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