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

Reform Act of 1990, and an estimate of the

expected annual administrative costs

(including extension, servicing, and

collection) of the credit program. If loan

assets are to be sold or are to be included in

a prepayment program for programmatic or

other reasons, then the subsidy estimate

should include the effects of the loan asset

sales. For guidance on loan asset sales, see

the Debt Collection Improvement Act of

1996, OMB Circular No. A–11, and the

Treasury/FMS’ Managing Federal

Receivables. Loan asset sales/prepayment

programs must be conducted in accordance

with policies in this Circular and procedures

in ‘‘Managing Federal Receivables,’’

including the prohibitions against the

financing of prepayments by tax-exempt

borrowing and sales with recourse except

where specifically authorized by statute. The

cost of any guarantee placed on the asset sold

requires budget authority.

f. The administrative resource

requirements. The review should include an

examination of the agency’s current capacity

to administer the new or expanded program

and an estimation of any additional resources

that would be needed.

2. Form of Assistance

REFERENCES

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

achieve intended objectives. This

information should be contained in agencies’

annual performance plans submitted to OMB.

(For further detail on program evaluation,

refer to the Government Performance and

Results Act of 1993 (GPRA) and related

guidance);

(2) A review of the changes in financial

markets and the status of borrowers and

beneficiaries to verify that continuation of

the credit program is required to meet

Federal objectives, to update its justification,

and to recommend changes in its design and

operation to improve efficiency and

effectiveness; and

(3) Proposed changes to correct those cases

where existing legislation, regulations, or

program policies are not in conformity with

the policies of this Section II. When an

agency does not deem a change in existing

legislation, regulations, or program policies

to be desirable, it will provide a justification

for retaining the non-conformance.

III. Credit Management and Extension Policy

A. Credit Extension Policies

REFERENCES

Statutory .......................................... 31 U.S.C. 3720B, 18 U.S.C. 1001, 31 U.S.C. 7701(d).

Regulatory ....................................... 31 CFR 285.13, Executive Order 13109, 61 Federal Register 51763.

Guidance ......................................... Treasury/FMS ‘‘Managing Federal Receivables,’’ ‘‘Treasury Report on Receivables (TROR),’’ and ‘‘Guide

to the Federal Credit Bureau Program’’.

1. Applicant Screening. a. Program

Eligibility. Federal credit granting agencies

and private lenders in guaranteed loan

programs, shall determine whether

applicants comply with statutory, regulatory,

and administrative eligibility requirements

for loan assistance. If it is consistent with

program objectives, borrowers should be

required to certify and document that they

have been unable to obtain credit from

private sources. In addition, application

forms must require the borrower to certify the

accuracy of information being provided.

(False information is subject to penalties

under 18 U.S.C. 1001.)

b. Delinquency on Federal Debt. Agencies

should determine if the applicant is

delinquent on any Federal debt, including

tax debt. Agencies should include a question

on loan application forms asking applicants

if they have such delinquencies. In addition,

agencies and guaranteed loan lenders, shall

use credit bureaus as a screening tool.

Agencies are also encouraged to use other

appropriate databases, such as the

Department of Housing and Urban

Development’s Credit Alert Interactive Voice

Response System CAIVRS to identify

delinquencies on Federal debt.

Processing of applications shall be

suspended when applicants are delinquent

on Federal tax or non-tax debts, including

judgment liens against property for a debt to

the Federal Government, and are therefore

not eligible to receive Federal loans, loan

guarantees or insurance. (See 31 U.S.C.

3720B regarding non-tax debts.) This

provision does not apply to disaster loans.

Agencies should review and comply with 31

U.S.C. 3720B and 31 CFR 285.13 before

extending credit. Processing should continue

only when the debtor satisfactorily resolves

the debts (e.g., pays in full or negotiates a

new repayment plan).

c. Creditworthiness. Where

creditworthiness is a criterion for loan

approval, agencies and private lenders shall

determine if applicants have the ability to

repay the loan and a satisfactory history of

repaying debt. Credit reports and

supplementary data sources, such as

financial statements and tax returns, should

be used to verify or determine employment,

income, assets held, and credit history.

d. Delinquent Child Support. Agencies

shall deny Federal financial assistance to

individuals who are subject to administrative

offset to collect delinquent child support

payments. See Executive Order 13109, 61

Federal Register 51763 (1996). The Attorney

General has issued Minimum Due Process

Guidelines: Denial of Federal Financial

Assistance Pursuant to Executive Order

13109, which agencies shall include in their

procedures or regulations promulgated for

the purpose of denying Federal financial

assistance in accordance with Executive

Order 13109.

e. Taxpayer Identification Number.

Pursuant to 31 U.S.C. 7701(d), agencies must

obtain the taxpayer identification number

(TIN) of all persons doing business with the

agency. All agencies and lenders extending

credit shall require the applicant or borrower

to supply a TIN as a prerequisite to obtaining

credit or assistance.

2. Loan Documentation. Loan origination

files should contain loan applications, credit

bureau reports, credit analyses, loan

contracts, and other documents necessary to

conform to private sector standards for that

type of loan. Accurate and complete

documentation is critical to providing proper

servicing of the debt, pursuing collection of

delinquent debt, and in the case of

guaranteed loans, processing claim

payments. Additional information on

documentation requirements is available in

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

and disposing of real property serving as

collateral on defaulted guaranteed loans.

Private lenders should be required to

liquidate, through litigation if necessary, any

real property collateral for a defaulted

guaranteed loan before filing a default claim

with the credit granting agency.

d. Asset Management Standards and

Systems. Agencies should establish policies

and procedures for the acquisition,

management, and disposal of real property

acquired as a result of direct or guaranteed

loan defaults. Agencies should establish

inventory management systems to track all

costs, including contractual costs, of

maintaining and selling property. Inventory

management systems should also generate

management reports, provide controls and

monitoring capabilities, and summarize

information for the Office of Management

and Budget and the Department of the

Treasury. (See Treasury Report on

Receivables).

B. Management of Guaranteed Loan Lenders

and Servicers

REFERENCES

Guidance ......................................... Treasury/FMS ‘‘Managing Federal Receivables’’.

1. Lender Eligibility. a. Participation

Criteria. Federal credit granting agencies

shall establish and publish in the Federal

Register specific eligibility criteria for lender

participation in Federally guaranteed loan

programs. These criteria should include:

(1) Requirements that the lender is not

currently debarred/suspended from

participation in a Government contract or

delinquent on a Government debt;

(2) Qualification requirements for principal

officers and staff of the lender;

(3) Fidelity/surety bonding and/or errors

and omissions insurance with the Federal

Government as a loss payee, where

appropriate, for new or non-regulated lenders

or lenders with questionable performance

under Federal guarantee programs;

(4) Financial and capital requirements for

lenders not regulated by a Federal financial

institution regulatory agency, including

minimum net worth requirements based on

business volume.

b. Review of Eligibility. Agencies shall

review and document a lender’s eligibility for

continued participation in a guaranteed loan

program at least every two years. Ideally,

these reviews should be conducted in

conjunction with on-site reviews of lender

operations (see B.3) or other required

reviews, such as renewal of a lender

agreement (see B.2). Lenders not meeting

standards for continued participation should

be decertified. In addition to the

participation criteria above, guarantor

agencies should consider lender performance

as a critical factor in determining continued

eligibility for participation.

c. Fees. When authorized and appropriated

for such purposes, agencies should assess

non-refundable fees to defray the costs of

determining and reviewing lender eligibility.

d. Decertification. Guarantor agencies

should establish specific procedures to

decertify lenders or take other appropriate

action any time there is:

(1) Significant and/or continuing 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,

agencies and the lender or servicer should

agree on corrective actions. However,

agencies should establish penalties for more

serious and frequent offenses. Penalties may

include loss of guarantees, reprimands,

probation, suspension, and decertification.

IV. Managing the Federal Government’s

Receivables

Agencies must service and collect debts,

including defaulted guaranteed loans they

have acquired, in a manner that best protects

the value of the assets. Mechanisms must be

in place to collect and record payments and

provide accounting and management

information for effective stewardship.

Agencies should collect data on the status of

their portfolios on a monthly basis although

they are only required to report quarterly.

These servicing activities can be carried out

by the agency, or by third parties (such as

private lenders or guaranty agencies), or a

contract with a private sector firm. Unless

otherwise exempt, the Debt Collection

Improvement Act of 1996 (DCIA), codified at

31 U.S.C. 3711, requires Federal agencies to

transfer any non-tax debt which is over 180

days delinquent to the Department of the

Treasury/FMS for debt collection action (31

CFR Part 285). Under certain conditions, it

may be advantageous to sell loans or other

debts to avoid the necessity of debt servicing.

1. Accounting and Financial Reporting:

REFERENCES

Statutory .......................................... DCA, Chief Financial Officers Act (CFO) of 1990, Government Performance and Results Act, Federal

Credit Reform Act of 1990, 31 U.S.C. 3719, 31 U.S.C. 3711, 2 U.S.C. 661.

Regulatory ....................................... 31 CFR Part 285, OMB Circular No. A–127.

Guidance ......................................... JFMIP Standards on Direct and Guaranteed Loans, Instructions for the Treasury Report on Receivables

Due from the Public (TROR), Treasury/FMS’ ‘‘Managing Federal Receivables,’’ Federal Accounting

Standards Advisory Board—‘‘Accounting for Direct Loans and Loan Guarantees,’’ Statement of Federal

Financial Accounting Standards No. 2, as amended,’’ ‘‘Amendments to Accounting Standards for Direct

Loans and Loan Guarantees,’’ Statement of Federal Financial Accounting Standards No. 18.

a. Accounting and Financial Reporting

Systems. Agencies shall establish accounting

and financial reporting systems to meet the

standards provided in this Circular, OMB

Circular No. A–127, ‘‘Financial Management

Systems’’, ‘‘JFMIP Standards on Direct and

Guaranteed Loans’’, and other 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

year-end data for the TROR, and data used

for agency financial statements (the fiscal

year-end receivables report is due in

November and agency financial statements

are not due until February/March of the

following year), the data in these two reports

may not be identical. Agencies should be

able to explain differences and show the

relationship of information contained in the

two reports, but the reports are not required

to reconcile.

2. Loan Servicing Requirements. Agency

servicing requirements, whether performed

in-house or by another agency or private

sector firm, must meet the standards

described below and in the Treasury/FMS

publication Managing Federal Receivables.

REFERENCES

Statutory .......................................... Privacy Act of 1974, Debt Collection Act of 1982 (DCA), Debt Collection Improvement Act of 1996 (DCIA),

31 U.S.C. 3711.

Guidance ......................................... Treasury/FMS’ ‘‘Managing Federal Receivables,’’ and the ‘‘Guide to the Federal Credit Bureau Program’’.

a. Documentation. Approved loan files (or

other systems of records) shall contain

adequate and up-to-date information

reflecting terms and conditions of the loan,

payment history, including occurrences of

delinquencies and defaults, and any

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

addition to any delinquencies) provides a

truer picture of indebtedness while

simultaneously reflecting accounts that the

borrower has maintained in good standing.

There is no minimum dollar threshold, i.e.,

accounts (debts) owed for as low as $5 may

be referred to credit reporting agencies.

Agencies shall require lenders participating

in Federal loan programs to provide

information relating to the extension of credit

to consumer or commercial credit reporting

agencies, as appropriate. For additional

information, agencies should refer to

Treasury/FMS’ Guide to the Federal Credit

Bureau Program.

3. Asset Resolution

REFERENCES

Statutory .......................................... DCIA, 31 U.S.C. 3711(i); Federal Credit Reform Act of 1990, 2 U.S.C. 661.

Guidance ......................................... OMB Circular No. A–11, Section 85.7, OMB Circular No. A–34.

a. The DCIA, as codified at 31 U.S.C.

3711(i) authorizes agencies to sell any 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,

agencies conducting such prepayment and

loan asset sales programs will consult with

both OMB and Treasury throughout the

prepayment and loan asset sales processes to

ensure consistency with the agreed upon

policies and guidelines. Unless an agency

can document from their past experience that

the sale of certain types of loan assets is not

economically viable, a financial advisor shall

be engaged by each agency to conduct a

portfolio valuation and to compare pricing

options for a proposed prepayment plan or

loan asset sale. Based on the financial

advisor’s report, the agencies will develop a

prepayment or loan asset sales schedule and

plan, including an analysis of the pricing

option selected. As part of the ongoing

consultation between OMB, Treasury, and

the agencies, prior to proceeding with their

prepayment or loan asset sales, the agencies

will submit their final prepayment or loan

asset sales plans and proposed pricing

options to OMB and Treasury for review in

order to ensure that any undue cost to the

Government or additional subsidy to the

borrower is avoided. The agency Chief

Financial Officer will certify that an agency

loan prepayment and loan asset sales

program is in compliance with the agreed

upon guidelines. See Asset Sales Guidelines.

V. Delinquent Debt Collection

Agencies shall have a fair but aggressive

program to recover delinquent debt,

including defaulted guaranteed loans

acquired by the Federal Government. Each

agency will establish a collection strategy

consistent with its statutory authority that

seeks to return the debtor to a current

payment status or, failing that, maximize

collection on the debt.

1. Standards for Defining Delinquent and

Defaulted Debt

REFERENCES

Statutory .......................................... DCA/DCIA/31 U.S.C. 3701, 3711–3720D.

Regulatory ....................................... Federal Claims Collection Standards, 31 CFR 900.2(b).

Guidance ......................................... Treasury/FMS’ ‘‘Managing Federal Receivables’’.

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

agency has a legal right to subject the debt

to the collection provisions of this Circular.

c. Other Debt. Overpayments to

contractors, grantees, employees, and

beneficiaries; fines; fees; penalties; and other

debts are delinquent when the debtor does

not pay or resolve the debt by the date

specified in the agency’s initial written

demand for payment (which generally should

be within 30 days from the date the agency

mailed notification of the debt to the debtor).

2. Administrative Collection of Debts

REFERENCES

Statutory .......................................... 15 U.S.C. 1673(a)(2), 31 U.S.C. 3701, 3711–3720E, 26 U.S.C. 6402, 5 U.S.C. 5514, Fair Debt Collection

Practices Act.

Regulatory ....................................... 31 CFR Part 285, Federal Claims Collection Standards, 31 CFR Part 901, Federal Claims Collections

Standards, 5 CFR part 550, subpart K, 26 CFR 301.6402–1 through 301.6402–7, Federal Acquisitions

Regulations, Subpart 32.6.

Guidance ......................................... Treasury/FMS ‘‘Managing Federal Receivables’’ and FMS Cross-servicing/Offset Guidance Documents,

Treasury’s/FMS’ ‘‘Guide to the Federal Credit Bureau Program’’.

Agencies shall promptly act on the

collection of delinquent debts, using all

available collection tools to maximize

collections. Agencies shall transfer debts

delinquent 180 days or more to the Treasury/

FMS or Treasury-designated debt collection

centers for further collection actions and

resolution. Exceptions to this requirement

(e.g., the debt has been referred for litigation)

can be found in 31 U.S.C. 3711 and 31 CFR

285.12(d).

a. Collection Strategy. Agencies shall

maintain an accurate and timely reporting

system to identify and monitor delinquent

receivables. Each agency shall develop a

systematic process for the collection of

delinquent accounts. Collection strategies

shall take full advantage of available

collection tools while recognizing program

needs and statutory authority.

b. Collection Tools for Debts Less than 180

Days Delinquent. Agencies may use the

following collection tools when the debt is

fewer than 180 days delinquent:

(i) Demand Letters. As soon as an account

becomes delinquent, agencies should send

demand letters to the debtor. The demand

letter must give the debtor notice of each

form of collection action and type of

financial penalty the agency plans to use.

Additional demand letters may be sent if

necessary. See 31 U.S.C. 3711, 31 CFR Part

285 and 901.2.

For consumer accounts, the first demand

letter or initial billing notice should include

the 60 day notification requirement of the

agency’s intent to refer to a credit bureau.

Once the 60 day period has passed, the

agency should initiate reporting if the

account has not been resolved. This will also

enable uninterrupted reporting to credit

bureaus by cross-servicing agencies. The 60

day notification of intent to refer to a credit

bureau is not required for commercial

accounts. (See Treasury/FMS’ Guide to the

Federal Credit Bureau Program.)

(ii) Internal Offset. If the agency that is

owed the debt also makes payments to the

debtor, the agency may use internal offset to

the extent permitted by that agency’s statutes

and regulations and the common law.

Delinquent debts owed by an agency’s

employees may be offset in accordance with

statutes and regulations administered by the

Office of Personnel Management. See OPM

regulations and statutes.

(iii) Treasury Offset Program. Agencies

may collect delinquent debt, which is less

than 180 days delinquent, by referring those

debts to Treasury/FMS in order to offset

Federal payments due to the debtor.

Payments, which Treasury will offset,

include certain benefit payments, federal

retirement payments, salaries, vendor

payments and tax refunds. 31 U.S.C. 3716, 31

U.S.C. 3720A, 31 CFR Part 285, 26 CFR

301.6402, 31 CFR Chapter II, 901.3, and,

Federal Acquisition Regulations Subpart

32.6. If a Federal payment has not yet been

initiated in the Treasury Offset Program,

agencies may request that the paying agency

perform the offset.

(iv) Administrative Wage Garnishment.

Agencies have the authority to

administratively garnish the wages of

delinquent debtors in order to recover

delinquent debt. The maximum garnishment

for any one debt is 15% of disposable pay.

Multiple garnishments from all sources

against one debtor’s wages may not exceed

25% of disposable pay of an individual. 31

U.S.C. 3720D, 31 CFR 285.11 and 15 U.S.C.

1673(a)(2).

(v) Contracting with Private Collection

Agencies. Treasury has contracted with

private collection agencies that may be used

by Federal agencies to provide assistance in

the recovery of delinquent debt owed to the

Government. 31 U.S.C. 3711, 31 U.S.C. 3718,

31 CFR Parts 285, and 901, Fair Debt

Collection Practices Act. Agencies may also

transfer debts to Treasury prior to 180 days

for the purpose of referral to private

collection agencies.

(vi) Treasury Cross-Servicing. Agencies

may transfer debts to Treasury for full

servicing at any time after the due process

requirements. (See 31 CFR Part 285.)

c. Collection of Debts Which are Over 180

Days Delinquent. This paragraph sets forth

Treasury’s collection procedures for debts

which are over 180 days delinquent.

(i) Treasury Offset Program. The DCIA

requires that all agencies recover debt

delinquent more than 180 days by referring

those debts to the Treasury for offset of tax

refunds and other Federal payments.

Agencies must refer all accounts for offset in

accordance with guidance provided by the

Department of the Treasury/FMS. Federal

Claims Collection Standards, 31 U.S.C. 3716,

31 U.S.C. 3720A and 31 CFR Part 285. The

following types of offset are undertaken in

the Treasury Offset Program (TOP):

(1) Tax Refund Offset;

(2) Vendor Offset;

(3) Federal Retirement Offset;

(4) Salary Offset;

(5) Benefit Offset (At the time of publication,

benefit payments have not been

incorporated into the program. Benefit

payments, such as Social Security

Administration (SSA), Black Lung and

Railroad Retirement Benefits (RRB) will be

added in the future.); and

(6) Other Federal payments as allowed by

law (as such payments are allowed into the

program).

(ii) Cross-Servicing. The DCIA requires that

all debts owed to agencies which are more

than 180 days delinquent shall be transferred

to Treasury/FMS or a Treasury-designated

debt collection center for servicing. The

DCIA contains provisions and requirements

for exempting certain classes of debts from

being transferred for servicing

www.treas.fms.gov/debt. (See 31 U.S.C. 3711,

and 31 CFR Part 285.) Once debts are

transferred to Treasury, agencies must cease

all collection activities other than

maintaining accounts for the Treasury Offset

Program.

Once Treasury has received a debt for

servicing, the appropriate debt collection

actions will be taken. These actions may

include sending demand letters; phone calls

to delinquent debtors; credit bureau

reporting; referring debtors to the Treasury

Offset Program; referring debtors to private

collection agencies; administrative wage

garnishment; and any other available debt

collection tool.

3. Referrals to the Department of Justice

A. Referral for Litigation

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

of Justice agrees to allow the debtor(s) to

remain in TOP for offset while they pursue

other legal remedies.

4. Agencies shall promptly notify the

Department of Justice of any payments

received on a debtor’s account after referral

of the claim for litigation.

5. The Department of Justice shall account

to agencies for monies or property collected

on claims referred by the agencies.

B. Referral for Approval of Compromise Offer

REFERENCES

Statutory .......................................... 31 U.S.C. 3711.

Regulatory ....................................... 31 CFR Part 902, Federal Claims Collection Standards.

Guidance ......................................... Treasury/FMS’ ‘‘Managing Federal Receivables’’.

Agencies may compromise a debt within

their jurisdiction when the principal balance

of the debt is less than $100,000 (or any

higher amount authorized by the U.S.

Attorney General). Unless otherwise

provided by law, when the principal balance

of the debt is greater than $100,000 (or any

higher amount authorized by the U.S.

Attorney General), the compromise authority

rests with the Department of Justice. 31 CFR

Part 902.

C. Referral for Approval to Terminate

Collection Activity

REFERENCES

Statutory .......................................... 31 U.S.C. 3711.

Regulatory ....................................... 31 CFR Part 902, Federal Claims Collection Standards.

Guidance ......................................... Treasury/FMS’ ‘‘Managing Federal Receivables’’.

Agencies may terminate collection on a

debt within their jurisdiction when the

principal balance of the debt is less than

$100,000 (or any higher amount authorized

by the U.S. Attorney General). Unless

otherwise provided by law, when the

principal balance of the debt is greater than

$100,000 (or any higher amount authorized

by the U.S. Attorney General), the authority

to terminate rests with the Department of

Justice. (See 31 CFR Part 902.)

4. Interest, Penalties and Administrative

Costs

REFERENCES

Statutory .......................................... 31 U.S.C. 3717.

Regulatory ....................................... Federal Claims Collection Standards, 31 CFR 901.9.

Guidance ......................................... Treasury’s ‘‘Managing Federal Receivables,’’ Chapter 4.

Interest, penalties and administrative costs

should be added to all debts unless a specific

statute, regulation, loan agreement, contract,

or court order prohibits such charges or sets

criteria for their assessment. Agencies shall

assess late payment interest on delinquent

debts. Further, agencies shall assess a penalty

charge of not more than six percent (6%) per

year for failure to pay a debt more than

ninety (90) days past due, unless a statute,

regulation required by statute, loan

agreement, or contract prohibits charging

interest or assessing charges or explicitly

fixes the interest rate or charges. (See 31

U.S.C. 3717 (e) and (g)). A debt is delinquent

when the scheduled payment is not paid in

full by the payment due date contained in the

initial demand letter or by the date specified

in the applicable agreement or instrument.

Agencies shall assess administrative costs to

cover the cost of processing and handling

delinquent debt. Agencies must adjust the

interest rate on delinquent debt to conform

with the rate established by a U.S. Court

when a judgment has been obtained.

5. Termination of Collection, Write-Off, Use

of Currently Not Collectible (CNC), and

Close-Out

REFERENCES

Statutory .......................................... 31 U.S.C. 3711; 26 CFR 1.6050P–0, 26 CFR 1.6050P–1.

Regulatory ....................................... 31 CFR Part 903 Federal Claims Collection Standards, 26 CFR 1.6050P–1.

Guidance ......................................... FCPWG Final Report on Write-off Policy, Dated 12/15/98, Treasury/FMS ‘‘Managing Federal Receivables’’.

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.)

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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: llll

2. Form of Assistance (direct or guarantee):

lll

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

$lll for the cost of direct loans or loan

guarantees authorized in subsection (1) and

$lll for administrative expenses for fiscal

year lll 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 $lll, or

the amount specified in appropriations acts

for fiscal yearlll 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

$lll, or the amount specified in

appropriations acts for fiscal year lll 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

lllyears, or lllpercent 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)

(lllpercent above) (no more than

lllpercent 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 lllpercent 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 lllmonth(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 lllpercent 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