  .........      -177       157       117
      Federal Communications Commission spectrum auction....  .........  .........  .........  .........    4,592        980      -1,501      -804        92

    Loan Guarantees:

    Agriculture:
      Agriculture credit insurance fund.....................        5         14         12        -51         96    .........       -31       205        46
      Agriculture resource conservation demonstration         .........  .........  .........  .........  .........  .........  ........         2         2
       project..............................................
      Commodity Credit Corporation export guarantees........        3        103       -426        343    .........  .........  ........    -1,410         2
      Rural development insurance fund......................       49    .........  .........       -3    .........  .........  ........  ........  ........
      Rural housing insurance fund..........................        2         10          7        -10    .........      109    ........       152  ........
      Rural community advancement program \2\...............  .........  .........  .........      -10    .........       41    ........        63  ........
      P.L. 480 title I food for progress credits............  .........       84        -38    .........  .........  .........  ........  ........  ........

    Commerce:
      Fisheries finance.....................................  .........  .........  .........  .........       -2    .........  ........        -3        -1

    [[Page 205]]

    Education:
      Federal family education loan: \3\
        Technical reestimate................................       97        421         60    .........  .........     -140         667    -3,484  ........
        Volume reestimate...................................  .........  .........      535         99    .........      -13         -60       -42  ........

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

    Housing and Urban Development:
      Indian housing loan guarantee.........................  .........  .........  .........  .........  .........  .........  ........        -6         *
      FHA-mutual mortgage insurance.........................  .........  .........  .........     -340    .........    3,789    ........     2,413    -1,386
      FHA-general and special risk \4\......................     -175    .........     -110        -25        743         79    ........      -217      -403

    Interior:
      Bureau of Indian Affairs guaranteed loans.............  .........  .........  .........       31    .........  .........  ........       -14        -1

    Transportation:
      Maritime guaranteed loans (title XI)..................  .........  .........  .........  .........  .........      -71          30       -15       184

    Veterans Affairs:
      Veterans housing benefit fund program.................     -447        167        334       -706         38        492         229      -770      -163

    International Assistance Programs:
      U.S. Agency for International Development:
        Housing guaranty....................................       -2         -1         -7    .........      -14    .........  ........  ........  ........
        Development credit authority........................  .........  .........  .........  .........  .........  .........  ........  ........        -1
        Micro and small enterprise development..............  .........  .........  .........  .........  .........  .........  ........  ........        -1
        Urban and environmental credit......................  .........  .........  .........  .........  .........  .........  ........  ........       -13
        Assistance to the new independent states of the       .........  .........  .........  .........  .........  .........  ........  ........       -25
         former Soviet Union................................
      Overseas Private Investment Corporation:
        OPIC guaranteed loans...............................  .........  .........  .........  .........  .........  .........  ........  ........        46

    Small Business Administration:
      Business loans........................................  .........  .........      257        -16       -279       -545        -235      -528      -183

    Other Independent Agencies:
      Export-Import Bank guarantees.........................      -11        -59         13    .........  .........  .........      -191    -1,520      -417
                                                             -----------------------------------------------------------------------------------------------
        Total...............................................     -616        995        727       -832      5,642      4,518      -3,641    -6,427    -1,355

    --------------------------------------------------------------------------------------------------------------------------------------------------------
    * $500 thousand or less.
    \1\ Excludes interest on reestimates. Additional information on credit reform subsidy rates is contained in the Federal Credit Supplement.
    \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 206]]

                                       Table 9-4.  DIRECT LOAN SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 2001-2003
                                                                  (dollar amounts in millions)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          2001 Actual                    2002 Enacted                  2003 Proposed
                                                                --------------------------------------------------------------------------------------------
                         Agency and Program                                 Subsidy                        Subsidy                        Subsidy
                                                                  Subsidy    budget   New loan   Subsidy    budget   New loan   Subsidy    budget   New loan
                                                                 rate \1\  authority   levels   rate \1\  authority   levels   rate \1\  authority   levels
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Agriculture:
      Agricultural credit insurance fund.......................     15.36        164     1,068      6.78         60       885     14.09        113       802
      Farm storage facility loans..............................      2.18          2        86      2.42          3       125      1.28          2       125
      Apple loans..............................................     -4.80         -1        12  ........  .........  ........  ........  .........  ........
      Emergency boll weevil loan...............................     60.00          6        10  ........  .........  ........  ........  .........  ........
      Rural community advancement program......................     12.64        155     1,226      6.56         74     1,128     10.15        108     1,064
      Rural electrification and telecommunications loans.......     -0.52        -16     3,051     -0.54        -24     4,466     -0.66        -20     3,016
      Rural telephone bank.....................................      1.48          3       175      2.14          4       175  ........  .........  ........
      Distance learning and telemedicine program...............     -0.75         -3       400  ........  .........       380      2.31          3       130
      Farm labor...............................................     52.59         15        28     47.31         13        28     49.02         18        36
      Rural housing insurance fund.............................     19.35        239     1,235     16.11        201     1,248     20.86        224     1,074
      Rural development loan fund..............................     50.91         19        38     43.21         16        38     48.26         19        40
      Rural economic development loans.........................     26.07          4        15     24.16          4        15     21.36          3        15
      Public law 480 title I...................................     71.51        114       159     81.73        127       155     75.11         99       132

    Commerce:
      Fisheries finance........................................  ........  .........        74    -12.50         -3        24    -12.50         -3        24

    Defense--Military:
      Family housing improvement fund..........................     38.18         42       110     66.19         24        36     45.10  .........  ........

    Education:
      Federal direct student loan program......................     -4.47       -891    19,914     -4.02       -855    21,266     -3.50       -648    18,843

    Housing and Urban Development:
      FHA-mutual mortgage insurance............................  ........  .........         1  ........  .........       250  ........  .........        50
      FHA-general and special risk.............................  ........  .........        50  ........  .........        50  ........  .........        50

    Interior:
      Bureau of Reclamation loan...............................     33.33          9        27     26.92          7        26  ........  .........  ........
      Assistance to territories................................     15.58          3        19  ........  .........  ........  ........  .........  ........

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

    Transportation:
      Federal-aid highways.....................................     10.99         96       874      5.36        118     2,200      4.42         89     2,014
      Railroad rehabilitation and improvement program..........  ........  .........  ........  ........  .........       150  ........  .........       100

    Treasury:
      Community development financial institutions fund........     41.67          5        12     36.36          4        11     36.94          4        11

    Veterans Affairs:
      Veterans housing benefit program fund....................      2.16         32     1,463      0.86         16     1,809     -5.09        -98     1,917
      Miscellaneous veterans housing loans.....................      7.72  .........         1      7.72  .........  ........     43.48         10        23
      Miscellaneous veterans programs loan fund................      1.88  .........         2      2.18  .........         3      1.50  .........         3

    Federal Emergency Management Agency:
      Disaster assistance direct loan..........................      8.00          2        25     91.92  .........        25     -4.00         -1        25

    International Assistance:
      Debt restructuring.......................................  ........         88  ........  ........          5  ........  ........  .........  ........
      Overseas Private Investment Corporation..................      7.11         15       204     11.00  .........  ........     11.00         11       100

    Small Business Administration:
      Disaster loans...........................................     17.47        153       876     17.67        162       917     13.94         76       545
      Business loan............................................      8.95          3        30      6.78          2        26     13.05          3        27

    Other Independent Agencies:
      Export-Import Bank loans.................................     10.91         95       871     21.74         35       161     17.32         31       179
                                                                --------------------------------------------------------------------------------------------
        Total..................................................       N/A        354    32,057       N/A         -6    35,598       N/A         44    30,346
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\  Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
    N/A = Not applicable.

    [[Page 207]]

                                      Table 9-5. LOAN GUARANTEE SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 2001-2003
                                                                  (dollar amounts in millions)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          2001 Actual                    2002 Enacted                  2003 Proposed
                                                                --------------------------------------------------------------------------------------------
                         Agency and Program                                 Subsidy                        Subsidy                        Subsidy
                                                                  Subsidy    budget   New loan   Subsidy    budget   New loan   Subsidy    budget   New loan
                                                                 rate \1\  authority   levels   rate \1\  authority   levels   rate \1\  authority   levels
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Agriculture:
      Agricultural credit insurance fund.......................      4.41        102     2,314      3.98        128     3,220      3.23         97     3,000
      Commodity Credit Corporation export loans................      6.01        194     3,227      6.80        267     3,926      6.96        294     4,225
      Rural community advancement program......................      0.67         18     2,668      2.46         25     1,018      2.65         27     1,018
      Rural electrification and telecommunications loans.......      0.01  .........        59      0.08  .........       100      0.08  .........       100
      Local television loan guarantee..........................  ........  .........  ........      7.75         20       258  ........  .........  ........
      Rural housing insurance fund.............................      0.28          9     3,236      1.36         44     3,238      0.84         24     2,850

    Commerce:
      Emergency oil and gas guaranteed loan....................     32.91          1         3     42.03  .........  ........  ........  .........  ........
      Emergency steel guaranteed loan..........................     11.68         13       110     14.00         31       221  ........  .........  ........

    Defense--Military:
      Family housing improvement fund..........................      6.25          3        48      6.25         12       221      5.66  .........  ........

    Education:
      Federal family education loan............................      8.84      3,069    34,705      9.76      3,782    38,750     10.37      4,101    39,559

    Health and Human Services:
      Health resources and services............................      3.01  .........         7      4.76          1        21      5.88          1        17

    Housing and Urban Development:
      Indian housing loan guarantee fund.......................      8.13          1        12      2.47          6       234      2.43          5       194
      Native Hawaiian housing loan guarantee fund..............  ........  .........  ........      2.47          1        40      2.43          1        40
      Native American housing block grant......................     11.07          1         9     11.07          6        53     11.07          2        17
      Community development loan guarantees....................      2.30         29     1,258      2.30         14       609      2.30          6       275
      FHA-mutual mortgage insurance............................     -2.15     -2,246   160,000     -2.07     -2,791   160,000     -2.53     -2,938   160,000
      FHA-general and special risk.............................     -0.14         36    21,000     -1.46       -242    21,000     -0.85       -158    21,000

    Interior:
      Indian guaranteed loan...................................      6.73          4        60      6.00          4        75      6.91          5        72

    Transportation:
      Minority business resource center program................      2.69          2        14      2.70          1        18      2.69          1        18
      Federal-aid highways.....................................  ........  .........  ........      3.97          8       200      4.35          5       100
      Maritime guaranteed loan (title XI)......................      4.66         34       729      5.00         33       660  ........  .........  ........

    Treasury:
      Air transportation stabilization.........................  ........  .........  ........     28.52      1,426     5,000     29.26      1,463     5,000

    Veterans Affairs:
      Veterans housing benefit program fund....................      0.41        132    31,948      0.56        187    33,286      1.27        437    34,364
      Miscellaneous veterans housing loans.....................     48.25  .........  ........     48.25  .........  ........  ........  .........  ........

    International Assistance:
      Microenterprise and small enterprise development.........      5.51          2        36      3.93  .........  ........  ........  .........  ........
      Development credit authority.............................      2.72          1        35      6.42         13       202      6.44  .........  ........
      Overseas Private Investment Corporation..................      1.37         14     1,024      1.65  .........  ........      1.70         13       765

    Small Business Administration:
      Business loan............................................      0.96        135    13,990      0.68        153    22,458      0.52         85    16,350

    Other Independent Agencies:
      Export-Import Bank loans.................................      8.81        737     8,370      9.68        991    10,239      5.52        625    11,321
      Presidio Trust...........................................      0.46  .........  ........      0.12  .........       200      0.13  .........  ........
                                                                --------------------------------------------------------------------------------------------
        Total..................................................       N/A      2,291   284,862       N/A      4,120   305,247       N/A      4,096   300,285
                                                                --------------------------------------------------------------------------------------------
     ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS

    GNMA:
      Guarantees of mortgage-backed securities loan guarantee..     -0.36       -356   200,000     -0.33       -398   200,000     -0.33       -398   200,000
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\  Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
    N/A = Not applicable.

    [[Page 208]]

                             Table 9-6.  SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES
                                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                 Actual                                 Estimate
                                    --------------------------------------------------------------------------------
                                       1995     1996     1997     1998     1999     2000     2001     2002     2003
    ----------------------------------------------------------------------------------------------------------------
    Direct Loans:
        Obligations................     30.9     23.4     33.6     28.8     38.4     37.1     39.1     47.3     39.9
        Disbursements..............     22.0     23.6     32.2     28.7     37.7     35.5     37.1     43.3     37.3
        New subsidy budget           .......  .......  .......     -0.8      1.6     -0.4      0.3  .......  .......
         authority.................
        Reestimated subsidy budget   .......  .......  .......      7.3      1.0     -4.4     -1.8      1.2  .......
         authority \1\.............
        Total subsidy budget             2.6      1.8      2.4      6.5      2.6     -4.8     -1.5      1.2  .......
         authority \2\.............

    Loan Guarantees: \3\
        Commitments................    138.5    175.4    172.3    218.4    252.4    192.6    256.4    293.5    282.8
        Lender disbursements.......    117.9    143.9    144.7    199.5    224.7    180.8    212.9    253.6    247.5
        New subsidy budget           .......  .......  .......      3.3  .......      3.3      1.9      3.7      3.7
         authority.................
        Reestimated subsidy budget   .......  .......  .......     -0.7      4.3      0.3     -7.1     -3.0  .......
         authority \1\.............
        Total subsidy budget             4.6      4.0      3.6      2.6      4.3      3.6     -5.2      0.7      3.7
         authority \2\.............
    ----------------------------------------------------------------------------------------------------------------
    \1\ Includes interest on reestimate.
    \2\ Prior to 1998 new and reestimated subsidy budget authority were not reported separately.
    \3\ GNMA secondary guarantees of loans that are guaranteed by FHA, VA and RHS are excluded from the totals to
      avoid double-counting.

    [[Page 209]]

                     Table 9-7. DIRECT LOAN WRITE-OFFS AND GUARANTEED LOAN TERMINATIONS FOR DEFAULTS
    ----------------------------------------------------------------------------------------------------------------
                                                     (Dollar amounts in millions)    As a percentage of outstanding
                                                   --------------------------------             loans \1\
                  Agency and Program                                               ---------------------------------
                                                       2001       2002      2003       2001        2002       2003
                                                     actual     estimate  estimate   actual      estimate   estimate
    ----------------------------------------------------------------------------------------------------------------
                 DIRECT LOAN WRITEOFFS

    Agriculture:
      Agricultural credit insurance fund..........        176        247       242        1.98       2.87       2.97
      Rural community advancement program.........          1   ........  ........        0.01  .........  .........
      Rural electrification and telecommunications      2,953        142       130        9.69       0.46       0.41
       loans......................................
      Rural development insurance fund............          1          1         1        0.03       0.03       0.03
      Rural housing insurance fund................        214        139       134        0.76       0.50       0.48
      Rural development loan fund.................          1   ........  ........        0.27  .........  .........

    Commerce:
      Economic development revolving fund.........          1          1         1        2.85       3.22       3.70

    Education:
      Student financial assistance................          9          9         9        1.47       1.49       1.53

    Housing and Urban Development:
      Revolving fund (liquidating programs).......         47          2         2       58.75      11.76      14.28
      FHA--Mutual mortgage insurance..............  ..........         1         9  ..........       3.70      19.14
      Flexible subsidy fund.......................         71         71        71       10.51      11.52      12.97
      Guarantees of mortgage-backed securities....          4         27        25        3.66      27.00      30.48

    Interior:
      Indian direct loan..........................          2          2         2        3.22       3.70       4.25

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

    Veterans Affairs:
      Veterans housing benefit program............         21         24        25        1.15       1.23       1.37

    Federal Emergency Management Agency:
      Disaster assistance.........................  ..........        29  ........  ..........      18.01  .........

    International Assistance Programs:
      Military debt reduction.....................  ..........        16  ........  ..........      84.21  .........
      Overseas Private Investment Corporation.....          2          1         1        2.98       1.25       1.16

    Small Business Administration:
      Disaster loans..............................        350         40        41        7.42       1.19       1.69
      Business loans..............................         63         18        16       12.75       4.50       4.80

    Other Independent Agencies:
      Spectrum auction program....................      2,231   ........  ........       32.40  .........  .........
      Tennessee Valley Authority fund.............          1   ........         1        1.92  .........       1.72
                                                   -----------------------------------------------------------------
        Total, direct loan writeoffs..............      6,149        771       711        2.91       0.35       0.31
                                                   -----------------------------------------------------------------

       GUARANTEED LOAN TERMINATIONS FOR DEFAULT

    Agriculture:
      Agricultural credit insurance fund..........        116        121       125        1.24       1.19       1.09
      Commodity Credit Corporation export loans...         52        334       325        0.91       6.90       6.88
      Rural community advancement program.........         34         50        50        0.94       1.09       0.84
      Rural electrification and telecommunications         24         23        21        4.32       3.95       3.25
       loans......................................
      Rural housing insurance fund................         64         85        99        0.53       0.62       0.64

    Commerce:
      Emergency oil and gas guaranteed loan         ..........         2  ........  ..........      66.66  .........
       program....................................
      Emergency steel guaranteed loan program.....  ..........        45  ........  ..........      25.86  .........
      Fisheries finance...........................          1          1         1        1.03       1.21       1.49

    Education:
      Federal family education loan...............      3,503      3,677     4,209        2.29       2.23       2.43

    Health and Human Services:
      Health education assistance loans...........         30         40        42        1.35       1.87       2.04

    Housing and Urban Development:
      Indian housing loan guarantee...............  ..........         1         2  ..........       1.40       2.40
      Title VI Indian Federal guarantees program..  ..........  ........         1  ..........  .........       2.17
      FHA--Mutual mortgage insurance..............      4,987      3,785     3,699        1.09       0.80       0.71
      FHA--General and special risk...............      1,426      2,107     2,409        1.44       2.12       2.30

    Interior:
      Indian guaranteed loan......................  ..........         2         1  ..........       0.92       0.41

    [[Page 210]]

    Transportation:
      Maritime guaranteed loan (title XI).........         76        367        94        1.70       7.78       2.05

    Treasury:
      Air transportation stabilization guaranteed   ..........       608     1,006  ..........      31.09      18.51
       loan.......................................

    Veterans Affairs:
      Veterans housing benefit program............      1,760      2,431     2,619        0.76       1.00       1.04

    International Assistance Programs:
      Foreign military financing..................  ..........         2         5  ..........       0.04       0.13
      Micro and small enterprise development......  ..........         1         1  ..........       2.63       2.22
      Urban and environmental credit program......         44         44        47        2.00       2.14       2.41
      Development credit authority................  ..........         1         1  ..........       1.03       0.46
      Overseas Private Investment Corporation.....         34        164        46        1.04       4.74       1.25

    Small Business Administration:
      Business loans..............................        661        682       695        1.87       1.79       1.72

    Other Independent Agencies:
      Export-Import Bank..........................        569        373       455        1.88       1.20       1.51
                                                   -----------------------------------------------------------------
        Total, guaranteed loan terminations for        13,381     14,946    15,953        0.80       0.86       0.86
         default..................................
                                                   -----------------------------------------------------------------
        Total, direct loan writeoffs and               19,530     15,717    16,664        1.03       0.80       0.80
         guaranteed loan terminations.............
                                                   =================================================================

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

    Education:
      Federal family education loan...............        296        301       318        1.48       1.51       1.54

    Health and Human Services:
      Health education assistance loans...........         24         24        24        4.31       4.33       4.41

    Housing and Urban Development:
      FHA--Mutual mortgage insurance..............         39         18  ........       50.00     100.00  .........
      FHA--General and special risk...............        477         95       388       18.60       3.32      11.84

    Transportation:
      Federal ship financing fund.................         17   ........  ........      100.00  .........  .........

    Veterans Affairs:
      Veterans housing benefit program............         48         54        57       10.52       8.19       7.75

    Small Business Administration:
      Business loans..............................        188         80        85       14.00       5.55       5.16
                                                   -----------------------------------------------------------------
        Total, writeoffs of loans receivable......      1,089        572       872        3.61       1.85       2.62
    ----------------------------------------------------------------------------------------------------------------
    \1\ Average of loans outstanding for the year.

    [[Page 211]]

                          Table 9-8. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS \1\
                                              (Dollar amounts in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                                          Enacted          Proposed
                                 Agency and Program                              -----------------------------------
                                                                                     2001        2002        2003
    ----------------------------------------------------------------------------------------------------------------
                               DIRECT LOAN OBLIGATIONS

    Agriculture:
      Apple loans...............................................................          12  ..........  ..........
      Agricultural credit insurance fund........................................         848         885         802
      Emergency boll weevil.....................................................          10  ..........  ..........
      Distance learning and telemedicine........................................         400         380         130
      Rural electrification and telecommunications..............................       3,051       4,466       3,016
      Rural telephone bank......................................................         175         175  ..........
      Rural water and waste disposal direct loans...............................         767         879         814
      Rural housing insurance fund..............................................       1,263       1,277       1,110
      Rural community facility direct loans.....................................         409         249         250
      Rural economic development................................................          15          15          15
      Rural development loan fund...............................................          38          38          40
      Rural business and industry direct loans..................................          50  ..........  ..........
      P.L. 480 direct credit....................................................         160         155         132

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

    Education:
      Historically black college and university capital financing...............         311         295         254

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

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

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

    Transportation:
      Transportation infrastructure finance and innovation program direct loan..       1,800       2,000       2,400
      Transportation infrastructure finance and innovation program line of               200         200         100
       credit...................................................................

    Treasury:
      Community development financial institutions fund.........................          12          11          11

    Veterans Affairs:
      Miscellaneous veterans housing loans......................................  ..........  ..........           5
      Miscellaneous veterans programs loan fund.................................           3           3           3

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

    Small Business Administration:
      Business loans............................................................          30          25          26
                                                                                 -----------------------------------
        Total, limitations on direct loan obligations...........................      10,000      11,429       9,258
                                                                                 -----------------------------------

                             LOAN GUARANTEE COMMITMENTS

    Agriculture:
      Agricultural credit insurance fund........................................       2,053       3,006       3,000
      Rural electrification and telecommunications guaranteed loans.............          59         100         100
      Rural water and waste water disposal guaranteed loans.....................          75          75          75
      Local television loan guarantee...........................................  ..........         258  ..........
      Rural housing insurance fund..............................................       3,236       3,238       2,850
      Rural community facility guaranteed loans.................................         210         210         210
      Rural business and industry guaranteed loans..............................       2,383         733         733

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

    Housing and Urban Development:
      Indian housing loan guarantee fund........................................          72         234         234
      Title VI Indian Federal guarantees........................................          53          53          17
      Native Hawaiian housing loan guarantee fund...............................  ..........          40          40
      Community development loan guarantees.....................................       1,258         609         275
      FHA-general and special risk..............................................      21,000      21,000      21,000
      FHA-mutual mortgage insurance.............................................     160,000     160,000     160,000

    [[Page 212]]

    Interior:
      Indian guaranteed loan....................................................          60          75          72

    Transportation:
      Minority business resource center.........................................          14          18          18
      Transportation infrastructure finance and innovation program loan                  200         200         100
       guarantee................................................................

    Treasury:
      Air transportation stabilization..........................................  ..........      10,000  ..........

    Small Business Administration:
      Business loans............................................................      13,990      22,458      16,350
                                                                                 -----------------------------------
        Total, limitations on loan guarantee commitments........................     219,643     237,287     220,054
                                                                                 ===================================

             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 represent 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 9-4 and 9-5.

    [[Page 213]]

                              Table 9-9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                    Estimate
                                Agency and Account                                 2001    -------------------------
                                                                                 Actual         2002         2003
    ----------------------------------------------------------------------------------------------------------------
                            Department of Agriculture

                               Farm Service Agency

    Agricultural credit insurance fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -604         -638         -608
       Outstandings..........................................................       4,463        3,825        3,217

    Farm storage facility direct loan financing account:
       Obligations...........................................................          81          125          125
       Loan disbursements....................................................          48          156          125
       Change in outstandings................................................          46          120           89
       Outstandings..........................................................          78          198          287

    Apple loans direct loan financing account:
       Obligations...........................................................          12   ...........  ...........
       Loan disbursements....................................................          11            1   ...........
       Change in outstandings................................................          11           -3           -4
       Outstandings..........................................................          11            8            4

    Agricultural credit insurance fund direct loan financing account:
       Obligations...........................................................       1,066        1,003          902
       Loan disbursements....................................................       1,072        1,011          917
       Change in outstandings................................................         404          296            8
       Outstandings..........................................................       4,313        4,609        4,617

    Emergency boll weevil direct loan financing account:
       Obligations...........................................................          10   ...........  ...........
       Loan disbursements....................................................          10   ...........  ...........
       Change in outstandings................................................          10           -1           -1
       Outstandings..........................................................          10            9            8

    Commodity Credit Corporation fund:
       Obligations...........................................................       8,267       10,624        8,844
       Loan disbursements....................................................       8,267       10,624        8,844
       Change in outstandings................................................      -1,188          689         -489
       Outstandings..........................................................       2,276        2,965        2,476

                             Rural Utilities Service

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

    Distance learning and telemedicine direct loan financing account:
       Obligations...........................................................         100          380          130
       Loan disbursements....................................................          15           12           24
       Change in outstandings................................................          14           11           22
       Outstandings..........................................................          16           27           49

    Rural development insurance fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -201         -188         -177
       Outstandings..........................................................       3,068        2,880        2,703

    Rural electrification and telecommunications direct loan financing
     account:
       Obligations...........................................................       3,051        4,466        3,016
       Loan disbursements....................................................       2,151        2,416        2,618
       Change in outstandings................................................       1,941        2,210        2,351
       Outstandings..........................................................       9,072       11,282       13,633

    Rural telephone bank direct loan financing account:
       Obligations...........................................................         175          175   ...........
       Loan disbursements....................................................          81          129          127
       Change in outstandings................................................          70          115          111
       Outstandings..........................................................         338          453          564

    [[Page 214]]

    Rural water and waste disposal direct loans financing account:
       Obligations...........................................................         743          893          814
       Loan disbursements....................................................         694          800          779
       Change in outstandings................................................         606          734          703
       Outstandings..........................................................       4,548        5,282        5,985

    Rural electrification and telecommunications liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           9           13           13
       Change in outstandings................................................      -2,724       -1,676       -1,540
       Outstandings..........................................................      21,009       19,333       17,793

    Rural telephone bank liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           7            7            6
       Change in outstandings................................................        -129          -71          -72
       Outstandings..........................................................         795          724          652

                              Rural Housing Service

    Rural housing insurance fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................      -1,183         -989         -912
       Outstandings..........................................................      16,183       15,194       14,282

    Rural housing insurance fund direct loan financing account:
       Obligations...........................................................       1,276        1,328        1,110
       Loan disbursements....................................................       1,212        1,290        1,160
       Change in outstandings................................................         644          724          527
       Outstandings..........................................................      11,697       12,421       12,948

    Rural community facility direct loans financing account:
       Obligations...........................................................         325          403          250
       Loan disbursements....................................................         163          264          275
       Change in outstandings................................................         124          232          238
       Outstandings..........................................................         988        1,220        1,458

                       Rural Business--Cooperative Service

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

    Rural economic development direct loan financing account:
       Obligations...........................................................          23           15           15
       Loan disbursements....................................................          16           22           14
       Change in outstandings................................................           4            9           -1
       Outstandings..........................................................          73           82           81

    Rural development loan fund direct loan financing account:
       Obligations...........................................................          44           38           40
       Loan disbursements....................................................          40           42           44
       Change in outstandings................................................          31           33           33
       Outstandings..........................................................         313          346          379

    Rural business and industry direct loans financing account:
       Obligations...........................................................          50   ...........  ...........
       Loan disbursements....................................................          27           30            6
       Change in outstandings................................................          23           24   ...........
       Outstandings..........................................................          82          106          106

    Rural development loan fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -4           -3           -3
       Outstandings..........................................................          66           63           60

    [[Page 215]]

                           Foreign Agricultural Service

    Expenses, Public Law 480, foreign assistance programs, Agriculture
     liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -323         -294         -278
       Outstandings..........................................................       8,219        7,925        7,647

    P.L. 480 direct credit financing account:
       Obligations...........................................................          60          514          132
       Loan disbursements....................................................         180          119          107
       Change in outstandings................................................         121           60           34
       Outstandings..........................................................       2,176        2,236        2,270

    P.L. 480 title I food for progress credits, financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................         -39          -56          -56
       Outstandings..........................................................         465          409          353

    Debt reduction--financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          82   ...........  ...........
       Change in outstandings................................................          75           -7           -7
       Outstandings..........................................................         132          125          118

                              Department of Commerce

                       Economic Development Administration

    Economic development revolving fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -4           -4           -4
       Outstandings..........................................................          33           29           25

                 National Oceanic and Atmospheric Administration

    Fisheries finance direct loan financing account:
       Obligations...........................................................          74           24           24
       Loan disbursements....................................................          24           24           74
       Change in outstandings................................................          24           14           66
       Outstandings..........................................................         161          175          241

                         Department of Defense--Military

                                  Family Housing

    Family housing improvement direct loan financing account:
       Obligations...........................................................  ...........          36   ...........
       Loan disbursements....................................................  ...........          33          110
       Change in outstandings................................................  ...........          33          110
       Outstandings..........................................................  ...........          33          143

                             Department of Education

                        Office of Postsecondary Education

    College housing and academic facilities loans liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           1   ...........  ...........
       Change in outstandings................................................         -34          -34          -29
       Outstandings..........................................................         424          390          361

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

    Historically black college and university capital financing direct loan
     financing account:
       Obligations...........................................................          16           42           40
       Loan disbursements....................................................          11           39           35
       Change in outstandings................................................          10           39           34
       Outstandings..........................................................          31           70          104

    [[Page 216]]

                      Office of Student Financial Assistance

    Student financial assistance:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -9          -10          -18
       Outstandings..........................................................         606          596          578

    Federal direct student loan program financing account:
       Obligations...........................................................      19,219       21,266       19,123
       Loan disbursements....................................................      18,166       19,805       17,279
       Change in outstandings................................................      11,962       14,848       10,479
       Outstandings..........................................................      70,484       85,332       95,811

                               Department of Energy

                          Power Marketing Administration

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

                     Department of Health and Human Services

                   Health Resources and Services Administration

    Medical facilities guarantee and loan fund:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -2           -4           -5
       Outstandings..........................................................           9            5   ...........

                   Department of Housing and Urban Development

                        Public and Indian Housing Programs

    Low-rent public housing--loans and other expenses:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................         -70          -70          -70
       Outstandings..........................................................       1,280        1,210        1,140

                        Community Planning and Development

    Revolving fund (liquidating programs):
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -123           -3           -3
       Outstandings..........................................................          19           16           13

    Community development loan guarantees liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -3           -2           -2
       Outstandings..........................................................           8            6            4

                                 Housing Programs

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

    Flexible subsidy fund:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          20           12   ...........
       Change in outstandings................................................         -55          -63          -75
       Outstandings..........................................................         648          585          510

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

    [[Page 217]]

    FHA-general and special risk insurance funds liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -6           -5          -10
       Outstandings..........................................................          38           33           23

    FHA-general and special risk direct loan financing account:
       Obligations...........................................................  ...........           4            4
       Loan disbursements....................................................           1            4            4
       Change in outstandings................................................           1   ...........  ...........
       Outstandings..........................................................           2            2            2

    Housing for the elderly or handicapped fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           4            5            1
       Change in outstandings................................................        -118         -182         -220
       Outstandings..........................................................       7,805        7,623        7,403

    FHA-mutual mortgage insurance direct loan financing account:
       Obligations...........................................................           1          125           50
       Loan disbursements....................................................           1          125           50
       Change in outstandings................................................           1           51           -9
       Outstandings..........................................................           1           52           43

                     Government National Mortgage Association

    Guarantees of mortgage-backed securities liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          47           46           45
       Change in outstandings................................................           1          -20          -15
       Outstandings..........................................................         110           90           75

                            Department of the Interior

                              Bureau of Reclamation

    Bureau of Reclamation loan liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................         -13           -4           -3
       Outstandings..........................................................          50           46           43

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

    Bureau of Reclamation direct loan financing account:
       Obligations...........................................................          27           16   ...........
       Loan disbursements....................................................          25           48            9
       Change in outstandings................................................          -6           47            6
       Outstandings..........................................................         160          207          213

                              National Park Service

    Construction and major maintenance:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........  ...........          -1
       Outstandings..........................................................           5            5            4

                             Bureau of Indian Affairs

    Revolving fund for loans liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -4           -4           -4
       Outstandings..........................................................          35           31           27

    Indian direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -4           -3           -3
       Outstandings..........................................................          23           20           17

    [[Page 218]]

                                 Insular Affairs

    Payments to the United States territories, fiscal assistance:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -2           -2           -1
       Outstandings..........................................................          13           11           10

    Assistance to American Samoa direct loan financing account:
       Obligations...........................................................          19   ...........  ...........
       Loan disbursements....................................................          13            6   ...........
       Change in outstandings................................................          12            5           -1
       Outstandings..........................................................          12           17           16

                               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...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -2           -5   ...........
       Outstandings..........................................................           5   ...........  ...........

                          Federal Highway Administration

    Transportation infrastructure finance and innovation program direct loan
     financing account:
       Obligations...........................................................         874        2,000        1,914
       Loan disbursements....................................................  ...........         430          830
       Change in outstandings................................................  ...........         430          830
       Outstandings..........................................................         300          730        1,560

    Transportation infrastructure finance and innovation program line of
     credit financing account:
       Obligations...........................................................  ...........         200          100
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........  ...........  ...........
       Outstandings..........................................................  ...........  ...........  ...........

    Right-of-way revolving fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          11           10           10
       Change in outstandings................................................         -20          -14          -14
       Outstandings..........................................................         109           95           81

                         Federal Railroad Administration

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

    Alameda corridor direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          15           31           33
       Outstandings..........................................................         503          534          567

    Railroad rehabilitation and improvement liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........          -9           -4
       Outstandings..........................................................          49           40           36

    [[Page 219]]

    Railroad rehabilitation and improvement direct loan financing account:
       Obligations...........................................................  ...........         210          197
       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...........................................................          12           11           11
       Loan disbursements....................................................           9           10           10
       Change in outstandings................................................           9            9            9
       Outstandings..........................................................          24           33           42

                          Department of Veterans Affairs

                         Veterans Benefits Administration

    Veterans housing benefit program fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           7            6            5
       Change in outstandings................................................         -36          -34          -26
       Outstandings..........................................................         128           94           68

    Veterans housing benefit program fund direct loan financing account:
       Obligations...........................................................       1,463        1,809        1,917
       Loan disbursements....................................................       1,463        1,809        1,917
       Change in outstandings................................................         226          101         -298
       Outstandings..........................................................       1,782        1,883        1,585

    Miscellaneous veterans housing loans direct loan financing account:
       Obligations...........................................................           2            3           15
       Loan disbursements....................................................           2            3           15
       Change in outstandings................................................           2            2           14
       Outstandings..........................................................          19           21           35

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

                         Environmental Protection Agency

    Abatement, control, and compliance direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -4           -5           -5
       Outstandings..........................................................          42           37           32

                       Federal Emergency Management Agency

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

    Disaster assistance direct loan financing account:
       Obligations...........................................................  ...........          25           25
       Loan disbursements....................................................          31           25           25
       Change in outstandings................................................          29           -8           17
       Outstandings..........................................................         165          157          174

                         General Services Administration

                             Real Property Activities

    Columbia Hospital for Women direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -1          -13   ...........
       Outstandings..........................................................          13   ...........  ...........

    [[Page 220]]

                        International Assistance Programs

                        International Security Assistance

    Foreign military loan liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................           7            7            7
       Change in outstandings................................................        -456         -397         -339
       Outstandings..........................................................       3,767        3,370        3,031

    Foreign military financing direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................         546          339           54
       Change in outstandings................................................         173         -114         -402
       Outstandings..........................................................       1,943        1,829        1,427

    Military debt reduction financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........         -16   ...........
       Outstandings..........................................................          19            3            3

                       Agency for International Development

    Economic assistance loans liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -613         -526         -487
       Outstandings..........................................................       9,373        8,847        8,360

    Debt reduction financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          68            1   ...........
       Change in outstandings................................................          10          -56          -15
       Outstandings..........................................................         175          119          104

    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           -1   ...........
       Outstandings..........................................................           1   ...........  ...........

                     Overseas Private Investment Corporation

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

    Overseas Private Investment Corporation direct loan financing account:
       Obligations...........................................................         204           73          100
       Loan disbursements....................................................          44           42           40
       Change in outstandings................................................          18            8            6
       Outstandings..........................................................          75           83           89

                          Small Business Administration

    Business direct loan financing account:
       Obligations...........................................................          30           25           26
       Loan disbursements....................................................          53           29           18
       Change in outstandings................................................          47           14            3
       Outstandings..........................................................         107          121          124

    Disaster direct loan financing account:
       Obligations...........................................................         951        1,272          795
       Loan disbursements....................................................         683        1,334          976
       Change in outstandings................................................      -1,924         -231       -1,393
       Outstandings..........................................................       3,288        3,057        1,664

    [[Page 221]]

    Disaster loan fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................        -437         -132         -116
       Outstandings..........................................................         248          116   ...........

    Business loan fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          14           12           11
       Change in outstandings................................................        -148         -101          -50
       Outstandings..........................................................         337          236          186

                            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................................................        -308         -268         -232
       Outstandings..........................................................       4,152        3,884        3,652

    Debt reduction financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................          50          545           10
       Change in outstandings................................................          44          261           -1
       Outstandings..........................................................         146          407          406

    Export-Import Bank direct loan financing account:
       Obligations...........................................................         871          161          179
       Loan disbursements....................................................       1,738        1,452          560
       Change in outstandings................................................         924          721         -248
       Outstandings..........................................................       7,590        8,311        8,063

               Farm Credit System Financial Assistance Corporation

    Financial Assistance Corporation assistance fund liquidating account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................         -15          -16          -40
       Outstandings..........................................................         868          852          812

                        Federal Communications Commission

    Spectrum auction direct loan financing account:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................      -2,584       -4,395          -97
       Outstandings..........................................................       5,593        1,198        1,101

                      Federal Deposit Insurance Corporation

    FSLIC resolution fund:
       Obligations...........................................................  ...........  ...........  ...........
       Loan disbursements....................................................  ...........  ...........  ...........
       Change in outstandings................................................          -1           -3   ...........
       Outstandings..........................................................           3   ...........  ...........

                       National Credit Union Administration

    Community development credit union revolving loan fund:
       Obligations...........................................................          10           14           15
       Loan disbursements....................................................           2            7            5
       Change in outstandings................................................          -1            4            1
       Outstandings..........................................................          10           14           15

                            Tennessee Valley Authority

    Tennessee Valley Authority fund:
       Obligations...........................................................          13           18           19
       Loan disbursements....................................................          12           18           19
       Change in outstandings................................................          -2            6            2
       Outstandings..........................................................          51           57           59
                                                                              --------------------------------------

    [[Page 222]]

    Subtotal, direct loan transactions:
       Obligations...........................................................      39,073       47,302       39,936
       Loan disbursements....................................................      37,141       43,316       37,282
       Change in outstandings................................................       4,197       11,346        7,427
       Outstandings..........................................................     213,286      224,632      232,059
                                                                              --------------------------------------
      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........................................................          52          334          325
       Change in outstandings................................................          21          286          259
       Outstandings..........................................................         485          771        1,030

    Commodity Credit Corporation guaranteed loans liquidating account:
       Claim payments........................................................  ...........  ...........  ...........
       Change in outstandings................................................        -162         -184         -201
       Outstandings..........................................................       3,969        3,785        3,584

                              Department of Commerce

                 National Oceanic and Atmospheric Administration

    Fisheries finance guaranteed loan financing account:
       Claim payments........................................................           1            1            1
       Change in outstandings................................................           1           -3           -3
       Outstandings..........................................................          13           10            7

    Federal ship financing fund fishing vessels liquidating account:
       Claim payments........................................................  ...........  ...........  ...........
       Change in outstandings................................................          -2           -2           -2
       Outstandings..........................................................          12           10            8

                             Department of Education

                      Office of Student Financial Assistance

    Federal family education loan liquidating account:
       Claim payments........................................................         377           58           17
       Change in outstandings................................................        -866         -706         -632
       Outstandings..........................................................      14,120       13,414       12,782

    Federal family education loan program financing account:
       Claim payments........................................................       2,692        3,133        3,655
       Change in outstandings................................................          -3        1,479        1,398
       Outstandings..........................................................       5,339        6,818        8,216

                     Department of Health and Human Services

                   Health Resources and Services Administration

    Health education assistance loans financing account:
       Claim payments........................................................          14           27           30
       Change in outstandings................................................          10           22           24
       Outstandings..........................................................          63           85          109

    Health education assistance loans liquidating account:
       Claim payments........................................................          12            8            7
       Change in outstandings................................................          -3          -33          -34
       Outstandings..........................................................         497          464          430

                   Department of Housing and Urban Development

                                 Housing Programs

    FHA-mutual mortgage and cooperative housing insurance funds liquidating
     account:
       Claim payments........................................................  ...........          35           34
       Change in outstandings................................................         -42           -4   ...........
       Outstandings..........................................................           4   ...........  ...........

    FHA-general and special risk insurance funds liquidating account:
       Claim payments........................................................         618          981        1,235
       Change in outstandings................................................          39          447          337
       Outstandings..........................................................       1,999        2,446        2,783

    [[Page 223]]

    FHA-general and special risk guaranteed loan financing account:
       Claim payments........................................................         295          418          460
       Change in outstandings................................................          66           32           25
       Outstandings..........................................................         618          650          675

    FHA-mutual mortgage insurance guaranteed loan financing account:
       Claim payments........................................................           1          377          671
       Change in outstandings................................................         -98           -4   ...........
       Outstandings..........................................................           4   ...........  ...........

                            Department of the Interior

                             Bureau of Indian Affairs

    Indian loan guaranty and insurance fund liquidating account:
       Claim payments........................................................  ...........  ...........  ...........
       Change in outstandings................................................          -1           -4           -4
       Outstandings..........................................................          26           22           18

    Indian guaranteed loan financing account:
       Claim payments........................................................  ...........           2            1
       Change in outstandings................................................         -13            1   ...........
       Outstandings..........................................................          24           25           25

                           Department of Transportation

                             Maritime Administration

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

                            Department of the Treasury

                               Departmental Offices

    Air transportation stabilization guaranteed loan financing account:
       Claim payments........................................................  ...........         577          957
       Change in outstandings................................................  ...........         577          842
       Outstandings..........................................................  ...........         577        1,419

                          Department of Veterans Affairs

                         Veterans Benefits Administration

    Veterans housing benefit program fund liquidating account:
       Claim payments........................................................          30           29           27
       Change in outstandings................................................         -12            8            8
       Outstandings..........................................................         274          282          290

    Veterans housing benefit program fund guaranteed loan financing account:
       Claim payments........................................................         362          129          126
       Change in outstandings................................................         335           74           62
       Outstandings..........................................................         344          418          480

                        International Assistance Programs

                        International Security Assistance

    Foreign military loan liquidating account:
       Claim payments........................................................          24           23           31
       Change in outstandings................................................          24          -13           31
       Outstandings..........................................................          39           26           57

                       Agency for International Development

    Housing and other credit guaranty programs liquidating account:
       Claim payments........................................................          40           40           42
       Change in outstandings................................................         -73           15           24
       Outstandings..........................................................         435          450          474

                     Overseas Private Investment Corporation

    Overseas Private Investment Corporation liquidating account:
       Claim payments........................................................          13            2            1
       Change in outstandings................................................           6   ...........  ...........
       Outstandings..........................................................          19           19           19

    [[Page 224]]

    Overseas Private Investment Corporation guaranteed loan financing
     account:
       Claim payments........................................................          21          162           45
       Change in outstandings................................................          18          148           31
       Outstandings..........................................................          49          197          228

                          Small Business Administration

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

    Business guaranteed loan financing account:
       Claim payments........................................................         645          670          684
       Change in outstandings................................................         149          258          252
       Outstandings..........................................................         966        1,224        1,476

    Business loan fund liquidating account:
       Claim payments........................................................          16           12           11
       Change in outstandings................................................        -141          -70          -29
       Outstandings..........................................................         381          311          282
                                                                              --------------------------------------
    Subtotal, defaulted guaranteed loans that result in a loan receivable:
       Claim payments........................................................       5,213        7,018        8,360
       Change in outstandings................................................        -764        2,324        2,388
       Outstandings..........................................................      29,729       32,053       34,441
                                                                              ======================================
    Total:
       Obligations...........................................................      39,073       47,302       39,936
       Loan disbursements....................................................      42,354       50,334       45,642
       Change in outstandings................................................       3,433       13,670        9,815
       Outstandings..........................................................     243,015      256,685      266,500
    ----------------------------------------------------------------------------------------------------------------

    [[Page 225]]

                           Table 9-10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                    Estimate
                                Agency and Account                                 2001    -------------------------
                                                                                 Actual         2002         2003
    ----------------------------------------------------------------------------------------------------------------
                            Department of Agriculture

                               Farm Service Agency

    Agricultural credit insurance fund liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -60          -67          -52
       Outstandings..........................................................         411          344          292

    Agricultural credit insurance fund guaranteed loan financing account:
       Commitments...........................................................       2,315        3,220        3,000
       New guaranteed loans..................................................       2,200        2,988        3,025
       Change in outstandings................................................         510        1,312        1,302
       Outstandings..........................................................       9,111       10,423       11,725

    Commodity Credit Corporation export guarantee financing account:
       Commitments...........................................................       3,227        3,926        4,225
       New guaranteed loans..................................................       2,183        3,926        4,225
       Change in outstandings................................................      -1,568         -153          -80
       Outstandings..........................................................       4,915        4,762        4,682

                      Natural Resources Conservation Service

    Agricultural resource conservation demonstration guaranteed loan
     financing account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........  ...........         -10
       Outstandings..........................................................          24           24           14

                             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..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -13          -12          -10
       Outstandings..........................................................          99           87           77

    Rural electrification and telecommunications guaranteed loans financing
     account:
       Commitments...........................................................          59          100          100
       New guaranteed loans..................................................          35           68          113
       Change in outstandings................................................          35           65          109
       Outstandings..........................................................         203          268          377

    Rural water and waste water disposal guaranteed loans financing account:
       Commitments...........................................................           5           75           75
       New guaranteed loans..................................................  ...........          43           72
       Change in outstandings................................................          -8           41           69
       Outstandings..........................................................          11           52          121

    Local television loan guarantee financing account:
       Commitments...........................................................  ...........         258   ...........
       New guaranteed loans..................................................  ...........          52          116
       Change in outstandings................................................  ...........          52          114
       Outstandings..........................................................  ...........          52          166

    Rural electrification and telecommunications liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -24          -23          -21
       Outstandings..........................................................         358          335          314

                              Rural Housing Service

    Rural housing insurance fund liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................          -2           -2           -1
       Outstandings..........................................................          18           16           15

    [[Page 226]]

    Rural housing insurance fund guaranteed loan financing account:
       Commitments...........................................................       2,342        3,250        2,850
       New guaranteed loans..................................................       2,171        2,817        2,751
       Change in outstandings................................................       1,374        1,915        1,698
       Outstandings..........................................................      12,673       14,588       16,286

    Rural community facility guaranteed loans financing account:
       Commitments...........................................................         139          210          210
       New guaranteed loans..................................................          15          155          179
       Change in outstandings................................................           2          137          155
       Outstandings..........................................................         227          364          519

                       Rural Business--Cooperative Service

    Rural business and industry guaranteed loans financing account:
       Commitments...........................................................       1,076        1,152          733
       New guaranteed loans..................................................         809        1,777        1,294
       Change in outstandings................................................         324        1,453          908
       Outstandings..........................................................       3,504        4,957        5,865

                              Department of Commerce

                             Departmental Management

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

    Emergency steel guaranteed loan financing account:
       Commitments...........................................................         110          236   ...........
       New guaranteed loans..................................................         110          236   ...........
       Change in outstandings................................................         109          131          -62
       Outstandings..........................................................         109          240          178

                       Economic Development Administration

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

                 National Oceanic and Atmospheric Administration

    Fisheries finance guaranteed loan financing account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -11          -11          -11
       Outstandings..........................................................          51           40           29

    Federal ship financing fund fishing vessels liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................          -4           -4           -3
       Outstandings..........................................................          39           35           32

                         Department of Defense--Military

                            Operation and Maintenance

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

                                   Procurement

    Arms initiative guaranteed loan financing account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........          -1           -1
       Outstandings..........................................................          28           27           26

    [[Page 227]]

                                  Family Housing

    Family housing improvement guaranteed loan financing account:
       Commitments...........................................................          48          221   ...........
       New guaranteed loans..................................................          41           70           88
       Change in outstandings................................................          41           69           86
       Outstandings..........................................................          70          139          225

                             Department of Education

                      Office of Student Financial Assistance

    Federal family education loan liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................      -2,030       -1,921       -1,135
       Outstandings..........................................................       4,493        2,572        1,437

    Federal family education loan program financing account:
       Commitments...........................................................      34,705       38,750       39,559
       New guaranteed loans..................................................      30,537       34,255       34,732
       Change in outstandings................................................      15,873       11,981        8,651
       Outstandings..........................................................     154,807      166,788      175,439

                     Department of Health and Human Services

                   Health Resources and Services Administration

    Health education assistance loans financing account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -22          -35          -39
       Outstandings..........................................................       1,513        1,478        1,439

    Health education assistance loans liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -54          -50          -50
       Outstandings..........................................................         668          618          568

    Health center guaranteed loan financing account:
       Commitments...........................................................           7           21           17
       New guaranteed loans..................................................           7           21           17
       Change in outstandings................................................           7           21           17
       Outstandings..........................................................          12           33           50

    Medical facilities guarantee and loan fund:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................          -5           -6           -6
       Outstandings..........................................................          19           13            7

                   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................................................        -278         -278         -278
       Outstandings..........................................................       2,464        2,186        1,908

    Indian housing loan guarantee fund financing account:
       Commitments...........................................................          13           20           20
       New guaranteed loans..................................................          10           20           23
       Change in outstandings................................................           6           11           12
       Outstandings..........................................................          66           77           89

    Title VI Indian Federal guarantees financing account:
       Commitments...........................................................          10           26           40
       New guaranteed loans..................................................           9           23           36
       Change in outstandings................................................           9           20           33
       Outstandings..........................................................          10           30           63

    [[Page 228]]

    Native Hawaiian housing loan guarantee fund financing account:
       Commitments...........................................................  ...........  ...........          10
       New guaranteed loans..................................................  ...........  ...........           1
       Change in outstandings................................................  ...........  ...........           1
       Outstandings..........................................................  ...........  ...........           1

                        Community Planning and Development

    Community development loan guarantees financing account:
       Commitments...........................................................         244          609          275
       New guaranteed loans..................................................         335          400          400
       Change in outstandings................................................         195          200          200
       Outstandings..........................................................       1,887        2,087        2,287

    Community development loan guarantees liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -26          -29           -6
       Outstandings..........................................................          81           52           46

                                 Housing Programs

    FHA-mutual mortgage and cooperative housing insurance funds liquidating
     account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................      -7,656       -6,624       -3,272
       Outstandings..........................................................      39,963       33,339       30,067

    FHA-general and special risk insurance funds liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................      -4,391       -1,989       -2,174
       Outstandings..........................................................      25,370       23,381       21,207

    FHA-general and special risk guaranteed loan financing account:
       Commitments...........................................................      21,000       21,000       21,000
       New guaranteed loans..................................................      15,238       17,027       19,892
       Change in outstandings................................................       4,248        2,622       12,601
       Outstandings..........................................................      73,376       75,998       88,599

    FHA-loan guarantee recovery fund financing account:
       Commitments...........................................................           2            4   ...........
       New guaranteed loans..................................................           2            4   ...........
       Change in outstandings................................................           1            1           -3
       Outstandings..........................................................           4            5            2

    FHA-mutual mortgage insurance guaranteed loan financing account:
       Commitments...........................................................     134,841      147,339      142,441
       New guaranteed loans..................................................     107,449      133,557      121,674
       Change in outstandings................................................      17,353       33,174       60,342
       Outstandings..........................................................     419,313      452,487      512,829

                     Government National Mortgage Association

    Guarantees of mortgage-backed securities liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -12          -12          -12
       Outstandings..........................................................         134          122          110

    Guarantees of mortgage-backed securities financing account:
       Commitments...........................................................     161,657      238,343      200,000
       New guaranteed loans..................................................     153,798      120,000      120,000
       Change in outstandings................................................       1,568       23,310       47,832
       Outstandings..........................................................     604,309      627,619      675,451

                            Department of the Interior

                             Bureau of Indian Affairs

    Indian loan guaranty and insurance fund liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -12           -8           -6
       Outstandings..........................................................          17            9            3

    [[Page 229]]

    Indian guaranteed loan financing account:
       Commitments...........................................................          60           75           72
       New guaranteed loans..................................................          52           65           55
       Change in outstandings................................................          22           38           29
       Outstandings..........................................................         184          222          251

                           Department of Transportation

                             Office of the Secretary

    Minority business resource center guaranteed loan financing account:
       Commitments...........................................................          14           18           18
       New guaranteed loans..................................................           7           18           18
       Change in outstandings................................................           7           17           11
       Outstandings..........................................................           7           24           35

                          Federal Highway Administration

    Transportation infrastructure finance and innovation program loan
     guarantee financing account:
       Commitments...........................................................  ...........         200          100
       New guaranteed loans..................................................  ...........         160          183
       Change in outstandings................................................  ...........         160          183
       Outstandings..........................................................  ...........         160          343

                             Maritime Administration

    Federal ship financing fund liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -66          -60          -55
       Outstandings..........................................................         182          122           67

    Maritime guaranteed loan (title XI) financing account:
       Commitments...........................................................         729          800   ...........
       New guaranteed loans..................................................         729          800   ...........
       Change in outstandings................................................         543          -42         -224
       Outstandings..........................................................       4,738        4,696        4,472

                            Department of the Treasury

                               Departmental Offices

    Air transportation stabilization guaranteed loan financing account:
       Commitments...........................................................  ...........       5,000        5,000
       New guaranteed loans..................................................  ...........       5,000        5,000
       Change in outstandings................................................  ...........       3,910        3,046
       Outstandings..........................................................  ...........       3,910        6,956

                          Department of Veterans Affairs

                         Veterans Benefits Administration

    Veterans housing benefit program fund liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................      -3,558       -2,571       -1,876
       Outstandings..........................................................       9,182        6,611        4,735

    Veterans housing benefit program fund guaranteed loan financing account:
       Commitments...........................................................      31,948       33,286       34,364
       New guaranteed loans..................................................      31,948       33,286       34,364
       Change in outstandings................................................      16,137       11,138       11,963
       Outstandings..........................................................     227,705      238,843      250,806

                        International Assistance Programs

                        International Security Assistance

    Foreign military loan liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................        -357         -350         -348
       Outstandings..........................................................       4,194        3,844        3,496

    [[Page 230]]

                       Agency for International Development

    Loan guarantees to Israel financing account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................  ...........         -20         -157
       Outstandings..........................................................       9,226        9,206        9,049

    Development credit authority guaranteed loan financing account:
       Commitments...........................................................          35          265          109
       New guaranteed loans..................................................          33          136          142
       Change in outstandings................................................          33          116          121
       Outstandings..........................................................          39          155          276

    Housing and other credit guaranty programs liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................        -140          -96          -96
       Outstandings..........................................................       1,596        1,500        1,404

    Microenterprise and small enterprise development guaranteed loan
     financing account:
       Commitments...........................................................          36           31   ...........
       New guaranteed loans..................................................           5           24           22
       Change in outstandings................................................         -28            4           10
       Outstandings..........................................................          36           40           50

    Urban and environmental credit guaranteed loan financing account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........          22           17
       Change in outstandings................................................         -31          -12          -18
       Outstandings..........................................................         514          502          484
                     Overseas Private Investment Corporation

    Overseas Private Investment Corporation liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -18           -7           -9
       Outstandings..........................................................          26           19           10

    Overseas Private Investment Corporation guaranteed loan financing
     account:
       Commitments...........................................................       1,024          666          765
       New guaranteed loans..................................................         470          525          525
       Change in outstandings................................................         252          163          280
       Outstandings..........................................................       3,350        3,513        3,793

                          Small Business Administration

    Pollution control equipment fund liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................         -23           -7           -4
       Outstandings..........................................................          16            9            5

    Business guaranteed loan financing account:
       Commitments...........................................................      13,990       22,458       16,350
       New guaranteed loans..................................................      10,963        9,111       10,111
       Change in outstandings................................................       3,368        3,068        1,910
       Outstandings..........................................................      35,107       38,175       40,085

    Business loan fund liquidating account:
       Commitments...........................................................  ...........  ...........  ...........
       New guaranteed loans..................................................  ...........  ...........  ...........
       Change in outstandings................................................        -509         -325         -255
       Outstandings..........................................................       1,501        1,176          921

                            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................................................        -163         -351         -229
       Outstandings..........................................................         941          590          361

    [[Page 231]]

    Export-Import Bank guaranteed loan financing account:
       Commitments...........................................................       8,370       10,239       11,321
       New guaranteed loans..................................................       7,504        6,965        8,384
       Change in outstandings................................................         906          990       -1,934
       Outstandings..........................................................      29,584       30,574       28,640

                       National Credit Union Administration

    Credit union share insurance fund:
       Commitments...........................................................           4            3            4
       New guaranteed loans..................................................           4            3            4
       Change in outstandings................................................           3            2           -2
       Outstandings..........................................................           7            9            7

                                  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...........................................................     418,013      531,803      482,758
       New guaranteed loans..................................................     366,667      373,556      367,513
       Change in outstandings................................................      41,855       81,051      139,289
       Outstandings..........................................................   1,688,507    1,769,558    1,908,847

    Less, secondary guaranteed loans: \1\

    GNMA guarantees of FmHA/VA/FHA pools:
       Commitments...........................................................    -161,657     -238,343     -200,000
       New guaranteed loans..................................................    -153,798     -120,000     -120,000
       Change in outstandings................................................      -1,556      -23,298      -47,820
       Outstandings..........................................................    -604,443     -627,741     -675,561
                                                                              ======================================
    Total, primary guaranteed loans: \2\
       Commitments...........................................................     256,356      293,460      282,758
       New guaranteed loans..................................................     212,869      253,556      247,513
       Change in outstandings................................................      40,299       57,753       91,469
       Outstandings..........................................................   1,084,064    1,141,817    1,233,286
    ----------------------------------------------------------------------------------------------------------------
    \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 232]]

                    Table 9-11. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs) \1\
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                    Estimate
                                    Enterprise                                     2001    -------------------------
                                                                                 Actual         2002         2003
    ----------------------------------------------------------------------------------------------------------------
                                     LENDING

    Student Loan Marketing Association:
       Net change............................................................       3,819         -373       -3,644
       Outstandings..........................................................      41,032       40,659       37,015

    Federal National Mortgage Association:
      Portfolio programs:
       Net change............................................................     112,884      117,677      125,227
       Outstandings..........................................................     700,484      818,161      943,388
      Mortgage-backed securities:
       Net change............................................................     116,278      141,037      139,874
       Outstandings..........................................................     822,382      963,419    1,103,293

    Federal Home Loan Mortgage Corporation:
      Portfolio programs:
       Net change............................................................     109,226       71,370       77,117
       Outstandings..........................................................     470,850      542,220      619,337
      Mortgage-backed securities:
       Net change............................................................      76,602       38,787       56,656
       Outstandings..........................................................     635,844      674,631      731,287

    Farm Credit System:
      Agricultural credit bank:
       Net change............................................................         318          745          823
       Outstandings..........................................................      19,588       20,333       21,156
      Farm credit banks:
       Net change............................................................       5,752        2,566        2,477
       Outstandings..........................................................      52,445       55,011       57,488
      Federal Agricultural Mortgage Corporation:
       Net change............................................................       1,576        1,106   ...........
       Outstandings..........................................................       4,894        6,000        6,000

    Federal Home Loan Banks:
       Net change............................................................      44,908   ...........  ...........
       Outstandings..........................................................     489,413      489,413      489,413
                                                                              --------------------------------------
    Subtotal GSE lending (gross):
       Net change............................................................     471,363      372,915      398,530
       Outstandings..........................................................   3,236,932    3,609,847    4,008,377

    Less guaranteed loans purchased by:
      Student Loan Marketing Association:
       Net change............................................................       3,819         -373       -3,644
       Outstandings..........................................................      41,032       40,659       37,015
      Federal National Mortgage Association:
       Net change............................................................        -336   ...........  ...........
       Outstandings..........................................................      62,599       62,599       62,599
      Other:
       Net change............................................................       1,784   ...........  ...........
       Outstandings..........................................................      23,615       23,615       23,615
                                                                              --------------------------------------
    Total GSE lending (net):
       Net change............................................................     466,096      373,288      402,174
       Outstandings..........................................................   3,109,686    3,482,974    3,885,148

                                    BORROWING

    Student Loan Marketing Association:
       Net Change............................................................       5,820       -2,640       -4,776
       Outstandings..........................................................      47,321       44,681       39,905

    Federal National Mortgage Association:
      Portfolio programs:
       Net Change............................................................     119,953      122,184      133,147
       Outstandings..........................................................     726,992      849,176      982,323
      Mortgage-backed securities:
       Net Change............................................................     116,278      141,037      139,874
       Outstandings..........................................................     822,382      963,419    1,103,293

    [[Page 233]]

    Federal Home Loan Mortgage Corporation:
      Portfolio programs:
       Net Change............................................................     124,518       74,072       71,836
       Outstandings..........................................................     531,312      605,384      677,220
      Mortgage-backed securities:
       Net Change............................................................      76,602       38,787       56,656
       Outstandings..........................................................     635,844      674,631      731,287

    Farm Credit System:
      Agricultural credit bank:
       Net Change............................................................         304          808          894
       Outstandings..........................................................      21,275       22,083       22,977
      Farm credit banks:
       Net Change............................................................       5,895        3,232        3,168
       Outstandings..........................................................      58,010       61,242       64,410
      Federal Agricultural Mortgage Corporation:
       Net Change............................................................           9          204          -10
       Outstandings..........................................................       2,870        3,074        3,064

    Federal Home Loan Banks:
       Net Change............................................................      34,281   ...........  ...........
       Outstandings..........................................................     611,338      611,338      611,338
                                                                              --------------------------------------
    Subtotal GSE borrowing (gross):
       Net change............................................................     483,660      377,684      400,789
       Outstandings..........................................................   3,457,344    3,835,028    4,235,817

    Less borrowing from other GSEs:
       Net Change............................................................      61,565   ...........  ...........
       Outstandings..........................................................     181,909      181,909      181,909
    Less purchase of Federal debt securities:
       Net Change............................................................       1,506          -32         -141
       Outstandings..........................................................       3,126        3,094        2,953
    Less borrowing to purchase loans guaranteed by:
      Student Loan Marketing Association:
       Net Change............................................................       3,819         -373       -3,644
       Outstandings..........................................................      41,032       40,659       37,015
      Federal National Mortgage Association:
       Net Change............................................................        -336   ...........  ...........
       Outstandings..........................................................      62,599       62,599       62,599
      Other:
       Net Change............................................................       1,784   ...........  ...........
       Outstandings..........................................................      23,615       23,615       23,615
                                                                              ======================================
    Total GSE borrowing (net):
       Net change............................................................     415,322      378,089      404,574
       Outstandings..........................................................   3,145,063    3,523,152    3,927,726
    ----------------------------------------------------------------------------------------------------------------
    \1\ The estimates of borrowing and lending were developed by the GSEs based on certain assumptions but are
      subject to periodic review and revision and do not represent offficial GSE forecasts of future activity, nor
      are they reviewed by the President. The data for all years include programs of mortgage-backed securities. In
      cases where a GSE owns securities issued by the same GSE, including mortgage-backed securities, the borrowing
      and lending data for that GSE are adjusted to remove double-counting.

    [[Page 234]]

                                       Table 9-12. 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     2001
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Total net lending in credit market.     66.8     88.2    169.6    336.9    829.3    705.2    702.5    716.4    724.1    985.2  1,110.4    933.4  1,008.0
                                        --------------------------------------------------------------------------------------------------------------------
    Government-sponsored enterprise          1.2      4.9      5.3     21.4     57.9    115.4    125.7    141.5    112.8    293.1    284.0    245.6    466.1
     loans \2\.........................
                                        --------------------------------------------------------------------------------------------------------------------
    GSE lending participation rate           1.8      5.6      3.1      6.4      7.0     16.4     17.9     19.8     15.6     29.8     25.6     26.3     46.2
     (percent).........................
    ========================================================================================================================================================
    Total net borrowing in credit           66.8     88.2    169.6    336.9    829.3    705.2    702.5    716.4    724.1    985.2  1,110.4    933.4  1,008.0
     market............................
                                        --------------------------------------------------------------------------------------------------------------------
    Government-sponsored enterprise          1.4      5.2      5.5     24.1     60.7     90.0     68.2    161.2    107.9    276.2    346.8    277.9    415.3
     borrowing \2\.....................
                                        --------------------------------------------------------------------------------------------------------------------
    GSE borrowing participation rate         2.1      5.9      3.2      7.2      7.3     12.8      9.7     22.5     14.9     28.0     31.2     29.8     41.2
     (percent).........................
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \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 2002 and 2003 are not available.

    [[Page 235]]

                                     Table 9-13. BORROWING BY FINANCING VEHICLES \1\
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                    Estimate
                                Financing Vehicle                                  2001    -------------------------
                                                                                 Actual         2002         2003
    ----------------------------------------------------------------------------------------------------------------

    Financing Corporation (FICO):
       Net change............................................................           1            2            1
       Outstandings..........................................................       8,148        8,150        8,151

    Resolution Funding Corporation (REFCORP):
       Net change............................................................          -2           -2           -2
       Outstandings..........................................................      30,062       30,060       30,058
                                                                              --------------------------------------
    Subtotal, gross borrowing:
       Net change............................................................          -1   ...........          -1
       Outstandings..........................................................      38,210       38,210       38,209

    Less purchases of Federal debt securities:
       Net change............................................................         594          644          698
       Outstandings..........................................................       7,763        8,407        9,105
                                                                              --------------------------------------
    Total, net borrowing:
       Net change............................................................        -595         -644         -699
       Outstandings..........................................................      30,447       29,803       29,104
    ----------------------------------------------------------------------------------------------------------------
    \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 2001 or is estimated to occur in 2002 or 2003.