[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

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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.

                                     



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                    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.