Wednesday, 

November 29, 2000 

Part III 

Office of 

Management and 

Budget 

Issuance of Transmittal Memorandum 

Amending OMB Circular No. A–129, 

‘‘Policies for Federal Credit Programs and 

Non-Tax Receivables’’; Notice 
71212 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 

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’’. 

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 nontax 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 
Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 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 

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; 

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 crossservicing 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 crossservicing), 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 ExportImport 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, crossservicing 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 
71214 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 

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 

Statutory .......................................... Federal Credit Reform Act of 1990, 2 U.S.C. 661. 

Guidance ......................................... OMB Circular No. A–11. 

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 

REFERENCES 

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 

Statutory .......................................... Federal Credit Reform Act of 1990, 2 U.S.C. 661; Internal Revenue Code (Section 149(b)). 

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 taxexempt 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 
Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 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 taxexempt 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 

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. 

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. 
71216 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 

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 

REFERENCES 

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 

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 
Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 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 

REFERENCES 

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 

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 nonconformance 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 nonperformance. 

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 
71218 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 

‘‘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 onsite 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, 

REFERENCES 

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: 

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 governmentwide 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 

REFERENCES 

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. 

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 adequate and up-to-date information 

reflecting terms and conditions of the loan, delinquencies and defaults, and any 

payment history, including occurrences of 

other systems of records) shall contain 
Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 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 

REFERENCES 

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 

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 nontax 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 nontax 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, 

REFERENCES 

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 

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’’. 
71220 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 

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 

REFERENCES 

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 

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 
Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 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 

REFERENCES 

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 

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 regulation required by statute, loan cover the cost of processing and handling 

should be added to all debts unless a specific agreement, or contract prohibits charging delinquent debt. Agencies must adjust the statute, regulation, loan agreement, contract, interest or assessing charges or explicitly interest rate on delinquent debt to conform or court order prohibits such charges or sets fixes the interest rate or charges. (See 31 with the rate established by a U.S. Court criteria for their assessment. Agencies shall U.S.C. 3717 (e) and (g)). A debt is delinquent when a judgment has been obtained. assess late payment interest on delinquent when the scheduled payment is not paid in 

debts. Further, agencies shall assess a penalty full by the payment due date contained in the 5. Termination of Collection, Write-Off, Use 

charge of not more than six percent (6%) per initial demand letter or by the date specified of Currently Not Collectible (CNC), and year for failure to pay a debt more than in the applicable agreement or instrument. Close-Out 

ninety (90) days past due, unless a statute, Agencies shall assess administrative costs to 

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’’. 
71222 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 

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 ongoing 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 
Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 71223 

BILLING CODE 3110–01–C 
71224 Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 

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 taxexempt 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. 
Federal Register / Vol. 65, No. 230 / Wednesday, November 29, 2000 / Notices 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