[Federal Register: November 29, 2000 (Volume 65, Number 230)]
[Notices]
[Page 71211-71225]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no00-115]
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Part III
Office of Management and Budget
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Issuance of Transmittal Memorandum Amending OMB Circular No. A-129,
``Policies for Federal Credit Programs and Non-Tax Receivables'';
Notice
[[Page 71212]]
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OFFICE OF MANAGEMENT AND BUDGET
Issuance of Transmittal Memorandum Amending OMB Circular No. A-
129, ``Policies for Federal Credit Programs and Non-Tax Receivables''
AGENCY: Executive Office of the President, Office of Management and
Budget, Budget Analysis and Systems Division.
ACTION: Notice of Transmittal amending OMB Circular No. A-129,
``Policies for Federal Credit Programs and Non-Tax Receivables''.
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SUMMARY: This Circular updates policies and procedures for justifying,
designing, and managing Federal credit programs and for collecting non-
tax receivables.
FOR FURTHER INFORMATION CONTACT: Ms. Courtney Timberlake, Office of
Management and Budget, Budget and Analysis Branch, NEOB Room 6001, 725
17th Street, NW, Washington, DC 20503, Tel. No. (202) 395-7864.
Availability: Copies of the OMB Circular A-129, and currently
applicable Transmittal Memoranda may be obtained at the OMB Homepage on
the Internet. The online address (URL) is http://www.whitehouse.gov/OMB
circular/index.html#numerical.
Dated: November 16, 2000.
Robert L. Nabors,
Executive Secretary and Assistant Director for Administration.
Policies For Federal Credit Programs and Non-Tax Receivables
Circular No. A-129 (Revised)
OMB Circular No. A-129 (Revised) Policies for Federal Credit
Programs and Non-Tax Receivables
Table of Contents
General Information
Purpose
Authority
Coverage
Rescissions
Effective Date
Inquiries
Definitions
Appendix A
I. Responsibilities of Departments and Agencies
Office of Management and Budget
Department of the Treasury
Federal Credit Policy Working Group
Departments and Agencies
II. Budget and Legislative Policy for Credit Programs
Program Review
Form of Assistance
Financial Standards
Implementation
III. Credit Management and Extension Policy
A. Credit Extension Policies
Applicant Screening
Loan Documentation
Collateral Requirements
B. Management of Guaranteed Loan Lenders and Servicers
Lender Eligibility
Lender Agreements
Lender and Servicer Reviews
Corrective Actions
IV. Managing the Federal Governments Receivables
Accounting and Financial Reporting
Loan Servicing Requirements
Asset Resolution
V. Delinquent Debt Collection
Standards for Defining Delinquent and Defaulted Debt
Administrative Collection of Debts
Referrals to the Department of Justice
Interest, Penalties and Administrative Cost
Termination of Collection, Write-Off, Use of Currently Not
Collectible (CNC), and Close-Out
Attachment A--Write-Off Close-Out process flowchart
Appendix B
Checklist for Credit Program Legislation, Testimony, and Budget
Submissions
Appendix C
Model Bill Language for Credit Programs
Executive Office of the President, Office of Management and Budget
Washington, DC 20503
Circular No. A-129
Revised
To the Heads of Executive Departments and Establishments
SUBJECT: Policies for Federal Credit Programs and Non-Tax
Receivables
Federal credit programs are created to accomplish a variety of
social and economic goals. Agencies must implement budget policies
and management practices that ensure the goals of credit programs
are met while properly identifying and controlling costs. In
addition, Federal receivables, whether from credit programs or other
non-tax sources, must be serviced and collected in an efficient and
effective manner to protect the value of the Federal Government's
assets.
General Information
1. Purpose. This Circular prescribes policies and procedures for
justifying, designing, and managing Federal credit programs and for
collecting non-tax receivables. It sets principles for designing
credit programs, including: the preparation and review of
legislation and regulations; budgeting for the costs of credit
programs and minimizing unintended costs to the Government; and
improving the efficiency and effectiveness of Federal credit
programs. It also sets standards for extending credit, managing
lenders participating in Government guaranteed loan programs,
servicing credit and non-tax receivables, and collecting delinquent
debt.
2. Authority. This Circular is issued under the authority of the
Budget and Accounting Act of 1921, as amended; the Budget and
Accounting Act of 1950, as amended; the Debt Collection Act of 1982;
as amended by the Debt Collection Improvement Act of 1996; Section
2653 of Public Law 98-369; the Federal Credit Reform Act of 1990, as
amended; the Federal Debt Collection Procedures Act of 1990; the
Chief Financial Officers Act of 1990, as amended; Executive Order
8248; the Cash Management Improvement Act Amendments of 1992; and
pre-existing common law authority to charge interest on debts and to
offset payments to collect debts administratively.
3. Coverage. a. Applicability. The provisions of this Circular
apply to all credit programs of the Federal Government, including:
(1) Direct loan programs;
(2) Loan guarantee programs and loan insurance programs in which
the Federal Government bears a legal liability to pay for all or
part of the principal or interest in the event of borrower default;
and
(3) Loans or other financial assets acquired by a Federal agency
(or a receiver or conservator acting for a Federal agency) as a
result of a claim payment on a defaulted guaranteed or insured loan
or in fulfillment of a Federal deposit insurance commitment.
Sections IV and V of Appendix A (``Managing the Federal
Government's Receivables'' and ``Delinquent Debt Collection'') also
apply to receivables due to the Government from the sale of goods
and services; fines, fees, duties, leases, rents, royalties, and
penalties; overpayments to beneficiaries, grantees, contractors, and
Federal employees; and similar debts.
b. Exclusions Under the Debt Collection Acts. Certain debt
collection techniques authorized or mandated by the provisions of
the Debt Collection Act of 1982 (DCA), as amended by the Debt
Collection Improvement Act of 1996 (DCIA), do not apply to debts
arising under the Internal Revenue Code, certain sections of the
Social Security Act, or the tariff laws of the United States.
c. Other Statutory Exclusions. The policies and standards of
this Circular do not apply when they are statutorily prohibited or
are inconsistent with statutory requirements. However, agencies are
required to periodically review legislation affecting the form of
assistance and/or financial standards for credit programs to justify
continuance of any non-conformance.
4. Rescissions. This Circular rescinds and replaces OMB Circular
No. A-129 (revised), dated January 1993, and OMB Bulletin No. 91-05,
dated November 26, 1990.
This Circular supplements, and does not supersede, the
requirements applicable to budget submissions under OMB Circular No.
A-11 and to proposed legislation and testimony under OMB Circular
No. A-19.
5. Effective Date. This Circular is effective immediately.
6. Inquiries. Further information on the implementation of
credit management and debt collection policies may be found in the
Department of the Treasury's Financial Management Service Managing
Federal Receivables and in OMB's Governmentwide 5-Year Plan for
financial management submitted annually to Congress.
For inquiries concerning budget and legislative policy for
credit programs contact
[[Page 71213]]
the Office of Management and Budget, Budget Review Division, Budget
Analysis Branch, Room 6002, New Executive Office Building, 725 17th
Street, NW, Washington, DC 20503; (202) 395-3945. Questions on all
other sections of the Circular should be directed to the Office of
Federal Financial Management (202) 395-4534.
7. Definitions. Unless otherwise defined in this circular, key
terms used in this circular are defined in OMB Circular Nos. A-11
and A-34.
Jacob J. Lew,
Director.
Appendices (3)
Appendix A to Circular No. A-129
I. Responsibilities of Departments and Agencies
References
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Statutory......................... Federal Credit Reform Act of 1990, 2
U.S.C. 661; Debt Collection Act of
1982/Debt Collection Improvement
Act of 1996, 31 U.S.C. 3701, 3711-
3720E; Federal Debt Collection
Procedures Act of 1990; Budget and
Accounting Act of 1921; Budget and
Accounting Act of 1950; Chief
Financial Officers Act of 1990;
Cash Management Improvement Act
Amendments of 1992;
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1. Office of Management and Budget. The Office of Management and
Budget (OMB) is responsible for reviewing legislation to establish
new credit programs or to expand or modify existing credit programs;
monitoring agency conformance with the Federal Credit Reform Act;
formulating and reviewing agency credit reporting standards and
requirements; reviewing and clearing testimony pertaining to credit
programs and debt collection; reviewing agency budget submissions
for credit programs and debt collection activities; developing and
maintaining the Federal credit subsidy calculator used to calculate
the cost of credit programs; formulating and reviewing credit
management and debt collection policy; approving agency credit
management and debt collection plans; and providing training to
credit agencies.
2. Department of the Treasury. The Department of the Treasury
(Treasury), acting through the Office of Domestic Finance, works
with OMB to develop Federal credit policies and/or reviewing
legislation to create new credit programs or to expand or modify
existing credit programs. The Department of the Treasury, through
its Financial Management Service (FMS), promulgates government-wide
debt collection regulations implementing the debt collection
provisions of the Debt Collection Improvement Act of 1996 (DCIA).
FMS works with the Federal program agencies to identify debt that is
eligible for referral to Treasury for cross-servicing and offset,
and to establish target dates for referral. Performance measures are
established which set annual referral and collection goals. In
accordance with the DCIA and other Federal laws, FMS conducts offset
of Federal payments, including tax refunds, under the Treasury
Offset Program. FMS also provides collection services for delinquent
non-tax Federal debts (referred to as cross-servicing), and
maintains a private collection agency contract for referral and
collection of delinquent debts. Additionally, FMS issues operational
and procedural guidelines regarding government-wide credit
management and debt collection such as ``Managing Federal
Receivables'' and the ``Guide to the Federal Credit Bureau
Program.'' FMS, under its program responsibility for credit and debt
management and as an active member of the Federal Credit Policy
Working Group, assists in improving credit and debt management
activities government-wide.
3. Federal Credit Policy Working Group. The Federal Credit
Policy Working Group (FCPWG) is an interagency forum that provides
advice and assistance to the Office of Management and Budget (OMB)
and Treasury in the formulation and implementation of credit policy.
Membership consists of representatives from the Executive Office of
the President, the Council of Economic Advisers, the OMB, and the
Department of the Treasury. The major credit and debt collection
agencies represented include the Departments of Agriculture,
Commerce, Education, Health and Human Services, Housing and Urban
Development, Interior, Justice, Labor, State, Transportation,
Veterans Affairs and the Agency for International Development, the
Export-Import Bank, the Federal Deposit Insurance Corporation and
the Small Business Administration. Other departments and agencies
may be invited to participate in the FCPWG at the request of the
Chairperson. The Director of OMB designates the Chairperson of the
FCPWG.
4. Department and Agencies. Departments and agencies shall
manage credit programs and all non-tax receivables in accordance
with their statutory authorities and the provisions of this Circular
to protect the Government's assets and to minimize losses in
relation to social benefits provided.
a. Agencies shall ensure that:
(1) Federal credit program legislation, regulations, and
policies are designed and administered in compliance with the
principles of this Circular;
(2) The costs of credit programs covered by the Federal Credit
Reform Act of 1990 are budgeted for and controlled in accordance
with the principles of that Act. (Some agencies and programs are
expressly exempted from the statute.);
(3) Every effort is made to prevent future delinquencies by
following appropriate screening standards and procedures for
determination of creditworthiness;
(4) Lenders participating in guaranteed loan programs meet all
applicable financial and programmatic requirements;
(5) Informed and cost effective decisions are made concerning
portfolio management, including full consideration of contracting
out for servicing or selling the portfolio;
(6) The full range of available techniques are used, such as
those found in the Federal Claims Collection Standards and Treasury
regulations, as appropriate, to collect delinquent debts, including
demand letters, administrative offset, salary offset, tax refund
offset, private collection agencies, cross-servicing by Treasury,
administrative wage garnishment, and litigation;
(7) Delinquent debts are written-off as soon as they are
determined to be uncollectible; and
(8) Timely and accurate financial management and performance
data are submitted to OMB and the Department of the Treasury so that
the Government's credit management and debt collection programs and
policies can be evaluated.
b. In order to achieve these objectives, agencies shall:
(1) Establish, as appropriate, boards to coordinate credit
management and debt collection activities and to ensure full
consideration of credit management and debt collection issues by all
interested and affected organizations. Representation should
include, but not be limited to, the agency Chief Financial Officer
(CFO) and the senior official(s) for program offices with credit
activities or non-tax receivables. The Board may seek from the
agency's Inspector General, input based on findings and conclusions
from past audits and investigations.
(2) Ensure that the statutory and regulatory requirements and
standards set forth in this Circular, Treasury regulations, and
supplementary guidance set forth in the Treasury/FMS Managing
Federal Receivables are incorporated into agency regulations and
procedures for credit programs and debt collection activities;
(3) Propose new or revised legislation, regulations, and forms
as necessary to ensure consistency with the provisions of this
Circular;
(4) Submit legislation and testimony affecting credit programs
for review under the OMB Circular No. A-19 legislative clearance
process, and budget proposals for review under the Circular No. A-11
budget justification process;
(5) Periodically evaluate Federal credit programs to assure
their effectiveness in achieving program goals;
(6) Assign to the agency CFO, in accordance with the Chief
Financial Officers Act of 1990, responsibility for directing,
managing, and providing policy guidance and oversight of agency
financial management personnel, activities, and operations,
including the implementation of asset management systems for credit
management and debt collection;
(7) Prepare, as part of the agency CFO Financial Management 5-
Year Plan, a Credit
[[Page 71214]]
Management and Debt Collection Plan for effectively managing credit
extension, account servicing, portfolio management and delinquent
debt collection. The plan must ensure agency compliance with the
standards in this Circular; and
(8) Ensure that data in loan applications and documents for
individuals are managed in accordance with the Privacy Act of 1974,
as amended by the Computer Matching and Privacy Protection Act of
1988, and the Right to Financial Privacy Act of 1978, as amended.
The Privacy Act of 1974 does not apply to loans and debts of
commercial organizations.
II. Budget and Legislative Policy For Credit Programs
Federal credit assistance should be provided only when it is
necessary and the best method to achieve clearly specified Federal
objectives. Use of private credit markets should be encouraged, and
any impairment of such markets or misallocation of the nation's
resources through the operation of Federal credit programs should be
minimized.
1. Program Review
References
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Statutory......................... Federal Credit Reform Act of 1990, 2
U.S.C. 661.
Guidance.......................... OMB Circular No. A-11.
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Proposals submitted to OMB for new programs and for
reauthorizing, expanding, or significantly increasing funding for
existing credit programs should be accompanied by a written review
which examines, at a minimum, the following factors:
a. The Federal objectives to be achieved, including:
(1) Whether the credit program is intended to:
(a) Correct a capital market imperfection, which should be
defined; and/or
(b) Subsidize borrowers or other beneficiaries, who should be
identified, or encourage certain activities, which should be
specified.
(2) Why they cannot be achieved without Federal credit
assistance, including:
(a) A description of existing and potential private sources of
credit by type of institution and the availability and cost of
credit to borrowers; and
(b) An explanation as to whether and why these private sources
of financing and their terms and conditions must be supplemented and
subsidized.
b. The justification for use of a credit subsidy. The review
should provide an explanation of why a credit subsidy is the most
efficient way of providing assistance, including how it provides
assistance in overcoming capital market imperfections, how it would
assist the identified borrowers or beneficiaries or would encourage
the identified activities, and why it would be preferable to other
forms of assistance such as grants or technical assistance.
c. The estimated benefits of the program or program change. The
review should estimate or, when the program exists, measure the
benefits expected from the program or program change, including the
amount by which the distribution of credit is expected to be altered
and the favored activity is expected to increase. Information on
conducting a cost-benefit analysis can be found in OMB Circular No.
A-94.
d. The effects on private capital markets. The review should
estimate the extent to which the program substitutes directly or
indirectly for private lending, and analyze any elements of program
design that encourage and supplement private lending activity, with
the objective that private lending is displaced to the smallest
degree possible by agency programs.
e. The estimated subsidy level. The review should provide an
explicit estimate of the subsidy, as required by the Federal Credit
Reform Act of 1990, and an estimate of the expected annual
administrative costs (including extension, servicing, and
collection) of the credit program. If loan assets are to be sold or
are to be included in a prepayment program for programmatic or other
reasons, then the subsidy estimate should include the effects of the
loan asset sales. For guidance on loan asset sales, see the Debt
Collection Improvement Act of 1996, OMB Circular No. A-11, and the
Treasury/FMS' Managing Federal Receivables. Loan asset sales/
prepayment programs must be conducted in accordance with policies in
this Circular and procedures in ``Managing Federal Receivables,''
including the prohibitions against the financing of prepayments by
tax-exempt borrowing and sales with recourse except where
specifically authorized by statute. The cost of any guarantee placed
on the asset sold requires budget authority.
f. The administrative resource requirements. The review should
include an examination of the agency's current capacity to
administer the new or expanded program and an estimation of any
additional resources that would be needed.
2. Form of Assistance
References
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Statutory......................... Federal Credit Reform Act of 1990, 2
U.S.C. 661; Internal Revenue Code
(Section 149(b)).
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When Federal credit assistance is necessary to meet a Federal
objective, loan guarantees should be favored over direct loans,
unless attaining the Federal objective requires a subsidy, as
defined by the Federal Credit Reform Act of 1990, deeper than can be
provided by a loan guarantee.
a. Loan guarantees may provide several advantages over direct
loans. These advantages include: private sector credit servicing
(which tends to be more efficient), private sector analysis of the
borrowers creditworthiness, (which tends to allocate resources more
efficiently), involvement of borrowers with private sector lenders
(which promotes their movement to private credit), and lower
portfolio management costs for agencies.
b. Loan guarantees, by removing part or all of the credit risk
of a transaction, change the allocation of economic resources. Loan
guarantees may make credit available when private financial sources
would not otherwise do so, or they may allocate credit to borrowers
under more favorable terms than would otherwise be granted. This
reallocation of credit may impose a cost on the Government and/or
the economy.
c. Direct loans usually offer borrowers lower interest rates and
longer maturities than loans available from private financial
sources, even those with a Federal guarantee. The use of direct
loans, however, may displace private financial sources and increase
the possibility that the terms and conditions on which Federal
credit assistance is offered will not reflect changes in financial
market conditions. The costs to the Government and the economy are
therefore likely to be greater.
d. Direct or indirect guarantees of tax-exempt obligations are
prohibited under Section 149(b) of the Internal Revenue Code.
Guarantees of tax-exempt obligations are an inefficient way of
allocating Federal credit. Assistance to the borrower, through the
tax exemption and the guarantee, provides interest savings to the
borrower that are smaller than the tax revenue loss to the
Government. It is generally thought that the cost to the taxpayer is
greater than the benefit to the borrower. The Internal Revenue Code
provides some exceptions to this requirement; see Section 149(b) of
the Internal Revenue Code for further details.
e. To preclude the possibility that Federal agencies will
guarantee tax-exempt obligations, either directly or indirectly,
agencies will:
(1) Not guarantee federally tax-exempt obligations;
(2) Provide that effective subordination of a direct or
guaranteed loan to tax-exempt
[[Page 71215]]
obligations will render the guarantee void. To avoid effective
subordination, the direct or guaranteed loan and the tax-exempt
obligation should be repaid using separate dedicated revenue streams
or otherwise separate sources of funding, and should be separately
collateralized. In addition, the direct or guaranteed loan terms,
such as grace periods, repayment schedules, and availability of
deferrals, should be consistent with private sector standards to
ensure that they do not create effective subordination;
(3) Prohibit use of a Federal guarantee as collateral to secure
a tax-exempt obligation;
(4) Prohibit Federal guarantees of loans funded by tax-exempt
obligations; and
(5) Prohibit the linkage of Federal guarantees with tax-exempt
obligations. For example, such prohibited linkage occurs if the
project is unlikely to be financed without the Federal guarantee
covering a portion of the cost. In such cases, the Federal guarantee
is, in effect, enabling the tax-exempt obligation to be issued,
since without the guarantee the project would not be viable to
receive any financing. Therefore, the tax-exempt obligation is
dependent on and linked to the Federal guarantee.
f. Where a large degree of subsidy is justified, comparable to
that which would be provided by guaranteed tax-exempt obligations,
agencies should consider the use of direct loans.
3. Financial Standards
References
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------------------------------------------------------------------------
Statutory......................... Federal Credit Reform Act of 1990, 2
U.S.C. 661, Chief Financial
Officers Act of 1990.
Guidance.......................... OMB Circular No. A-11; SFFAS 2, OMB
Circular No. A-34.
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In accordance with the Federal Credit Reform Act of 1990,
agencies must analyze and control the risk and cost of their
programs. Agencies must develop statistical models predictive of
defaults and other deviations from loan contracts. Agencies are
required to estimate subsidy costs and to obtain budget authority to
cover such costs before obligating direct loans and committing loan
guarantees. Specific instructions for budget justification and
subsidy cost estimation under the Federal Credit Reform Act of 1990
are provided in OMB Circular No. A-11, and instructions for budget
execution are provided in OMB Circular No. A-34.
Agencies shall follow sound financial practices in the design
and administration of their credit programs. Where program
objectives cannot be achieved while following sound financial
practices, the cost of these deviations shall be justified in agency
budget submissions in comparison with expected benefits. Unless a
waiver is approved, agencies should follow the financial practices
discussed below.
a. Lenders and borrowers who participate in Federal credit
programs should have a substantial stake in full repayment in
accordance with the loan contract.
(1) Private lenders who extend credit that is guaranteed by the
Government should bear at least 20 percent of the loss from a
default. Loan guarantees that cover 100 percent of any losses on a
loan encourage private lenders to exercise less caution than they
otherwise would in evaluating loan requests. The level of guarantee
should be no more than necessary to achieve program purposes. Loans
for borrowers who are deemed to pose less of a risk should receive a
lower guarantee.
(2) Borrowers should have an equity interest in any asset being
financed with the credit assistance, and business borrowers should
have substantial capital or equity at risk in their business (see
Section III.A.3.b for additional discussion).
(3) Programs in which the Government bears more than 80 percent
of any loss should be periodically reviewed to determine whether the
private sector has become able to bear a greater share of the risk.
b. Agencies should establish interest and fee structures for
direct loans and loan guarantees and should review these structures
at least annually. Documentation of the performance of these annual
reviews for credit programs is considered sufficient to meet the
review requirement described in Section 902(a)8 of the Chief
Financial Officers Act of 1990.
(1) Interest and fees should be set at levels that minimize
default and other subsidy costs, of the direct loan or loan
guarantee, while supporting achievement of the program's policy
objectives.
(2) Agencies must request an appropriation in accordance with
the Federal Credit Reform Act of 1990 for default and other subsidy
costs not covered by interest and fees.
(3) Unless inconsistent with program purposes, and where
authorized by law, riskier borrowers should be charged more than
those who pose less risk. In order to avoid an unintended additional
subsidy to riskier borrowers within the eligible class and to
support the extension of credit to those riskier borrowers, programs
that, for public policy purposes, do not adhere to this guideline,
should justify the extra subsidy conveyed to the higher-risk
borrowers in their annual budget submissions to OMB.
c. Contractual agreements should include all covenants and
restrictions (e.g., liability insurance) necessary to protect the
Federal Government's interest.
(1) Maturities on loans should be shorter than the estimated
useful economic life of any assets financed.
(2) The Government's claims should not be subordinated to the
claims of other creditors, as in the case of a borrower's default on
either a direct loan or a guaranteed loan. Subordination increases
the risk of loss to the Government, since other creditors would have
first claim on the borrower's assets.
d. In order to minimize inadvertent changes in the amount of
subsidy, interest rates to be charged on direct loans and any
interest supplements for guaranteed loans should be specified by
reference to the market rate on a benchmark Treasury security rather
than as an absolute level. A specific fixed interest rate should not
be cited in legislation or in regulation, because such a rate could
soon become outdated, unintentionally changing the extent of the
subsidy.
(1) The benchmark financial market instrument should be a
marketable Treasury security with a similar maturity to the direct
loans being made or the non-Federal loans being guaranteed. When the
rate on the Government loan is intended to be different than the
benchmark rate, it should be stated as a percentage of that rate.
The benchmark Treasury security must be cited specifically in agency
budget justifications.
(2) Interest rates applicable to new loans should be reviewed at
least quarterly and adjusted to reflect changes in the benchmark
interest rate. Loan contracts may provide for either fixed or
floating interest rates.
e. Maximum amounts of direct loan obligations and loan guarantee
commitments should be specifically authorized in advance in annual
appropriations acts, except for mandatory programs exempt from the
appropriations requirements under Section 504(c) of the Federal
Credit Reform Act of 1990.
f. Financing for Federal credit programs should be provided by
Treasury in accordance with the Federal Credit Reform Act of 1990.
Guarantees of the timely payment of 100 percent of the loan
principal and interest against all risk create a debt obligation
that is the credit risk equivalent of a Treasury security.
Accordingly, a Federal agency other than the Department of the
Treasury may not issue, sell, or guarantee an obligation of a type
that is ordinarily financed in investment securities markets, as
determined by the Secretary of the Treasury, unless the terms of the
obligation provide that it may not be held by a person or entity
other than the Federal Financing Bank (FFB) or another Federal
agency. In exceptional circumstances, the Secretary of the Treasury
may waive this requirement with respect to obligations that the
Secretary determines: (1) Are not suitable for investment for the
FFB because of the risks entailed in such obligations; or (2) are,
or will be, financed in a manner that is least disruptive of private
finance markets and institutions; or (3) are, or will be, based on
the Secretary's consultation with OMB and the guaranteeing agency,
financed in a manner that will best meet the goals of the program.
The benefits of using the FFB must not expand the degree of subsidy.
g. Federal loan contracts should be standardized where
practicable. Private sector documents should be used whenever
possible, especially for loan guarantees.
[[Page 71216]]
4. Implementation
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... Federal Credit Reform Act of 1990, 2
U.S.C. 661; Government Performance
and Results Act of 1993.
Guidance.......................... OMB Circular No. A-11; OMB Circular
No. A-19.
------------------------------------------------------------------------
The provisions of this Section II will be implemented through
the OMB Circular No. A-19 legislative review process and the OMB
Circular No. A-11 budget justification and submission process. For
accounting standards for Federal credit programs, see Accounting for
Direct Loans and Loan Guarantees, Statement of Federal Financial
Accounting Standards Number 2, developed by the Federal Accounting
Standards Advisory Board.
a. Proposed legislation on credit programs, reviews of credit
proposals made by others, and testimony on credit activities
submitted by agencies under the OMB Circular No. A-19 legislative
review process should conform to the provisions of this Circular.
Whenever agencies propose provisions or language not in
conformity with the policies of this Circular, they will be required
to request in writing that OMB waive the requirement. The request
will be submitted on a standard waiver request form, available from
OMB. Such requests will identify the waiver(s) requested, and will
state the reasons for the request and the time period for which the
exception is required. Exceptions, when allowed, will ordinarily be
granted only for a limited time in order to allow for an evaluation
by OMB. The waiver request form should be submitted to the OMB
examiner with primary responsibility for the account.
b. A checklist for reviews of legislative and budgetary
proposals is included as Appendix B to this Circular. Agencies
should use the model bill language provided in Appendix C in
developing and reviewing legislation unless OMB has approved the use
of alternative language that includes the same substantive elements.
c. Every four years, or more often at the request of the OMB
examiner with primary responsibility for the account, the agency's
annual budget submission (required by OMB Circular No. A-11, Section
15.2) should include:
(1) A plan for periodic, results-oriented evaluations of the
effectiveness of the program, and the use of relevant program
evaluations and/or other analyses of program effectiveness or causes
of escalating program costs. A program evaluation is a formal
assessment, through objective measurement and systematic analysis,
addressing the manner and extent to which credit programs achieve
intended objectives. This information should be contained in
agencies' annual performance plans submitted to OMB. (For further
detail on program evaluation, refer to the Government Performance
and Results Act of 1993 (GPRA) and related guidance);
(2) A review of the changes in financial markets and the status
of borrowers and beneficiaries to verify that continuation of the
credit program is required to meet Federal objectives, to update its
justification, and to recommend changes in its design and operation
to improve efficiency and effectiveness; and
(3) Proposed changes to correct those cases where existing
legislation, regulations, or program policies are not in conformity
with the policies of this Section II. When an agency does not deem a
change in existing legislation, regulations, or program policies to
be desirable, it will provide a justification for retaining the non-
conformance.
III. Credit Management and Extension Policy
A. Credit Extension Policies
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... 31 U.S.C. 3720B, 18 U.S.C. 1001, 31
U.S.C. 7701(d).
Regulatory........................ 31 CFR 285.13, Executive Order
13109, 61 Federal Register 51763.
Guidance.......................... Treasury/FMS ``Managing Federal
Receivables,'' ``Treasury Report on
Receivables (TROR),'' and ``Guide
to the Federal Credit Bureau
Program''.
------------------------------------------------------------------------
1. Applicant Screening. a. Program Eligibility. Federal credit
granting agencies and private lenders in guaranteed loan programs,
shall determine whether applicants comply with statutory,
regulatory, and administrative eligibility requirements for loan
assistance. If it is consistent with program objectives, borrowers
should be required to certify and document that they have been
unable to obtain credit from private sources. In addition,
application forms must require the borrower to certify the accuracy
of information being provided. (False information is subject to
penalties under 18 U.S.C. 1001.)
b. Delinquency on Federal Debt. Agencies should determine if the
applicant is delinquent on any Federal debt, including tax debt.
Agencies should include a question on loan application forms asking
applicants if they have such delinquencies. In addition, agencies
and guaranteed loan lenders, shall use credit bureaus as a screening
tool. Agencies are also encouraged to use other appropriate
databases, such as the Department of Housing and Urban Development's
Credit Alert Interactive Voice Response System CAIVRS to identify
delinquencies on Federal debt.
Processing of applications shall be suspended when applicants
are delinquent on Federal tax or non-tax debts, including judgment
liens against property for a debt to the Federal Government, and are
therefore not eligible to receive Federal loans, loan guarantees or
insurance. (See 31 U.S.C. 3720B regarding non-tax debts.) This
provision does not apply to disaster loans. Agencies should review
and comply with 31 U.S.C. 3720B and 31 CFR 285.13 before extending
credit. Processing should continue only when the debtor
satisfactorily resolves the debts (e.g., pays in full or negotiates
a new repayment plan).
c. Creditworthiness. Where creditworthiness is a criterion for
loan approval, agencies and private lenders shall determine if
applicants have the ability to repay the loan and a satisfactory
history of repaying debt. Credit reports and supplementary data
sources, such as financial statements and tax returns, should be
used to verify or determine employment, income, assets held, and
credit history.
d. Delinquent Child Support. Agencies shall deny Federal
financial assistance to individuals who are subject to
administrative offset to collect delinquent child support payments.
See Executive Order 13109, 61 Federal Register 51763 (1996). The
Attorney General has issued Minimum Due Process Guidelines: Denial
of Federal Financial Assistance Pursuant to Executive Order 13109,
which agencies shall include in their procedures or regulations
promulgated for the purpose of denying Federal financial assistance
in accordance with Executive Order 13109.
e. Taxpayer Identification Number. Pursuant to 31 U.S.C.
7701(d), agencies must obtain the taxpayer identification number
(TIN) of all persons doing business with the agency. All agencies
and lenders extending credit shall require the applicant or borrower
to supply a TIN as a prerequisite to obtaining credit or assistance.
2. Loan Documentation. Loan origination files should contain
loan applications, credit bureau reports, credit analyses, loan
contracts, and other documents necessary to conform to private
sector standards for that type of loan. Accurate and complete
documentation is critical to providing proper servicing of the debt,
pursuing collection of delinquent debt, and in the case of
guaranteed loans, processing claim payments. Additional information
on documentation requirements is available in
[[Page 71217]]
the supplement to the Treasury Financial Manual Managing Federal
Receivables.
3. Collateral Requirements. For many types of loans, the
Government can reduce its risk of default and potential losses
through well managed collateral requirements.
a. Appraisals of Real Property. Appraisals of real property
serving as collateral for a direct or guaranteed loan must be
conducted in accordance with the following guidelines:
(1) Agencies should require that all appraisals be consistent
with the Uniform Standards of Professional Appraisal Practice,
promulgated by the Appraisal Standards Board of the Appraisal
Foundation. Agencies shall prescribe additional appraisal standards
as appropriate.
(2) Agencies should ensure that a State licensed or certified
appraiser prepares an appraisal for all credit transactions over
$100,000 ($250,000 for business loans).
(This does not include loans with no cash out and those
transactions where the collateral is not a major factor in the
decision to extend credit).
Agencies shall determine which of these transactions, because of
the size and/or complexity, must be performed by a State licensed or
certified appraiser. Agencies may also designate direct or
guaranteed loan transactions under $100,000 ($250,000 for business
loans) that require the services of a State licensed or certified
appraiser.
b. Loan to Value Ratios. In some credit programs, the primary
purpose of the loan is to finance the acquisition of an asset, such
as a single family home, which then serves as collateral for the
loan. Agencies should ensure that borrowers assume an equity
interest in such assets in order to reduce defaults and Government
losses. Federal agencies should explicitly define the components of
the loan to value ratio (LTV) for both direct and guaranteed loan
programs. Financing should be limited by not offering terms
(including the financing of closing costs) that result in an LTV
equal to or greater than 100 percent. Further, the loan maturity
should be shorter than the estimated useful economic life of the
collateral.
c. Liquidation of Real Property Collateral for Guaranteed Loans.
In general, it is not in the Federal Government's financial interest
to assume the responsibility for managing and disposing of real
property serving as collateral on defaulted guaranteed loans.
Private lenders should be required to liquidate, through litigation
if necessary, any real property collateral for a defaulted
guaranteed loan before filing a default claim with the credit
granting agency.
d. Asset Management Standards and Systems. Agencies should
establish policies and procedures for the acquisition, management,
and disposal of real property acquired as a result of direct or
guaranteed loan defaults. Agencies should establish inventory
management systems to track all costs, including contractual costs,
of maintaining and selling property. Inventory management systems
should also generate management reports, provide controls and
monitoring capabilities, and summarize information for the Office of
Management and Budget and the Department of the Treasury. (See
Treasury Report on Receivables).
B. Management of Guaranteed Loan Lenders and Servicers
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Guidance.......................... Treasury/FMS ``Managing Federal
Receivables''.
------------------------------------------------------------------------
1. Lender Eligibility. a. Participation Criteria. Federal credit
granting agencies shall establish and publish in the Federal
Register specific eligibility criteria for lender participation in
Federally guaranteed loan programs. These criteria should include:
(1) Requirements that the lender is not currently debarred/
suspended from participation in a Government contract or delinquent
on a Government debt;
(2) Qualification requirements for principal officers and staff
of the lender;
(3) Fidelity/surety bonding and/or errors and omissions
insurance with the Federal Government as a loss payee, where
appropriate, for new or non-regulated lenders or lenders with
questionable performance under Federal guarantee programs;
(4) Financial and capital requirements for lenders not regulated
by a Federal financial institution regulatory agency, including
minimum net worth requirements based on business volume.
b. Review of Eligibility. Agencies shall review and document a
lender's eligibility for continued participation in a guaranteed
loan program at least every two years. Ideally, these reviews should
be conducted in conjunction with on-site reviews of lender
operations (see B.3) or other required reviews, such as renewal of a
lender agreement (see B.2). Lenders not meeting standards for
continued participation should be decertified. In addition to the
participation criteria above, guarantor agencies should consider
lender performance as a critical factor in determining continued
eligibility for participation.
c. Fees. When authorized and appropriated for such purposes,
agencies should assess non-refundable fees to defray the costs of
determining and reviewing lender eligibility.
d. Decertification. Guarantor agencies should establish specific
procedures to decertify lenders or take other appropriate action any
time there is:
(1) Significant and/or continuing non-conformance with agency
standards; and/or
(2) Failure to meet financial and capital requirements or other
eligibility criteria.
Agency procedures should define the process and establish
timetables by which decertified lenders can apply for reinstatement
of eligibility for Federal guaranteed loan programs.
e. Loan Servicers. Lenders transferring and/or assigning the
right to service guaranteed loans to a loan servicer should use only
servicers meeting applicable standards set by the Federal guarantor
agency. Where appropriate, agencies may adopt standards for loan
servicers established by a Government Sponsored Enterprise (GSE) or
a similar organization (e.g., Government National Mortgage
Association for single family mortgages) and/or may authorize
lenders to use servicers that have been approved by a GSE or similar
organization.
2. Lender Agreements. Agencies should enter into written
agreements with lenders that have been determined to be eligible for
participation in a guaranteed loan program. These agreements should
incorporate general participation requirements, performance
standards and other applicable requirements of this Circular.
Agencies are encouraged, where not prohibited by authorizing
legislation, to set a fixed duration for the agreement to ensure a
formal review of the lender eligibility for continued participation
in the program.
a. General Participation Requirements.
(1) Requirements for lender eligibility, including participation
criteria, eligibility reviews, fees, and decertification (see
Section 1, above);
(2) Agency and lender responsibilities for sharing the risk of
loan defaults (see Section II.3. a.(1)); and, where feasible
(3) Maximum delinquency, default and claims rates for lenders,
taking into account individual program characteristics.
b. Performance Standards. Agencies should include due diligence
requirements for originating, servicing, and collecting loans in
their lender agreements. This may be accomplished by referencing
agency regulations or guidelines. Examples of due diligence
standards include collection procedures for past due accounts,
delinquent debtor counseling procedures and litigation to enforce
loan contracts.
Agencies should ensure, through the claims review process, that
lenders have met these standards prior to making a claim payment.
Agencies should reduce claim amounts or reject claims for lender
non-performance.
c. Reporting Requirements. Federal credit granting agencies
should require certain data to monitor the health of their
guaranteed loan portfolios, track and evaluate lender performance
and satisfy OMB, Treasury, and other reporting requirements which
include the Treasury Report on Receivables (TROR). Examples of these
data which agencies must maintain include:
(1) Activity Indicators--number and amount of outstanding
guaranteed loans at the beginning and end of the reporting period
and the agency share of risk; number and amount of guaranteed loans
made during the reporting period; and number and amount of
guaranteed loans terminated during the period.
(2) Status Indicators--a schedule showing the number and amount
of past due loans by
[[Page 71218]]
``age'' of the delinquency, and the number and amount of loans in
foreclosure or liquidation (when the lender is responsible for such
activities).
Agencies may have several sources for such data, but some or all
of the information may best be obtained from lenders and servicers.
Lender agreements should require lenders to report necessary
information on a quarterly basis (or other reporting period based on
the level of lending and payment activity).
d. Loan Servicers. Lender agreements must specify that loan
servicers must meet applicable participation requirements and
performance standards. The agreement should also specify that
servicers acquiring loans must provide any information necessary for
the lender to comply with reporting requirements to the agency.
Servicers may not resell the loans except to qualified servicers.
3. Lender and Servicer Reviews. To evaluate and enforce lender
and servicer performance, agencies should conduct on-site reviews.
Agencies should summarize reviews findings in written reports with
recommended corrective actions and submit them to agency review
boards. (See Section I.4.b.(1).)
Reviews should be conducted biennially where possible; however,
agencies should conduct annual on-site reviews all lenders and
servicers with substantial loan volume or whose:
a. Financial performance measures indicate a deterioration in
their guaranteed loan portfolio;
b. Portfolio has a high level of defaults for guaranteed loans
less than one year old;
c. Overall default rates rise above acceptable levels; and/or
d. Poor performance results in collecting monetary penalties or
an abnormally high number of reduced or rejected claims.
Agencies are encouraged to develop a lender/servicer
classification system which assigns a risk rating based on the above
factors. This risk rating can be used to establish priorities for
on-site reviews and monitor the effectiveness of required corrective
actions.
Reviews should be conducted by guarantor agency program
compliance staff, Inspector General staff, and/or independent
auditors. Where possible, agencies with similar programs should
coordinate their reviews to minimize the burden on lenders/servicers
and maximize use of scarce resources. Agencies should also utilize
the monitoring efforts of GSEs and similar organizations for
guaranteed loans that have been ``pooled''.
4. Corrective Actions. If a review indicates that the lender/
servicer is not in conformance with all program requirements,
agencies should determine the seriousness of the problem. For minor
non-compliance, agencies and the lender or servicer should agree on
corrective actions. However, agencies should establish penalties for
more serious and frequent offenses. Penalties may include loss of
guarantees, reprimands, probation, suspension, and decertification.
IV. Managing the Federal Government's Receivables
Agencies must service and collect debts, including defaulted
guaranteed loans they have acquired, in a manner that best protects
the value of the assets. Mechanisms must be in place to collect and
record payments and provide accounting and management information
for effective stewardship. Agencies should collect data on the
status of their portfolios on a monthly basis although they are only
required to report quarterly. These servicing activities can be
carried out by the agency, or by third parties (such as private
lenders or guaranty agencies), or a contract with a private sector
firm. Unless otherwise exempt, the Debt Collection Improvement Act
of 1996 (DCIA), codified at 31 U.S.C. 3711, requires Federal
agencies to transfer any non-tax debt which is over 180 days
delinquent to the Department of the Treasury/FMS for debt collection
action (31 CFR Part 285). Under certain conditions, it may be
advantageous to sell loans or other debts to avoid the necessity of
debt servicing.
1. Accounting and Financial Reporting:
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... DCA, Chief Financial Officers Act
(CFO) of 1990, Government
Performance and Results Act,
Federal Credit Reform Act of 1990,
31 U.S.C. 3719, 31 U.S.C. 3711, 2
U.S.C. 661.
Regulatory........................ 31 CFR Part 285, OMB Circular No. A-
127.
Guidance.......................... JFMIP Standards on Direct and
Guaranteed Loans, Instructions for
the Treasury Report on Receivables
Due from the Public (TROR),
Treasury/FMS' ``Managing Federal
Receivables,'' Federal Accounting
Standards Advisory Board--
``Accounting for Direct Loans and
Loan Guarantees,'' Statement of
Federal Financial Accounting
Standards No. 2, as amended,''
``Amendments to Accounting
Standards for Direct Loans and Loan
Guarantees,'' Statement of Federal
Financial Accounting Standards No.
18.
------------------------------------------------------------------------
a. Accounting and Financial Reporting Systems. Agencies shall
establish accounting and financial reporting systems to meet the
standards provided in this Circular, OMB Circular No. A-127,
``Financial Management Systems'', ``JFMIP Standards on Direct and
Guaranteed Loans'', and other government-wide requirements. These
systems shall be capable of accounting for obligations and outlays
and of meeting the reporting requirements of OMB and Treasury,
including those associated with the Federal Credit Reform Act of
1990 and the Chief Financial Officers (CFO) Act of 1990.
b. Agency Reports. Agencies should use comprehensive reports on
the status of loan portfolios and receivables to evaluate management
effectiveness. Agencies shall prepare, in accordance with the CFO
Act and OMB guidance, annual financial statements that include loan
programs and other receivables. Agencies should also collect data
for program performance measures (such as default rates, purchase
rates, recovery rates, subsidy rates [actual vs. projected], and
administrative costs) consistent with the Government Performance and
Results Act of 1993 (GPRA) and Federal Credit Reform Act of 1990.
Agencies are also required to report periodically to Treasury on
the status and condition of their non-tax delinquent portfolio on
the TROR. Due to a timing difference between the submissions of
fiscal year-end data for the TROR, and data used for agency
financial statements (the fiscal year-end receivables report is due
in November and agency financial statements are not due until
February/March of the following year), the data in these two reports
may not be identical. Agencies should be able to explain differences
and show the relationship of information contained in the two
reports, but the reports are not required to reconcile.
2. Loan Servicing Requirements. Agency servicing requirements,
whether performed in-house or by another agency or private sector
firm, must meet the standards described below and in the Treasury/
FMS publication Managing Federal Receivables.
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... Privacy Act of 1974, Debt Collection
Act of 1982 (DCA), Debt Collection
Improvement Act of 1996 (DCIA), 31
U.S.C. 3711.
Guidance.......................... Treasury/FMS' ``Managing Federal
Receivables,'' and the ``Guide to
the Federal Credit Bureau
Program''.
------------------------------------------------------------------------
a. Documentation. Approved loan files (or other systems of
records) shall contain adequate and up-to-date information
reflecting terms and conditions of the loan, payment history,
including occurrences of delinquencies and defaults, and any
[[Page 71219]]
subsequent loan actions which result in payment deferrals,
refinancing, or rescheduling.
b. Billing and Collections. Agencies shall ensure that there is
routine invoicing of payments, and that efficient mechanisms are in
place to collect and record payments. When making payments and where
appropriate, borrowers should be encouraged to use agency systems
established by Treasury which collect payments electronically, such
as pre-authorized debits and credit cards.
c. Escrow Accounts. Agency servicing systems must process tax
and insurance deposits for housing and other long-term real estate
loans through escrow accounts. Agencies should establish escrow
accounts at the time of loan origination and payments for housing
and other long-term real estate loans through an escrow account.
d. Referring Account Information to Credit Reporting Agencies.
Agency servicing systems must be able to identify and refer debts to
credit bureaus in accordance with the requirements of 31 U.S.C.
3711. Agencies shall refer all non-tax, non-tariff commercial
accounts (current and delinquent) and all delinquent non-tariff and
non-tax consumer accounts. Agencies may report current consumer
debts as well and are encouraged to do so. The reporting of current
data (in addition to any delinquencies) provides a truer picture of
indebtedness while simultaneously reflecting accounts that the
borrower has maintained in good standing. There is no minimum dollar
threshold, i.e., accounts (debts) owed for as low as $5 may be
referred to credit reporting agencies. Agencies shall require
lenders participating in Federal loan programs to provide
information relating to the extension of credit to consumer or
commercial credit reporting agencies, as appropriate. For additional
information, agencies should refer to Treasury/FMS' Guide to the
Federal Credit Bureau Program.
3. Asset Resolution
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... DCIA, 31 U.S.C. 3711(i); Federal
Credit Reform Act of 1990, 2 U.S.C.
661.
Guidance.......................... OMB Circular No. A-11, Section 85.7,
OMB Circular No. A-34.
------------------------------------------------------------------------
a. The DCIA, as codified at 31 U.S.C. 3711(i) authorizes
agencies to sell any non-tax debt owed to the United States that is
more than 90 days delinquent, subject to the provisions of the
Federal Credit Reform Act of 1990. The Administration's budget
policy is that agencies are required to sell any non-tax debts that
are delinquent for more than one year for which collection action
has been terminated, if the Secretary of the Treasury determines
that the sale is in the best interest of the United States
Government. Agencies are required to sell the debts for cash or a
combination of cash and profit participation, if such an arrangement
is more advantageous to the government, and make the sales without
recourse. Loan sales should result in shifting agency staff
resources from servicing to mission critical functions.
Beginning in FY 2000, for programs with $100 million in assets
(unpaid principal balance) that are delinquent for more than two
years, the agency is expected to dispose of assets expeditiously.
(See OMB Circular No. A-11.) Agencies may request from OMB, an
exception for the following:
(1) Loans to foreign countries and entities;
(2) Loans in structured forbearance, when conversion to
repayment status is expected within 24 months or after statutory
requirements are met;
(3) Loans that are written off as unenforceable e.g., due to
death, disability, or bankruptcy;
(4) Loans that have been submitted to Treasury for offset and
are expected to be extinguished within three (3) years;
(5) Loans in adjudication or foreclosure; and
(6) Student loans.
Agencies shall provide to OMB an annual list of loans that are
exempted.
b. Evaluate Asset Portfolio. On an annual basis, agencies shall
take steps to evaluate and analyze existing asset portfolios and
programs associated therewith, to determine if there are avenues to:
(1) Improve Credit Management and Recoveries. Improvement in
current management, performance, and recoveries of asset portfolios
shall be reviewed against current marketplace practices;
(2) Realize Administrative Savings. Analyses of current asset
portfolio practices shall include the benefit of transferring all or
some portion of the portfolio to the private sector. Agencies shall
develop a staffing utilization plan to ensure that when asset sales
result in a decreased workload, staff are shifted to priority
workload mission critical functions.
(3) Initiate Prepayment. Agencies shall initiate prepayment
programs when statutorily mandated or, if upon analysis of an
existing asset portfolio practice, it is deemed appropriate.
Prepayment programs may be initiated without the approval of OMB.
Delinquent borrowers may participate in a prepayment program only if
past due principal, interest, and charges are paid in full prior to
their request to prepay the balance owed.
c. Financial Asset Services. Agencies shall engage the services
of outside contractors as deemed necessary to assist in its asset
resolution program. Contractors providing various types of asset
services are available through the General Services Administration's
Multiple Award Schedule for Financial Asset Services as follows:
(1) Program Financial Advisors;
(2) Transaction Specialists
(3) Due Diligence Contractors;
(4) Loan Service/Asset Managers; and
(5) Equity Monitors/Transaction Assistants.
d. Loan Asset Sales Guidelines. OMB and Treasury jointly will
update existing guidelines and procedures to implement loan
prepayment and loan asset sales. In accordance with the agreed upon
procedures, agencies conducting such prepayment and loan asset sales
programs will consult with both OMB and Treasury throughout the
prepayment and loan asset sales processes to ensure consistency with
the agreed upon policies and guidelines. Unless an agency can
document from their past experience that the sale of certain types
of loan assets is not economically viable, a financial advisor shall
be engaged by each agency to conduct a portfolio valuation and to
compare pricing options for a proposed prepayment plan or loan asset
sale. Based on the financial advisor's report, the agencies will
develop a prepayment or loan asset sales schedule and plan,
including an analysis of the pricing option selected. As part of the
ongoing consultation between OMB, Treasury, and the agencies, prior
to proceeding with their prepayment or loan asset sales, the
agencies will submit their final prepayment or loan asset sales
plans and proposed pricing options to OMB and Treasury for review in
order to ensure that any undue cost to the Government or additional
subsidy to the borrower is avoided. The agency Chief Financial
Officer will certify that an agency loan prepayment and loan asset
sales program is in compliance with the agreed upon guidelines. See
Asset Sales Guidelines.
V. Delinquent Debt Collection
Agencies shall have a fair but aggressive program to recover
delinquent debt, including defaulted guaranteed loans acquired by
the Federal Government. Each agency will establish a collection
strategy consistent with its statutory authority that seeks to
return the debtor to a current payment status or, failing that,
maximize collection on the debt.
1. Standards for Defining Delinquent and Defaulted Debt
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... DCA/DCIA/31 U.S.C. 3701, 3711-3720D.
Regulatory........................ Federal Claims Collection Standards,
31 CFR 900.2(b).
Guidance.......................... Treasury/FMS' ``Managing Federal
Receivables''.
------------------------------------------------------------------------
[[Page 71220]]
The Federal Claims Collections Standards define delinquent debt
in general terms. Agency regulations may further define delinquency
to meet specific types of debt or program requirements.
a. Direct Loans. Agencies shall consider a direct loan account
to be delinquent if a payment has not been made by the date
specified in the agreement or instrument (including a post-
delinquency payment agreement), unless other satisfactory payment
arrangements have been made.
b. Guaranteed Loans. Loans guaranteed or insured by the Federal
Government are in default when the borrower breaches the loan
agreement with the private sector lender. A default to the Federal
Government occurs when the Federal credit granting agency
repurchases the loan, pays a loss claim or pays reinsurance on the
loan. Prior to establishing a receivable on the agency financial
records, each agency must consider statutory and regulatory
authority applicable to the debt in order to determine if the agency
has a legal right to subject the debt to the collection provisions
of this Circular.
c. Other Debt. Overpayments to contractors, grantees, employees,
and beneficiaries; fines; fees; penalties; and other debts are
delinquent when the debtor does not pay or resolve the debt by the
date specified in the agency's initial written demand for payment
(which generally should be within 30 days from the date the agency
mailed notification of the debt to the debtor).
2. Administrative Collection of Debts
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... 15 U.S.C. 1673(a)(2), 31 U.S.C.
3701, 3711-3720E, 26 U.S.C. 6402, 5
U.S.C. 5514, Fair Debt Collection
Practices Act.
Regulatory........................ 31 CFR Part 285, Federal Claims
Collection Standards, 31 CFR Part
901, Federal Claims Collections
Standards, 5 CFR part 550, subpart
K, 26 CFR 301.6402-1 through
301.6402-7, Federal Acquisitions
Regulations, Subpart 32.6.
Guidance.......................... Treasury/FMS ``Managing Federal
Receivables'' and FMS Cross-
servicing/Offset Guidance
Documents, Treasury's/FMS' ``Guide
to the Federal Credit Bureau
Program''.
------------------------------------------------------------------------
Agencies shall promptly act on the collection of delinquent
debts, using all available collection tools to maximize collections.
Agencies shall transfer debts delinquent 180 days or more to the
Treasury/FMS or Treasury-designated debt collection centers for
further collection actions and resolution. Exceptions to this
requirement (e.g., the debt has been referred for litigation) can be
found in 31 U.S.C. 3711 and 31 CFR 285.12(d).
a. Collection Strategy. Agencies shall maintain an accurate and
timely reporting system to identify and monitor delinquent
receivables. Each agency shall develop a systematic process for the
collection of delinquent accounts. Collection strategies shall take
full advantage of available collection tools while recognizing
program needs and statutory authority.
b. Collection Tools for Debts Less than 180 Days Delinquent.
Agencies may use the following collection tools when the debt is
fewer than 180 days delinquent:
(i) Demand Letters. As soon as an account becomes delinquent,
agencies should send demand letters to the debtor. The demand letter
must give the debtor notice of each form of collection action and
type of financial penalty the agency plans to use. Additional demand
letters may be sent if necessary. See 31 U.S.C. 3711, 31 CFR Part
285 and 901.2.
For consumer accounts, the first demand letter or initial
billing notice should include the 60 day notification requirement of
the agency's intent to refer to a credit bureau. Once the 60 day
period has passed, the agency should initiate reporting if the
account has not been resolved. This will also enable uninterrupted
reporting to credit bureaus by cross-servicing agencies. The 60 day
notification of intent to refer to a credit bureau is not required
for commercial accounts. (See Treasury/FMS' Guide to the Federal
Credit Bureau Program.)
(ii) Internal Offset. If the agency that is owed the debt also
makes payments to the debtor, the agency may use internal offset to
the extent permitted by that agency's statutes and regulations and
the common law. Delinquent debts owed by an agency's employees may
be offset in accordance with statutes and regulations administered
by the Office of Personnel Management. See OPM regulations and
statutes.
(iii) Treasury Offset Program. Agencies may collect delinquent
debt, which is less than 180 days delinquent, by referring those
debts to Treasury/FMS in order to offset Federal payments due to the
debtor. Payments, which Treasury will offset, include certain
benefit payments, federal retirement payments, salaries, vendor
payments and tax refunds. 31 U.S.C. 3716, 31 U.S.C. 3720A, 31 CFR
Part 285, 26 CFR 301.6402, 31 CFR Chapter II, 901.3, and, Federal
Acquisition Regulations Subpart 32.6. If a Federal payment has not
yet been initiated in the Treasury Offset Program, agencies may
request that the paying agency perform the offset.
(iv) Administrative Wage Garnishment. Agencies have the
authority to administratively garnish the wages of delinquent
debtors in order to recover delinquent debt. The maximum garnishment
for any one debt is 15% of disposable pay. Multiple garnishments
from all sources against one debtor's wages may not exceed 25% of
disposable pay of an individual. 31 U.S.C. 3720D, 31 CFR 285.11 and
15 U.S.C. 1673(a)(2).
(v) Contracting with Private Collection Agencies. Treasury has
contracted with private collection agencies that may be used by
Federal agencies to provide assistance in the recovery of delinquent
debt owed to the Government. 31 U.S.C. 3711, 31 U.S.C. 3718, 31 CFR
Parts 285, and 901, Fair Debt Collection Practices Act. Agencies may
also transfer debts to Treasury prior to 180 days for the purpose of
referral to private collection agencies.
(vi) Treasury Cross-Servicing. Agencies may transfer debts to
Treasury for full servicing at any time after the due process
requirements. (See 31 CFR Part 285.)
c. Collection of Debts Which are Over 180 Days Delinquent. This
paragraph sets forth Treasury's collection procedures for debts
which are over 180 days delinquent.
(i) Treasury Offset Program. The DCIA requires that all agencies
recover debt delinquent more than 180 days by referring those debts
to the Treasury for offset of tax refunds and other Federal
payments. Agencies must refer all accounts for offset in accordance
with guidance provided by the Department of the Treasury/FMS.
Federal Claims Collection Standards, 31 U.S.C. 3716, 31 U.S.C. 3720A
and 31 CFR Part 285. The following types of offset are undertaken in
the Treasury Offset Program (TOP):
(1) Tax Refund Offset;
(2) Vendor Offset;
(3) Federal Retirement Offset;
(4) Salary Offset;
(5) Benefit Offset (At the time of publication, benefit payments
have not been incorporated into the program. Benefit payments, such
as Social Security Administration (SSA), Black Lung and Railroad
Retirement Benefits (RRB) will be added in the future.); and
(6) Other Federal payments as allowed by law (as such payments are
allowed into the program).
(ii) Cross-Servicing. The DCIA requires that all debts owed to
agencies which are more than 180 days delinquent shall be
transferred to Treasury/FMS or a Treasury-designated debt collection
center for servicing. The DCIA contains provisions and requirements
for exempting certain classes of debts from being transferred for
servicing www.treas.fms.gov/debt. (See 31 U.S.C. 3711, and 31 CFR
Part 285.) Once debts are transferred to Treasury, agencies must
cease all collection activities other than maintaining accounts for
the Treasury Offset Program.
Once Treasury has received a debt for servicing, the appropriate
debt collection actions will be taken. These actions may include
sending demand letters; phone calls to delinquent debtors; credit
bureau reporting; referring debtors to the Treasury Offset Program;
referring debtors to private collection agencies; administrative
wage garnishment; and any other available debt collection tool.
3. Referrals to the Department of Justice
A. Referral for Litigation
[[Page 71221]]
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... 31 U.S.C. 3711, 28 U.S.C. 3001,
3002(1).
Regulatory........................ 31 CFR Part 904, Federal Claims
Collection Standards.
Guidance.......................... Department of the Treasury/FMS
``Litigation Referral Process
Handbook,'' and ``Managing Federal
Receivables,'' Appendix 8.
------------------------------------------------------------------------
Agencies, including Treasury/FMS or Treasury-designated debt
collection centers, shall refer delinquent accounts to the
Department of Justice, or use other litigation authority that may be
available, as soon as there is sufficient reason to conclude that
full or partial recovery of the debt can best be achieved through
litigation. Referrals to Justice should be made in accordance with
the Federal Claims Collection Standards. If the debtor does not come
forward with a voluntary payment after the claim has been referred
for litigation, a lawsuit shall be initiated promptly.
1. In consultation with the Department of Justice, agencies
shall establish a system to account for: (a) Claims referred to
Justice, and (b) claims closed by Justice and returned to the
respective agencies.
2. Agencies shall accelerate claim referrals to the Department
of Justice in those districts where the Department of Justice
contracts with private law firms for debt collection.
3. Agencies shall stop the use of any collection activities
including TOP and refrain from further contact with the debtor once
a claim has been referred to the Department of Justice, unless the
Department of Justice agrees to allow the debtor(s) to remain in TOP
for offset while they pursue other legal remedies.
4. Agencies shall promptly notify the Department of Justice of
any payments received on a debtor's account after referral of the
claim for litigation.
5. The Department of Justice shall account to agencies for
monies or property collected on claims referred by the agencies.
B. Referral for Approval of Compromise Offer
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... 31 U.S.C. 3711.
Regulatory........................ 31 CFR Part 902, Federal Claims
Collection Standards.
Guidance.......................... Treasury/FMS' ``Managing Federal
Receivables''.
------------------------------------------------------------------------
Agencies may compromise a debt within their jurisdiction when
the principal balance of the debt is less than $100,000 (or any
higher amount authorized by the U.S. Attorney General). Unless
otherwise provided by law, when the principal balance of the debt is
greater than $100,000 (or any higher amount authorized by the U.S.
Attorney General), the compromise authority rests with the
Department of Justice. 31 CFR Part 902.
C. Referral for Approval to Terminate Collection Activity
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... 31 U.S.C. 3711.
Regulatory........................ 31 CFR Part 902, Federal Claims
Collection Standards.
Guidance.......................... Treasury/FMS' ``Managing Federal
Receivables''.
------------------------------------------------------------------------
Agencies may terminate collection on a debt within their
jurisdiction when the principal balance of the debt is less than
$100,000 (or any higher amount authorized by the U.S. Attorney
General). Unless otherwise provided by law, when the principal
balance of the debt is greater than $100,000 (or any higher amount
authorized by the U.S. Attorney General), the authority to terminate
rests with the Department of Justice. (See 31 CFR Part 902.)
4. Interest, Penalties and Administrative Costs
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... 31 U.S.C. 3717.
Regulatory........................ Federal Claims Collection Standards,
31 CFR 901.9.
Guidance.......................... Treasury's ``Managing Federal
Receivables,'' Chapter 4.
------------------------------------------------------------------------
Interest, penalties and administrative costs should be added to
all debts unless a specific statute, regulation, loan agreement,
contract, or court order prohibits such charges or sets criteria for
their assessment. Agencies shall assess late payment interest on
delinquent debts. Further, agencies shall assess a penalty charge of
not more than six percent (6%) per year for failure to pay a debt
more than ninety (90) days past due, unless a statute, regulation
required by statute, loan agreement, or contract prohibits charging
interest or assessing charges or explicitly fixes the interest rate
or charges. (See 31 U.S.C. 3717 (e) and (g)). A debt is delinquent
when the scheduled payment is not paid in full by the payment due
date contained in the initial demand letter or by the date specified
in the applicable agreement or instrument. Agencies shall assess
administrative costs to cover the cost of processing and handling
delinquent debt. Agencies must adjust the interest rate on
delinquent debt to conform with the rate established by a U.S. Court
when a judgment has been obtained.
5. Termination of Collection, Write-Off, Use of Currently Not
Collectible (CNC), and Close-Out
References
------------------------------------------------------------------------
------------------------------------------------------------------------
Statutory......................... 31 U.S.C. 3711; 26 CFR 1.6050P-0, 26
CFR 1.6050P-1.
Regulatory........................ 31 CFR Part 903 Federal Claims
Collection Standards, 26 CFR
1.6050P-1.
Guidance.......................... FCPWG Final Report on Write-off
Policy, Dated 12/15/98, Treasury/
FMS ``Managing Federal
Receivables''.
------------------------------------------------------------------------
[[Page 71222]]
All debt must be adequately reserved for in the allowance
account. All write-offs must be made through the allowance account.
Under no circumstances are debts to be written off directly to
expense. Generally, write-off is mandatory for delinquent debt older
than two years unless documented and justified to OMB in
consultation with Treasury. Once the debt is written-off, the agency
must either classify the debt as currently not collectible (CNC) or
close-out the debt. Cost effective collection efforts should
continue, specifically, if an agency determines that continued
collection efforts after mandatory write-off are likely to yield
higher returns. In such cases the written-off debt is not closed out
but classified as CNC. The collection process continues until the
agency determines it is no longer cost effective to pursue
collection. At that point, the debt should be closed-out.
Under no circumstances should internal controls be compromised
by the write-off or reclassification of debt. Very small percentages
of debt older than two years can frequently result in amounts that,
while immaterial to the overall debt and write-off balances, are
large enough to pose a risk of fraud and abuse. If collection
efforts are on-going then adequate internal controls must be
maintained.
In those cases where material collections can be documented to
occur after two years, debt cannot be written off until the
estimated collections become immaterial.
During the period debts are classified as CNC, agencies should
maintain the debt for administrative offset and other collection
tools, as described in the FCCS until: (1) The debt is paid; (2) the
debt is closed out; or (3) all collection actions are legally
precluded; or (4) the debt is sold, whichever occurs first. When an
agency closes out a debt, the agency must file a Form 1099C with the
Internal Revenue Service (IRS) and notifiy the debtor in accordance
with the Internal Revenue Code 26 U.S.C. 6050P and IRS regulations
26 CFR 1.6050P-1. The 1099C reports the uncollectible debt as income
to the debtor which may be taxable at the debtor's current tax rate.
Reporting the discharge of indebtedness to the IRS results in a
potential benefit to the Federal Government, because any payments
made to the IRS augment government receipts. Agencies should report
closed-out debts on the Treasury Report on Receivables Due from the
Public (TROR). Agencies must stop all collection activity, including
the sale of debts, once debts are closed out. Agencies must not
close out debts which have been sold or are scheduled to be sold.
Note: ``Termination'' and ``suspension of collection'' are legal
procedures, which are separate and distinct from the accounting
procedure of ``write-off.'' Agencies shall consult the Federal
Claims Collection Standards, Part 903 for requirements which must be
met prior to terminating or suspending collection. (See the attached
Write-off/Close-out Process Flowchart for Receivables.)
BILLING CODE 3110-01-P
[[Page 71223]]
[GRAPHIC] [TIFF OMITTED] TN29NO00.000
BILLING CODE 3110-01-C
[[Page 71224]]
Appendix B to OMB Circular A-129
Checklist for Credit Program Legislation, Testimony, and Budget
Submissions
The following checklist provides guidelines to be followed in
reviewing credit program legislation, testimony, and budget
submissions.
The checklist is to be used by agencies and OMB in proposing
legislation, reviewing credit proposals, and preparing testimony on
credit activities. If the proposed provisions or language are not in
conformity with the policies of this Circular as listed in these
checklists, agencies will be required to request in writing that the
Office of Management and Budget modify or waive the requirement.
Waiver request forms are available from OMB for this purpose. Such
requests will identify the modification(s) or waiver(s) requested,
and also will state the reasons for the request and the time period
for which the exception is required. Exceptions, when allowed, will
ordinarily be granted only for a limited time, in order to allow for
continuing review by OMB.
Agencies are to use the checklist in the budget submission
process for the evaluation of existing legislation, regulations, or
program policies. The OMB program examiner with primary
responsibility for the credit account will determine the use of this
checklist. Use of the list includes review of changes in financial
markets and the status of borrowers and beneficiaries to ensure that
Federal objectives require continuation of the credit program. If
these policies are found to be not in conformity with the policies
of this Circular, agencies will propose changes to correct the
inconsistency in their annual budget submission and justification to
OMB and the Congress. When an agency does not deem a change in
existing legislation, regulations, or policies to be desirable, it
will provide a justification for retaining the existing non-
conforming legislation or policies in its budget submission to OMB
at the request of the budget examiner.
Checklist--Federal credit program justification should include the
following elements:
1. Program title: ________
2. Form of Assistance (direct or guarantee): ______
3. Federal objectives of this program: (II.1.a.).
4. Reasons why Federal credit assistance is the best means to
achieve these objectives: (II.1.a.).
5. Any draft bill establishing a credit program should contain
the following:
Authorization to extend direct loans or make loan guarantees subject
to the requirements of the Federal Credit Reform Act of 1990, as
amended.
Authorization and requirement for a subsidy appropriation.
Cap on volume of obligations or commitments. (II.3.e.)
Terms and conditions defined sufficiently and precisely enough to
estimate subsidy rate. (State estimated subsidy of this program
(rate and dollar amount).) (II.1.e.)
Authorization of administrative expenses.
6. Describe briefly the existing and potential private sources
of credit (and type of institution): (I.1.a.(2)(a)).
7. Explain reasons why private sources of financing and their
terms and conditions must be supplemented and subsidized, including:
To correct a defined capital market imperfection;
To subsidize identified borrowers or other
beneficiaries; and/or
To encourage certain specified activities.
(II.1.a.(1)).
8. State reasons why a federal credit subsidy is the most
efficient way of providing assistance, how it provides assistance in
overcoming market imperfections, and how it assists the identified
borrowers or beneficiaries or encourages the identified activities.
(II.1.b.).
9. Summarize briefly the benefits expected from the program. Can
the value of these benefits (or some of these benefits) be estimated
in dollar terms? If so, state the estimate of their value. Further
information on conducting cost-benefit analysis can be found in OMB
Circular No. A-94. (II.1.c.).
10. Describe any elements of program design which encourage and
supplement private lending activity, such that private lending is
displaced to the smallest degree possible by agency programs.
(II.1.d.).
11. Estimate the expected administrative (including origination,
servicing, and collection) resource requirements and costs of the
credit program (dollar amounts over next 5 fiscal years). (II.1.f.).
12. Prohibitions: (II.2.c.&d.).
Agencies will not guarantee federally tax-exempt obligations
directly or indirectly.
Agencies will not subordinate direct loans to tax-exempt obligations
and will provide that effective subordination of guaranteed loans to
tax-exempt obligations will render the guarantee void.
Risk sharing: (II.3.a.).
Lenders and borrowers share a substantial stake in full
repayment according to the loan contract.
Private lenders who extend Government guaranteed credit
bear at least 20 percent of any potential losses.
Borrowers deemed to pose less of a risk receive a lower
guarantee as a percentage of the total loan amount.
Borrowers have an equity interest in any asset being
financed by the credit assistance.
Fees and interest rates: (II.3.b).
Interest and fees are set at levels that minimize
default and other subsidy costs.
Interest rates charged to borrowers (or interest
supplements) not set at an absolute level, but instead set by
reference to the rate (yield) on benchmark Treasury.
Protecting the Government's interest:
Contractual agreements include all covenants and
restrictions (e.g., liability insurance) necessary to protect the
Federal Government's interest. (II.3.c.).
Maturities on loans shorter than the estimated useful
economic life of any assets financed. (II.3.c.(1)).
The Government's claims on assets not subordinated to
the claim of other lenders in the case of a borrower's default.
(II.3.c.(2)).
Loan contracts to be standardized and private sector
documents used to the extent possible. (II.3.f.).
13. Describe the methods used to evaluate the program and the
results of evaluations that have been made. (II.4.c.(1)).
Appendix C to OMB Circular A-129
Model Bill Language for Credit Programs
A Bill
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
That, this Act may be cited as `` ''.
Authorization
Sec. 2.(a) The Administrator is authorized to make or guarantee
loans to * * * (Define eligible applicants).
(b) There are authorized to be appropriated $______ for the cost
of direct loans or loan guarantees authorized in subsection (1) and
$______ for administrative expenses for fiscal year ______ and such
sums as shall be necessary for each fiscal year thereafter. [The
amounts authorized must be consistent with the amounts proposed in
the President's budget for that fiscal year. Generally, a specific
amount should be specified for the first fiscal year and sums for
subsequent fiscal years (see OMB Circular No. A-19.)]
Within the resources and authority available, gross obligations
for the principal amount of direct loans offered by the
Administrator will not exceed $______ , or the amount specified in
appropriations acts for fiscal year ______ and such sums as shall be
necessary for each fiscal year thereafter. Commitments to guarantee
loans may be made by the Administrator only to the extent that the
total loan principal, any part of which is guaranteed, will not
exceed $______ , or the amount specified in appropriations acts for
fiscal year ______ and such sums as shall be necessary for each
fiscal year thereafter.
Terms and Conditions
Sec. 3. Loans made or guaranteed under this Act will be on such
terms and conditions as the Administrator may prescribe, except
that:
(a) The Administrator will allow credit to any prospective
borrower only when it is necessary to alleviate a credit market
imperfection, or when it is necessary to achieve specified Federal
objectives by providing a credit subsidy and a credit subsidy is the
most efficient way to meet those objectives on a borrower-by-
borrower basis.
(b) The final maturity of loans made or guaranteed within a
period shall not exceed ______ years, or ______ percent of the
useful life of any physical asset to be financed by the loan,
whichever is less as determined by the Administrator.
(c) No loan guaranteed to any one borrower will exceed 80% of
the loss on the loan. Borrowers who are deemed to pose less of a
risk will receive a lower guarantee as a percentage of the loan
amount.
(d) No loan made or guaranteed will be subordinated to another
debt contracted by the borrower or to any other claims against the
borrowers in the case of default.
[[Page 71225]]
(e) No loan will be guaranteed unless the Administrator
determines that the lender is responsible and that adequate
provision is made for servicing the loan on reasonable terms and
protecting the financial interest of the United States.
(f) No loan will be guaranteed if the income from such loan is
excluded from gross income for the purposes of Chapter 1 of the
Internal Revenue Code of 1986, as amended, or if the guarantee
provides significant collateral or security, as determined by the
Administrator, for other obligations the income from which is so
excluded.
(g) Direct loans and interest supplements on guaranteed loans
will be at an interest rate that is set by reference to a benchmark
interest rate (yield) on marketable Treasury securities with a
similar maturity to the direct loans being made or the non-Federal
loans being guaranteed. The minimum interest rate of these loans
will be (at) (______ percent above) (no more than ______ percent
below) the interest rate of the benchmark financial instrument.
(h) The minimum interest rate of new loans will be adjusted
every quarter (month(s)) (weeks) (days) to take account of changes
in the interest rate of the benchmark financial instrument. (see
(i) Fees or premiums for loan guarantee or insurance coverage
will be set at levels that minimize the cost to the Government (as
defined in Section 502 of the Federal Credit Reform Act of 1990, as
amended) of such coverage, while supporting achievement of the
program's objectives. The minimum guarantee fee or insurance premium
will be (at) (no more than ______ percent below) the level
sufficient to cover the agency's costs for paying all of the
estimated costs to the Government of the expected default claims and
other obligations. Loan guarantee fees will be reviewed every ______
month(s) to ensure that the fees assessed on new loan guarantees are
at a level sufficient to cover the referenced percentage of the
agency's most recent estimates of its costs.
(j) Any guarantee will be conclusive evidence that said
guarantee has been properly obtained; that the underlying loan
qualified for such guarantee; and that, but for fraud or material
misrepresentation by the holder, such guarantee will be presumed to
be valid, legal, and enforceable.
(k) The Administrator will prescribe explicit standards for use
in periodically assessing the credit risk of new and existing direct
loans or guaranteed loans. The Administrator must find that there is
a reasonable assurance of repayment before extending credit
assistance.
(l) New direct loans may not be obligated and new loan
guarantees may not be committed except to the extent that
appropriations of budget authority to cover their costs are made in
advance, as required in Section 504 of the Federal Credit Reform Act
of 1990, as amended.
Payment of Losses
Sec. 4(a). If, as a result of a default by a borrower under a
guaranteed loan, after the holder thereof has made such further
collection efforts and instituted such enforcement proceedings as
the Administrator may require, the Administrator determines that the
holder has suffered a loss, the Administrator will pay to such
holder ______ percent of such loss, as specified in the guarantee
contract. Upon making any such payment, the Administrator will be
subrogated to all the rights of the recipient of the payment. The
Administrator will be entitled to recover from the borrower the
amount of any payments made pursuant to any guarantee entered into
under this Act.
(b) The Attorney General will take such action as may be
appropriate to enforce any right accruing to the United States as a
result of the issuance of any guarantee under this Act.
(c) Nothing in this section will be construed to preclude any
forbearance for the benefit of the borrower which may be agreed upon
by the parties to the guaranteed loan and approved by the
Administrator, provided that budget authority for any resulting
subsidy costs as defined under the Federal Credit Reform Act of
1990, as amended, is available.
(d) Notwithstanding any other provision of law relating to the
acquisition, handling, or disposal of property by the United States,
the Administrator will have the right in his discretion to complete,
recondition, reconstruct, renovate, repair, maintain, operate, or
sell any property acquired by him pursuant to the provisions of this
Act.
[FR Doc. 00-29928 Filed 11-28-00; 8:45 am]
BILLING CODE 3110-01-P