[Analytical Perspectives]
[Special Analyses and Presentations]
[9. Credit and Insurance]
[From the U.S. Government Printing 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 2002, there were $251
billion in Federal direct loans outstanding and $1,145 billion in loan
guarantees. Through its insurance programs, the Federal Government
insures bank, thrift, and credit union deposits, guarantees private
defined-benefit pensions, and insures against other risks such as
natural disasters, all up to certain limits.
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 2002, the face value of GSE lending totaled
$3.6 trillion. In return for serving social purposes, GSEs enjoy many
privileges, which differ across GSEs. In general, GSEs can borrow from
Treasury in amounts ranging up to $4 billion at Treasury's discretion,
GSEs' corporate earnings are exempt from state and local income
taxation, GSE securities are exempt from SEC registration, and banks and
thrifts are allowed to hold GSE securities in unlimited amounts and use
them to collateralize public deposits. 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 monitor
financial market developments closely and to adapt the extent and nature
of credit and insurance programs to changing environments.
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 role of Federal programs, however, may still be critical
in some areas.
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 a
continual concern, this section pays particular attention to
it, including discussion of asset management.
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, disaster insurance, and insurance against
terrorism and other security-related risks 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 categories: 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 businesses efficiently
meet 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 are the following.
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.
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Even for borrowers who are approved for credit, insufficient
competition can result in higher interest rates. Government
intervention, such as loan guarantees, enables 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 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 properly set the premium. Terrorism
emerged as one of these cases after the September 11 attacks.
The loss from terrorism is highly unpredictable and can turn
out to be enormous. In this case, Government intervention
limiting uncertainties for the private sector is necessary to
ensure the provision of insurance, until the private sector
understands the particular risk better.
Externalities cause either underinvestment or overinvestment
in some sectors. Decisions at the individual level are not
socially optimal when individuals 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 those activities that produce positive
externalities or reduce negative externalities by offering
subsidized credit or other rewards such as tax benefits, while
discouraging activities producing negative externalities by
imposing taxes or other penalties.
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 come to doubt 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
very large loss concentrated in a short time period,
therefore, Government insurance commanding more resources can
be more credible and effective.
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 fundamental changes that continue to
alter their long-term trend. The main forces behind these changes are
financial services deregulation and technological advances, which
promoted competition and economic efficiency. 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. Interacting with these developments, however, have been
some unsettling events, such as the ballooning and then plunging stock
market, recession, and accounting scandals.
Financial services deregulation has promoted competition by removing
geographic and industry barriers. The Riegle-Neal Interstate Banking and
Branching Act of 1997 completed the demolition of geographic barriers in
banking that had been going on at the state level for two decades. The
Financial Services Modernization Act of 1999 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 credit scoring models that evaluate
creditworthiness based on various borrower characteristics derived from
extensive credit bureau data. As a result, lending decisions have become
generally more accurate and objective. Powerful computing and
communication devices have also lowered the cost of financial
transactions by
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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 unique characteristics, customers in distant areas, and
customers offering small business volume. 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
market share of large banks has increased. At the end of calendar 2001,
there were about 8,100 commercial banks, which represented a decrease by
about 4,300 or 35 percent from the end of calendar 1990. The top 10 and
100 banks respectively controlled 40 and 73 percent of banking assets at
the end of calendar 2001, compared with 21 and 51 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 pace of consolidation, however, slowed in
recent years due to slumping stock markets.
Direct capital market access by borrowers has become easier. 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, growth of commercial paper (short-term financing
instruments issued by corporations) substantially outpaced growth of
bank business loans in the 1990s. This long-term trend, however, has
been seriously interrupted by the last recession and recent accounting
scandals that caused some instability in financial markets. In recent
periods, the volume of commercial paper issued by nonfinancial companies
dropped below $160 billion, which was less than one half of the peak
level reached in 2000. Some borrowers with relatively low credit ratings
were denied access, and even borrowers with higher credit ratings had to
reduce their reliance on commercial paper because of investors'
increased concern about the riskiness of short-term financing. Heavy
reliance on short-term financing can quickly worsen financial distress
by causing refinancing difficulty.
Nonbank financial institutions have increased their market share,
partly thanks to advanced communications and information processing
technology that helped to level the playing field. Finance companies are
a major nonbank lender. Over the last decade, both consumer loans and
business loans have been growing at finance companies faster than at
commercial banks. In the 1990s, venture capital firms emerged as a major
financing source for small, start-up firms that had relied heavily on
banks. During the last stock-market boom, 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, jumped
18-fold, to over $100 billion. Venture capital investments, however,
plunged, as the stock market slumped. During the first three quarters of
calendar 2002, venture capital firms invested only about $17 billion.
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, facilitating small
investors' participation in the stock market. Internet-only banks, which
emerged 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 process accelarated 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 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. Financial institutions and
many nonfinancial companies are increasingly using these relatively new
instruments to manage various types of risk such as price risk, interest
rate risk, credit risk, and even catastrophe-related risk. Price risk
can be easily managed through standard derivative contracts such as
options and futures. The interest rate swap is an effective tool to
reduce a firm's exposure to interest rate movements. Interest rate swaps
are widely used by financial institutions that have many fixed-interest
rate assets, such as mortgage lenders. Credit derivatives, which can be
used as insurance against loan default, gained more popularity in recent
periods, as default by some large corporations such as Enron and
WorldCom heightened investors' concern about default risk. After the
September 11 attacks, catastrophe bonds drew considerable attention as a
potential means to manage a large risk. Through the bonds, the potential
large loss from a catastrophe can be spread among a large number of
inves
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tors, instead of a few insurance companies. The size of the catastrophe
bond market, however, is still very small.
Globalization is another important consequence of the reduced
importance of geographic proximity and knowledge of local markets. Both
commercial and investment banking institutions headquartered in Europe
and Japan are actively competing in the U.S. market, and many U.S.
financial institutions have branches worldwide. With international
competition, even very large financial institutions have little ability
to influence the market.
Slumping stock markets, the last recession, and recent accounting
scandals caused financing difficulties for some businesses. Stock market
declines raised the cost of equity financing for most corporations and
substantially reduced the supply of venture capital for small, start-up
businesses. The last recession increased the delinquency rate of
business loans. The delinquency rate kept increasing because, as usual,
loan delinquencies followed the economic downturn with a lag. The
increased delinquency rate made it more difficult for some businesses to
obtain loans by making banks more cautious. Recent accounting scandals
involving large companies such as Enron and WorldCom caused investors to
become unusually jittery about the reliability of financial reports and
default risk. The stock market reacted negatively, further increasing
the cost of equity financing. Bond financing also became more difficult
and expensive for companies with low credit ratings, despite low
interest rates in other sectors of the economy. The financing
difficulties, however, were largely confined to risky or less-
established businesses. Well-established companies with high credit
ratings benefitted from the lowest interest rates in decades, which
could offset the effect of a high equity-financing cost. Consumers and
home buyers kept having easy access to credit, partly thanks to the
continued strength of the housing market. The delinquency rates of
consumer and real estate loans remained at low levels, suggesting that
credit conditions in those sectors may continue to be favorable in the
foreseeable future.
Implications for Federal Programs
Financial evolution has been increasing the private market's capacity
to serve the populations traditionally targeted by Federal programs.
This long-term trend will continue in the future, but can be interrupted
temporarily. In general, financial evolution has weakened the role of
Federal credit and insurance programs. To improve the effectiveness of
credit and insurance programs, therefore, the Federal Government may
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. The Federal
Government, however, may take more active roles during the periods in
which financial instability temporarily interrupts the smooth
functioning of the private market.
Information about borrowers is more widely available and easier to
process, thanks to technological advances. 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. Credit scoring, for example, is
still difficult to apply to some groups with unique characteristics that
are difficult to standardize. In times of economic downturn or financial
instability, lenders can be overly cautious, turning away some
creditworthy borrowers. The Federal Government may need to target those
underserved groups better, 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 still
limited because of the small size of the market for those products.
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. Large financial institutions with global
operations may want to focus more on large customers and business lines
that utilize economies of scale and scope more fully. 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. Thus, the failure
of even a single large bank can seriously drain the federal deposit
insurance fund. As a result of deregulation, banks engage in more
activities. While diversification across business lines may generally
improve the safety of banks, new businesses introduce new risks. For
example, one concern raised recently is that the motive to obtain
underwriting business from borrowing firms may have been affecting
lending decisions, undermining loan quality at some large banking
organizations. Globalization also
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has both an upside and a downside. A financial institution with a
worldwide operation may overcome difficulties in the U.S. market more
easily, but it is more heavily exposed to economic turmoil in other
countries, especially those that are less-developed or politically
unstable. 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. Overall, the financial market evolves to be more efficient and
safer. Financial evolution, however, is often accompanied by new risks.
Thus, Federal agencies need to be vigilant to identify and manage new
risks.
The stock market plunge and the slow economic recovery have increased
the risk and uncertainty for the pension benefit guaranty program by
impairing the financial health of many pension funds and firms offering
pension benefits. New and amended insurance programs for security-
related risks also make the Federal Government's liability more
uncertain. Security-related events such as terrorism and war are highly
uncertain in terms of both the frequency of occurrence and the magnitude
of potential loss.
II. A CROSS-CUTTING ASSESSMENT
To assess Federal programs systematically 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 to any of the first three questions is ``No,'' the program should
be eliminated or phased out. For programs that pass the three tests, the
focus should be on improving efficiency and effectiveness.
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 clear and 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. Programs lacking a clear,
worthwhile objective should be either refocused or discontinued.
Economic Justifications
For a credit or insurance program to be economically justified, the
program's benefits must exceed its costs. The main benefit measure
should be the improvement in intended outcomes (for example, an increase
in homeownership) net of what would have occurred in the absence of the
program (for example, the portion of the increase owing to economic
growth and financial evolution). 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 benefit would be substantially smaller for the
Federal programs that were mainly intended to increase credit
availability in those sectors by alleviating the information problem.
Only a small portion of the increased credit availability may be
attributable to those Federal programs.
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, servicing, and monitoring. The 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 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, resulting 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 inadequate. Standardization helps to
improve the quality of information by facilitating information proc
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essing. 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 are perfectly designed or managed. It is almost
impossible to take all relevant factors into consideration when a
program is created. In addition, financial evolution can lower the
efficiency of initially well-designed and well managed programs. Thus,
improving efficiency is a continual 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. To maximize efficiency,
program managers need to set the subsidy rate at an optimal level and
calculate the subsidy rate accurately. If a program's subsidy is too
small, the intended population may benefit little and may even be
discouraged from using the program. On the other hand, an excessive
subsidy will transfer too much resources to a small group of the
population. In either case, program efficiency can be seriously
undermined. Miscalculation of the subsidy rate would also result in
resource misallocation. 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 actual subsidy may
substantially deviate from the intended subsidy. For a given amount of
the budget, the program size (total amount of loans or number of
beneficiaries) is determined by the estimated subsidy rate. Thus, an
estimated subsidy smaller than the actual subsidy would increase the
program size beyond the level intended by policymakers, while an
estimated subsidy larger than the actual subsidy would unduly prevent
the program from helping more people.
To set the subsidy rate at the optimal level, policymakers and program
managers should carefully weigh the benefit of improving economic
efficiency in the targeted sector against the risk of misallocating
resources. To improve the accuracy of subsidy estimation, program
managers need to utilize fully both historical experience and advanced
analytical tools. 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.
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 most benefit from
credit and insurance programs. The ideal target 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 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.
In conducting outreach, program managers may also consider the state
of the financial market. The target population can expand when the
private market fails to function smoothly due to temporary
interruptions, such as economic downturns and asset-price declines.
Interruptions can reduce credit availability in the private market, as
evidenced by declines in commercial paper and venture capital investment
in recent periods. Reduced credit availability can mean that more
creditworthy borrowers have difficulty in obtaining credit in the
private market. On those occasions, Federal credit programs can also
play a more useful role.
While conducting outreach, program managers should avoid overreaching
(assisting those who have easy access to private credit or insurance).
Excessive government intervention wastes taxpayers' money and distorts
economic outcomes. To avoid overreaching, program managers need to
define eligibility clearly and carefully screen applicants based on
eligibility. The eligibility screening is especially important for
programs offering a large subsidy because the large subsidy can attract
many customers who can easily obtain credit or insurance in the private
sector. In addition, plans to expand the scale or the scope of a program
should be carried out cautiously; they should be convincingly supported
by careful cost-benefit analyses.
Risk management needs to be effective to limit the cost of credit and
insurance programs. Careful screening of borrowers' creditworthiness
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. Using state-of-the-art tools is especially important for
programs that compete with the private sector for the same group of
customers. Private financial institutions are quick to adopt new
technology. Falling behind, Federal programs could be left with riskier
customers. In cases where the private sector has a clear advantage in
per
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forming some risk management functions, delegating those functions is an
effective strategy. For example, if banks are better at screening some
groups of borrowers because of their extensive experience with those
borrowers, Federal agencies may delegate the screening of those
borrowers to banks. To realize the potential benefit from delegation,
Federal agencies need to monitor the performance of private partners
closely. More importantly, the partnership should be structured such
that the profit motives of private-sector partners are preserved. Risk-
sharing arrangements and performance-based contracts would help to
preserve the profit motive.
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 minimize costs. They may
streamline the delivery system, computerize loan servicing, and
eliminate redundant servicing facilities. Inter-agency cooperation can
also result in a substantial cost saving. When several Federal agencies
serve similar purposes, those agencies may share databases, facilities,
and expertise. Outsourcing some functions to the private sector is
always a possibility because the private sector is generally more
efficient.
For Federal programs involving private-sector partners, cost
efficiency critically depends on whether contract terms with private-
sector partners are adequate. To utilize the private sector's expertise,
it is necessary to offer reasonable profit opportunities to private-
sector partners. However, contract terms allowing excessive profits
would result in serious inefficiency. Profit margins for private-sector
partners should be carefully examined and set at an appropriate level.
Preferably, Federal agencies may use competitive bidding when it is
practical.
Initiative plays an important role in a rapidly changing environment.
Information technology and financial markets have been changing rapidly.
To achieve the maximum efficiency, program managers need to watch
closely and adapt their programs quickly 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 the agencies'
initiative, needed adjustments might be substantially delayed because
individual agencies conducting daily businesses are best positioned to
detect changes in market conditions.
Federal Loan Portfolio Management: Improving Performance and Efficiency
At the end of 2002, the Federal Government held loan assets valued at
$251 billion. Of this figure, $220 billion were direct loans, and $31
billion were guaranteed loans acquired by the Federal Government after
default. In addition, the Federal government holds liabilities on a
$1,145 billion loan guarantee portfolio. While the Government sets aside
resources for the future costs of these activities, better management of
the portfolio can allow more accurate estimates of credit program
subsidy costs, lower the risk exposure of the Federal government, and
produce more reliable financial reporting. More efficient management can
also free up existing agency resources to better serve program target
populations and work more effectively with borrowers and lenders. The
size of the Government's portfolio means that even small changes in
management practices can have substantial qualitative and quantitative
effects in a time of scarce resources.
Over the next year, OMB will work with agencies to identify ways of
improving loan portfolio management across the four basic credit
functions: program development, loan origination, servicing or lender
monitoring during repayment, and liquidation. These improvements will
build on principles from:
the President's Management Agenda, which includes improved
asset management (including physical assets) as a component of
successful financial management,
OMB Circular A-129, which outlines policies governing the
four basic credit functions, and
the Debt Collection Improvement Act of 1996, which
authorized a variety of techniques, including loan asset sales
and Treasury tax refund offset and cross-servicing, to improve
management of loans in default by increasing the chance of
recovery.
While some agencies have adopted techniques to improve efficiency and
performance, such as competitive servicing contracts and lender
monitoring, the evolution of private-sector best practices has far
outpaced the Government's. In many cases, agencies perform one of the
basic credit functions well--usually loan origination--but have poor
systems in place for tracking loan performance. Other agencies may track
borrowers reasonably well during repayment, but have no risk management
system in place to identify and closely monitor borrowers in danger of
defaulting.
Implementing changes cannot happen in isolation, however; changes made
in one function can significantly affect performance in another.
Analyzing these effects may inform agencies' resource decisions through
the basic functions, such as whether or not to improve internal
accounting systems or to outsource loan servicing and liquidation.
Equally important is the fact that this analysis may improve program
performance by reduc
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ing the default rate, allowing the agency to stretch its subsidy dollars
over more borrowers.
Any changes to program management will be made in light of the
programs' justifications to ensure that the Government neither crowds
out the private sector nor expands the target population beyond that
intended. However, the main focus of OMB efforts will be on efficient
stewardship of taxpayer dollars and more effective credit assistance to
those borrowers who need it.
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.
Federal Housing Administration
In June 2002, the President issued America's Homeownership Challenge
to increase first-time minority homeowners by 5.5 million through 2010.
HUD's Federal Housing Administration (FHA) will help to achieve this
goal through its insurance funds, mainly the Mutual Mortgage Insurance
Fund. FHA mortgage insurance provides access to homeownership for people
who lack the financial resources or credit history to qualify for a
conventional home mortgage. In 2002, FHA insured $136 billion in
mortgages for over 1.2 million households, 21 percent more households
than in 2001. Most of these were people buying their first homes many of
whom were minorities. The dollar volume of mortgages exceeded the 2001
volume by 27 percent, partially driven by the rapid increase in house
prices and low interest rates.
For fiscal year 2004, FHA is proposing a new mortgage product. This
product will be geared toward families with poor credit records who are
currently being served at a higher cost in the subprime market or not
served at all. Borrowers could reduce their annual mortgage insurance
premiums once they have established a history of regular payments
thereby demonstrating their creditworthiness. This innovative product is
consistent with FHA's traditional pioneering role in reducing the cost
of homeownership and protecting buyers from predatory practices.
To better manage its risks, FHA requires its lenders to evaluate each
potential foreclosure and use loss mitigation tools where appropriate.
Last year, incentive payments for over 68 thousand loss mitigation
actions were made, up from 53 thousand in fiscal year 2001. Loss
mitigation helps to avoid costly foreclosures, enables many distressed
borrowers to retain their homes, and reduces FHA's claim expenses. FHA
also is reducing its losses through more aggressive management of its
property oversight and disposition program and is testing a new joint
venture approach to this task.
The Budget expands HUD's support for new homeowners by increasing
funds for pre- and post-purchase counseling services through a network
of counseling agencies. With this increase, over 950 thousand homeowners
will receive counseling in 2004.
The President's Management Agenda sets out several critical tasks for
FHA to combat fraud and improve risk management. In 2003, FHA will issue
a final rule that will 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. HUD also will strengthen its Credit Watch
initiative--a lender monitoring program that rates lenders and
underwriters by the performance of their loans 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.
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 2002, VA provided $37 billion in guarantees
to assist 294,800 borrowers. Both the volume of guarantees and the
number of borrowers increased substantially from 2001 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 loans without a VA guarantee. In
particular, VA guarantees zero down payment loans. As a result, the
default rate is somewhat higher than the national average. The subsidy
rate has remained relatively stable during the past couple of years and
continues to be less than one percent.
In order to help veterans retain their homes and avoid the expense and
damage to their credit resulting from foreclosure, VA plans aggressive
intervention to reduce the likelihood of foreclosures when loans are
referred to VA after missing three payments. VA was successful in 43
percent of its 2002 interventions, and its goal is to maintain at least
a 41 percent success rate in 2004. Future military base closures,
however, may negatively affect the default rate in the VA guar
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anteed 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
The U.S. Department of Agriculture's (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 2002, $2.4 billion of guarantees went
to 29,218 households, of which 33 percent went to low-income borrowers
(with income 80 percent or less than median area income).
In 2002, RHS approved separate risk categories for the guarantee
refinancing (refis) and guarantees of new loans. As part of that change,
RHS also reduced the guarantee fee to 0.5 percent for the refis. This
change reflected the lower risk on refis as compared to an unseasoned
borrower receiving a new loan. It is also consistent with the rate HUD
and VA charge on their refis of similar loans. For 2003, RHS will also
lower the guarantee fee on new loans to 1.5 percent from 2 percent,
partly undoing the 1-percentage-point increase that was implemented in
2001. Recent data revealed that the full 1-percentage-point increase was
inconsistent with the housing market condition and too costly for the
target borrower, low and moderate income families. The high fee resulted
in less assistance going to rural areas for guaranteed single family
housing loans than what had been authorized. The new rate is more in
line with the housing industry, including HUD and VA, and will result in
more rural Americans realizing the dream of homeownership.
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
2003, 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, consistency and timeliness for RHS, the lenders,
and customers. RHS is currently working with HUD to determine if RHS can
utilize or modify the TOTAL scorecard being developed by HUD. 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 is currently in the process of
centralizing and automating the loss claim process to improve
consistency and efficiency.
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
2004, RHS expects to provide $1.4 billion in loans with a subsidy cost
of 9.27 percent.
RHS also offers multifamily housing loans. Direct loans are offered to
private developers to construct and rehabilitate multi-family rental
housing for very-low to low-income residents, elderly households, or
handicapped individuals. These loans to developers are very heavily
subsidized; the interest rate is between 1 and 2 percent. A subset of
these loans is the farm labor housing direct loans, which are similarly
subsidized and provide rental units for farm workers, the majority of
whom are minorities. RHS rental assistance grants supplement both of
these loan programs in the form of project based rent subsidies for very
low-income rural households (for continuation of this assistance plus
new commitments, the cost will be $740 million in 2004). RHS will
address management issues in its multifamily housing portfolio in 2004
by restricting the $71 million loan level to repair and rehabilitation
of its existing portfolio (17,400 projects, 446,000 units). They will
also conduct a study on how to fund new construction in a more cost
efficient manner with a continued emphasis on the preservation of
existing units. Farm labor housing will have a program level of $59
million and will provide for new construction as well as repair/
rehabilitation. RHS also offers guaranteed multifamily housing loans
with a loan level of $100 million a year.
Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac (the ``Enterprises'') are Federally-
chartered, shareholder owned corporations that were created by Congress
to achieve public purposes. Specifically, the Enterprises are required
to establish a secondary market for residential mortgages below a
certain size and to assist the secondary mortgage market by increasing
the liquidity of mortgage investments. The Enterprises also are required
to purchase mortgages that serve low-and moderate-income families and
families living in communities undeserved by the mortgage markets. To
assist the Enterprises in achieving their public purpose, Congress
granted Fannie Mae and Freddie Mac certain benefits that are
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not available to fully private corporations, including an exemption from
State and local taxes. The Secretary of the Treasury also has authority
to purchase up to $2.25 billion of each Enterprises' debt securities.
The Enterprises carry out their public mission by providing financing
for mortgages. The Enterprises create mortgage-backed securities (MBS)
from pools of loans provided by lenders. The lenders can then choose to
hold these securities themselves or to sell them into the market. The
Enterprises earn profits for their stockholders by charging fees for
their guarantees against potential credit losses on these securities.
The Enterprises also earn profits by purchasing mortgages and other
mortgage-backed assets (including MBS that they have issued) and funding
the purchases through the issuance of debt. The mortgage asset
portfolios of the two Enterprises have grown in the past year by 11
percent. Each Enterprise also markets technology and services to support
the mortgage lending process, another source of earnings.
The bulk of the Enterprises' profits reflect the rewards they earn for
taking and managing risks. These risks mainly fall into two categories:
Credit risk and Interest rate risk.
Credit risk arises from the Enterprises' guarantee against losses when
mortgages they have purchased default, whether the mortgages support
investor-owned MBS or whether they are held in the Enterprises'
portfolios as individual loans or as MBS. The Enterprises manage credit
risk by establishing underwriting guidelines for the mortgages they
purchase, using automated underwriting tools, and manage loan
performance through servicing and loss mitigation activities. The
Enterprises also share credit risk with private mortgage insurers on
pools of mortgages and on individual mortgages with low down payments.
They also share risk with other third-party guarantors and, in some
cases, with lenders.
Interest rate risk arises from the mortgages and other assets that the
Enterprises hold in their portfolios. This risk results from changes in
market interest rates that might reduce the spread between the return
that the Enterprises earn on their holdings and the interest they pay on
borrowings used to finance them. Mismatches between the duration of
assets and liabilities and the potential for changes in prepayment
speeds give rise to interest rate risk. The Enterprises limit interest
rate risk by various means, including matching the projected duration of
their assets and liabilities, and purchasing options that effectively
allow them to alter the speed with which they retire their fixed-rate
liabilities.
The Enterprises must manage the interest rate risk on MBS
they hold in portfolio just as they manage the risks on
individual loans. As of September 2002, the two Enterprises
held a combined $797 billion of their own previously issued
MBS, accounting for 62 percent of their combined mortgage
asset portfolios.
Although holding substantially more securities rather than
individual loans could facilitate the sale of portfolio assets
should the Enterprises choose to liquidate these assets, some
have proposed limiting the size of the Enterprises' retained
portfolios for both MBS and individual loans. These proposals
are based partly on a desire to minimize the Enterprises'
exposure to possible losses that could result from substantial
interest rate risk.
The inherent risks of the Enterprises' business are constantly
monitored by the market and by their Federal safety and soundness
regulator, established in October 1992, the Office of Federal Housing
Enterprise Oversight (OFHEO).
Increased voluntary disclosures, which the Enterprises initiated in
the first quarter of 2001, have helped investors better assess the level
of each Enterprise's risk exposure. Both Enterprises now disclose
measures of their interest rate risk on a monthly basis and issue credit
risk disclosures on a quarterly basis. They also obtain and disclose an
annual rating of their financial condition from a nationally recognized
agency. In July 2002, Fannie Mae and Freddie Mac announced that they
would voluntarily register their common stock with the SEC under
provisions of Section 12(g) of the Exchange Act, 15 U.S.C. 781 (g). As
part of this voluntary step, OFHEO will promulgate a regulation that
will require the Enterprises to comply with SEC requirements. Taken
together, these steps will subject the Enterprises to the same periodic
disclosures that the SEC requires of other publicly traded companies.
OFHEO's new capital requirements will enhance its regulatory oversight
and reinforce market discipline. OFHEO began quarterly publication of a
risk-based capital requirement for the Enterprises in the second quarter
of FY 2002, and this requirement became fully enforceable in the fourth
quarter. Both Enterprises held more than the required capital in that
quarter. Fannie Mae's capital was $27.278 billion while its risk based
requirement was $21.440 billion. Freddie Mac's capital was $23.101
billion while its risk based requirement was $4.919 billion. Besides
ensuring that the Enterprises maintain a level of capital commensurate
with their risk, the risk-based capital requirement also can enhance
market discipline. The Enterprises and the marketplace may use the
quarterly changes in this measure as another indication of their overall
risk exposure and their ability to manage it.
Who benefits from Enterprise risk-taking? Because they receive
substantial advantages from the Federal Government, such as conditional
access to up to $2.25 billion of US Treasury borrowing and exemption
from State and local income taxes, some perceive the Enterprises as
having Government support--despite the fact that the Government
explicitly does not guarantee their securities. As a result, they are
able to fund their operations at lower cost than would other private
firms with similar financial characteristics. In a report published in
May 2001, the Congressional
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Budget Office (CBO) estimated this funding advantage for the year 2000
to be a $10.6 billion annual subsidy. Of this amount, CBO estimated that
borrowers received $6.7 billion of the subsidy, while the Enterprises
retained about $3.9 billion, or 37 percent of the subsidy, for their
shareholders or other stakeholders. Subsequently, through September
2002, the Enterprises have increased their combined debt-funded retained
portfolios by 29 percent and their off-balance sheet MBS by 34 percent.
To help ensure that the Enterprises' subsidy contributes to the
maximum extent possible to underserved housing needs, the Congress in
1992 mandated that the Department of Housing and Urban Development (HUD)
establish annual ``housing goals.'' The housing goals define percentages
of the Enterprises' annual purchases that must serve very-low, low-, and
moderate-income borrowers and borrowers living in communities that are
underserved by the private market. Underserved communities include high-
minority and low-income census tracts, which traditionally have had more
difficulty than other areas in obtaining mortgage credit. Congress has
directed that, in setting the level of the housing goals, HUD must
consider, among other factors, the extent to which the Enterprises
``lead the mortgage finance industry'' in service to these categories of
potential borrowers.
The President has set a goal for the Nation of adding 5.5 million new
minority homebuyers by 2010. To help meet this goal, together the
Enterprises have pledged to purchase $1 trillion in mortgages made to
minority families, and both Enterprises are implementing initiatives
designed to remove barries to and increase opportunities for
homeownership by minorities. Numerous studies by HUD and other
researchers have shown that Fannie Mae and Freddie Mac generally have
trailed the rest of the private mortgage market in funding mortgage
loans for low-income and minority families. For example, during the
1997-1999 period, HUD estimates that while the home loans acquired by
these Enterprises represented 36 percent of all new home buyer
purchases, they represented only 15 percent of homes purchased by first-
time minority families. On the other hand, FHA loans, the traditional
entry point to the home finance market for many minority homebuyers and
first-time homebuyers, were only 16 percent of the overall market, but
totaled 37 percent of the first-time minority market.
In 2001, both Fannie Mae and Freddie Mac achieved all of their HUD-
established housing goals. Fannie Mae financed over $87 billion in loans
to nearly 680,000 minority families. Fannie Mae also financed over $132
billion in loans to over 1,500,000 low- and moderate-income families.
Freddie Mac purchased $132 billion in single-family mortgages funding
homes for 1.5 million low- and moderate-income families. Additionally,
Freddie Mac's purchases of almost $12 billion in multifamily mortgages
financed 300,000 units of rental housing affordable to low- and
moderate-income families. Freddie Mac also financed $54 billion in
mortgages funding homes for more than 400,000 minority families.
HUD is also looking at new ways to encourage improved performance from
the Enterprises. HUD's current rule established the Enterprises' housing
goals for 2001-2003. In accordance with its rulemaking responsibilities,
HUD is re-examining these housing goals to determine appropriate
performance levels for the years 2004-2006. At the same time, HUD is
looking at ways to create new housing goals incentives that will have
the effect of increasing minority homeownership, thereby further
ensuring that the benefits each Enterprise derives from its
Congressional charter are used to increase minority homeownership
opportunities.
Federal Home Loan Bank System
The Federal Home Loan Bank System, consisting of 12 banks (FHLBs)
serving their districts, was established in 1932 to provide liquidity to
home mortgage lenders. The FHLBs carry out this mission by issuing debt
and using the proceeds to make advances (secured loans) to their
members. Member institutions, which include thrifts, commercial banks,
and credit unions, secure advances primarily with residential mortgages
and other housing-related assets. To assist the FHLBs in achieving their
public purpose, Congress granted certain benefits that are not available
to fully private corporations, including a $4 billion conditional line
of credit with the U.S. Treasury and exemption from State and local
taxes.
The FHLBs experienced moderate growth in the past year, while their
profitability declined slightly. Outstanding advances reached $490.7
billion in September 2002, a 5.1 percent increase over the $466.8
billion outstanding a year earlier. As of September 30, 2002, about 69
percent of advances had a remaining maturity of greater than one year--
up from 64 percent one year earlier. Mortgage loans outstanding were
$47.1 billion, up from $22.6 billion one year earlier. Mortgage loans
accounted for approximately 6.2 percent of total FHLBs' assets. In 2002,
the FHLBs issued $4.6 trillion in debt securities, most of which
represented the rollover of overnight or short-term debt. While the
majority of the debt issued by the System is overnight or short-term, 79
percent of debt outstanding had an original maturity of one year or
longer. Total debt outstanding was about $688 billion at the end of
2002. The FHLBs reported net income of $1.9 billion for the year ending
September 30, 2002, down from $2.1 billion in the previous 12 months.
Traditionally, the FHLBs have been exposed to little credit risk. All
advances to member institutions are collateralized, and the FHLBs can
call for additional or substitute collateral during the life of an
advance. As long as FHLBs adhere to conservative collateral policies
(high-quality collaterals and a high ratio of collateral value to the
loan amount), their exposure to credit risk will continue to be minimal
in the future. The benefit of using collateral, however, comes at the
cost of increasing the potential liability of the Federal De
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posit Insurance Corporation (FDIC). Since the FHLBs' collateralized
claim is senior to the FDIC's claim, the FDIC has less to recover in
cases where a member institution with large FHLB advances fails. Thus,
FHLB advances, like secured loans from other creditors, could indirectly
increase the Federal Government's exposure to credit risk. As is the
case with other financial intermediaries, FHLBs are potentially exposed
to interest rate risk, which should be carefully managed.
The System's new investment activities, including mortgage purchase
programs, involve more risk while offering new alternative ways of doing
mortgage business. In one of these programs, the Mortgage Partnership
Finance Program, the FHLBs finance mortgage loans and assume the
interest-rate and prepayment risk, while the member banks and thrifts
originate and service the loans and assume a portion of the credit risk.
All assets held by an FHLB 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 FHLB
must hold risk-based capital against mortgage assets that have credit
risk equivalent to an instrument rated lower than double A.
To control the System's risk exposure, the Federal Housing Finance
Board (the FHLBs' regulator) has established regulations and policies
that the FHLBs must follow to evaluate and manage their credit and
interest-rate risk. FHLBs must file periodic compliance reports, and the
Finance Board conducts an annual on-site examination of each FHLB. Each
FHLB's board of directors must establish risk-management policies that
comport with Finance Board guidelines. Each FHLB is also required to
adopt and implement a capital plan consistent with provisions of the
Gramm Leach Bliley Act and Finance Board regulations. In 2002, the
Finance Board approved the capital plan of each FHLB. These plans call
for implementation over the next several years.
In 2002, the Administration encouraged all Government Sponsored
Enterprises, including the FHLBs, to voluntarily register their equity
securities with the Securities and Exchange Commission (SEC). This
voluntary registration is part of the Administration's efforts to have
GSEs undergo the same scrutiny process as other corporate enterprises.
Unlike Fannie Mae and Freddie Mac, which have committed to participating
in the disclosure process, the FHLBs have not yet decided to register
their stock with the SEC.
The FHLBs' evolving member composition and investment activities raise
questions about the degree to which the System continues to promote the
public policy objective of providing liquidity to home mortgage lenders.
As a result of opening membership to commercial banks and credit unions,
for example, many member institutions now have very limited involvement
in mortgage lending. In addition, like other GSEs, the FHLBs issue debt
securities at close to U.S. Treasury rates and invest the proceeds in
higher-yielding securities. Through September 2002, the FHLBs'
investments other than advances rose to $215 billion, compared with $194
billion a year earlier. As a percentage of total assets, those
investments remained at 28 percent. While these investments may enable
the FHLBs to provide benefits to member institutions, they do not
necessarily result in lower costs to home buyers. According to a report
by the Congressional Budget Office (CBO), member advances can be used to
fund other loans besides mortgages. While the CBO report found, through
competitive pressures, that ``members may be forced to pass most of the
benefit through to their own customers,'' the report concluded that of
the $3 billion annual subsidy that the FHLBs received from their funding
advantage and other benefits in 2000, only $0.3 billion was passed on to
mortgage borrowers in the form of lower interest rates.
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. However,
borrowers with low family incomes are eligible for additional interest
subsidies. For these 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 2004, more than 6 million borrowers will receive over 12 million
loans totaling $67 billion. Of this amount, nearly $48 billion is for
new loans, and the remainder reflects the consolidation of existing
loans. Loan levels have risen dramatically over the past 10 years as a
result of rising educational costs, higher loan limits, and an increase
in eligible borrowers.
The FFEL 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 6,000
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 2004, FFEL lenders will disburse
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nearly 9 million loans totaling almost $47 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 the Direct Loans program, the
Federal Government provides loan capital directly to roughly 1200
schools, which then disburse loan funds to students. In 2004, the Direct
Loan program will generate more than 3.5 million loans with a total
value of nearly $20 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.
Recently, historically low interest rates have significantly affected
the Federal costs and receipts associated with these programs, as well
as borrowers' decisions to consolidate their student loans. In FFEL, for
example, low interest rates have decreased the Federal interest
subsidies paid to lenders on behalf of low-income borrowers while they
are in school or during grace or deferment periods. In Direct Loans, the
steep decline in short-term interest rates has decreased borrowers loan
repayments, resulting in lower Federal receipts.
In recent years, low interest rates have also contributed to a
dramatic increase in fixed-rate Consolidation Loans, which allow
borrowers to combine one or more FFEL, Direct Loan, or other Federal
student loans. When interest rates are low, borrowers have a strong
incentive to consolidate their existing loans to lock in at a low fixed
rate. In 1995, Consolidation Loans totaled $3.6 billion, accounting for
roughly 13 percent of overall student loan volume. By 2002, these loans
grew more than six fold to nearly $22.7 billion, making up approximately
56 percent of total student loan volume. This high rate of growth should
slow if, as projected, interest rates increase from current levels.
Consolidation Loans are projected to be $24.4 billion in 2003 and to
decrease to $19.1 billion in 2004.
For Fiscal Year 2004, the Administration is once again proposing to
address the shortage of qualified, skilled math, science, and special
education teachers in elementary and secondary schools by expanding loan
forgiveness. This proposal builds upon the teacher loan forgiveness
program authorized in the 1998 Higher Education Amendments, which
provided up to $5,000 of loan forgiveness to teachers of any subject who
teach for five consecutive years in schools serving low-income
populations. The Administration is proposing to increase loan
forgiveness to $17,500 for highly qualified teachers who teach math,
science, or special education for five years in high-need schools. Such
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 chartered by
Congress in 1972 as a for-profit, shareholder-owned, Government-
sponsored enterprise (GSE). Sallie Mae was privatized in 1997 pursuant
to the authority granted by the Student Loan Marketing Association
Reorganization Act of 1996. The GSE is a wholly owned subsidiary of SLM
Corporation and must wind down and be liquidated by September 30, 2008.
In January 2002, the GSE's board of directors announced that it expects
to complete dissolution of the GSE by September 30, 2006. The Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
allows the SLM Corporation to affiliate with a financial institution
upon the approval of the Secretary of the Treasury. Any affiliation will
require the holding company to dissolve the GSE within two years of the
affiliation date (unless such period is extended by the Department of
the Treasury).
Sallie Mae makes funds available for student loans by providing
liquidity to lenders participating in the FFEL program. Sallie Mae
purchases 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 and the Federal
Agricultural Mortgage Corporation, 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 supplement market lending and provide access to
credit where private lenders are reluctant to do so without a Government
guarantee.
The 2004 Budget requests $226 million for SBA to leverage more than
$20 billion in financing for small
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businesses. The 7(a) General Business Loan program will support $9.3
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 $20 million in microloans, along
with $15 million in technical assistance to increase the likelihood of
success of these very small business borrowers.
To continue to serve the needs of small businesses, SBA will focus
program management in three areas: (1) targeting economic assistance to
the neediest small businesses, (2) improving risk management, and (3)
operating more efficiently.
While SBA can guarantee 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 will encourage banks to
increase the number of loans they make that are below $150,000.
To more effectively target economic assistance to small businesses,
SBA will address the findings of a Program Assessment Rating Tool
(PART), which was used to evaluate the 504 loan program. The PART found
that the 504 program duplicates the 7(a) program in that both provide
long-term financing for fixed assets (land, buildings, and large
equipment). Additionally, the PART revealed that the 504 program does
not have long-term, measurable public policy objectives that flow from
an agency strategic plan. Finally, the PART found that the 504 program
needs to increase the availability of intermediaries so that borrowers
can more readily determine which of SBA's programs (7(a) or 504) better
meets their needs.
To address these findings, the 2004 Budget proposes to increase
program evaluations to determine the factors that affect both demand and
performance in the 504 and 7(a) programs. The proposed evaluations would
also compare the cost of 504, 7(a), and private sector loans. Further,
SBA will solicit the public's views as it prepares to develop a
regulation regarding long-term programmatic goals and increasing
borrower choice for 504 and 7(a) loans.
Improving management by measuring and mitigating risks in SBA's $50
billion business loan portfolio is one of the agency's greatest
challenges. As the agency delegates more responsibility to the private
sector to administer SBA guaranteed loans, oversight functions become
increasingly important. SBA established the Office of Lender Oversight,
which is responsible for evaluating individual SBA lenders. This office
will employ a variety of analytical techniques to ensure sound financial
management by SBA and its lending partners, including overall financial
performance analysis, industry concentration analysis, peer lending
performance comparisons, portfolio performance analysis, and selected
credit reviews. The oversight program will also encompass on-site safety
and soundness examinations and off-site monitoring of Small Business
Lending Companies (SBLCs) and compliance reviews of SBA lenders. In
addition, the office will develop incentives for lenders to minimize
defaults and to adopt measurable performance measures.
SBA has also been developing a Loan Monitoring System (LMS), which
will further support lender oversight by improving SBA's data collection
and processing capabilities, providing a direct and better interface
with lenders, and helping to increase lender accountability.
Improving risk management also means improving SBA's ability to more
accurately estimate the cost of subsidizing small business loans. This
has been a source of some controversy for the Section 7(a) program in
recent years. During the period of strong economic growth over the last
few years, initial subsidy estimates appeared to significantly overstate
actual experience for various loan cohorts. However, during the recent
economic downturn, actual defaults have increased and are now more
closely aligned with original projections. For the Section 7(a) program,
SBA projected an estimate of $757 million in defaults for loans made in
fiscal year 2002, which was only 2.3 percent higher than the actual
amount of defaults, which was $740 million. For the Section 504 program,
SBA underestimated fiscal year 2002 defaults by 8 percent. Although the
agency projected $100 million in defaults for loans made in fiscal year
2002, actual defaults reached $108 million. Such swings in subsidy
estimates are not surprising as statistical forecasts are not precise
but rather represent the best estimates that can be made with available
data.
The Administration has also made two technical improvements that
enhance the Section 7(a) credit subsidy estimate. First, SBA has
improved the quality of the data. Second, SBA has made significant
progress in improving the accuracy of the subsidy estimate in the 7(a)
program through the development of an econometric model. This new model
incorporates predictive economic variables. As a result, the new model
is more accurate in capturing yearly fluctuations in program performance
than the straight averaging method applied in prior years. The
difference can be substantial. Applying the econometric model to fiscal
year 2003 produces a subsidy rate of 1.04 percent, rather than the 1.76
percent included in the fiscal year 2003 Budget that was delivered using
the previous model.
Further, SBA is improving oversight and accounting practices in the
ongoing sale of more than $5 billion in direct loans from SBA's
portfolio. The agency is reassessing the accounting of prior sales to
more accurately reflect the impact of asset sales on the overall cost of
SBA's direct loans. SBA is committed to resolving accounting
discrepancies prior to conducting any further asset sales. SBA also
sells 7(a) guaranteed loans through a master reserve fund (MRF), which
serves as the agency's vehicle for managing loans sold in the
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secondary market. To properly manage any risk associated with this fund,
SBA will budget and account for the Government's liability in accordance
with the Federal Credit Reform Act. Specifically, SBA will reflect in
the 2004 Budget the estimated liability of MRF financial activity. In
the future SBA will refine these estimates and develop financial reports
to measure portfolio risk.
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
2004. Additionally, because loan-servicing functions can often be better
performed by the private sector, SBA is subjecting performance of these
activities to competition. The agency will, therefore, focus its
resources on core programs such as providing access to capital,
technical assistance, and Federal contracting opportunities.
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 2004 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% of the project cost (it can be up to 75%). 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 2004. USDA
also provides grants, direct loans, and loan guarantees to assist rural
businesses, including cooperatives, to increase employment and diversify
the rural economy. In 2004, USDA proposes to provide $602 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 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 2003,
USDA expects to retain or create 53,494 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 have occurred in
the electric program. In 1997, $667 million worth of largely nuclear
power construction loans was written off, but this case was unusual. The
large nuclear generation loans have proven to be the most risky electric
loans. USDA has not approved a nuclear power generation loan for over 20
years.
The subsidy rates for most of the electric and telecommunication
programs are negative. The subsidy rates have decreased largely due to
the low interest rates that are projected in the Budget and used to
discount future loan repayments. The default rates for both programs are
very low, less than one percent. 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. So far there has not been any significant
effect on rural cooperatives due to deregulation. As information on the
impact of deregulation increases, this risk will be factored into the
default rates. In addition, recent problems in the telecommunications
industry have not had a significant impact on rural telecommunications
cooperatives. 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.
Providing funding and services to needy areas is of concern to USDA.
Many rural cooperatives provide service to areas where there are high
poverty rates. Based on findings of the PART analysis, the 2004 Budget
proposes to increase funding (increases of $120 million for electric
loans and $70 million for telecommunications loans) to those electric
and telecommunications loans which are targeted to severely depressed
areas. USDA will target electric loan funds to areas of high poverty.
These changes will increase the availability
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of utility service in needy areas, improving the quality of life and
helping to retain and attract businesses. In addition, to ensure the
program's focus on rural areas, the Budget proposes to require
recertification of rural status for each electric and telecommunications
borrower on the first loan request received in or after FY 2004 and on
the first loan request received after each subsequent Census.
USDA's Rural Utilities Service (RUS) proposes to make $2.6 billion in
direct and guaranteed loans in 2004 to rural electric cooperatives,
public bodies, nonprofit associations, and other utilities in rural
areas for generating, transmitting, and distributing electricity. This
funding request includes provision for guaranteeing $100 million in
electric loans made by private banks. The demand for loans to rural
electric cooperatives has been increasing and is expected to increase
further 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 2004 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), which provides financing for rural
telecommunications systems, is in the process of privatization. The 2004
Budget does not propose funding to support new loans. There is
significant member and borrower support for statutorily authorized
privatization. The RTB is financially able to privatize by the end of
2004, and this provides enough time to finish a privatization study and
prepare for privatization. The RTB is provided full salaries and
expenses to service existing loans, to finish a privatization study, and
prepare for privatization by the end of 2004.
The Distance Learning and Telemedicine program provides grants and
loans to improve distance learning and telemedicine 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
also provide telemedicine equipment to 150 rural health care providers,
benefiting millions of residents in rural America.
There were various legislative actions that impacted 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 and in the 2002 Farm Bill. The 2002 Farm Bill
also authorized a broadband loan program and provided funding through
2007. This program will help bring high speed Internet access to rural
areas. The 2004 Budget proposes converting the mandatory broadband
funding into discretionary funding.
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 and developing their farming or ranching operations. As a
condition of eligibility for direct loans, borrowers must be unable to
obtain private credit at reasonable rates and terms. As FSA is the
''lender of last resort,''default rates on FSA direct loans are
generally higher than those on private-sector loans. However, in recent
years the loss rate has decreased to 4.8 percent in 2002, compared with
5.4 percent in 1999.
FSA guaranteed farm loans are made to more creditworthy borrowers who
have access to private credit markets. Because the private loan
originators must retain 10 percent of the risk, they exercise care in
examining the repayment ability of borrowers. As a result, losses on
guaranteed farm loans have been low. As for direct loans, the default
rate on guaranteed loans declined in recent years; it was percent 0.6
percent in 2002, as compared with 0.9 percent in 1999.
The 2002 Farm Bill changed some of the requirements for managing
inventory property. Property acquired through foreclosure on direct
loans must now be sold at auction within 165, rather than 105 days of
acquisition. The new rule allows more time to advertise and encourage
participation from beginning farmers.
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. As shown above, both the direct and guaranteed
loans have experienced a decreasing default rate.
In fiscal year 2002, FSA provided loans and loan guarantees to
approximately 30,000 family farmers totaling $3.5 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 years, the demand for FSA direct and guaranteed loans
have been high due to crop/livestock price decreases and some regional
production problems. In 2004, USDA's FSA proposes to make $3.5
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billion in direct and guaranteed loans through discretionary programs.
USDA's Loan Sale Initiative
In 2004, USDA's Rural Development along with the Farm Service Agency
will conduct a review and develop a pilot loan asset sale. The sale
should include both performing and non-performing loans with a loan mix
that results in the greatest budgetary savings for the Federal
government. Although the exact mix of loans has not been determined a
placeholder has been included in the 2004 Budget to reflect the sale.
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, in turn,
its lenders continue to exhibit stability in their income and balance
sheets. Unfortunately, this is due,in part, to ad-hoc Government
emergency assistance payments that have been provided from 1998 through
2001. The current economic malaise that began in 2001 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 relatively low in 2002, and drought conditions were
widespread. Long-term forecasts are for gradual recovery in commodity
prices. 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. However, such
aggregate facts may mask the problems of certain sectors within the farm
economy as is evident in the rice and cotton sectors where prices are
down 50 and 44 percent, respectively, this year when compared to their
respective ten year price averages. Farmland values increased moderately
in 2001 (up 4.5 percent) due to a combination of Government payments and
urban influences. Projections for 2002 see a minimal rise of 1.0 percent
in farmland values.
Commercial banks continued their long standing hold on the predominant
market share of all farm debt registering a 40.5 percent share in 2001.
The FCS trailed with a significant share of 28.3 percent. The United
States Department of Agriculture (USDA) direct farm loan programs market
share was 3.8 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 2002.
The Farm Credit System
The financial condition of the System's banks and associations during
2002 continued a 14-year trend of improving financial health and
performance. Improved asset quality and strong income generation enabled
FCS to post record capital levels: on September 30, 2002, capital stood
at $15.2 billion--an increase of 8.9 percent for the year. Not included
in the $15.2 billion is restricted capital totaling $1.8 billion held by
the Farm Credit System Insurance Corporation (FCSIC). Loan volume has
increased since 1995 to $87.9 billion in September 2002, which easily
surpasses the high of $81.9 billion in the early 1980s. The rate of
asset growth seen in the years 2001 and 2000 has been significant, 7.2
percent and 6.0 percent respectively. The rate of capital accumulation,
however, has been greater, resulting in total capital equaling 15.3
percent of total assets at yearend 2000 and 15.8 percent at yearend
2001. Non-performing assets increased slightly to 1.4 percent of the
portfolio in September 2002 after remaining steadfast at 1.2 percent in
both December 2001 and December 2000. Competitive pressures have
narrowed the FCS's net interest margin from 3.03 percent in 1995 to 2.82
percent in 2001. The net interest margin has remained relatively stable
at about the 2001 level during 2002. However, the net interest margin is
expected to increase in the near-term, given the lower interest rate
environment seen through 2002. Substantial consolidation continues in
the structure of the FCS. In January 1995, there were nine banks and 232
associations; by October 2002, the numbers reduced to seven banks and
103 associations. From October 2001 to October 2002, the number of
associations fell by 12 because of mergers and acquisitions.
The 1987 legislation established FCSIC to ensure timely payment of
interest and principal on FCS obligations. FCSIC's net assets, largely
comprised of premiums paid by FCS institutions, supplements the System's
capital and supports the joint and several liability of all System banks
for FCS obligations. On September 30, 2002, FCSIC's net assets totaling
$1.6 billion were slightly below (1.94 percent) the statutory minimum of
2.0 percent of outstanding debt. The Insurance Corporation resumed
premium collection from System institutions in 2002 and will quadruple
its premium rate in 2003 to ensure the Insurance Fund grows in concert
with the expansion in the System's outstanding debt necessitated by
strong growth in its loan portfolio.
Improvement in the FCS's financial condition is also reflected in the
examinations of FCS member institutions by the Farm Credit
Administration (FCA), its Federal regulator. Each of the System
institutions is rated under the FCA Financial Institution Rating System
(FIRS) for capital, asset quality, management, earnings, liquidity, and
sensitivity. At the beginning of 1995, 197
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institutions carried the best FIRS 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 2002, in contrast, all but one of the 111
institutions were given ratings of 1 or 2, the remaining one, a
relatively small association, was rated 3. As of September 30, 2002,
there were no FCS institutions under an enforcement action.
The System had $87.9 billion in gross loans outstanding as of
September 30, 2002. Total loans outstanding have grown by $7.8 billion,
or 9.8 percent, over the year ended September 30, 2002, and by $24.9
billion, or 39.5 percent, over the past five years. The volume of
lending secured by farmland increased 47.6 percent, while farm-operating
loans have increased 41.6 percent since 1997. Total members served
increased about 3 percent during the past year. Agricultural producers
represented by far the largest borrower group, with $68.1 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 of System institutions. The
System has more than 444,000 stockholders; about 84 percent of these are
farmers with voting stock. Over half of the System's total loan volume
outstanding (51.0 percent) is in long-term real estate loans, over one-
quarter (26.5 percent) is in short- and intermediate-term loans to
agricultural producers, and 19.1 percent is to cooperatives.
International loans (export financing) represent 3.4 percent of the
System's loan portfolio.
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 facilitate 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, Farmer Mac's
program activities and business have steadily increased.
Farmer Mac continues to meet statutory minimum core capital
requirements. Additionally, Farmer Mac was first required to be in
compliance with FCA's risk-based capital rule and stress test on May 23,
2002. This rule and stress test determine the minimum level of
regulatory capital necessary to enable Farmer Mac to maintain positive
capital during stressful credit and interest rate risk conditions.
Farmer Mac is in compliance with the regulatory capital requirements of
the risk-based capital rule and stress test.
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 (USAID), 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, stabilize international financial markets, and
promote sustainable development.
Leveling the Playing Field
Federal export credit programs counter 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 ECAs 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
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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 of 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 (DCA),
which allows USAID to use a variety of credit tools to support its
development activities abroad. This unit encompasses newer DCA
activities, such as municipal bond guarantees for local governments in
developing countries, 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. While there is clear demand for DCA's facilities in some emerging
economies, the utilization rate for these facilities is still very low.
OPIC also supports a mix of development, employment, and export goals
by promoting U.S. direct investment in developing countries. OPIC
pursues these goals through political risk insurance, direct loans, and
guarantee products, which provide finance, as well as associated skills
and technology transfers. These programs are intended to create more
efficient financial markets, eventually encouraging the private sector
to supplant OPIC finance in developing countries. OPIC has also created
a number of investment funds that provide equity to local companies with
strong development potential.
Ongoing Coordination
International credit programs are coordinated through two groups to
ensure consistency in policy design and credit implementation. The Trade
Promotion Coordinating Committee (TPCC) works within the Administration
to develop a National Export Strategy to make the delivery of trade
promotion support more effective and convenient for U.S. exporters.
The Interagency Country Risk Assessment System (ICRAS) standardizes
the way in which agencies budget for the risk of international lending.
The cost of lending by the agencies is governed by ratings and 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 2004, OMB used the 2003 methodology, updated for current market
data. The 2003 methodology was a significant revision which uses more
sophisticated financial analyses and comprehensive market data, and
better isolates the expected cost of default implicit in interest rates
charged by private investors to sovereign borrowers. All else equal,
this change expands 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 2004.
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 relatively narrowly on providing
financing and insurance services to large U.S. companies investing
abroad. As a result, OPIC did not devote significant resources to its
mission of promoting development through mobilizing private capital.
OPIC is developing and implementing policy changes that reflect the
mandate to revitalize its core 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
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emerging market risks becomes larger, more sophisticated, and more
efficient.
Due to sufficient carry-over resources, the Budget does not request
subsidy appropriations for the Export-Import Bank. The carry-over
balance will support a projected increase over the Bank's level of
lending in 2003. The Budget provides $24 million for OPIC credit subsidy
in 2004.
Performance Assessment
For FY 2004, The Administration used the Performance Assessment Rating
Tool (PART) to rate Export-Import Bank's long term guarantee program and
OPIC's finance program. The PART revealed that both of these programs
were well-managed, but need to strengthen their performance measures.
The Administration will work with these Agencies to develop and
implement more effective performance measures.
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 $3.3
trillion of deposits at almost 8,000 commercial banks and 1,500 savings
institutions. The NCUA insures almost 10,000 credit unions with $432
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.
One SAIF member and 8 BIF members with a combined $2.5 billion dollars
in assets failed during 2002. Since 1997, assets associated with BIF
failures have averaged $778 million per year. During 2002, 14 Federally
insured credit unions with $57 million in assets failed (including
assisted mergers). The FDIC currently classifies 148 institutions with
$42 billion in assets as ``problem institutions,'' compared to 94
institutions with $18 billion in assets a year ago. By comparison, at
the height of the banking crisis in 1989, failed assets rose to over
$150 billion.
Bank earnings increased in fiscal year 2002. The industry net income
totaled $87 billion, an increase of 19 percent from fiscal year 2001.
The largest factor in the earnings increase is higher net interest
income, which has more than offset a rise in loan loss provisions.
Thrift earnings also increased in fiscal year 2002. Net income was $3
billion higher than a year ago. Despite these favorable conditions, the
banking industry faces numerous challenges ahead. Specific areas of
concern for FDIC-insured institutions include (1) continuing credit
losses at large banks on loans to large, corporate borrowers, (2)
concentrations of credit risk among smaller institutions headquartered
in formerly fast-growing metro areas, and (3) subprime lenders, which
continue to figure prominently among failed and troubled institutions.
In the first calendar year quarter of 2002, the reserve ratio (ratio
of insurance reserves to insured deposits) of BIF fell to 1.23-percent,
below the 1.25-percent statutory target. The ratio, however, recovered
in subsequent quarters. As of September 30, 2002, BIF had estimated
reserves of $31 billion, or 1.25 percent of insured deposits. The SAIF
reserve ratio, by contrast, remained comfortably above 1.25-percent
throughout the year. As of September 30, 2002, SAIF had reserves of $12
billion, or 1.39 percent of insured deposits. Through June 30, 2003, the
FDIC will continue 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. In May, the FDIC will
set assessment rates for July through December of this year. Due to the
strong financial condition of the industry and the insurance funds, 91
percent of commercial banks and 90 percent of thrifts did not pay
insurance premiums in 2002.
The National Credit Union Share Insurance Fund (NCUSIF) also remains
strong with assets of nearly $6 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 waived during 2002
because sufficient investment income was generated. For the first time
in six years, the NCUA Board did not approve a dividend for calendar
year 2001, as the Fund's equity ratio did not exceed 1.30 percent. As
the equity ratio did not exceed
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1.30 percent in 2002, the Fund will not restore dividends this year.
As a result of consolidation, fewer large banks control an
increasingly 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.
Federal Deposit Insurance Reform
While the deposit insurance system is in good condition, the
Administration proposes to make improvements in the operation and
fairness of the deposit insurance system for banks and thrifts. The 2004
Budget proposes to merge the BIF and the SAIF, which offer an identical
product. A single merged fund would be stronger and better diversified
than either fund alone. A merged fund would prevent the possibility that
institutions posing similar risks would again pay significantly
different premiums for the same product. 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 insurance fund reserves falls below the DRR, the FDIC must charge
either sufficient premiums to restore the reserve ratio to 1.25 percent
within one year, or no less than 23 basis points if the reserve ratio
remains below 1.25 percent for more than one year. The Administration's
proposal would give the FDIC authority to adjust the DRR periodically
within prescribed upper and lower bounds and greater discretion in
determining how quickly it restores the DRR to target levels. This
flexibility would help reduce potential pro-cyclical effects by
stabilizing industry costs over time and avoiding sharp premium
increases when the economy may be under stress. Finally, the FDIC has
been prohibited since 1996 from charging premiums to ``well-
capitalized'' and well-run institutions as long as insurance fund
reserves equal or exceed 1.25 percent of insured deposits. Therefore,
only nine percent of banks and ten percent of thrifts pay insurance
premiums, allowing a large number of financial institutions to rapidly
increase their insured deposits without any contribution to the
insurance fund. The Administration proposal would repeal this
prohibition to ensure that institutions with rapidly increasing insured
deposits or greater risks appropriately compensate the insurance fund.
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 the possibilities
that currently healthy firms become distressed in the future and that
currently well-funded plans become underfunded due to inadequate
contributions or poor 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 increased slightly
during the 1980's but started to decline in the 1990's. The increase in
the number of participants in PBGC-insured plans--from 38 million in
1985 to almost 44 million in calendar 2002--is attributable to aging of
the participant population, which includes retirees, separated vested
workers, and beneficiaries of deceased workers and retirees, in addition
to active workers. The number of active workers in PBGC-covered plans
fell from almost 27 million in calendar 1985 to fewer than 23 million in
calendar 2000, a decrease of 15 percent. If the trend continues, active
workers may constitute less than half of PBGC-insured participants in
calendar 2003.
PBGC's single-employer program returned to a deficit position in 2002
for the first time in seven years, as a result of record losses on plan
terminations in 2001 and 2002. LTV, a steel company, terminated its plan
with underfunding of nearly $2 billion, which then was PBGC's largest
claim ever. Other large underfunded terminations during the fiscal year
included Reliance Insurance Company, RTI, Anchor Glass Container
Corporation, and Polaroid Corporation. Additionally, in December 2002,
an even larger pension plan than LTV terminated. Bethlehem Steel's plan
covers 95,000 workers and retirees and is underfunded by about $4.3
billion, of which PBGC is liable for about $3.7 billion.
PBGC's ``snapshot'' current measure of financial position (deficit or
surplus) includes the financial effects only of pension plans that have
already terminated and of seriously underfunded large plans for which
termination is considered ``probable.'' Additional risk and exposure may
remain for the future because of economic uncertainties and significant
underfunding in pension plans. Some of the companies with the most
underfunded plans are in troubled industries (like airlines or the old-
line steel companies), or already are in Chapter 11 bankruptcy
proceedings. Because pension underfunding and risk are concentrated in a
relatively small number of plans and industries, the number and size of
claims is often volatile from year to year. As a result
[[Page 210]]
of this volatility, budget estimates are based on an average of recent
claims experience.
PBGC monitors troubled companies with underfunded plans and acts, in
bankruptcies, to protect its beneficiaries and the future of the
program. Such protections include, where necessary, initiating plan
termination. Under its Early Warning Program, PBGC negotiates
settlements with companies that improve pension security and reduce
PBGC's future exposure to risk. Working with the rest of the
Administration, PBGC is identifying options to address structural
weaknesses that exacerbate pension underfunding and potential losses to
PBGC, workers and retirees, in the event of plan termination.
In 2002, overall investment returns in PBGC's single-employer program
were 2.1 percent, with negative returns in its trust funds, which hold
mostly equities, and positive returns in the revolving funds, which are
invested in U.S. Government securities. Single-employer premium revenues
decreased slightly from $821 million to $787 million.
PBGC's multiemployer program, which guarantees pension benefits of
certain unionized plans offered by several employers in an industry,
remained financially strong, however. The program had a gain in 2002 as
a result of reduced liability for future loans to such plans.
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 complexities and costs associated
with benefit adjustments. The average calculation time for benefit
determinations issued in 2002 was 3.3 years, down from 4.9 years in
2000. Improved automated benefit calculation programs are reducing the
cost of determining the final benefits and helping to speed the process.
This automation will help PBGC administer benefits for the 89,000
participants taken into trusteeship in 2001 and the 187,000 new
participants in 2002, the largest increase in PBGC's history. PBGC is
working to send first benefit checks more speedily. In 2002, 95 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 Department
of Homeland Security (DHS) (the program was formerly administered by the
Federal Emergency Management Agency). 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 2004, the program is projected to have
approximately 4.7 million policies from more than 19,000 communities
with $699 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
requires building standards and other mitigation efforts to reduce
losses, and operates a flood hazard mapping program to quantify the
geographic risk of flooding. These efforts have made substantial
progress.
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 42,000 policies in 2002. DHS is
using three strategies to increase the number of flood insurance
policies in force: lender compliance, program simplification, and
expanded marketing. DHS 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, DHS adjusts premium rates to encourage community
and State mitigation activities beyond those required by the NFIP.
Despite these efforts, the program faces financial challenges. The
program's financing account, which is a cash fund, has sometimes had
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. DHS charges subsidized
premiums for properties built before a community adopted 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). As of October 31, 2002, the NFIP had repaid all of its
outstanding debt.
The NFIP was evaluated on its effectiveness and efficiency this year
using the Program Assessment Rating Tool (PART). The PART revealed that
the program has clear purpose and is well designed, with the exception
of the fact that it is not actuarially sound. The program also received
high marks for strategic planning, dem
[[Page 211]]
onstrating that it has both well-defined long-term and annual goals.
Although the program is generally well run, it receives some criticism
about the low participation rate and the inclusion of subsidized
properties, especially those that are repetitively flooded. Currently,
less than half of the eligible properties in identified flood plains
participate in this program. In comparison, the participation rate for
private wind and hurricane insurance is nearly 90 percent in at-risk
areas. Given that flood damage causes roughly $6 billion in property
damage annually, DHS will have to evaluate its incentive structure to
attract more participation in the program, while not encouraging misuse
of the program. The Budget also proposes a $300 million predisaster
mitigation grant program to be funded within DHS, some of which will be
targeted to buyouts of repetitively flooded properties.
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. In 2002, much of the agriculture
region across the US suffered from severe drought conditions. As a
result, the amount of claim payments made under the crop insurance
program increased significantly. This suggests that the Federal
Government plays an important role in mitigating the risks faced by the
agricultural community. RMA continues to create new products for
commodities that are not offered coverage under the current crop
insurance program so that the Government can reduce the need for ad-hoc
disaster assistance payments to the agriculture community in bad years.
The USDA crop insurance program is a cooperative effort between the
Federal Government and the private insurance industry. Private insurance
companies sell and service crop insurance policies. The Federal
Government reimburses private companies for the administrative expenses
associated with providing crop insurance and reinsures the private
companies for excess insurance losses on all policies. The Federal
Government also subsidizes premiums for farmers. In crop year 2002, 216
million acres were insured, with an estimated $2.9 billion in total
premium income, including $1.7 billion in premium subsidy.
Included in the 2004 Budget is a proposal to amend the Federal Crop
Insurance Act by limiting the reimbursement rate the private insurance
companies receive for administrative costs to 20 percent of the premiums
sold. This rate has not changed since set at 24.5 percent in 1998, even
though the 2000 Agriculture Risk Protection Act significantly increased
the level and volume of insurance coverage by farmers. While, the total
premiums received by each company grew correspondingly, the costs of
selling and servicing these policies have grown much less (due to
economies of scale). This would argue that the current rate exceeds a
reasonable amount for the companies' costs related to selling and
servicing these policies. A reimbursement rate of 20 percent would be
more reasonable and is expected to save $68 million in 2004.
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 XX percent of eligible acres
participated in one or more crop insurance programs in 2002.
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. These
programs extend traditional multi-peril crop insurance protection by
adding price variability to production history. 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.
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 National Agricultural
Statistics Service county average yields, as adjusted by Federal Crop
Insurance Corporation (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.
[[Page 212]]
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.
Insurance Against Security-Related Risks
The Federal Government newly offers terrorism risk insurance and
Airline War Risk Insurance on a temporary basis, and has expanded the
vaccine compensation program. After the September 11 attacks, private
insurers became reluctant to insure against security-related risks such
as terrorism and war. Those events are so uncertain in terms of both the
frequency of occurrence and the magnitude of potential loss that private
insurers can hardly estimate the expected loss. Furthermore, terrorism
can produce a really large loss that can wipe out private insurers'
capital. These uncertainties make the private sector reluctant to
provide security-related insurance. Thus, it is necessary for the
Federal Government to insure against security-related risks, at least
until the private sector learns enough to be comfortable about
estimating those risks, to ensure the smooth functioning of the economy.
Terrorism Risk Insurance
On November 26, 2002, President Bush signed into law the Terrorism
Risk Insurance Act of 2002. Since the September 11, 2001 terrorist
attacks, the economy has been harmed by the withdrawal of many insurance
companies from the marketplace for terrorism risk insurance. Their
withdrawal in the face of great uncertainty as to their risk exposure to
future terrorist attacks led to the cancellation of construction
projects, increased business costs for the insurance that was available,
and substantial shifting of risk from reinsurers to primary insurers,
and from insurers to policyholders (e.g., investors, businesses, and
property owners). Ultimately, these costs are borne by American workers
and communities through fewer construction projects and lower economic
activity.
The new law establishes a temporary Federal program that provides for
a system of shared public and private compensation for insured
commercial property and casualty losses arising from acts of terrorism.
The program is administered by the Treasury Department and will sunset
on December 31, 2005.
Under the new law, insurance companies included under the program must
make available to their policyholders coverage for losses from acts of
terrorism under the program. The law also requires insurance companies
to disclose to policyholders the premium charged for terrorism risk
insurance and the Federal share of compensation provided under the law.
In the event of a future terrorist attack on private businesses and
others covered by this program, insurance companies will cover insured
losses up to each company's deductible as specified in the law. Insured
losses above that amount in a given year would be shared between the
insurance company and the Treasury, with Treasury covering 90 percent of
the losses above the company's deductible. However, neither the Treasury
nor any insurer would be liable for any amount exceeding the statutory
annual cap of $100 billion in aggregate insured losses. The law also
provides authority for the Treasury to recoup Federal payments via
surcharges on policyholders.
Airline War Risk Insurance
After the September 11 attacks, private insurers cancelled third party
liability war risk coverage for airlines and dramatically increased the
cost of other war risk insurance. In response, the Department of
Transportation (DOT) provided a short-term reimbursement to airlines for
the increased cost of aviation hull and passenger liability war risk
insurance under the authority provided in P.L. 107-42. Under
Presidential Determination No. 01-29, the President delegated the
authority to extend aviation insurance to the Secretary of
Transportation. Due to the extended disruption in the marketplace, DOT
also offered airlines third-party liability war risk insurance coverage
at subsidized rates to replace coverage initially withdrawn by private
insurers. For the last year, DOT has continued to provide this insurance
coverage in 60-day increments.
On November 26, the President signed the Homeland Security Act of 2002
which included the Airline War Risk Insurance Legislation. This law
extends the term of third party war risk coverage and expands the scope
of coverage to include war risk hull, passenger, crew, and property
liability insurance. Under the law, the Secretary of Transportation
shall extend insurance policies until August 31, 2003, but may extend
until December 31, 2003. At this time DOT is preparing policies that
extend insurance coverage until August 31st 2003. In addition, the law
states that the total premium for the three types of insurance shall not
exceed twice the premium rate charged for the third party liability
insurance as of June 19, 2002.
Currently 73 air carriers are insured by DOT. Coverage for individual
carriers ranges from $80 million to $4 billion per carrier with the
median insurance
[[Page 213]]
coverage at approximately $1.8 billion per occurrence. Premiums
collected by the Government are deposited into the Aviation Insurance
Revolving Fund. In 2002, the fund collected approximately $75 million in
premiums for insurance provided by DOT and paid out $56 million in one
time premium assistance reimbursements for coverage purchased from
private insurers. In 2003, it is anticipated that up to $123 million in
premiums may be collected by DOT for the provision of insurance. In
2004, the authorization for the war risk insurance program expires. Any
claims by the airlines that exceed the balance in the aviation insurance
revolving fund would be paid by the Federal Government.
Vaccine Injury Compensation
The National Vaccine Injury Compensation Program began in 1988 to
encourage childhood vaccination by providing streamlined compensation
for injuries resulting from vaccination. This program is jointly
administered by the Department of Health and Human Services (HHS), the
U.S. Court of Federal Claims, and the Department of Justice (DOJ).
Vaccine-related victims file claims against HHS in the U.S. Court of
Federal Claims. Then DOJ represents HHS in the court to ensure fair
compensation. Compensation is paid out of the Vaccine Trust Fund,
financed through per-dose assessments on vaccines.
To better prepare the Nation for potential biological attacks, the
Homeland Security Act of 2002 expands the coverage of the National
Vaccine Injury Compensation Program by broadening the interpretation of
key terms, such as ``vaccine'' and ``vaccine-related injury or death.''
The Act also provides medical liability protection to some private
parties, such as doctors, drug manufacturers, and hospitals, when those
entities, acting on behalf of the U.S. Public Health Service, are liable
for the administration of the smallpox vaccine and other
countermeasures. This protection is effective only during such period as
declared by the Secretary of HHS.
[[Page 214]]
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 2001 2001 2002 2002
Outstanding \1\ Outstanding \1\
----------------------------------------------------------------------------------------------------------------
Direct Loans:\2\
Federal student loan programs................... 90 11 99 14
Farm Service Agency (excl. CCC), Rural 46 10 45 11
development, Rural housing.....................
Rural Utilities Service and Rural telephone bank 31 2 32 2
Housing and Urban Development................... 12 2 12 2
Agency for International Development............ 10 4 9 7
P. L. 480....................................... 11 2 11 2
Export-Import Bank.............................. 12 4 12 4
Commodity Credit Corporation.................... 4 3 5 3
Federal Communications Commission spectrum 6 ............... 5 ...............
auction........................................
Disaster assistance............................. 4 1 4 ...............
Other direct loan programs...................... 13 ............... 14 ...............
-------------------------------------------------------------
Total Direct Loans............................ 239 39 248 45
-------------------------------------------------------------
Guaranteed Loans:\2\
FHA-mutual mortgage insurance................... 459 1 467 3
Veterans housing................................ 237 5 265 6
Federal family education loan program........... 159 14 182 12
FHA-general and special risk.................... 99 8 96 7
Small business.................................. 37 3 41 1
Export-Import Bank.............................. 31 4 31 5
International assistance........................ 19 2 19 2
Farm Service Agency and Rural housing........... 22 ............... 23 ...............
Commodity Credit Corporation.................... 5 ............... 5 1
Other guaranteed loan programs.................. 16 2 16 2
-------------------------------------------------------------
Total Guaranteed Loans........................ 1,084 39 1,145 39
=============================================================
Total Federal Credit........................ 1,323 78 1,393 84
----------------------------------------------------------------------------------------------------------------
\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 215]]
Table 9-2. FACE VALUE OF GOVERNMENT-SPONSORED ENTERPRISE LENDING\1\
(In billions of dollars)
------------------------------------------------------------------------
Outstanding
-----------------------
2001 2002
------------------------------------------------------------------------
Government Sponsored Enterprises:
Fannie Mae...................................... 1,460 1,689
Freddie Mac..................................... 1,101 1,254
Federal Home Loan Banks \2\..................... 477 524
Sallie Mae \3\.................................. .......... ..........
Farm Credit System.............................. 75 83
-----------------------
Total....................................... 3,113 3,550
------------------------------------------------------------------------
\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 2002 was
$215 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 216]]
Table 9-3. REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED BETWEEN 1992-2002 \1\
(Budget authority and outlays, in millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Program 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Loans:
Agriculture:
Agriculture credit insurance fund........................... -72 28 2 -31 23 ....... 331 -656 921 10
Farm storage facility loans................................. ....... ....... ....... ....... ....... ....... ....... ....... -1 -7
Apple loans................................................. ....... ....... ....... ....... ....... ....... ....... ....... -2 1
Emergency boll weevil loan.................................. ....... ....... ....... ....... ....... ....... ....... ....... ....... 1
Agricultural conservation................................... -1 ....... ....... ....... ....... ....... ....... ....... ....... .......
Distance learning and telemedicine.......................... ....... ....... ....... ....... ....... ....... ....... ....... 1 .......
Rural electrification and telecommunications loans.......... * 61 -37 84 ....... -39 ....... -17 -42 .......
Rural telephone bank........................................ 1 ....... ....... 10 ....... -9 ....... -1 ....... -3
Rural housing insurance fund................................ 2 152 46 -73 ....... 71 ....... 19 -29 -440
Rural economic development loans............................ ....... ....... ....... 1 ....... -1 * ....... -1 .......
Rural development loan program.............................. ....... 1 ....... ....... ....... -6 ....... ....... -1 .......
Rural community advancement program \2\..................... ....... ....... ....... 8 ....... 5 ....... 37 3 .......
P.L. 480.................................................... ....... ....... -37 -1 ....... ....... ....... -23 65 -348
P.L. 480 Title I food for progress credits.................. ....... 84 -38 ....... ....... ....... ....... ....... ....... -112
Commerce:
Fisheries finance........................................... ....... ....... ....... ....... ....... ....... ....... -19 -1 -3
Defense:
Military housing improvement fund........................... ....... ....... ....... ....... ....... ....... ....... ....... ....... 1
Education:
Federal direct student loan program: \3\
Volume reestimate......................................... ....... ....... ....... ....... ....... 22 ....... -6 ....... 43
Other technical reestimate................................ ....... ....... 3 -83 172 -383 -2,158 560 ....... 3,678
College housing and academic facilities loans............... ....... ....... ....... ....... ....... ....... ....... -1 ....... .......
Homeland Security:
Disaster assistance......................................... ....... ....... ....... ....... ....... ....... 47 36 -7 -6
Interior:
Bureau of Reclamation loans................................. ....... ....... ....... ....... ....... ....... 3 3 -9 -14
Bureau of Indian Affairs direct loans....................... ....... ....... ....... ....... ....... 1 5 -1 -1 1
Transportation:
High priority corridor loans................................ ....... ....... ....... ....... -3 ....... ....... ....... ....... .......
Alameda corridor loan....................................... ....... ....... ....... ....... ....... ....... -58 ....... ....... -50
Transportation infrastructure finance and innovation........ ....... ....... ....... ....... ....... ....... ....... 18 ....... 18
Railroad rehabilitation and improvement program............. ....... ....... ....... ....... ....... ....... ....... ....... ....... -5
Treasury:
Community development financial institutions fund........... ....... ....... ....... ....... ....... ....... 1 ....... ....... .......
Veterans Affairs:
Veterans housing benefit program fund....................... -39 30 76 -72 465 -111 -52 -107 -697 17
Native American veteran housing............................. ....... ....... ....... ....... ....... ....... ....... ....... ....... -4
Vocational Rehabilitation Loans............................. ....... ....... ....... ....... ....... ....... ....... ....... ....... *
Environmental Protection Agency:
Abatement, control and compliance........................... ....... ....... ....... ....... ....... ....... ....... 3 -1 1
General Services Administration:
Columbia hospital for women \5\............................. ....... ....... ....... ....... ....... ....... ....... ....... -6 .......
International Assistance Programs:
Foreign military financing.................................. ....... ....... ....... 13 4 1 152 -166 119 -397
U.S. Agency for International Development:
Micro and small enterprise development.................... ....... ....... ....... ....... ....... ....... ....... ....... * .......
Overseas Private Investment Corporation:
OPIC direct loans......................................... ....... ....... ....... ....... ....... ....... ....... ....... ....... -4
Debt reduction.............................................. ....... ....... ....... ....... ....... ....... 36 -4 ....... .......
Small Business Administration:
Business loans.............................................. ....... ....... ....... ....... ....... ....... ....... 1 -2 1
Disaster loans.............................................. ....... ....... ....... ....... -193 246 -398 -282 -14 266
Other Independent Agencies:
Export-Import Bank direct loans............................. -28 -16 37 ....... ....... ....... -177 157 117 -640
Federal Communications Commission spectrum auction.......... ....... ....... ....... ....... 4,592 980 -1,501 -804 92 346
Loan Guarantees:
Agriculture:
Agriculture credit insurance fund........................... 5 14 12 -51 96 ....... -31 205 40 -36
Agriculture resource conservation demonstration project..... ....... ....... ....... ....... ....... ....... ....... 2 ....... 1
Commodity Credit Corporation export guarantees.............. 3 103 -426 343 ....... ....... ....... -1,410 ....... -13
[[Page 217]]
Rural development insurance fund............................ 49 ....... ....... -3 ....... ....... ....... ....... ....... .......
Rural housing insurance fund................................ 2 10 7 -10 ....... 109 ....... 152 -56 .......
Rural community advancement program \2\..................... ....... ....... ....... -10 ....... 41 ....... 63 17 .......
Commerce:
Fisheries finance........................................... ....... ....... ....... ....... -2 ....... ....... -3 -1 3
Emergency steel guaranteed loans............................ ....... ....... ....... ....... ....... ....... ....... ....... ....... 50
Emergency oil and gas guaranteed loans...................... ....... ....... ....... ....... ....... ....... ....... * * *
Defense:
Military housing improvement fund........................... ....... ....... ....... ....... ....... ....... ....... ....... ....... -1
Education:
Federal family education loan program: \3\
Volume reestimate......................................... ....... ....... 535 99 ....... -13 -60 -42 ....... 277
Other technical reestimate................................ 97 421 60 ....... ....... -140 667 -3,484 ....... -2,483
Health and Human Services:
Heath center loan guarantees................................ ....... ....... ....... ....... ....... ....... 3 ....... * *
Health education assistance loans........................... ....... ....... ....... ....... ....... ....... ....... ....... ....... .......
Housing and Urban Development:
Indian housing loan guarantee............................... ....... ....... ....... ....... ....... ....... ....... -6 * -1
Title VI Indian guarantees.................................. ....... ....... ....... ....... ....... ....... ....... ....... ....... -1
FHA-mutual mortgage insurance............................... ....... ....... ....... -340 ....... 3,789 ....... 2,413 -1,308 1,100
FHA-general and special risk................................ -175 ....... -110 -25 743 79 ....... -217 -403 77
Interior:
Bureau of Indian Affairs guaranteed loans................... ....... ....... ....... 31 ....... ....... ....... -14 -1 -3
Transportation:
Maritime guaranteed loans (title XI)........................ ....... ....... ....... ....... ....... -71 30 -15 187 27
Minority business resource center........................... ....... ....... ....... ....... ....... ....... ....... ....... 1 .......
Treasury:
Air transportation stabilization program \4\................ ....... ....... ....... ....... ....... ....... ....... ....... ....... 113
Veterans Affairs:
Veterans housing benefit fund program....................... -447 167 334 -706 38 492 229 -770 -163 -183
International Assistance Programs:
U.S. Agency for International Development:
Development credit authority.............................. ....... ....... ....... ....... ....... ....... ....... ....... -1 .......
Micro and small enterprise development.................... ....... ....... ....... ....... ....... ....... ....... ....... ....... .......
Urban and environmental credit............................ -2 -1 -7 ....... -14 ....... ....... ....... -4 -16
Assistance to the new independent states of the former ....... ....... ....... ....... ....... ....... ....... ....... -34 .......
Soviet Union \5\.........................................
Overseas Private Investment Corporation:
OPIC guaranteed loans..................................... ....... ....... ....... ....... ....... ....... ....... ....... 5 78
Small Business Administration:
Business loans.............................................. ....... ....... 257 -16 -279 -545 -235 -528 -226 304
Other Independent Agencies:
Export-Import Bank guarantees............................... -11 -59 13 ....... ....... ....... -191 -1,520 -417 -2,042
-----------------------------------------------------------------------------------------
Total..................................................... -616 995 727 -832 5,642 4,518 -3,641 -6,427 -1,860 -398
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Less than $500 thousand.
\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\ Numbers shown for 2003 include estimates for loan guarantees that have received either conditional or final approval. This presentation should not
be construed as prejudging the outcome of the Air Transportation Stabilization Board's deliberations. The Board does not anticipate making any new
loan guarantees in 2004.
\5\ Closing reestimate executed in fiscal year 2002.
[[Page 218]]
Table 9-4. DIRECT LOAN SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 2002-2004
(In millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2002 Actual 2003 Proposed 2004 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....................... 6.78 60 885 13.97 112 802 14.20 121 852
Farm storage facility loans.............................. 2.40 3 125 1.36 2 147 ........ ......... 117
Rural community advancement program...................... 6.60 98 1,485 10.08 110 1,091 2.53 33 1,305
Rural electrification and telecommunications loans....... -0.57 -26 4,569 -0.66 -20 3,016 -1.58 -48 3,035
Rural telephone bank..................................... 2.14 4 175 1.38 ......... ........ -4.32 ......... ........
Distance learning, telemedicine, and broadband program... -0.07 ......... 95 4.73 39 825 3.66 9 246
Farm labor............................................... 47.31 22 47 49.02 18 36 42.73 18 42
Rural housing insurance fund............................. 16.48 204 1,238 20.86 224 1,074 11.11 166 1,494
Rural development loan fund.............................. 43.21 13 31 48.26 20 40 43.27 17 40
Rural economic development loans......................... 24.16 4 15 21.36 3 15 18.61 3 15
Public law 480 title I................................... 81.73 126 155 75.11 99 132 78.90 104 132
Commerce:
Fisheries finance........................................ -6.45 -8 124 -2.86 -3 105 -3.33 -1 30
Defense--Military:
Family housing improvement fund.......................... ........ ......... ........ 21.36 44 206 39.95 88 221
Education:
College housing and academic facilities loans............ ........ ......... 44 ........ ......... 268 ........ ......... 227
Federal direct student loan program...................... -3.95 -835 21,164 -3.23 -690 21,339 -5.22 -1,049 20,954
Homeland Security:
Disaster assistance loans................................ 1.62 ......... 25 -4.10 -1 25 -2.02 -1 25
Housing and Urban Development:
FHA-mutual mortgage insurance............................ ........ ......... 250 ........ ......... 50 ........ ......... 50
FHA-general and special risk............................. ........ ......... 50 ........ ......... 50 ........ ......... 50
Interior:
Bureau of Reclamation loans.............................. 26.92 7 26 ........ ......... ........ ........ ......... ........
State:
Repatriation loans....................................... 80.00 1 1 80.00 1 1 70.75 1 1
Transportation:
Federal-aid highways..................................... 2.79 16 573 4.40 104 2,362 5.58 127 2,277
Railroad rehabilitation and improvement program.......... ........ ......... 102 ........ ......... ........ ........ ......... ........
Treasury:
Community development financial institutions fund........ 38.44 3 8 36.94 2 5 34.37 2 5
Veterans Affairs:
Vocational rehabilitation and education loans............ ........ ......... 3 ........ ......... 3 ........ ......... 4
Housing.................................................. 0.85 9 1,056 1.80 6 334 10.80 31 287
International Assistance Programs:
Foreign military financing loans......................... ........ ......... ........ ........ ......... 3,800 ........ ......... ........
Debt restructuring....................................... ........ 66 ........ ........ 73 ........ ........ 292 ........
Overseas Private Investment Corporation.................. 10.60 5 47 11.00 8 73 11.00 4 40
Small Business Administration:
Disaster loans........................................... 17.19 217 1,262 16.14 118 731 11.72 79 760
Business loans........................................... 6.78 1 16 13.05 4 27 9.55 2 20
Export-Import Bank of the United States:
Export-Import Bank loans................................. 16.22 48 296 17.32 31 179 5.90 19 322
Federal Communications Commission:
Spectrum auction......................................... 15.00 ......... 1 ........ ......... ........ ........ ......... ........
--------------------------------------------------------------------------------------------
Total.................................................. N/A 38 33,868 N/A 304 36,736 N/A 17 32,551
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
N/A = Not applicable.
[[Page 219]]
Table 9-5. LOAN GUARANTEE SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 2002-2004
(In millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2002 Actual 2003 Proposed 2004 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....................... 3.98 128 3,220 3.23 97 3,000 3.23 86 2,666
Commodity Credit Corporation export loans................ 6.80 222 3,266 6.96 294 4,225 7.14 297 4,155
Rural community advancement program...................... 2.90 31 1,070 2.95 39 1,321 3.04 27 887
Rural electrification and telecommunications loans....... ........ ......... ........ 0.08 ......... 100 0.06 ......... 100
Local television loan guarantees......................... 7.75 ......... ........ 8.25 88 1,067 8.46 ......... ........
Rural housing insurance fund............................. 1.43 36 2,519 1.25 23 1,915 1.63 46 2,825
Rural business investment................................ ........ ......... ........ 20.00 56 280 ........ ......... ........
Commerce:
Emergency oil and gas guaranteed loans................... 42.03 1 2 ........ ......... ........ ........ ......... ........
Emergency steel guaranteed loans......................... 12.36 5 42 ........ ......... ........ ........ ......... ........
Defense--Military:
Procurement of ammunition, Army.......................... ........ ......... ........ 3.34 1 39 ........ ......... ........
Family housing improvement fund.......................... ........ ......... ........ 5.07 7 138 5.40 14 259
Education:
Federal family education loan program.................... 8.96 4,312 48,102 12.00 6,401 53,327 11.85 6,272 52,064
Health and Human Services:
Health education assistance loans........................ 12.43 21 165 12.43 20 160 12.19 18 150
Health resources and services............................ 8.71 ......... 1 5.88 1 17 5.88 1 17
Housing and Urban Development:
Indian housing loan guarantee fund....................... 2.47 6 234 2.43 5 197 2.73 1 27
Native Hawaiian housing loan guarantee fund.............. 2.47 1 40 2.43 1 40 2.73 1 35
Public housing capital fund.............................. ........ ......... ........ ........ ......... ........ 7.66 131 1,715
Native American housing.................................. 11.07 6 53 11.07 2 17 10.56 1 8
Community development loan guarantees.................... 2.30 14 609 2.30 6 275 ........ ......... ........
FHA-mutual mortgage insurance............................ -2.07 -2,880 165,000 -2.53 -3,226 165,000 -2.39 -3,378 185,000
FHA-general and special risk............................. -1.53 -352 23,000 -1.05 -249 24,000 -1.05 -262 25,000
Interior:
Indian guaranteed loans.................................. 6.00 4 75 6.91 5 72 6.13 5 84
Transportation:
Minority business resource center program................ 2.70 ......... 18 2.69 1 18 2.53 1 18
Federal-aid highways..................................... ........ ......... ........ 4.35 9 200 4.77 10 200
Maritime guaranteed loans (title XI)..................... 6.22 14 225 6.21 ......... 338 ........ ......... ........
Treasury:
Air transportation stabilization \2\..................... 40.11 172 429 26.94 386 1,433 ........ ......... ........
Veterans Affairs:
Housing.................................................. 0.51 194 38,038 0.87 306 35,271 0.78 275 35,248
International Assistance Programs:
Microenterprise and small enterprise development......... 3.93 1 25 ........ ......... ........ ........ ......... ........
Development credit authority............................. 6.42 19 289 6.44 18 280 3.11 21 675
Overseas Private Investment Corporation.................. 2.60 21 809 1.71 11 645 2.61 20 765
Small Business Administration:
Business loans........................................... 0.86 132 15,266 0.45 85 18,983 0.46 95 20,802
Export-Import Bank of the United States:
Export-Import Bank loans................................. 7.05 693 9,824 5.52 625 11,321 3.08 441 14,320
Presidio Trust:
Presidio Trust........................................... ........ ......... ........ 0.14 ......... 200 0.14 ......... ........
--------------------------------------------------------------------------------------------
Total.................................................. N/A 2,801 312,321 N/A 5,012 323,879 N/A 4,123 347,020
--------------------------------------------------------------------------------------------
ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS
GNMA:
Guarantees of mortgage-backed securities................. -0.33 -363 200,000 -0.33 -396 200,000 -0.27 -405 200,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
\2\ Numbers shown for 2003 include estimates for loan guarantees that have received either conditional or final approval. This presentation should not
be construed as prejudging the outcome of the Air Transportation Stabilization Board's deliberations. The Board does not anticipate making any new
loan guarantees in 2004.
N/A = Not applicable.
[[Page 220]]
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 2004
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Loans:
Obligations............................................... 30.9 23.4 33.6 28.8 38.4 37.1 39.1 43.7 46.2 42.0
Disbursements............................................. 22.0 23.6 32.2 28.7 37.7 35.5 37.1 39.6 38.4 38.0
New subsidy budget authority.............................. * * * -0.8 1.6 -0.4 0.3 * 0.3 *
Reestimated subsidy budget authority \1\.................. ....... ....... ....... 7.3 1.0 -4.4 -1.8 0.5 2.4 .......
Total subsidy budget authority \2\........................ 2.6 1.8 2.4 6.5 2.6 -4.8 -1.5 0.5 2.7 *
Loan Guarantees: \3\
Commitments............................................... 138.5 175.4 172.3 218.4 252.4 192.6 256.4 303.7 322.9 339.7
Lender disbursements...................................... 117.9 143.9 144.7 199.5 224.7 180.8 212.9 271.4 271.5 278.0
New subsidy budget authority.............................. * * * 3.3 * 3.6 2.3 2.9 4.9 4.1
Reestimated subsidy budget authority \1\.................. ....... ....... ....... -0.7 4.3 0.3 -7.1 -2.4 -2.7 .......
Total subsidy budget authority \2\........................ 4.6 4.0 3.6 2.6 4.3 3.9 -4.8 0.5 2.2 4.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Less than $50 million.
\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 221]]
Table 9-7. DIRECT LOAN WRITE-OFFS AND GUARANTEED LOAN TERMINATIONS FOR DEFAULTS
----------------------------------------------------------------------------------------------------------------
In millions of dollars As a percentage of outstanding
-------------------------------- loans \1\
Agency and Program ---------------------------------
2002 2003 2004 2002 2003 2004
actual estimate estimate actual estimate estimate
----------------------------------------------------------------------------------------------------------------
DIRECT LOAN WRITEOFFS
Agriculture:
Agricultural credit insurance fund.......... 174 242 238 2.03 3.00 3.22
Farm storage facility loans program......... .......... 1 1 .......... 0.64 0.46
Rural electrification and telecommunications .......... 119 109 .......... 0.38 0.33
loans......................................
Rural development insurance fund............ .......... 1 1 .......... 0.03 0.03
Rural housing insurance fund................ 223 205 186 0.81 0.76 0.70
Rural development loan fund................. 2 1 1 0.51 0.24 0.22
P.L.480..................................... 8 34 ........ 0.07 0.33 .........
Commerce:
Economic development revolving fund......... 1 1 1 3.33 3.84 4.54
Education:
Student financial assistance................ 20 22 23 5.68 7.28 8.74
Homeland Security:
Disaster assistance......................... 27 ........ ........ 17.53 ......... .........
Housing and Urban Development:
Revolving fund (liquidating programs)....... 1 1 1 5.55 5.88 6.25
FHA--Mutual mortgage insurance.............. .......... 4 9 .......... 33.33 52.94
Guarantees of mortgage-backed securities.... 1 1 2 0.94 1.00 2.08
Interior:
Indian direct loans......................... 2 2 2 3.63 3.92 4.25
Assistance to American Samoa................ .......... ........ 1 .......... ......... 7.69
Payments to the United States territories... .......... ........ 1 .......... ......... 12.50
Labor:
Pension benefit guaranty corporation........ 5 6 14 .......... ......... .........
State:
Repatriation loans.......................... 1 1 ........ 25.00 25.00 .........
Transportation:
Minority business resource center........... 1 ........ ........ 50.00 ......... .........
Railroad rehabilitation and improvement..... .......... ........ 2 .......... ......... 0.59
Veterans Affairs:
Veterans housing benefit program............ 5 1 1 0.27 0.06 0.07
International Assistance Programs:
Foreign military financing.................. .......... 177 ........ .......... 3.75 .........
Military debt reduction..................... 17 2 31 170.00 12.50 206.66
Debt reduction (AID)........................ 6 20 ........ 4.08 19.04 .........
Economic assistance loans................... 14 8 ........ 0.15 0.09 .........
Overseas Private Investment Corporation..... 1 1 1 0.93 0.64 0.53
Small Business Administration:
Disaster loans.............................. 101 44 42 2.77 1.26 1.34
Business loans.............................. 13 16 15 3.19 4.62 4.95
Other Independent Agencies:
Export-Import Bank.......................... 94 675 49 0.81 6.23 0.49
Debt reduction (ExIm Bank).................. 11 ........ 237 7.85 ......... 117.91
Tennessee Valley Authority fund............. 1 1 1 2.08 2.08 1.88
-----------------------------------------------------------------
Total, direct loan writeoffs.............. 729 1,586 969 0.33 0.70 0.40
-----------------------------------------------------------------
GUARANTEED LOAN TERMINATIONS FOR DEFAULT
Agriculture:
Agricultural credit insurance fund.......... 70 71 77 0.72 0.71 0.73
Commodity Credit Corporation export loans... 334 325 318 6.90 6.88 6.86
Rural community advancement program......... 51 55 60 1.28 1.23 1.16
Rural electrification and telecommunications 41 20 19 7.24 3.49 3.11
loans......................................
Rural development insurance fund............ 7 6 5 7.86 8.33 8.77
Rural housing insurance fund................ 81 99 102 0.61 0.71 0.71
Rural business investment program........... .......... ........ 1 .......... ......... 0.96
[[Page 222]]
Commerce:
Emergency oil and gas guaranteed loans...... .......... 1 1 .......... 25.00 50.00
Emergency steel guaranteed loans............ 92 11 1 112.19 23.91 2.94
Fisheries finance........................... .......... ........ 1 .......... ......... 2.22
Education:
Federal family education loan program....... 3,415 4,554 5,462 2.00 2.38 2.63
Health and Human Services:
Health education assistance loans........... 37 51 52 1.66 2.22 2.20
Housing and Urban Development:
Indian housing loan guarantees.............. 1 2 2 1.61 3.50 3.33
Title VI Indian Federal guarantees program.. .......... 1 1 .......... 1.42 1.28
FHA--Mutual mortgage insurance.............. 5,529 3,640 3,793 1.19 0.73 0.68
FHA--General and special risk............... 1,485 2,055 1,990 1.52 2.00 1.71
Interior:
Indian guaranteed loans..................... 2 1 1 0.92 0.40 0.35
Transportation:
Maritime guaranteed loans (Title XI)........ 365 35 35 8.18 0.81 0.80
Treasury:
Air transportation stabilization guaranteed .......... 495 105 .......... 55.12 8.52
loans \2\..................................
Veterans Affairs:
Veterans housing benefit program............ 1,557 2,922 2,982 0.62 1.05 0.98
International Assistance Programs:
Foreign military financing.................. .......... 3 10 .......... 0.08 0.30
Micro and small enterprise development...... .......... 2 1 .......... 5.26 2.08
Urban and environmental credit program...... 47 21 37 2.24 1.03 1.93
Development credit authority................ .......... 1 1 .......... 0.90 0.43
Overseas Private Investment Corporation..... 162 46 45 4.69 1.25 1.14
Small Business Administration:
Business loans.............................. 933 695 708 2.40 1.65 1.62
Pollution control equipment................. .......... 1 1 .......... 10.00 16.66
Other Independent Agencies:
Export-Import Bank.......................... 432 351 395 1.40 1.11 1.19
-----------------------------------------------------------------
Total, guaranteed loan terminations for 14,641 15,464 16,206 0.86 0.86 0.83
default..................................
-----------------------------------------------------------------
Total, direct loan writeoffs and 15,370 17,050 17,175 0.80 0.84 0.78
guaranteed loan terminations.............
=================================================================
ADDENDUM: WRITEOFFS OF DEFAULTED GUARANTEED
LOANS THAT RESULT IN LOANS RECEIVABLE
Agriculture:
Agricultural credit insurance fund.......... 2 1 1 18.18 10.00 10.00
Education:
Federal family education loan program....... 513 487 479 2.66 2.49 2.31
Health and Human Services:
Health education assistance loans........... 24 24 24 2.74 2.72 2.72
Housing and Urban Development:
FHA--Mutual mortgage insurance.............. 5 ........ ........ 55.55 ......... .........
FHA--General and special risk............... 339 357 263 12.45 12.13 8.07
Interior:
Indian guaranteed loans..................... .......... ........ 2 .......... ......... 5.00
Treasury:
Air transportation stabilization guaranteed .......... ........ 462 .......... ......... 154.00
loans \2\..................................
Veterans Affairs:
Veterans housing benefit program............ 49 96 112 5.53 7.60 7.53
0
[[Page 223]]
International Assistance Programs:
Urban and environmental credit program...... .......... 40 ........ .......... 9.54 .........
Small Business Administration:
Business loans.............................. 111 85 83 7.39 4.79 4.14
-----------------------------------------------------------------
Total, writeoffs of loans receivable...... 1,043 1,090 1,426 3.41 3.40 4.18
----------------------------------------------------------------------------------------------------------------
\1\ Average of loans outstanding for the year.
\2\ Numbers shown for 2003 and 2004 include estimates for loan guarantees that have received either conditional
or final approval. This presentation should not be construed as prejudging the outcome of the Air
Transportation Stabilization Board's deliberations. The Board does not anticipate making any new loan
guarantees in 2004.
[[Page 224]]
Table 9-8. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Proposed
Agency and Program 2002 -----------------------
Actual 2003 2004
----------------------------------------------------------------------------------------------------------------
DIRECT LOAN OBLIGATIONS
Agriculture:
Agricultural credit insurance fund........................................ 885 802 852
Distance learning, telemedicine, and broadband............................ 380 825 246
Rural electrification and telecommunications.............................. 4,569 3,016 3,035
Rural telephone bank...................................................... 175 .......... ..........
Rural water and waste disposal direct loans............................... 817 814 1,055
Rural housing insurance fund.............................................. 1,295 1,110 1,536
Rural community facility direct loans..................................... 234 250 250
Rural economic development................................................ 15 15 15
Rural development loan fund............................................... 31 40 40
P.L. 480 direct credit.................................................... 168 132 132
Commerce:
Fisheries finance......................................................... 124 105 30
Education:
Historically black college and university capital financing............... 296 268 227
Homeland Security:
Disaster assistance....................................................... 25 25 25
Housing and Urban Development:
FHA-general and special risk.............................................. 50 50 50
FHA-mutual mortgage insurance............................................. 250 50 50
Interior:
Bureau of Reclamation..................................................... 26 .......... ..........
State:
Repatriation loans........................................................ 1 1 1
Transportation:
Transportation infrastructure finance and innovation program direct loans. 2,200 2,200 2,200
Transportation infrastructure finance and innovation program lines of 100 200 200
credit...................................................................
Treasury:
Community development financial institutions fund......................... 11 11 11
Veterans Affairs:
Vocational rehabilitation and education................................... 3 3 4
International Assistance Programs:
Foreign military financing................................................ .......... 3,800 ..........
Small Business Administration:
Business.................................................................. 16 27 20
-----------------------------------
Total, limitations on direct loan obligations........................... 11,671 13,744 9,979
-----------------------------------
LOAN GUARANTEE COMMITMENTS
Agriculture:
Agricultural credit insurance fund........................................ 2,755 3,000 2,666
Rural electrification and telecommunications guaranteed loans............. .......... 100 100
Rural water and waste water disposal guaranteed loans..................... 75 75 75
Rural housing insurance fund.............................................. 2,724 2,850 2,825
Rural community facility guaranteed loans................................. 210 210 210
Rural business investment program......................................... .......... 280 ..........
Rural business and industry guaranteed loans.............................. 704 733 602
Defense--Military:
Arms initiative........................................................... .......... 45 ..........
Health and Human Services:
Health education assistance loans......................................... 165 160 150
Housing and Urban Development:
Indian housing loan guarantee fund........................................ 234 197 27
Title VI Indian Federal guarantees........................................ 53 17 8
Native Hawaiian housing loan guarantee fund............................... 40 40 35
Public housing reform initiative.......................................... .......... .......... 1,715
Community development loan guarantees..................................... 609 275 ..........
FHA-general and special risk.............................................. 23,000 24,000 25,000
FHA-mutual mortgage insurance............................................. 165,000 165,000 185,000
[[Page 225]]
Interior:
Indian loan guarantees.................................................... 75 72 84
Transportation:
Minority business resource center......................................... 18 18 18
Transportation infrastructure finance and innovation program loan 100 200 200
guarantees...............................................................
Maritime guaranteed loans (title XI)...................................... 563 .......... ..........
Treasury:
Air transportation stabilization.......................................... 10,000 .......... ..........
International Assistance Programs:
Development credit authority.............................................. 536 .......... 700
Small Business Administration:
Business.................................................................. 15,266 18,983 20,802
-----------------------------------
Total, limitations on loan guarantee commitments........................ 222,127 216,255 240,217
===================================
ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS
Housing and Urban Development:
Guarantees of mortgage-backed securities.................................. 200,000 200,000 200,000
-----------------------------------
Total, limitations on secondary guaranteed loan commitments............. 200,000 200,000 200,000
----------------------------------------------------------------------------------------------------------------
\1\ Data represents loan level limitations enacted or proposed to be enacted in appropriation acts. For
information on actual and estimated loan levels supportable by new subsidy budget authority requested, see
Tables 9-4 and 9-5.
[[Page 226]]
Table 9-9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Agency and Account 2002 -------------------------
Actual 2003 2004
----------------------------------------------------------------------------------------------------------------
Department of Agriculture
Farm Service Agency
Agricultural credit insurance fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -680 -608 -577
Outstandings.......................................................... 3,783 3,175 2,598
Farm storage facility direct loan financing account:
Obligations........................................................... 65 147 118
Loan disbursements.................................................... 66 95 95
Change in outstandings................................................ 44 65 53
Outstandings.......................................................... 122 187 240
Apple loans direct loan financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 1 ........... ...........
Change in outstandings................................................ -2 -3 -3
Outstandings.......................................................... 9 6 3
Agricultural credit insurance fund direct loan financing account:
Obligations........................................................... 1,008 977 902
Loan disbursements.................................................... 962 928 857
Change in outstandings................................................ 247 19 -158
Outstandings.......................................................... 4,560 4,579 4,421
Emergency boll weevil direct loan financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ ........... -1 -1
Outstandings.......................................................... 10 9 8
Commodity Credit Corporation fund:
Obligations........................................................... 10,131 8,652 8,934
Loan disbursements.................................................... 10,131 8,652 8,934
Change in outstandings................................................ 1,934 390 -306
Outstandings.......................................................... 1,934 2,324 2,018
Rural Utilities Service
Rural communication development fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ ........... ........... -1
Outstandings.......................................................... 5 5 4
Distance learning, telemedicine, and broadband direct loan financing
account:
Obligations........................................................... 95 825 246
Loan disbursements.................................................... 45 24 25
Change in outstandings................................................ 33 22 22
Outstandings.......................................................... 49 71 93
Rural development insurance fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -260 -172 -162
Outstandings.......................................................... 2,808 2,636 2,474
Rural electrification and telecommunications direct loan financing
account:
Obligations........................................................... 4,569 3,016 3,035
Loan disbursements.................................................... 2,409 2,971 2,724
Change in outstandings................................................ 2,140 2,719 2,394
Outstandings.......................................................... 11,212 13,931 16,325
Rural telephone bank direct loan financing account:
Obligations........................................................... 175 ........... ...........
Loan disbursements.................................................... 71 157 136
Change in outstandings................................................ 57 141 117
Outstandings.......................................................... 395 536 653
[[Page 227]]
Rural water and waste disposal direct loans financing account:
Obligations........................................................... 1,158 829 1,055
Loan disbursements.................................................... 643 864 889
Change in outstandings................................................ 513 712 707
Outstandings.......................................................... 5,061 5,773 6,480
Rural electrification and telecommunications liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 5 12 12
Change in outstandings................................................ -1,597 -1,575 -1,446
Outstandings.......................................................... 19,412 17,837 16,391
Rural telephone bank liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 1 6 5
Change in outstandings................................................ -115 -84 -73
Outstandings.......................................................... 680 596 523
Rural Housing Service
Rural housing insurance fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -1,188 -1,002 -866
Outstandings.......................................................... 14,995 13,993 13,127
Rural housing insurance fund direct loan financing account:
Obligations........................................................... 1,289 1,150 1,536
Loan disbursements.................................................... 1,175 1,203 1,408
Change in outstandings................................................ 391 381 548
Outstandings.......................................................... 12,088 12,469 13,017
Rural community facility direct loans financing account:
Obligations........................................................... 399 261 250
Loan disbursements.................................................... 202 293 267
Change in outstandings................................................ 149 258 226
Outstandings.......................................................... 1,137 1,395 1,621
Rural Business--Cooperative Service
Rural economic development direct loan financing account:
Obligations........................................................... 15 15 15
Loan disbursements.................................................... 17 15 15
Change in outstandings................................................ 9 1 1
Outstandings.......................................................... 82 83 84
Rural development loan fund direct loan financing account:
Obligations........................................................... 31 40 40
Loan disbursements.................................................... 34 43 43
Change in outstandings................................................ 25 32 31
Outstandings.......................................................... 338 370 401
Rural business and industry direct loans financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 44 4 2
Change in outstandings................................................ 39 -2 -2
Outstandings.......................................................... 121 119 117
Rural development loan fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -5 -4 -4
Outstandings.......................................................... 61 57 53
Foreign Agricultural Service
Expenses, Public Law 480, foreign assistance programs, Agriculture
liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -311 -368 -287
Outstandings.......................................................... 7,908 7,540 7,253
[[Page 228]]
P.L. 480 direct credit financing account:
Obligations........................................................... 98 132 132
Loan disbursements.................................................... 122 127 132
Change in outstandings................................................ 158 49 51
Outstandings.......................................................... 2,334 2,383 2,434
P.L. 480 title I food for progress credits, financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -56 -56 -56
Outstandings.......................................................... 409 353 297
Debt reduction--financing account:
Obligations........................................................... 8 3 ...........
Loan disbursements.................................................... 8 3 ...........
Change in outstandings................................................ 104 -5 -10
Outstandings.......................................................... 236 231 221
Department of Commerce
Economic Development Administration
Economic development revolving fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -5 -4 -4
Outstandings.......................................................... 28 24 20
National Oceanic and Atmospheric Administration
Fisheries finance direct loan financing account:
Obligations........................................................... 124 105 30
Loan disbursements.................................................... 13 117 87
Change in outstandings................................................ -22 105 77
Outstandings.......................................................... 139 244 321
Department of Defense--Military
Family Housing
Family housing improvement direct loan financing account:
Obligations........................................................... ........... 206 221
Loan disbursements.................................................... 92 17 32
Change in outstandings................................................ 92 17 32
Outstandings.......................................................... 92 109 141
Department of Education
Office of Postsecondary Education
College housing and academic facilities loans liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 1 ........... ...........
Change in outstandings................................................ -40 -28 -27
Outstandings.......................................................... 385 357 330
College housing and academic facilities loans financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ ........... -1 ...........
Outstandings.......................................................... 25 24 24
Historically black college and university capital financing direct loan
financing account:
Obligations........................................................... 44 40 227
Loan disbursements.................................................... 40 21 41
Change in outstandings................................................ 38 20 40
Outstandings.......................................................... 69 89 129
Federal Student Aid
Student financial assistance:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -63 -37 -41
Outstandings.......................................................... 321 284 243
[[Page 229]]
Federal direct student loan program financing account:
Obligations........................................................... 20,918 21,339 20,954
Loan disbursements.................................................... 19,463 19,871 19,499
Change in outstandings................................................ 9,526 13,771 11,895
Outstandings.......................................................... 80,071 93,842 105,737
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................................................ -1 -1 -1
Outstandings.......................................................... 8 7 6
Department of Homeland Security
Emergency Preparedness and Response
Disaster assistance direct loan financing account:
Obligations........................................................... 25 25 25
Loan disbursements.................................................... 11 19 25
Change in outstandings................................................ -22 16 16
Outstandings.......................................................... 143 159 175
Department of Housing and Urban Development
Public and Indian Housing Programs
Low-rent public housing--loans and other expenses:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -71 -75 -84
Outstandings.......................................................... 1,209 1,134 1,050
Community Planning and Development
Revolving fund (liquidating programs):
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -1 -1 -2
Outstandings.......................................................... 18 17 15
Community development loan guarantees liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -2 ........... ...........
Outstandings.......................................................... 6 6 6
Housing Programs
Flexible subsidy fund:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 9 ........... ...........
Change in outstandings................................................ 10 -4 -4
Outstandings.......................................................... 658 654 650
FHA-mutual mortgage and cooperative housing insurance funds liquidating
account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -1 -2 ...........
Outstandings.......................................................... 2 ........... ...........
[[Page 230]]
FHA-general and special risk insurance funds liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -12 -10 -7
Outstandings.......................................................... 26 16 9
FHA-general and special risk direct loan financing account:
Obligations........................................................... 1 1 50
Loan disbursements.................................................... ........... 1 4
Change in outstandings................................................ ........... ........... ...........
Outstandings.......................................................... 2 2 2
Housing for the elderly or handicapped fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -158 -221 -221
Outstandings.......................................................... 7,647 7,426 7,205
FHA-mutual mortgage insurance direct loan financing account:
Obligations........................................................... ........... 50 50
Loan disbursements.................................................... ........... 50 50
Change in outstandings................................................ -1 22 -9
Outstandings.......................................................... ........... 22 13
Government National Mortgage Association
Guarantees of mortgage-backed securities liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 38 37 35
Change in outstandings................................................ -8 -4 -4
Outstandings.......................................................... 102 98 94
Department of the Interior
Bureau of Reclamation
Bureau of Reclamation loan liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -2 -2 -3
Outstandings.......................................................... 48 46 43
Water and related resources:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ ........... ........... -1
Outstandings.......................................................... 2 2 1
Bureau of Reclamation direct loan financing account:
Obligations........................................................... 26 ........... ...........
Loan disbursements.................................................... 24 25 ...........
Change in outstandings................................................ 23 22 -4
Outstandings.......................................................... 183 205 201
National Park Service
Construction and major maintenance:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ ........... -1 ...........
Outstandings.......................................................... 5 4 4
Bureau of Indian Affairs
Revolving fund for loans liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -1 -1 -1
Outstandings.......................................................... 34 33 32
Indian direct loan financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -3 -3 -4
Outstandings.......................................................... 20 17 13
[[Page 231]]
Insular Affairs
Payments to the United States territories, fiscal assistance:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -2 -1 -3
Outstandings.......................................................... 11 10 7
Assistance to American Samoa direct loan financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 3 1 1
Change in outstandings................................................ 2 ........... -1
Outstandings.......................................................... 14 14 13
Department of Labor
Pension Benefit Guaranty Corporation
Pension benefit guaranty corporation fund:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 5 6 14
Change in outstandings................................................ ........... ........... ...........
Outstandings.......................................................... ........... ........... ...........
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................................................ -5 ........... ...........
Outstandings.......................................................... ........... ........... ...........
Federal Highway Administration
Transportation infrastructure finance and innovation program direct loan
financing account:
Obligations........................................................... 573 2,162 2,200
Loan disbursements.................................................... 51 495 928
Change in outstandings................................................ 51 495 928
Outstandings.......................................................... 351 846 1,774
Transportation infrastructure finance and innovation program line of
credit financing account:
Obligations........................................................... ........... 200 200
Loan disbursements.................................................... ........... 5 25
Change in outstandings................................................ ........... 5 25
Outstandings.......................................................... ........... 5 30
Right-of-way revolving fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 3 7 7
Change in outstandings................................................ -11 -3 -3
Outstandings.......................................................... 98 95 92
Federal Railroad Administration
Amtrak corridor improvement loans liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -1 -3 ...........
Outstandings.......................................................... 3 ........... ...........
Alameda corridor direct loan financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -1 33 34
Outstandings.......................................................... 502 535 569
[[Page 232]]
Railroad rehabilitation and improvement liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -9 -4 -4
Outstandings.......................................................... 40 36 32
Railroad rehabilitation and improvement direct loan financing account:
Obligations........................................................... 102 204 198
Loan disbursements.................................................... 101 205 198
Change in outstandings................................................ 101 105 188
Outstandings.......................................................... 105 210 398
Department of the Treasury
Departmental Offices
Community development financial institutions fund direct loan financing
account:
Obligations........................................................... 11 11 11
Loan disbursements.................................................... 18 10 10
Change in outstandings................................................ 17 9 9
Outstandings.......................................................... 41 50 59
Department of Veterans Affairs
Benefits Programs
Housing liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 7 ........... ...........
Change in outstandings................................................ 21 -30 -27
Outstandings.......................................................... 149 119 92
Housing direct loan financing account:
Obligations........................................................... 1,051 311 284
Loan disbursements.................................................... 1,051 311 284
Change in outstandings................................................ -181 -384 79
Outstandings.......................................................... 1,601 1,217 1,296
Native American and transitional housing direct loan financing account:
Obligations........................................................... 6 13 13
Loan disbursements.................................................... 6 13 13
Change in outstandings................................................ -1 12 11
Outstandings.......................................................... 18 30 41
Vocational rehabilitation and education direct loan financing account:
Obligations........................................................... 3 3 4
Loan disbursements.................................................... 3 3 4
Change in outstandings................................................ ........... ........... ...........
Outstandings.......................................................... 1 1 1
Environmental Protection Agency
Environmental Protection Agency
Abatement, control, and compliance direct loan financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -4 -5 -5
Outstandings.......................................................... 38 33 28
General Services Administration
Real Property Activities
Columbia Hospital for Women direct loan financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -13 ........... ...........
Outstandings.......................................................... ........... ........... ...........
[[Page 233]]
International Assistance Programs
International Security Assistance
Foreign military loan liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 21 7 7
Change in outstandings................................................ -412 -550 -279
Outstandings.......................................................... 3,355 2,805 2,526
Foreign military financing direct loan financing account:
Obligations........................................................... ........... 3,800 ...........
Loan disbursements.................................................... 337 56 ...........
Change in outstandings................................................ -96 -419 -462
Outstandings.......................................................... 1,847 1,428 966
Military debt reduction financing account:
Obligations........................................................... ........... 31 ...........
Loan disbursements.................................................... ........... 31 ...........
Change in outstandings................................................ -17 29 -31
Outstandings.......................................................... 2 31 ...........
Agency for International Development
Economic assistance loans liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -605 -581 -493
Outstandings.......................................................... 8,768 8,187 7,694
Debt reduction financing account:
Obligations........................................................... 7 8 ...........
Loan disbursements.................................................... 7 8 ...........
Change in outstandings................................................ -56 -27 -15
Outstandings.......................................................... 119 92 77
Private sector revolving fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ ........... -1 ...........
Outstandings.......................................................... 1 ........... ...........
Microenterprise and small enterprise development credit direct loan
financing account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -1 ........... ...........
Outstandings.......................................................... ........... ........... ...........
Overseas Private Investment Corporation
Overseas Private Investment Corporation liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ ........... ........... ...........
Outstandings.......................................................... 1 1 1
Overseas Private Investment Corporation direct loan financing account:
Obligations........................................................... 47 73 40
Loan disbursements.................................................... 73 40 40
Change in outstandings................................................ 63 33 31
Outstandings.......................................................... 138 171 202
Small Business Administration
Small Business Administration
Business direct loan financing account:
Obligations........................................................... 16 27 20
Loan disbursements.................................................... 25 18 19
Change in outstandings................................................ 12 3 2
Outstandings.......................................................... 119 122 124
[[Page 234]]
Disaster direct loan financing account:
Obligations........................................................... 1,272 795 760
Loan disbursements.................................................... 1,306 829 691
Change in outstandings................................................ 356 -433 -184
Outstandings.......................................................... 3,644 3,211 3,027
Disaster loan fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -148 -89 -10
Outstandings.......................................................... 100 11 1
Business loan fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... 7 11 10
Change in outstandings................................................ -86 -50 -42
Outstandings.......................................................... 251 201 159
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................................................ -331 -962 -212
Outstandings.......................................................... 3,821 2,859 2,647
Debt reduction financing account:
Obligations........................................................... ........... 186 ...........
Loan disbursements.................................................... ........... 186 ...........
Change in outstandings................................................ -11 185 -238
Outstandings.......................................................... 135 320 82
Export-Import Bank direct loan financing account:
Obligations........................................................... 296 447 322
Loan disbursements.................................................... 920 627 395
Change in outstandings................................................ -16 -175 -501
Outstandings.......................................................... 7,574 7,399 6,898
Farm Credit System Financial Assistance Corporation
Financial Assistance Corporation assistance fund liquidating account:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -86 -112 -29
Outstandings.......................................................... 782 670 641
Federal Communications Commission
Spectrum auction direct loan financing account:
Obligations........................................................... 1 ........... ...........
Loan disbursements.................................................... 1 ........... ...........
Change in outstandings................................................ -300 -67 -92
Outstandings.......................................................... 5,293 5,226 5,134
FSLIC Resolution
FSLIC resolution fund:
Obligations........................................................... ........... ........... ...........
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ -3 ........... ...........
Outstandings.......................................................... ........... ........... ...........
National Credit Union Administration
Central liquidity facility:
Obligations........................................................... 101 105 109
Loan disbursements.................................................... ........... ........... ...........
Change in outstandings................................................ ........... ........... ...........
Outstandings.......................................................... ........... ........... ...........
[[Page 235]]
Community development credit union revolving loan fund:
Obligations........................................................... 12 13 14
Loan disbursements.................................................... 3 4 5
Change in outstandings................................................ -2 1 1
Outstandings.......................................................... 8 9 10
Tennessee Valley Authority
Tennessee Valley Authority fund:
Obligations........................................................... 10 19 20
Loan disbursements.................................................... 10 19 20
Change in outstandings................................................ -5 5 4
Outstandings.......................................................... 46 51 55
--------------------------------------
Subtotal, direct loan transactions:
Obligations........................................................... 43,688 46,222 42,016
Loan disbursements.................................................... 39,586 38,448 37,989
Change in outstandings................................................ 9,125 11,506 10,522
Outstandings.......................................................... 219,974 231,480 242,002
--------------------------------------
ADDENDUM: DEFAULTED GUARANTEED LOANS THAT RESULT IN A LOAN RECEIVABLE
Department of Agriculture
Farm Service Agency
Agricultural credit insurance fund guaranteed loan financing account:
Claim payments........................................................ 1 2 2
Change in outstandings................................................ -2 ........... ...........
Outstandings.......................................................... 10 10 10
Commodity Credit Corporation export guarantee financing account:
Claim payments........................................................ 334 325 318
Change in outstandings................................................ 294 259 237
Outstandings.......................................................... 779 1,038 1,275
Commodity Credit Corporation guaranteed loans liquidating account:
Claim payments........................................................ ........... ........... ...........
Change in outstandings................................................ -184 -201 -198
Outstandings.......................................................... 3,785 3,584 3,386
Department of Commerce
National Oceanic and Atmospheric Administration
Fisheries finance guaranteed loan financing account:
Claim payments........................................................ ........... ........... 1
Change in outstandings................................................ ........... ........... 1
Outstandings.......................................................... 13 13 14
Federal ship financing fund fishing vessels liquidating account:
Claim payments........................................................ ........... ........... ...........
Change in outstandings................................................ -2 -2 -2
Outstandings.......................................................... 40 38 36
Department of Education
Federal Student Aid
Federal family education loan liquidating account:
Claim payments........................................................ 148 33 8
Change in outstandings................................................ -1,193 -820 -712
Outstandings.......................................................... 12,928 12,108 11,396
Federal family education loan program financing account:
Claim payments........................................................ 2,819 3,925 4,772
Change in outstandings................................................ 760 1,744 2,127
Outstandings.......................................................... 6,098 7,842 9,969
Department of Health and Human Services
Health Resources and Services Administration
Health education assistance loans financing account:
Claim payments........................................................ 23 38 41
Change in outstandings................................................ 18 32 35
Outstandings.......................................................... 391 423 458
[[Page 236]]
Health education assistance loans liquidating account:
Claim payments........................................................ 8 9 7
Change in outstandings................................................ -9 -30 -32
Outstandings.......................................................... 488 458 426
Department of Housing and Urban Development
Housing Programs
FHA-mutual mortgage and cooperative housing insurance funds liquidating
account:
Claim payments........................................................ ........... ........... ...........
Change in outstandings................................................ 3 -7 ...........
Outstandings.......................................................... 7 ........... ...........
FHA-general and special risk insurance funds liquidating account:
Claim payments........................................................ 614 768 704
Change in outstandings................................................ 227 -112 67
Outstandings.......................................................... 2,226 2,114 2,181
FHA-general and special risk guaranteed loan financing account:
Claim payments........................................................ 458 530 633
Change in outstandings................................................ -17 341 335
Outstandings.......................................................... 601 942 1,277
FHA-mutual mortgage insurance guaranteed loan financing account:
Claim payments........................................................ ........... 491 804
Change in outstandings................................................ ........... -4 ...........
Outstandings.......................................................... 4 ........... ...........
Department of the Interior
Bureau of Indian Affairs
Indian loan guaranty and insurance fund liquidating account:
Claim payments........................................................ ........... ........... ...........
Change in outstandings................................................ -4 -4 -4
Outstandings.......................................................... 22 18 14
Indian guaranteed loan financing account:
Claim payments........................................................ 2 1 1
Change in outstandings................................................ 1 ........... -1
Outstandings.......................................................... 25 25 24
Department of the Treasury
Departmental Offices
Air transportation stabilization guaranteed loan financing account: \1\
Claim payments........................................................ ........... 495 105
Change in outstandings................................................ ........... 495 -390
Outstandings.......................................................... ........... 495 105
Department of Veterans Affairs
Benefits Programs
Housing liquidating account:
Claim payments........................................................ 12 14 11
Change in outstandings................................................ 8 4 3
Outstandings.......................................................... 282 286 289
Housing guaranteed loan financing account:
Claim payments........................................................ 296 355 396
Change in outstandings................................................ 528 215 225
Outstandings.......................................................... 872 1,087 1,312
International Assistance Programs
International Security Assistance
Foreign military loan liquidating account:
Claim payments........................................................ 19 8 54
Change in outstandings................................................ -29 8 54
Outstandings.......................................................... 10 18 72
[[Page 237]]
Agency for International Development
Housing and other credit guaranty programs liquidating account:
Claim payments........................................................ 41 16 31
Change in outstandings................................................ 15 -61 11
Outstandings.......................................................... 450 389 400
Overseas Private Investment Corporation
Overseas Private Investment Corporation liquidating account:
Claim payments........................................................ ........... 1 ...........
Change in outstandings................................................ -3 -3 -5
Outstandings.......................................................... 17 14 9
Overseas Private Investment Corporation guaranteed loan financing
account:
Claim payments........................................................ 162 45 45
Change in outstandings................................................ 155 38 42
Outstandings.......................................................... 204 242 284
Small Business Administration
Small Business Administration
Pollution control equipment fund liquidating account:
Claim payments........................................................ ........... 1 1
Change in outstandings................................................ ........... 1 1
Outstandings.......................................................... 49 50 51
Business guaranteed loan financing account:
Claim payments........................................................ 922 684 698
Change in outstandings................................................ 338 252 257
Outstandings.......................................................... 1,304 1,556 1,813
Business loan fund liquidating account:
Claim payments........................................................ 11 11 10
Change in outstandings................................................ -21 -29 -21
Outstandings.......................................................... 357 328 307
--------------------------------------
Subtotal, defaulted guaranteed loans that result in a loan receivable:
Claim payments........................................................ 5,870 7,752 8,642
Change in outstandings................................................ 883 2,116 2,030
Outstandings.......................................................... 30,962 33,078 35,108
======================================
Total:
Obligations........................................................... 43,688 46,222 42,016
Loan disbursements.................................................... 45,456 46,200 46,631
Change in outstandings................................................ 10,008 13,622 12,552
Outstandings.......................................................... 250,936 264,558 277,110
----------------------------------------------------------------------------------------------------------------
\1\ Numbers shown for 2003 and 2004 include estimates for loan guarantees that have received either conditional
or final approval. This presentation should not be construed as prejudging the outcome of the Air
Transportation Stabilization Board's deliberations. The Board does not anticipate making any new loan
guarantees in 2004.
[[Page 238]]
Table 9-10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Agency and Account 2002 -------------------------
Actual 2003 2004
----------------------------------------------------------------------------------------------------------------
Department of Agriculture
Farm Service Agency
Agricultural credit insurance fund liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -114 -50 -35
Outstandings.......................................................... 297 247 212
Agricultural credit insurance fund guaranteed loan financing account:
Commitments........................................................... 2,551 3,063 2,666
New guaranteed loans.................................................. 2,553 3,000 2,666
Change in outstandings................................................ 267 679 339
Outstandings.......................................................... 9,378 10,057 10,396
Commodity Credit Corporation export guarantee financing account:
Commitments........................................................... 3,926 4,225 4,155
New guaranteed loans.................................................. 3,926 4,225 4,155
Change in outstandings................................................ -153 -80 -97
Outstandings.......................................................... 4,762 4,682 4,585
Natural Resources Conservation Service
Agricultural resource conservation demonstration guaranteed loan
financing account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -2 -10 -7
Outstandings.......................................................... 22 12 5
Rural Utilities Service
Rural communication development fund liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ ........... ........... -1
Outstandings.......................................................... 4 4 3
Rural development insurance fund liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -18 -16 -13
Outstandings.......................................................... 80 64 51
Rural electrification and telecommunications guaranteed loans financing
account:
Commitments........................................................... ........... 100 100
New guaranteed loans.................................................. 55 22 100
Change in outstandings................................................ 53 19 97
Outstandings.......................................................... 256 275 372
Rural water and waste water disposal guaranteed loans financing account:
Commitments........................................................... 75 75 75
New guaranteed loans.................................................. 9 11 37
Change in outstandings................................................ 19 7 31
Outstandings.......................................................... 30 37 68
Local television loan guarantee financing account:
Commitments........................................................... ........... 1,067 ...........
New guaranteed loans.................................................. ........... 213 480
Change in outstandings................................................ ........... 205 455
Outstandings.......................................................... ........... 205 660
Rural electrification and telecommunications liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -41 -20 -19
Outstandings.......................................................... 317 297 278
Rural Housing Service
Rural housing insurance fund liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -2 -2 -2
Outstandings.......................................................... 16 14 12
[[Page 239]]
Rural housing insurance fund guaranteed loan financing account:
Commitments........................................................... 2,528 1,918 2,825
New guaranteed loans.................................................. 2,444 2,016 2,516
Change in outstandings................................................ 929 363 746
Outstandings.......................................................... 13,602 13,965 14,711
Rural community facility guaranteed loans financing account:
Commitments........................................................... 210 210 210
New guaranteed loans.................................................. 59 155 164
Change in outstandings................................................ 74 121 124
Outstandings.......................................................... 301 422 546
Rural Business--Cooperative Service
Rural business investment program guarantee financing account:
Commitments........................................................... ........... 280 ...........
New guaranteed loans.................................................. ........... 56 98
Change in outstandings................................................ ........... 56 96
Outstandings.......................................................... ........... 56 152
Rural business and industry guaranteed loans financing account:
Commitments........................................................... 844 1,078 602
New guaranteed loans.................................................. 839 817 1,206
Change in outstandings................................................ 380 382 731
Outstandings.......................................................... 3,884 4,266 4,997
Department of Commerce
Departmental Management
Emergency oil and gas guaranteed loan financing account:
Commitments........................................................... 2 ........... ...........
New guaranteed loans.................................................. 2 ........... ...........
Change in outstandings................................................ 2 -2 -2
Outstandings.......................................................... 5 3 1
Emergency steel guaranteed loan financing account:
Commitments........................................................... 42 ........... ...........
New guaranteed loans.................................................. 42 ........... ...........
Change in outstandings................................................ -54 -17 -8
Outstandings.......................................................... 55 38 30
National Oceanic and Atmospheric Administration
Fisheries finance guaranteed loan financing account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -14 -10 -8
Outstandings.......................................................... 37 27 19
Federal ship financing fund fishing vessels liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -8 -6 -5
Outstandings.......................................................... 31 25 20
Department of Defense--Military
Operation and Maintenance
Defense export loan guarantee financing account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -4 -4 ...........
Outstandings.......................................................... 4 ........... ...........
Procurement
Arms initiative guaranteed loan financing account:
Commitments........................................................... ........... 45 ...........
New guaranteed loans.................................................. ........... 45 ...........
Change in outstandings................................................ -1 44 -2
Outstandings.......................................................... 27 71 69
[[Page 240]]
Family Housing
Family housing improvement guaranteed loan financing account:
Commitments........................................................... ........... 138 259
New guaranteed loans.................................................. 131 16 7
Change in outstandings................................................ 130 13 4
Outstandings.......................................................... 200 213 217
Department of Education
Federal Student Aid
Federal family education loan liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -1,769 -1,149 -708
Outstandings.......................................................... 2,724 1,575 867
Federal family education loan program financing account:
Commitments........................................................... 48,102 53,327 52,064
New guaranteed loans.................................................. 44,273 47,583 46,248
Change in outstandings................................................ 24,386 19,577 14,319
Outstandings.......................................................... 179,191 198,768 213,087
Department of Health and Human Services
Health Resources and Services Administration
Health education assistance loans financing account:
Commitments........................................................... 165 160 150
New guaranteed loans.................................................. 165 160 150
Change in outstandings................................................ 133 114 101
Outstandings.......................................................... 1,646 1,760 1,861
Health education assistance loans liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -49 -53 -44
Outstandings.......................................................... 619 566 522
Health center guaranteed loan financing account:
Commitments........................................................... 1 17 22
New guaranteed loans.................................................. 1 17 22
Change in outstandings................................................ 1 17 22
Outstandings.......................................................... 13 30 52
Medical facilities guarantee and loan fund:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -3 -3 -3
Outstandings.......................................................... 16 13 10
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................................................ -275 -280 -280
Outstandings.......................................................... 2,189 1,909 1,629
Indian housing loan guarantee fund financing account:
Commitments........................................................... 1 20 23
New guaranteed loans.................................................. 1 10 19
Change in outstandings................................................ -8 -1 6
Outstandings.......................................................... 58 57 63
Title VI Indian Federal guarantees financing account:
Commitments........................................................... 55 17 12
New guaranteed loans.................................................. 55 14 10
Change in outstandings................................................ 55 11 4
Outstandings.......................................................... 65 76 80
[[Page 241]]
Native Hawaiian housing loan guarantee fund financing account:
Commitments........................................................... ........... 1 2
New guaranteed loans.................................................. ........... 1 2
Change in outstandings................................................ ........... 1 1
Outstandings.......................................................... ........... 1 2
Public housing reform initiative guaranteed loan financing account:
Commitments........................................................... ........... ........... 1,715
New guaranteed loans.................................................. ........... ........... 86
Change in outstandings................................................ ........... ........... 84
Outstandings.......................................................... ........... ........... 84
Community Planning and Development
Community development loan guarantees financing account:
Commitments........................................................... 311 390 183
New guaranteed loans.................................................. 309 261 304
Change in outstandings................................................ 153 11 4
Outstandings.......................................................... 2,040 2,051 2,055
Community development loan guarantees liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -34 -20 -15
Outstandings.......................................................... 47 27 12
Housing Programs
FHA-mutual mortgage and cooperative housing insurance funds liquidating
account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -7,995 -4,777 -3,665
Outstandings.......................................................... 31,968 27,191 23,526
FHA-general and special risk insurance funds liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -4,051 -2,773 -2,456
Outstandings.......................................................... 21,319 18,546 16,090
FHA-general and special risk guaranteed loan financing account:
Commitments........................................................... 23,000 24,000 25,000
New guaranteed loans.................................................. 20,600 23,644 24,753
Change in outstandings................................................ 1,362 16,151 15,780
Outstandings.......................................................... 74,738 90,889 106,669
FHA-loan guarantee recovery fund financing account:
Commitments........................................................... ........... 4 ...........
New guaranteed loans.................................................. 1 4 ...........
Change in outstandings................................................ 1 1 -3
Outstandings.......................................................... 5 6 3
FHA-mutual mortgage insurance guaranteed loan financing account:
Commitments........................................................... 157,031 163,008 177,500
New guaranteed loans.................................................. 136,382 133,582 139,289
Change in outstandings................................................ 16,040 57,863 71,486
Outstandings.......................................................... 435,353 493,216 564,702
Government National Mortgage Association
Guarantees of mortgage-backed securities liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -12 -12 -14
Outstandings.......................................................... 122 110 96
Guarantees of mortgage-backed securities financing account:
Commitments........................................................... 178,924 259,419 200,000
New guaranteed loans.................................................. 174,853 120,000 150,000
Change in outstandings................................................ -36,080 29,492 43,267
Outstandings.......................................................... 568,229 597,721 640,988
[[Page 242]]
Department of the Interior
Bureau of Indian Affairs
Indian loan guaranty and insurance fund liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -8 -6 -3
Outstandings.......................................................... 9 3 ...........
Indian guaranteed loan financing account:
Commitments........................................................... 75 72 84
New guaranteed loans.................................................. 65 65 66
Change in outstandings................................................ 38 39 40
Outstandings.......................................................... 222 261 301
Department of Transportation
Office of the Secretary
Minority business resource center guaranteed loan financing account:
Commitments........................................................... 5 18 18
New guaranteed loans.................................................. 5 18 18
Change in outstandings................................................ -1 12 ...........
Outstandings.......................................................... 6 18 18
Federal Highway Administration
Transportation infrastructure finance and innovation program loan
guarantee financing account:
Commitments........................................................... ........... 200 200
New guaranteed loans.................................................. ........... 120 160
Change in outstandings................................................ ........... 120 160
Outstandings.......................................................... ........... 120 280
Maritime Administration
Federal ship financing fund liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -74 -30 -30
Outstandings.......................................................... 108 78 48
Maritime guaranteed loan (title XI) financing account:
Commitments........................................................... 225 338 ...........
New guaranteed loans.................................................. 225 338 ...........
Change in outstandings................................................ -562 228 -110
Outstandings.......................................................... 4,176 4,404 4,294
Department of the Treasury
Departmental Offices
Air transportation stabilization guaranteed loan financing account: \3\
Commitments........................................................... 429 1,433 ...........
New guaranteed loans.................................................. 429 1,433 ...........
Change in outstandings................................................ 429 938 -270
Outstandings.......................................................... 429 1,367 1,097
Department of Veterans Affairs
Benefits Programs
Housing liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -2,478 -1,845 -1,350
Outstandings.......................................................... 6,704 4,859 3,509
Housing guaranteed loan financing account:
Commitments........................................................... 38,041 35,271 35,248
New guaranteed loans.................................................. 38,041 35,271 35,247
Change in outstandings................................................ 30,123 26,836 26,186
Outstandings.......................................................... 257,828 284,664 310,850
[[Page 243]]
International Assistance Programs
International Security Assistance
Foreign military loan liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -357 -349 -374
Outstandings.......................................................... 3,837 3,488 3,114
Agency for International Development
Loan guarantees to Israel financing account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -20 -157 -49
Outstandings.......................................................... 9,206 9,049 9,000
Development credit authority guaranteed loan financing account:
Commitments........................................................... 201 280 675
New guaranteed loans.................................................. 4 142 125
Change in outstandings................................................ 2 138 106
Outstandings.......................................................... 41 179 285
Housing and other credit guaranty programs liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -97 -93 -98
Outstandings.......................................................... 1,499 1,406 1,308
Microenterprise and small enterprise development guaranteed loan
financing account:
Commitments........................................................... 13 ........... ...........
New guaranteed loans.................................................. 11 20 26
Change in outstandings................................................ -2 8 13
Outstandings.......................................................... 34 42 55
Urban and environmental credit guaranteed loan financing account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. 22 17 ...........
Change in outstandings................................................ 70 -8 -31
Outstandings.......................................................... 584 576 545
Overseas Private Investment Corporation
Overseas Private Investment Corporation liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -9 -10 -7
Outstandings.......................................................... 17 7 ...........
Overseas Private Investment Corporation guaranteed loan financing
account:
Commitments........................................................... 809 715 765
New guaranteed loans.................................................. 525 525 525
Change in outstandings................................................ 163 280 280
Outstandings.......................................................... 3,513 3,793 4,073
Small Business Administration
Small Business Administration
Pollution control equipment fund liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -4 -4 -3
Outstandings.......................................................... 12 8 5
Business guaranteed loan financing account:
Commitments........................................................... 15,266 18,983 20,802
New guaranteed loans.................................................. 12,342 10,111 10,741
Change in outstandings................................................ 4,916 1,910 1,868
Outstandings.......................................................... 40,023 41,933 43,801
Business loan fund liquidating account:
Commitments........................................................... ........... ........... ...........
New guaranteed loans.................................................. ........... ........... ...........
Change in outstandings................................................ -434 -255 -201
Outstandings.......................................................... 1,067 812 611
[[Page 244]]
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................................................ -217 -215 -149
Outstandings.......................................................... 724 509 360
Export-Import Bank guaranteed loan financing account:
Commitments........................................................... 9,824 12,335 14,320
New guaranteed loans.................................................. 7,859 7,543 8,662
Change in outstandings................................................ 690 1,316 2,117
Outstandings.......................................................... 30,274 31,590 33,707
National Credit Union Administration
Credit union share insurance fund:
Commitments........................................................... 3 6 4
New guaranteed loans.................................................. 4 3 4
Change in outstandings................................................ 3 2 -2
Outstandings.......................................................... 4 6 4
Presidio Trust
Presidio Trust guaranteed loan financing account:
Commitments........................................................... ........... 100 50
New guaranteed loans.................................................. ........... 50 75
Change in outstandings................................................ ........... 49 69
Outstandings.......................................................... ........... 49 118
--------------------------------------
Subtotal, Guaranteed loans (gross)
Commitments........................................................... 482,659 582,313 539,729
New guaranteed loans.................................................. 446,232 391,508 427,961
Change in outstandings................................................ 25,469 144,746 168,472
Outstandings.......................................................... 1,713,967 1,858,713 2,027,185
Less, secondary guaranteed loans: \1\
GNMA guarantees of FmHA/VA/FHA pools:
Commitments........................................................... -178,924 -259,419 -200,000
New guaranteed loans.................................................. -174,853 -120,000 -150,000
Change in outstandings................................................ 36,092 -29,480 -43,253
Outstandings.......................................................... -568,351 -597,831 -641,084
======================================
Total, primary guaranteed loans: \2\
Commitments........................................................... 303,735 322,894 339,729
New guaranteed loans.................................................. 271,379 271,508 277,961
Change in outstandings................................................ 61,561 115,266 125,219
Outstandings.......................................................... 1,145,616 1,260,882 1,386,101
----------------------------------------------------------------------------------------------------------------
\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.
\3\ Numbers shown for 2003 and 2004 include estimates for loan guarantees that have received either conditional
or final approval. This presentation should not be construed as prejudging the outcome of the Air
Transportation Stabilization Board's deliberations. The Board does not anticipate making any new loan
guarantees in 2004.
[[Page 245]]
Table 9-11. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs) \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Enterprise 2002 -------------------------
Actual 2003 2004
----------------------------------------------------------------------------------------------------------------
LENDING
Student Loan Marketing Association:
Net change............................................................ 900 -13,967 -9,426
Outstandings.......................................................... 41,932 27,965 18,539
Federal National Mortgage Association:
Portfolio programs:
Net change............................................................ 59,249 126,081 103,879
Outstandings.......................................................... 759,733 885,814 989,693
Mortgage-backed securities:
Net change............................................................ 166,892 178,693 129,169
Outstandings.......................................................... 989,274 1,167,967 1,297,136
Federal Home Loan Mortgage Corporation:
Portfolio programs:
Net change............................................................ 59,844 56,106 60,900
Outstandings.......................................................... 530,694 586,800 647,700
Mortgage-backed securities:
Net change............................................................ 94,497 122,868 64,823
Outstandings.......................................................... 730,341 853,209 918,032
Farm Credit System:
Agricultural credit bank:
Net change............................................................ 878 3,412 955
Outstandings.......................................................... 20,466 23,878 24,833
Farm credit banks:
Net change............................................................ 5,720 2,525 2,167
Outstandings.......................................................... 58,165 60,690 62,857
Federal Agricultural Mortgage Corporation:
Net change............................................................ 1,106 ........... ...........
Outstandings.......................................................... 6,000 6,000 6,000
Federal Home Loan Banks:
Net change............................................................ 48,399 ........... ...........
Outstandings.......................................................... 537,812 537,812 537,812
--------------------------------------
Subtotal GSE lending (gross):
Net change............................................................ 437,485 475,718 352,467
Outstandings.......................................................... 3,674,417 4,150,135 4,502,602
Less guaranteed loans purchased by:
Student Loan Marketing Association:
Net change............................................................ 900 -13,967 -9,426
Outstandings.......................................................... 41,932 27,965 18,539
Federal National Mortgage Association:
Net change............................................................ -2,456 ........... ...........
Outstandings.......................................................... 60,143 60,143 60,143
Other:
Net change............................................................ 4,148 ........... ...........
Outstandings.......................................................... 25,979 25,979 25,979
--------------------------------------
Total GSE lending (net):
Net change............................................................ 434,893 489,685 361,893
Outstandings.......................................................... 3,546,363 4,036,048 4,397,941
BORROWING
Student Loan Marketing Association:
Net Change............................................................ -1,601 -13,620 -9,136
Outstandings.......................................................... 45,720 32,100 22,964
Federal National Mortgage Association:
Portfolio programs:
Net Change............................................................ 73,263 109,431 113,861
Outstandings.......................................................... 800,255 909,686 1,023,547
Mortgage-backed securities:
Net Change............................................................ 166,892 178,693 129,169
Outstandings.......................................................... 989,274 1,167,967 1,297,136
[[Page 246]]
Federal Home Loan Mortgage Corporation:
Portfolio programs:
Net Change............................................................ 87,339 18,910 61,565
Outstandings.......................................................... 618,651 637,561 699,126
Mortgage-backed securities:
Net Change............................................................ 94,497 122,868 64,823
Outstandings.......................................................... 730,341 853,209 918,032
Farm Credit System:
Agricultural credit bank:
Net Change............................................................ 1,238 3,686 1,048
Outstandings.......................................................... 22,513 26,199 27,247
Farm credit banks:
Net Change............................................................ 5,784 4,644 3,765
Outstandings.......................................................... 63,794 68,438 72,203
Federal Agricultural Mortgage Corporation:
Net Change............................................................ 204 -10 321
Outstandings.......................................................... 3,074 3,064 3,385
Federal Home Loan Banks:
Net Change............................................................ 56,223 ........... ...........
Outstandings.......................................................... 667,561 667,561 667,561
--------------------------------------
Subtotal GSE borrowing (gross):
Net change............................................................ 483,839 424,602 365,416
Outstandings.......................................................... 3,941,183 4,365,785 4,731,201
Less borrowing from other GSEs:
Net Change............................................................ 1,535 ........... ...........
Outstandings.......................................................... 183,444 183,444 183,444
Less purchase of Federal debt securities:
Net Change............................................................ 404 -103 -81
Outstandings.......................................................... 3,530 3,427 3,346
Less borrowing to purchase loans guaranteed by:
Student Loan Marketing Association:
Net Change............................................................ 900 -13,967 -9,426
Outstandings.......................................................... 41,932 27,965 18,539
Federal National Mortgage Association:
Net Change............................................................ -2,456 ........... ...........
Outstandings.......................................................... 60,143 60,143 60,143
Other:
Net Change............................................................ 4,148 ........... ...........
Outstandings.......................................................... 25,979 25,979 25,979
======================================
Total GSE borrowing (net):
Net change............................................................ 479,307 438,672 374,923
Outstandings.......................................................... 3,626,154 4,064,826 4,439,749
----------------------------------------------------------------------------------------------------------------
\1\ The estimates of borrowing and lending were developed by the GSEs based on certain assumptions that 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 247]]
Table 9-12. GOVERNMENT-SPONSORED ENTERPRISE PARTICIPATION IN THE CREDIT MARKET \1\
(In billions of dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Actual
-----------------------------------------------------------------------------------------------------------------------------
1965 1970 1975 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total net lending in credit market................................ 66.8 88.1 169.6 336.9 829.3 705.2 702.4 716.0 723.0 981.3 1,076.2 902.8 1,012.5 1,268.3
Government-sponsored enterprise loans............................. 1.2 4.9 5.3 21.4 57.9 115.4 125.7 141.5 112.8 293.1 284.0 245.6 466.1 434.9
GSE lending participation rate (percent).......................... 1.8 5.6 3.1 6.4 7.0 16.4 17.9 19.8 15.6 29.9 26.4 27.2 46.0 34.3
================================================================================================================================================================================================
Total net borrowing in credit market.............................. 66.8 88.1 169.6 336.9 829.3 705.2 702.4 716.0 723.0 981.3 1,076.2 902.8 1,012.5 1,268.3
Government-sponsored enterprise borrowing \2\..................... 1.4 5.2 5.5 24.1 60.7 90.0 68.2 161.2 107.9 276.2 346.8 277.9 415.3 479.3
GSE borrowing participation rate (percent)........................ 2.1 5.9 3.2 7.2 7.3 12.8 9.7 22.5 14.9 28.1 32.2 30.8 41.0 37.8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Government-sponsored enterprises (GSEs) are financial intermediaries. GSE borrowing (lending) is nevertheless compared with total credit market borrowing (lending) by nonfinancial sectors,
because GSE borrowing (lending) is a proxy for the borrowing (lending) by nonfinancial sectors that the GSEs assist through intermediation. The GSEs assist the ultimate nonfinancial borrower
by purchasing its loans from the initial, direct lender or by other methods, which they finance by issuing securities themselves in the credit market. Borrowing and lending include mortgage-
backed securities, because the GSEs assist nonfinancial borrowers through this type of intermediation as well as by types of intermediation that involve financial instruments recognized on
the GSEs' balance sheets. The data for this table are adjusted, with some degree of approximation, to remove double counting in making a comparison with other Federal and federally
guaranteed transactions. GSE borrowing and lending are calculated net of transactions between components of GSEs and transactions in guaranteed loans; GSE borrowing is also calculated net of
borrowing from other GSEs and purchases of Federal debt securities.
\2\ Total net borrowing (or lending) in credit market by domestic nonfinancial sectors, excluding equities. Credit market borrowing (lending) is the acquisition (loan) of funds other than
equities through formal credit channels. Financial sectors are omitted from the series used in this table to avoid double counting, since financial intermediaries borrow in the credit market
primarily in order to finance lending in the credit market. Equities, trade credit, security credit, and other sources of funds are also excluded from this series. Source: Federal Reserve
Board flow of funds accounts. Estimates for 2003 and 2004 are not available.
[[Page 248]]
Table 9-13. BORROWING BY FINANCING VEHICLES \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Financing Vehicle 2002 -------------------------
Actual 2003 2004
----------------------------------------------------------------------------------------------------------------
Financing Corporation (FICO):
Net change............................................................ 1 1 1
Outstandings.......................................................... 8,150 8,151 8,152
Resolution Funding Corporation (REFCORP):
Net change............................................................ 1 -3 -3
Outstandings.......................................................... 30,061 30,058 30,055
--------------------------------------
Subtotal, gross borrowing:
Net change............................................................ 2 -2 -2
Outstandings.......................................................... 38,211 38,209 38,207
Less purchases of Federal debt securities:
Net change............................................................ 487 698 757
Outstandings.......................................................... 8,407 9,105 9,862
--------------------------------------
Total, net borrowing:
Net change............................................................ -485 -700 -759
Outstandings.......................................................... 29,804 29,104 28,345
----------------------------------------------------------------------------------------------------------------
\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 2002 or is estimated to occur in 2003 or 2004.