[Federal Register Volume 65, Number 230 (Wednesday, November 29, 2000)]
[Notices]
[Pages 71212-71225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29928]



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Part III





Office of Management and Budget





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Issuance of Transmittal Memorandum Amending OMB Circular No. A-129, 
``Policies for Federal Credit Programs and Non-Tax Receivables''; 
Notice

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

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OFFICE OF MANAGEMENT AND BUDGET


Issuance of Transmittal Memorandum Amending OMB Circular No. A-
129, ``Policies for Federal Credit Programs and Non-Tax Receivables''

AGENCY: Executive Office of the President, Office of Management and 
Budget, Budget Analysis and Systems Division.

ACTION: Notice of Transmittal amending OMB Circular No. A-129, 
``Policies for Federal Credit Programs and Non-Tax Receivables''.

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SUMMARY: This Circular updates policies and procedures for justifying, 
designing, and managing Federal credit programs and for collecting non-
tax receivables.

FOR FURTHER INFORMATION CONTACT: Ms. Courtney Timberlake, Office of 
Management and Budget, Budget and Analysis Branch, NEOB Room 6001, 725 
17th Street, NW, Washington, DC 20503, Tel. No. (202) 395-7864.
    Availability: Copies of the OMB Circular A-129, and currently 
applicable Transmittal Memoranda may be obtained at the OMB Homepage on 
the Internet. The online address (URL) is http://www.whitehouse.gov/OMB 
circular/index.html#numerical.

    Dated: November 16, 2000.
Robert L. Nabors,
Executive Secretary and Assistant Director for Administration.

Policies For Federal Credit Programs and Non-Tax Receivables 
Circular No. A-129 (Revised)

OMB Circular No. A-129 (Revised) Policies for Federal Credit 
Programs and Non-Tax Receivables

Table of Contents

General Information

Purpose
Authority
Coverage
Rescissions
Effective Date
Inquiries
Definitions

Appendix A

I. Responsibilities of Departments and Agencies
    Office of Management and Budget
    Department of the Treasury
    Federal Credit Policy Working Group
    Departments and Agencies
II. Budget and Legislative Policy for Credit Programs
    Program Review
    Form of Assistance
    Financial Standards
    Implementation
III. Credit Management and Extension Policy
    A. Credit Extension Policies
    Applicant Screening
    Loan Documentation
    Collateral Requirements
    B. Management of Guaranteed Loan Lenders and Servicers
    Lender Eligibility
    Lender Agreements
    Lender and Servicer Reviews
    Corrective Actions
IV. Managing the Federal Governments Receivables
    Accounting and Financial Reporting
    Loan Servicing Requirements
    Asset Resolution
V. Delinquent Debt Collection
    Standards for Defining Delinquent and Defaulted Debt
    Administrative Collection of Debts
    Referrals to the Department of Justice
    Interest, Penalties and Administrative Cost
    Termination of Collection, Write-Off, Use of Currently Not 
Collectible (CNC), and Close-Out
    Attachment A--Write-Off Close-Out process flowchart

Appendix B

Checklist for Credit Program Legislation, Testimony, and Budget 
Submissions

Appendix C

Model Bill Language for Credit Programs

Executive Office of the President, Office of Management and Budget

Washington, DC 20503

Circular No. A-129

Revised

To the Heads of Executive Departments and Establishments

SUBJECT: Policies for Federal Credit Programs and Non-Tax 
Receivables

    Federal credit programs are created to accomplish a variety of 
social and economic goals. Agencies must implement budget policies 
and management practices that ensure the goals of credit programs 
are met while properly identifying and controlling costs. In 
addition, Federal receivables, whether from credit programs or other 
non-tax sources, must be serviced and collected in an efficient and 
effective manner to protect the value of the Federal Government's 
assets.

General Information

    1. Purpose. This Circular prescribes policies and procedures for 
justifying, designing, and managing Federal credit programs and for 
collecting non-tax receivables. It sets principles for designing 
credit programs, including: the preparation and review of 
legislation and regulations; budgeting for the costs of credit 
programs and minimizing unintended costs to the Government; and 
improving the efficiency and effectiveness of Federal credit 
programs. It also sets standards for extending credit, managing 
lenders participating in Government guaranteed loan programs, 
servicing credit and non-tax receivables, and collecting delinquent 
debt.
    2. Authority. This Circular is issued under the authority of the 
Budget and Accounting Act of 1921, as amended; the Budget and 
Accounting Act of 1950, as amended; the Debt Collection Act of 1982; 
as amended by the Debt Collection Improvement Act of 1996; Section 
2653 of Public Law 98-369; the Federal Credit Reform Act of 1990, as 
amended; the Federal Debt Collection Procedures Act of 1990; the 
Chief Financial Officers Act of 1990, as amended; Executive Order 
8248; the Cash Management Improvement Act Amendments of 1992; and 
pre-existing common law authority to charge interest on debts and to 
offset payments to collect debts administratively.
    3. Coverage. a. Applicability. The provisions of this Circular 
apply to all credit programs of the Federal Government, including:
    (1) Direct loan programs;
    (2) Loan guarantee programs and loan insurance programs in which 
the Federal Government bears a legal liability to pay for all or 
part of the principal or interest in the event of borrower default; 
and
    (3) Loans or other financial assets acquired by a Federal agency 
(or a receiver or conservator acting for a Federal agency) as a 
result of a claim payment on a defaulted guaranteed or insured loan 
or in fulfillment of a Federal deposit insurance commitment.
    Sections IV and V of Appendix A (``Managing the Federal 
Government's Receivables'' and ``Delinquent Debt Collection'') also 
apply to receivables due to the Government from the sale of goods 
and services; fines, fees, duties, leases, rents, royalties, and 
penalties; overpayments to beneficiaries, grantees, contractors, and 
Federal employees; and similar debts.
    b. Exclusions Under the Debt Collection Acts. Certain debt 
collection techniques authorized or mandated by the provisions of 
the Debt Collection Act of 1982 (DCA), as amended by the Debt 
Collection Improvement Act of 1996 (DCIA), do not apply to debts 
arising under the Internal Revenue Code, certain sections of the 
Social Security Act, or the tariff laws of the United States.
    c. Other Statutory Exclusions. The policies and standards of 
this Circular do not apply when they are statutorily prohibited or 
are inconsistent with statutory requirements. However, agencies are 
required to periodically review legislation affecting the form of 
assistance and/or financial standards for credit programs to justify 
continuance of any non-conformance.
    4. Rescissions. This Circular rescinds and replaces OMB Circular 
No. A-129 (revised), dated January 1993, and OMB Bulletin No. 91-05, 
dated November 26, 1990.
    This Circular supplements, and does not supersede, the 
requirements applicable to budget submissions under OMB Circular No. 
A-11 and to proposed legislation and testimony under OMB Circular 
No. A-19.
    5. Effective Date. This Circular is effective immediately.
    6. Inquiries. Further information on the implementation of 
credit management and debt collection policies may be found in the 
Department of the Treasury's Financial Management Service Managing 
Federal Receivables and in OMB's Governmentwide 5-Year Plan for 
financial management submitted annually to Congress.
    For inquiries concerning budget and legislative policy for 
credit programs contact

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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 cross-servicing and offset, 
and to establish target dates for referral. Performance measures are 
established which set annual referral and collection goals. In 
accordance with the DCIA and other Federal laws, FMS conducts offset 
of Federal payments, including tax refunds, under the Treasury 
Offset Program. FMS also provides collection services for delinquent 
non-tax Federal debts (referred to as cross-servicing), and 
maintains a private collection agency contract for referral and 
collection of delinquent debts. Additionally, FMS issues operational 
and procedural guidelines regarding government-wide credit 
management and debt collection such as ``Managing Federal 
Receivables'' and the ``Guide to the Federal Credit Bureau 
Program.'' FMS, under its program responsibility for credit and debt 
management and as an active member of the Federal Credit Policy 
Working Group, assists in improving credit and debt management 
activities government-wide.
    3. Federal Credit Policy Working Group. The Federal Credit 
Policy Working Group (FCPWG) is an interagency forum that provides 
advice and assistance to the Office of Management and Budget (OMB) 
and Treasury in the formulation and implementation of credit policy. 
Membership consists of representatives from the Executive Office of 
the President, the Council of Economic Advisers, the OMB, and the 
Department of the Treasury. The major credit and debt collection 
agencies represented include the Departments of Agriculture, 
Commerce, Education, Health and Human Services, Housing and Urban 
Development, Interior, Justice, Labor, State, Transportation, 
Veterans Affairs and the Agency for International Development, the 
Export-Import Bank, the Federal Deposit Insurance Corporation and 
the Small Business Administration. Other departments and agencies 
may be invited to participate in the FCPWG at the request of the 
Chairperson. The Director of OMB designates the Chairperson of the 
FCPWG.
    4. Department and Agencies. Departments and agencies shall 
manage credit programs and all non-tax receivables in accordance 
with their statutory authorities and the provisions of this Circular 
to protect the Government's assets and to minimize losses in 
relation to social benefits provided.
    a. Agencies shall ensure that: 
    (1) Federal credit program legislation, regulations, and 
policies are designed and administered in compliance with the 
principles of this Circular;
    (2) The costs of credit programs covered by the Federal Credit 
Reform Act of 1990 are budgeted for and controlled in accordance 
with the principles of that Act. (Some agencies and programs are 
expressly exempted from the statute.);
    (3) Every effort is made to prevent future delinquencies by 
following appropriate screening standards and procedures for 
determination of creditworthiness;
    (4) Lenders participating in guaranteed loan programs meet all 
applicable financial and programmatic requirements;
    (5) Informed and cost effective decisions are made concerning 
portfolio management, including full consideration of contracting 
out for servicing or selling the portfolio;
    (6) The full range of available techniques are used, such as 
those found in the Federal Claims Collection Standards and Treasury 
regulations, as appropriate, to collect delinquent debts, including 
demand letters, administrative offset, salary offset, tax refund 
offset, private collection agencies, cross-servicing by Treasury, 
administrative wage garnishment, and litigation;
    (7) Delinquent debts are written-off as soon as they are 
determined to be uncollectible; and
    (8) Timely and accurate financial management and performance 
data are submitted to OMB and the Department of the Treasury so that 
the Government's credit management and debt collection programs and 
policies can be evaluated.
    b. In order to achieve these objectives, agencies shall:
    (1) Establish, as appropriate, boards to coordinate credit 
management and debt collection activities and to ensure full 
consideration of credit management and debt collection issues by all 
interested and affected organizations. Representation should 
include, but not be limited to, the agency Chief Financial Officer 
(CFO) and the senior official(s) for program offices with credit 
activities or non-tax receivables. The Board may seek from the 
agency's Inspector General, input based on findings and conclusions 
from past audits and investigations.
    (2) Ensure that the statutory and regulatory requirements and 
standards set forth in this Circular, Treasury regulations, and 
supplementary guidance set forth in the Treasury/FMS Managing 
Federal Receivables are incorporated into agency regulations and 
procedures for credit programs and debt collection activities;
    (3) Propose new or revised legislation, regulations, and forms 
as necessary to ensure consistency with the provisions of this 
Circular;
    (4) Submit legislation and testimony affecting credit programs 
for review under the OMB Circular No. A-19 legislative clearance 
process, and budget proposals for review under the Circular No. A-11 
budget justification process;
    (5) Periodically evaluate Federal credit programs to assure 
their effectiveness in achieving program goals;
    (6) Assign to the agency CFO, in accordance with the Chief 
Financial Officers Act of 1990, responsibility for directing, 
managing, and providing policy guidance and oversight of agency 
financial management personnel, activities, and operations, 
including the implementation of asset management systems for credit 
management and debt collection;
    (7) Prepare, as part of the agency CFO Financial Management 5-
Year Plan, a Credit

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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 tax-exempt obligations are 
prohibited under Section 149(b) of the Internal Revenue Code. 
Guarantees of tax-exempt obligations are an inefficient way of 
allocating Federal credit. Assistance to the borrower, through the 
tax exemption and the guarantee, provides interest savings to the 
borrower that are smaller than the tax revenue loss to the 
Government. It is generally thought that the cost to the taxpayer is 
greater than the benefit to the borrower. The Internal Revenue Code 
provides some exceptions to this requirement; see Section 149(b) of 
the Internal Revenue Code for further details.
    e. To preclude the possibility that Federal agencies will 
guarantee tax-exempt obligations, either directly or indirectly, 
agencies will:
    (1) Not guarantee federally tax-exempt obligations;
    (2) Provide that effective subordination of a direct or 
guaranteed loan to tax-exempt

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obligations will render the guarantee void. To avoid effective 
subordination, the direct or guaranteed loan and the tax-exempt 
obligation should be repaid using separate dedicated revenue streams 
or otherwise separate sources of funding, and should be separately 
collateralized. In addition, the direct or guaranteed loan terms, 
such as grace periods, repayment schedules, and availability of 
deferrals, should be consistent with private sector standards to 
ensure that they do not create effective subordination;
    (3) Prohibit use of a Federal guarantee as collateral to secure 
a tax-exempt obligation;
    (4) Prohibit Federal guarantees of loans funded by tax-exempt 
obligations; and
    (5) Prohibit the linkage of Federal guarantees with tax-exempt 
obligations. For example, such prohibited linkage occurs if the 
project is unlikely to be financed without the Federal guarantee 
covering a portion of the cost. In such cases, the Federal guarantee 
is, in effect, enabling the tax-exempt obligation to be issued, 
since without the guarantee the project would not be viable to 
receive any financing. Therefore, the tax-exempt obligation is 
dependent on and linked to the Federal guarantee.
    f. Where a large degree of subsidy is justified, comparable to 
that which would be provided by guaranteed tax-exempt obligations, 
agencies should consider the use of direct loans.

3. Financial Standards

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
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.

[[Page 71216]]

4. Implementation

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  Federal Credit Reform Act of 1990, 2
                                     U.S.C. 661; Government Performance
                                     and Results Act of 1993.
Guidance..........................  OMB Circular No. A-11; OMB Circular
                                     No. A-19.
------------------------------------------------------------------------

    The provisions of this Section II will be implemented through 
the OMB Circular No. A-19 legislative review process and the OMB 
Circular No. A-11 budget justification and submission process. For 
accounting standards for Federal credit programs, see Accounting for 
Direct Loans and Loan Guarantees, Statement of Federal Financial 
Accounting Standards Number 2, developed by the Federal Accounting 
Standards Advisory Board.
    a. Proposed legislation on credit programs, reviews of credit 
proposals made by others, and testimony on credit activities 
submitted by agencies under the OMB Circular No. A-19 legislative 
review process should conform to the provisions of this Circular.
    Whenever agencies propose provisions or language not in 
conformity with the policies of this Circular, they will be required 
to request in writing that OMB waive the requirement. The request 
will be submitted on a standard waiver request form, available from 
OMB. Such requests will identify the waiver(s) requested, and will 
state the reasons for the request and the time period for which the 
exception is required. Exceptions, when allowed, will ordinarily be 
granted only for a limited time in order to allow for an evaluation 
by OMB. The waiver request form should be submitted to the OMB 
examiner with primary responsibility for the account.
    b. A checklist for reviews of legislative and budgetary 
proposals is included as Appendix B to this Circular. Agencies 
should use the model bill language provided in Appendix C in 
developing and reviewing legislation unless OMB has approved the use 
of alternative language that includes the same substantive elements.
    c. Every four years, or more often at the request of the OMB 
examiner with primary responsibility for the account, the agency's 
annual budget submission (required by OMB Circular No. A-11, Section 
15.2) should include:
    (1) A plan for periodic, results-oriented evaluations of the 
effectiveness of the program, and the use of relevant program 
evaluations and/or other analyses of program effectiveness or causes 
of escalating program costs. A program evaluation is a formal 
assessment, through objective measurement and systematic analysis, 
addressing the manner and extent to which credit programs achieve 
intended objectives. This information should be contained in 
agencies' annual performance plans submitted to OMB. (For further 
detail on program evaluation, refer to the Government Performance 
and Results Act of 1993 (GPRA) and related guidance);
    (2) A review of the changes in financial markets and the status 
of borrowers and beneficiaries to verify that continuation of the 
credit program is required to meet Federal objectives, to update its 
justification, and to recommend changes in its design and operation 
to improve efficiency and effectiveness; and
    (3) Proposed changes to correct those cases where existing 
legislation, regulations, or program policies are not in conformity 
with the policies of this Section II. When an agency does not deem a 
change in existing legislation, regulations, or program policies to 
be desirable, it will provide a justification for retaining the non-
conformance.

III. Credit Management and Extension Policy

A. Credit Extension Policies

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  31 U.S.C. 3720B, 18 U.S.C. 1001, 31
                                     U.S.C. 7701(d).
Regulatory........................  31 CFR 285.13, Executive Order
                                     13109, 61 Federal Register 51763.
Guidance..........................  Treasury/FMS ``Managing Federal
                                     Receivables,'' ``Treasury Report on
                                     Receivables (TROR),'' and ``Guide
                                     to the Federal Credit Bureau
                                     Program''.
------------------------------------------------------------------------

    1. Applicant Screening. a. Program Eligibility. Federal credit 
granting agencies and private lenders in guaranteed loan programs, 
shall determine whether applicants comply with statutory, 
regulatory, and administrative eligibility requirements for loan 
assistance. If it is consistent with program objectives, borrowers 
should be required to certify and document that they have been 
unable to obtain credit from private sources. In addition, 
application forms must require the borrower to certify the accuracy 
of information being provided. (False information is subject to 
penalties under 18 U.S.C. 1001.)
    b. Delinquency on Federal Debt. Agencies should determine if the 
applicant is delinquent on any Federal debt, including tax debt. 
Agencies should include a question on loan application forms asking 
applicants if they have such delinquencies. In addition, agencies 
and guaranteed loan lenders, shall use credit bureaus as a screening 
tool. Agencies are also encouraged to use other appropriate 
databases, such as the Department of Housing and Urban Development's 
Credit Alert Interactive Voice Response System CAIVRS to identify 
delinquencies on Federal debt.
    Processing of applications shall be suspended when applicants 
are delinquent on Federal tax or non-tax debts, including judgment 
liens against property for a debt to the Federal Government, and are 
therefore not eligible to receive Federal loans, loan guarantees or 
insurance. (See 31 U.S.C. 3720B regarding non-tax debts.) This 
provision does not apply to disaster loans. Agencies should review 
and comply with 31 U.S.C. 3720B and 31 CFR 285.13 before extending 
credit. Processing should continue only when the debtor 
satisfactorily resolves the debts (e.g., pays in full or negotiates 
a new repayment plan).
    c. Creditworthiness. Where creditworthiness is a criterion for 
loan approval, agencies and private lenders shall determine if 
applicants have the ability to repay the loan and a satisfactory 
history of repaying debt. Credit reports and supplementary data 
sources, such as financial statements and tax returns, should be 
used to verify or determine employment, income, assets held, and 
credit history.
    d. Delinquent Child Support. Agencies shall deny Federal 
financial assistance to individuals who are subject to 
administrative offset to collect delinquent child support payments. 
See Executive Order 13109, 61 Federal Register 51763 (1996). The 
Attorney General has issued Minimum Due Process Guidelines: Denial 
of Federal Financial Assistance Pursuant to Executive Order 13109, 
which agencies shall include in their procedures or regulations 
promulgated for the purpose of denying Federal financial assistance 
in accordance with Executive Order 13109.
    e. Taxpayer Identification Number. Pursuant to 31 U.S.C. 
7701(d), agencies must obtain the taxpayer identification number 
(TIN) of all persons doing business with the agency. All agencies 
and lenders extending credit shall require the applicant or borrower 
to supply a TIN as a prerequisite to obtaining credit or assistance.
    2. Loan Documentation. Loan origination files should contain 
loan applications, credit bureau reports, credit analyses, loan 
contracts, and other documents necessary to conform to private 
sector standards for that type of loan. Accurate and complete 
documentation is critical to providing proper servicing of the debt, 
pursuing collection of delinquent debt, and in the case of 
guaranteed loans, processing claim payments. Additional information 
on documentation requirements is available in

[[Page 71217]]

the supplement to the Treasury Financial Manual Managing Federal 
Receivables.
    3. Collateral Requirements. For many types of loans, the 
Government can reduce its risk of default and potential losses 
through well managed collateral requirements.
    a. Appraisals of Real Property. Appraisals of real property 
serving as collateral for a direct or guaranteed loan must be 
conducted in accordance with the following guidelines:
    (1) Agencies should require that all appraisals be consistent 
with the Uniform Standards of Professional Appraisal Practice, 
promulgated by the Appraisal Standards Board of the Appraisal 
Foundation. Agencies shall prescribe additional appraisal standards 
as appropriate.
    (2) Agencies should ensure that a State licensed or certified 
appraiser prepares an appraisal for all credit transactions over 
$100,000 ($250,000 for business loans).
    (This does not include loans with no cash out and those 
transactions where the collateral is not a major factor in the 
decision to extend credit).
    Agencies shall determine which of these transactions, because of 
the size and/or complexity, must be performed by a State licensed or 
certified appraiser. Agencies may also designate direct or 
guaranteed loan transactions under $100,000 ($250,000 for business 
loans) that require the services of a State licensed or certified 
appraiser.
    b. Loan to Value Ratios. In some credit programs, the primary 
purpose of the loan is to finance the acquisition of an asset, such 
as a single family home, which then serves as collateral for the 
loan. Agencies should ensure that borrowers assume an equity 
interest in such assets in order to reduce defaults and Government 
losses. Federal agencies should explicitly define the components of 
the loan to value ratio (LTV) for both direct and guaranteed loan 
programs. Financing should be limited by not offering terms 
(including the financing of closing costs) that result in an LTV 
equal to or greater than 100 percent. Further, the loan maturity 
should be shorter than the estimated useful economic life of the 
collateral.
    c. Liquidation of Real Property Collateral for Guaranteed Loans. 
In general, it is not in the Federal Government's financial interest 
to assume the responsibility for managing and disposing of real 
property serving as collateral on defaulted guaranteed loans. 
Private lenders should be required to liquidate, through litigation 
if necessary, any real property collateral for a defaulted 
guaranteed loan before filing a default claim with the credit 
granting agency.
    d. Asset Management Standards and Systems. Agencies should 
establish policies and procedures for the acquisition, management, 
and disposal of real property acquired as a result of direct or 
guaranteed loan defaults. Agencies should establish inventory 
management systems to track all costs, including contractual costs, 
of maintaining and selling property. Inventory management systems 
should also generate management reports, provide controls and 
monitoring capabilities, and summarize information for the Office of 
Management and Budget and the Department of the Treasury. (See 
Treasury Report on Receivables).

B. Management of Guaranteed Loan Lenders and Servicers

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Guidance..........................  Treasury/FMS ``Managing Federal
                                     Receivables''.
------------------------------------------------------------------------

    1. Lender Eligibility. a. Participation Criteria. Federal credit 
granting agencies shall establish and publish in the Federal 
Register specific eligibility criteria for lender participation in 
Federally guaranteed loan programs. These criteria should include:
    (1) Requirements that the lender is not currently debarred/
suspended from participation in a Government contract or delinquent 
on a Government debt;
    (2) Qualification requirements for principal officers and staff 
of the lender;
    (3) Fidelity/surety bonding and/or errors and omissions 
insurance with the Federal Government as a loss payee, where 
appropriate, for new or non-regulated lenders or lenders with 
questionable performance under Federal guarantee programs;
    (4) Financial and capital requirements for lenders not regulated 
by a Federal financial institution regulatory agency, including 
minimum net worth requirements based on business volume.
    b. Review of Eligibility. Agencies shall review and document a 
lender's eligibility for continued participation in a guaranteed 
loan program at least every two years. Ideally, these reviews should 
be conducted in conjunction with on-site reviews of lender 
operations (see B.3) or other required reviews, such as renewal of a 
lender agreement (see B.2). Lenders not meeting standards for 
continued participation should be decertified. In addition to the 
participation criteria above, guarantor agencies should consider 
lender performance as a critical factor in determining continued 
eligibility for participation.
    c. Fees. When authorized and appropriated for such purposes, 
agencies should assess non-refundable fees to defray the costs of 
determining and reviewing lender eligibility.
    d. Decertification. Guarantor agencies should establish specific 
procedures to decertify lenders or take other appropriate action any 
time there is:
    (1) Significant and/or continuing non-conformance with agency 
standards; and/or
    (2) Failure to meet financial and capital requirements or other 
eligibility criteria.
    Agency procedures should define the process and establish 
timetables by which decertified lenders can apply for reinstatement 
of eligibility for Federal guaranteed loan programs.
    e. Loan Servicers. Lenders transferring and/or assigning the 
right to service guaranteed loans to a loan servicer should use only 
servicers meeting applicable standards set by the Federal guarantor 
agency. Where appropriate, agencies may adopt standards for loan 
servicers established by a Government Sponsored Enterprise (GSE) or 
a similar organization (e.g., Government National Mortgage 
Association for single family mortgages) and/or may authorize 
lenders to use servicers that have been approved by a GSE or similar 
organization.
    2. Lender Agreements. Agencies should enter into written 
agreements with lenders that have been determined to be eligible for 
participation in a guaranteed loan program. These agreements should 
incorporate general participation requirements, performance 
standards and other applicable requirements of this Circular. 
Agencies are encouraged, where not prohibited by authorizing 
legislation, to set a fixed duration for the agreement to ensure a 
formal review of the lender eligibility for continued participation 
in the program.
    a. General Participation Requirements.
    (1) Requirements for lender eligibility, including participation 
criteria, eligibility reviews, fees, and decertification (see 
Section 1, above);
    (2) Agency and lender responsibilities for sharing the risk of 
loan defaults (see Section II.3. a.(1)); and, where feasible
    (3) Maximum delinquency, default and claims rates for lenders, 
taking into account individual program characteristics.
    b. Performance Standards. Agencies should include due diligence 
requirements for originating, servicing, and collecting loans in 
their lender agreements. This may be accomplished by referencing 
agency regulations or guidelines. Examples of due diligence 
standards include collection procedures for past due accounts, 
delinquent debtor counseling procedures and litigation to enforce 
loan contracts.
    Agencies should ensure, through the claims review process, that 
lenders have met these standards prior to making a claim payment. 
Agencies should reduce claim amounts or reject claims for lender 
non-performance.
    c. Reporting Requirements. Federal credit granting agencies 
should require certain data to monitor the health of their 
guaranteed loan portfolios, track and evaluate lender performance 
and satisfy OMB, Treasury, and other reporting requirements which 
include the Treasury Report on Receivables (TROR). Examples of these 
data which agencies must maintain include:
    (1) Activity Indicators--number and amount of outstanding 
guaranteed loans at the beginning and end of the reporting period 
and the agency share of risk; number and amount of guaranteed loans 
made during the reporting period; and number and amount of 
guaranteed loans terminated during the period.
    (2) Status Indicators--a schedule showing the number and amount 
of past due loans by

[[Page 71218]]

``age'' of the delinquency, and the number and amount of loans in 
foreclosure or liquidation (when the lender is responsible for such 
activities).
    Agencies may have several sources for such data, but some or all 
of the information may best be obtained from lenders and servicers. 
Lender agreements should require lenders to report necessary 
information on a quarterly basis (or other reporting period based on 
the level of lending and payment activity).
    d. Loan Servicers. Lender agreements must specify that loan 
servicers must meet applicable participation requirements and 
performance standards. The agreement should also specify that 
servicers acquiring loans must provide any information necessary for 
the lender to comply with reporting requirements to the agency. 
Servicers may not resell the loans except to qualified servicers.
    3. Lender and Servicer Reviews. To evaluate and enforce lender 
and servicer performance, agencies should conduct on-site reviews. 
Agencies should summarize reviews findings in written reports with 
recommended corrective actions and submit them to agency review 
boards. (See Section I.4.b.(1).)
    Reviews should be conducted biennially where possible; however, 
agencies should conduct annual on-site reviews all lenders and 
servicers with substantial loan volume or whose:
    a. Financial performance measures indicate a deterioration in 
their guaranteed loan portfolio;
    b. Portfolio has a high level of defaults for guaranteed loans 
less than one year old;
    c. Overall default rates rise above acceptable levels; and/or
    d. Poor performance results in collecting monetary penalties or 
an abnormally high number of reduced or rejected claims.
    Agencies are encouraged to develop a lender/servicer 
classification system which assigns a risk rating based on the above 
factors. This risk rating can be used to establish priorities for 
on-site reviews and monitor the effectiveness of required corrective 
actions.
    Reviews should be conducted by guarantor agency program 
compliance staff, Inspector General staff, and/or independent 
auditors. Where possible, agencies with similar programs should 
coordinate their reviews to minimize the burden on lenders/servicers 
and maximize use of scarce resources. Agencies should also utilize 
the monitoring efforts of GSEs and similar organizations for 
guaranteed loans that have been ``pooled''.
    4. Corrective Actions. If a review indicates that the lender/
servicer is not in conformance with all program requirements, 
agencies should determine the seriousness of the problem. For minor 
non-compliance, agencies and the lender or servicer should agree on 
corrective actions. However, agencies should establish penalties for 
more serious and frequent offenses. Penalties may include loss of 
guarantees, reprimands, probation, suspension, and decertification.

IV. Managing the Federal Government's Receivables

    Agencies must service and collect debts, including defaulted 
guaranteed loans they have acquired, in a manner that best protects 
the value of the assets. Mechanisms must be in place to collect and 
record payments and provide accounting and management information 
for effective stewardship. Agencies should collect data on the 
status of their portfolios on a monthly basis although they are only 
required to report quarterly. These servicing activities can be 
carried out by the agency, or by third parties (such as private 
lenders or guaranty agencies), or a contract with a private sector 
firm. Unless otherwise exempt, the Debt Collection Improvement Act 
of 1996 (DCIA), codified at 31 U.S.C. 3711, requires Federal 
agencies to transfer any non-tax debt which is over 180 days 
delinquent to the Department of the Treasury/FMS for debt collection 
action (31 CFR Part 285). Under certain conditions, it may be 
advantageous to sell loans or other debts to avoid the necessity of 
debt servicing.
    1. Accounting and Financial Reporting:

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  DCA, Chief Financial Officers Act
                                     (CFO) of 1990, Government
                                     Performance and Results Act,
                                     Federal Credit Reform Act of 1990,
                                     31 U.S.C. 3719, 31 U.S.C. 3711, 2
                                     U.S.C. 661.
Regulatory........................  31 CFR Part 285, OMB Circular No. A-
                                     127.
Guidance..........................  JFMIP Standards on Direct and
                                     Guaranteed Loans, Instructions for
                                     the Treasury Report on Receivables
                                     Due from the Public (TROR),
                                     Treasury/FMS' ``Managing Federal
                                     Receivables,'' Federal Accounting
                                     Standards Advisory Board--
                                     ``Accounting for Direct Loans and
                                     Loan Guarantees,'' Statement of
                                     Federal Financial Accounting
                                     Standards No. 2, as amended,''
                                     ``Amendments to Accounting
                                     Standards for Direct Loans and Loan
                                     Guarantees,'' Statement of Federal
                                     Financial Accounting Standards No.
                                     18.
------------------------------------------------------------------------

    a. Accounting and Financial Reporting Systems. Agencies shall 
establish accounting and financial reporting systems to meet the 
standards provided in this Circular, OMB Circular No. A-127, 
``Financial Management Systems'', ``JFMIP Standards on Direct and 
Guaranteed Loans'', and other government-wide requirements. These 
systems shall be capable of accounting for obligations and outlays 
and of meeting the reporting requirements of OMB and Treasury, 
including those associated with the Federal Credit Reform Act of 
1990 and the Chief Financial Officers (CFO) Act of 1990.
    b. Agency Reports. Agencies should use comprehensive reports on 
the status of loan portfolios and receivables to evaluate management 
effectiveness. Agencies shall prepare, in accordance with the CFO 
Act and OMB guidance, annual financial statements that include loan 
programs and other receivables. Agencies should also collect data 
for program performance measures (such as default rates, purchase 
rates, recovery rates, subsidy rates [actual vs. projected], and 
administrative costs) consistent with the Government Performance and 
Results Act of 1993 (GPRA) and Federal Credit Reform Act of 1990.
    Agencies are also required to report periodically to Treasury on 
the status and condition of their non-tax delinquent portfolio on 
the TROR. Due to a timing difference between the submissions of 
fiscal year-end data for the TROR, and data used for agency 
financial statements (the fiscal year-end receivables report is due 
in November and agency financial statements are not due until 
February/March of the following year), the data in these two reports 
may not be identical. Agencies should be able to explain differences 
and show the relationship of information contained in the two 
reports, but the reports are not required to reconcile.
    2. Loan Servicing Requirements. Agency servicing requirements, 
whether performed in-house or by another agency or private sector 
firm, must meet the standards described below and in the Treasury/
FMS publication Managing Federal Receivables.

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  Privacy Act of 1974, Debt Collection
                                     Act of 1982 (DCA), Debt Collection
                                     Improvement Act of 1996 (DCIA), 31
                                     U.S.C. 3711.
Guidance..........................  Treasury/FMS' ``Managing Federal
                                     Receivables,'' and the ``Guide to
                                     the Federal Credit Bureau
                                     Program''.
------------------------------------------------------------------------

    a. Documentation. Approved loan files (or other systems of 
records) shall contain adequate and up-to-date information 
reflecting terms and conditions of the loan, payment history, 
including occurrences of delinquencies and defaults, and any

[[Page 71219]]

subsequent loan actions which result in payment deferrals, 
refinancing, or rescheduling.
    b. Billing and Collections. Agencies shall ensure that there is 
routine invoicing of payments, and that efficient mechanisms are in 
place to collect and record payments. When making payments and where 
appropriate, borrowers should be encouraged to use agency systems 
established by Treasury which collect payments electronically, such 
as pre-authorized debits and credit cards.
    c. Escrow Accounts. Agency servicing systems must process tax 
and insurance deposits for housing and other long-term real estate 
loans through escrow accounts. Agencies should establish escrow 
accounts at the time of loan origination and payments for housing 
and other long-term real estate loans through an escrow account.
    d. Referring Account Information to Credit Reporting Agencies. 
Agency servicing systems must be able to identify and refer debts to 
credit bureaus in accordance with the requirements of 31 U.S.C. 
3711. Agencies shall refer all non-tax, non-tariff commercial 
accounts (current and delinquent) and all delinquent non-tariff and 
non-tax consumer accounts. Agencies may report current consumer 
debts as well and are encouraged to do so. The reporting of current 
data (in addition to any delinquencies) provides a truer picture of 
indebtedness while simultaneously reflecting accounts that the 
borrower has maintained in good standing. There is no minimum dollar 
threshold, i.e., accounts (debts) owed for as low as $5 may be 
referred to credit reporting agencies. Agencies shall require 
lenders participating in Federal loan programs to provide 
information relating to the extension of credit to consumer or 
commercial credit reporting agencies, as appropriate. For additional 
information, agencies should refer to Treasury/FMS' Guide to the 
Federal Credit Bureau Program.

3. Asset Resolution

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  DCIA, 31 U.S.C. 3711(i); Federal
                                     Credit Reform Act of 1990, 2 U.S.C.
                                     661.
Guidance..........................  OMB Circular No. A-11, Section 85.7,
                                     OMB Circular No. A-34.
------------------------------------------------------------------------

    a. The DCIA, as codified at 31 U.S.C. 3711(i) authorizes 
agencies to sell any non-tax debt owed to the United States that is 
more than 90 days delinquent, subject to the provisions of the 
Federal Credit Reform Act of 1990. The Administration's budget 
policy is that agencies are required to sell any non-tax debts that 
are delinquent for more than one year for which collection action 
has been terminated, if the Secretary of the Treasury determines 
that the sale is in the best interest of the United States 
Government. Agencies are required to sell the debts for cash or a 
combination of cash and profit participation, if such an arrangement 
is more advantageous to the government, and make the sales without 
recourse. Loan sales should result in shifting agency staff 
resources from servicing to mission critical functions.
    Beginning in FY 2000, for programs with $100 million in assets 
(unpaid principal balance) that are delinquent for more than two 
years, the agency is expected to dispose of assets expeditiously. 
(See OMB Circular No. A-11.) Agencies may request from OMB, an 
exception for the following:
    (1) Loans to foreign countries and entities;
    (2) Loans in structured forbearance, when conversion to 
repayment status is expected within 24 months or after statutory 
requirements are met;
    (3) Loans that are written off as unenforceable e.g., due to 
death, disability, or bankruptcy;
    (4) Loans that have been submitted to Treasury for offset and 
are expected to be extinguished within three (3) years;
    (5) Loans in adjudication or foreclosure; and
    (6) Student loans.
    Agencies shall provide to OMB an annual list of loans that are 
exempted.
    b. Evaluate Asset Portfolio. On an annual basis, agencies shall 
take steps to evaluate and analyze existing asset portfolios and 
programs associated therewith, to determine if there are avenues to:
    (1) Improve Credit Management and Recoveries. Improvement in 
current management, performance, and recoveries of asset portfolios 
shall be reviewed against current marketplace practices;
    (2) Realize Administrative Savings. Analyses of current asset 
portfolio practices shall include the benefit of transferring all or 
some portion of the portfolio to the private sector. Agencies shall 
develop a staffing utilization plan to ensure that when asset sales 
result in a decreased workload, staff are shifted to priority 
workload mission critical functions.
    (3) Initiate Prepayment. Agencies shall initiate prepayment 
programs when statutorily mandated or, if upon analysis of an 
existing asset portfolio practice, it is deemed appropriate. 
Prepayment programs may be initiated without the approval of OMB. 
Delinquent borrowers may participate in a prepayment program only if 
past due principal, interest, and charges are paid in full prior to 
their request to prepay the balance owed.
    c. Financial Asset Services. Agencies shall engage the services 
of outside contractors as deemed necessary to assist in its asset 
resolution program. Contractors providing various types of asset 
services are available through the General Services Administration's 
Multiple Award Schedule for Financial Asset Services as follows:

(1) Program Financial Advisors;
(2) Transaction Specialists
(3) Due Diligence Contractors;
(4) Loan Service/Asset Managers; and
(5) Equity Monitors/Transaction Assistants.

    d. Loan Asset Sales Guidelines. OMB and Treasury jointly will 
update existing guidelines and procedures to implement loan 
prepayment and loan asset sales. In accordance with the agreed upon 
procedures, agencies conducting such prepayment and loan asset sales 
programs will consult with both OMB and Treasury throughout the 
prepayment and loan asset sales processes to ensure consistency with 
the agreed upon policies and guidelines. Unless an agency can 
document from their past experience that the sale of certain types 
of loan assets is not economically viable, a financial advisor shall 
be engaged by each agency to conduct a portfolio valuation and to 
compare pricing options for a proposed prepayment plan or loan asset 
sale. Based on the financial advisor's report, the agencies will 
develop a prepayment or loan asset sales schedule and plan, 
including an analysis of the pricing option selected. As part of the 
ongoing consultation between OMB, Treasury, and the agencies, prior 
to proceeding with their prepayment or loan asset sales, the 
agencies will submit their final prepayment or loan asset sales 
plans and proposed pricing options to OMB and Treasury for review in 
order to ensure that any undue cost to the Government or additional 
subsidy to the borrower is avoided. The agency Chief Financial 
Officer will certify that an agency loan prepayment and loan asset 
sales program is in compliance with the agreed upon guidelines. See 
Asset Sales Guidelines.

V. Delinquent Debt Collection

    Agencies shall have a fair but aggressive program to recover 
delinquent debt, including defaulted guaranteed loans acquired by 
the Federal Government. Each agency will establish a collection 
strategy consistent with its statutory authority that seeks to 
return the debtor to a current payment status or, failing that, 
maximize collection on the debt.

1. Standards for Defining Delinquent and Defaulted Debt

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  DCA/DCIA/31 U.S.C. 3701, 3711-3720D.
Regulatory........................  Federal Claims Collection Standards,
                                     31 CFR 900.2(b).
Guidance..........................  Treasury/FMS' ``Managing Federal
                                     Receivables''.
------------------------------------------------------------------------


[[Page 71220]]

    The Federal Claims Collections Standards define delinquent debt 
in general terms. Agency regulations may further define delinquency 
to meet specific types of debt or program requirements.
    a. Direct Loans. Agencies shall consider a direct loan account 
to be delinquent if a payment has not been made by the date 
specified in the agreement or instrument (including a post-
delinquency payment agreement), unless other satisfactory payment 
arrangements have been made.
    b. Guaranteed Loans. Loans guaranteed or insured by the Federal 
Government are in default when the borrower breaches the loan 
agreement with the private sector lender. A default to the Federal 
Government occurs when the Federal credit granting agency 
repurchases the loan, pays a loss claim or pays reinsurance on the 
loan. Prior to establishing a receivable on the agency financial 
records, each agency must consider statutory and regulatory 
authority applicable to the debt in order to determine if the agency 
has a legal right to subject the debt to the collection provisions 
of this Circular.
    c. Other Debt. Overpayments to contractors, grantees, employees, 
and beneficiaries; fines; fees; penalties; and other debts are 
delinquent when the debtor does not pay or resolve the debt by the 
date specified in the agency's initial written demand for payment 
(which generally should be within 30 days from the date the agency 
mailed notification of the debt to the debtor).

2. Administrative Collection of Debts

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  15 U.S.C. 1673(a)(2), 31 U.S.C.
                                     3701, 3711-3720E, 26 U.S.C. 6402, 5
                                     U.S.C. 5514, Fair Debt Collection
                                     Practices Act.
Regulatory........................  31 CFR Part 285, Federal Claims
                                     Collection Standards, 31 CFR Part
                                     901, Federal Claims Collections
                                     Standards, 5 CFR part 550, subpart
                                     K, 26 CFR 301.6402-1 through
                                     301.6402-7, Federal Acquisitions
                                     Regulations, Subpart 32.6.
Guidance..........................  Treasury/FMS ``Managing Federal
                                     Receivables'' and FMS Cross-
                                     servicing/Offset Guidance
                                     Documents, Treasury's/FMS' ``Guide
                                     to the Federal Credit Bureau
                                     Program''.
------------------------------------------------------------------------

    Agencies shall promptly act on the collection of delinquent 
debts, using all available collection tools to maximize collections. 
Agencies shall transfer debts delinquent 180 days or more to the 
Treasury/FMS or Treasury-designated debt collection centers for 
further collection actions and resolution. Exceptions to this 
requirement (e.g., the debt has been referred for litigation) can be 
found in 31 U.S.C. 3711 and 31 CFR 285.12(d).
    a. Collection Strategy. Agencies shall maintain an accurate and 
timely reporting system to identify and monitor delinquent 
receivables. Each agency shall develop a systematic process for the 
collection of delinquent accounts. Collection strategies shall take 
full advantage of available collection tools while recognizing 
program needs and statutory authority.
    b. Collection Tools for Debts Less than 180 Days Delinquent. 
Agencies may use the following collection tools when the debt is 
fewer than 180 days delinquent:
    (i) Demand Letters. As soon as an account becomes delinquent, 
agencies should send demand letters to the debtor. The demand letter 
must give the debtor notice of each form of collection action and 
type of financial penalty the agency plans to use. Additional demand 
letters may be sent if necessary. See 31 U.S.C. 3711, 31 CFR Part 
285 and 901.2.
    For consumer accounts, the first demand letter or initial 
billing notice should include the 60 day notification requirement of 
the agency's intent to refer to a credit bureau. Once the 60 day 
period has passed, the agency should initiate reporting if the 
account has not been resolved. This will also enable uninterrupted 
reporting to credit bureaus by cross-servicing agencies. The 60 day 
notification of intent to refer to a credit bureau is not required 
for commercial accounts. (See Treasury/FMS' Guide to the Federal 
Credit Bureau Program.)
    (ii) Internal Offset. If the agency that is owed the debt also 
makes payments to the debtor, the agency may use internal offset to 
the extent permitted by that agency's statutes and regulations and 
the common law. Delinquent debts owed by an agency's employees may 
be offset in accordance with statutes and regulations administered 
by the Office of Personnel Management. See OPM regulations and 
statutes.
    (iii) Treasury Offset Program. Agencies may collect delinquent 
debt, which is less than 180 days delinquent, by referring those 
debts to Treasury/FMS in order to offset Federal payments due to the 
debtor. Payments, which Treasury will offset, include certain 
benefit payments, federal retirement payments, salaries, vendor 
payments and tax refunds. 31 U.S.C. 3716, 31 U.S.C. 3720A, 31 CFR 
Part 285, 26 CFR 301.6402, 31 CFR Chapter II, 901.3, and, Federal 
Acquisition Regulations Subpart 32.6. If a Federal payment has not 
yet been initiated in the Treasury Offset Program, agencies may 
request that the paying agency perform the offset.
    (iv) Administrative Wage Garnishment. Agencies have the 
authority to administratively garnish the wages of delinquent 
debtors in order to recover delinquent debt. The maximum garnishment 
for any one debt is 15% of disposable pay. Multiple garnishments 
from all sources against one debtor's wages may not exceed 25% of 
disposable pay of an individual. 31 U.S.C. 3720D, 31 CFR 285.11 and 
15 U.S.C. 1673(a)(2).
    (v) Contracting with Private Collection Agencies. Treasury has 
contracted with private collection agencies that may be used by 
Federal agencies to provide assistance in the recovery of delinquent 
debt owed to the Government. 31 U.S.C. 3711, 31 U.S.C. 3718, 31 CFR 
Parts 285, and 901, Fair Debt Collection Practices Act. Agencies may 
also transfer debts to Treasury prior to 180 days for the purpose of 
referral to private collection agencies.
    (vi) Treasury Cross-Servicing. Agencies may transfer debts to 
Treasury for full servicing at any time after the due process 
requirements. (See 31 CFR Part 285.)
    c. Collection of Debts Which are Over 180 Days Delinquent. This 
paragraph sets forth Treasury's collection procedures for debts 
which are over 180 days delinquent.
    (i) Treasury Offset Program. The DCIA requires that all agencies 
recover debt delinquent more than 180 days by referring those debts 
to the Treasury for offset of tax refunds and other Federal 
payments. Agencies must refer all accounts for offset in accordance 
with guidance provided by the Department of the Treasury/FMS. 
Federal Claims Collection Standards, 31 U.S.C. 3716, 31 U.S.C. 3720A 
and 31 CFR Part 285. The following types of offset are undertaken in 
the Treasury Offset Program (TOP):

(1) Tax Refund Offset;
(2) Vendor Offset;
(3) Federal Retirement Offset;
(4) Salary Offset;
(5) Benefit Offset (At the time of publication, benefit payments 
have not been incorporated into the program. Benefit payments, such 
as Social Security Administration (SSA), Black Lung and Railroad 
Retirement Benefits (RRB) will be added in the future.); and
(6) Other Federal payments as allowed by law (as such payments are 
allowed into the program).

    (ii) Cross-Servicing. The DCIA requires that all debts owed to 
agencies which are more than 180 days delinquent shall be 
transferred to Treasury/FMS or a Treasury-designated debt collection 
center for servicing. The DCIA contains provisions and requirements 
for exempting certain classes of debts from being transferred for 
servicing www.treas.fms.gov/debt. (See 31 U.S.C. 3711, and 31 CFR 
Part 285.) Once debts are transferred to Treasury, agencies must 
cease all collection activities other than maintaining accounts for 
the Treasury Offset Program.
    Once Treasury has received a debt for servicing, the appropriate 
debt collection actions will be taken. These actions may include 
sending demand letters; phone calls to delinquent debtors; credit 
bureau reporting; referring debtors to the Treasury Offset Program; 
referring debtors to private collection agencies; administrative 
wage garnishment; and any other available debt collection tool.

3. Referrals to the Department of Justice

A. Referral for Litigation

[[Page 71221]]



                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  31 U.S.C. 3711, 28 U.S.C. 3001,
                                     3002(1).
Regulatory........................  31 CFR Part 904, Federal Claims
                                     Collection Standards.
Guidance..........................  Department of the Treasury/FMS
                                     ``Litigation Referral Process
                                     Handbook,'' and ``Managing Federal
                                     Receivables,'' Appendix 8.
------------------------------------------------------------------------

    Agencies, including Treasury/FMS or Treasury-designated debt 
collection centers, shall refer delinquent accounts to the 
Department of Justice, or use other litigation authority that may be 
available, as soon as there is sufficient reason to conclude that 
full or partial recovery of the debt can best be achieved through 
litigation. Referrals to Justice should be made in accordance with 
the Federal Claims Collection Standards. If the debtor does not come 
forward with a voluntary payment after the claim has been referred 
for litigation, a lawsuit shall be initiated promptly.
    1. In consultation with the Department of Justice, agencies 
shall establish a system to account for: (a) Claims referred to 
Justice, and (b) claims closed by Justice and returned to the 
respective agencies.
    2. Agencies shall accelerate claim referrals to the Department 
of Justice in those districts where the Department of Justice 
contracts with private law firms for debt collection.
    3. Agencies shall stop the use of any collection activities 
including TOP and refrain from further contact with the debtor once 
a claim has been referred to the Department of Justice, unless the 
Department of Justice agrees to allow the debtor(s) to remain in TOP 
for offset while they pursue other legal remedies.
    4. Agencies shall promptly notify the Department of Justice of 
any payments received on a debtor's account after referral of the 
claim for litigation.
    5. The Department of Justice shall account to agencies for 
monies or property collected on claims referred by the agencies.

B. Referral for Approval of Compromise Offer

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  31 U.S.C. 3711.
Regulatory........................  31 CFR Part 902, Federal Claims
                                     Collection Standards.
Guidance..........................  Treasury/FMS' ``Managing Federal
                                     Receivables''.
------------------------------------------------------------------------

    Agencies may compromise a debt within their jurisdiction when 
the principal balance of the debt is less than $100,000 (or any 
higher amount authorized by the U.S. Attorney General). Unless 
otherwise provided by law, when the principal balance of the debt is 
greater than $100,000 (or any higher amount authorized by the U.S. 
Attorney General), the compromise authority rests with the 
Department of Justice. 31 CFR Part 902.

C. Referral for Approval to Terminate Collection Activity

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  31 U.S.C. 3711.
Regulatory........................  31 CFR Part 902, Federal Claims
                                     Collection Standards.
Guidance..........................  Treasury/FMS' ``Managing Federal
                                     Receivables''.
------------------------------------------------------------------------

    Agencies may terminate collection on a debt within their 
jurisdiction when the principal balance of the debt is less than 
$100,000 (or any higher amount authorized by the U.S. Attorney 
General). Unless otherwise provided by law, when the principal 
balance of the debt is greater than $100,000 (or any higher amount 
authorized by the U.S. Attorney General), the authority to terminate 
rests with the Department of Justice. (See 31 CFR Part 902.)

4. Interest, Penalties and Administrative Costs

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  31 U.S.C. 3717.
Regulatory........................  Federal Claims Collection Standards,
                                     31 CFR 901.9.
Guidance..........................  Treasury's ``Managing Federal
                                     Receivables,'' Chapter 4.
------------------------------------------------------------------------

    Interest, penalties and administrative costs should be added to 
all debts unless a specific statute, regulation, loan agreement, 
contract, or court order prohibits such charges or sets criteria for 
their assessment. Agencies shall assess late payment interest on 
delinquent debts. Further, agencies shall assess a penalty charge of 
not more than six percent (6%) per year for failure to pay a debt 
more than ninety (90) days past due, unless a statute, regulation 
required by statute, loan agreement, or contract prohibits charging 
interest or assessing charges or explicitly fixes the interest rate 
or charges. (See 31 U.S.C. 3717 (e) and (g)). A debt is delinquent 
when the scheduled payment is not paid in full by the payment due 
date contained in the initial demand letter or by the date specified 
in the applicable agreement or instrument. Agencies shall assess 
administrative costs to cover the cost of processing and handling 
delinquent debt. Agencies must adjust the interest rate on 
delinquent debt to conform with the rate established by a U.S. Court 
when a judgment has been obtained.

5. Termination of Collection, Write-Off, Use of Currently Not 
Collectible (CNC), and Close-Out

                               References
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statutory.........................  31 U.S.C. 3711; 26 CFR 1.6050P-0, 26
                                     CFR 1.6050P-1.
Regulatory........................  31 CFR Part 903 Federal Claims
                                     Collection Standards, 26 CFR
                                     1.6050P-1.
Guidance..........................  FCPWG Final Report on Write-off
                                     Policy, Dated 12/15/98, Treasury/
                                     FMS ``Managing Federal
                                     Receivables''.
------------------------------------------------------------------------


[[Page 71222]]

    All debt must be adequately reserved for in the allowance 
account. All write-offs must be made through the allowance account. 
Under no circumstances are debts to be written off directly to 
expense. Generally, write-off is mandatory for delinquent debt older 
than two years unless documented and justified to OMB in 
consultation with Treasury. Once the debt is written-off, the agency 
must either classify the debt as currently not collectible (CNC) or 
close-out the debt. Cost effective collection efforts should 
continue, specifically, if an agency determines that continued 
collection efforts after mandatory write-off are likely to yield 
higher returns. In such cases the written-off debt is not closed out 
but classified as CNC. The collection process continues until the 
agency determines it is no longer cost effective to pursue 
collection. At that point, the debt should be closed-out.
    Under no circumstances should internal controls be compromised 
by the write-off or reclassification of debt. Very small percentages 
of debt older than two years can frequently result in amounts that, 
while immaterial to the overall debt and write-off balances, are 
large enough to pose a risk of fraud and abuse. If collection 
efforts are on-going then adequate internal controls must be 
maintained.
    In those cases where material collections can be documented to 
occur after two years, debt cannot be written off until the 
estimated collections become immaterial.
    During the period debts are classified as CNC, agencies should 
maintain the debt for administrative offset and other collection 
tools, as described in the FCCS until: (1) The debt is paid; (2) the 
debt is closed out; or (3) all collection actions are legally 
precluded; or (4) the debt is sold, whichever occurs first. When an 
agency closes out a debt, the agency must file a Form 1099C with the 
Internal Revenue Service (IRS) and notifiy the debtor in accordance 
with the Internal Revenue Code 26 U.S.C. 6050P and IRS regulations 
26 CFR 1.6050P-1. The 1099C reports the uncollectible debt as income 
to the debtor which may be taxable at the debtor's current tax rate. 
Reporting the discharge of indebtedness to the IRS results in a 
potential benefit to the Federal Government, because any payments 
made to the IRS augment government receipts. Agencies should report 
closed-out debts on the Treasury Report on Receivables Due from the 
Public (TROR). Agencies must stop all collection activity, including 
the sale of debts, once debts are closed out. Agencies must not 
close out debts which have been sold or are scheduled to be sold.

    Note: ``Termination'' and ``suspension of collection'' are legal 
procedures, which are separate and distinct from the accounting 
procedure of ``write-off.'' Agencies shall consult the Federal 
Claims Collection Standards, Part 903 for requirements which must be 
met prior to terminating or suspending collection. (See the attached 
Write-off/Close-out Process Flowchart for Receivables.)


BILLING CODE 3110-01-P

[[Page 71223]]

[GRAPHIC] [TIFF OMITTED] TN29NO00.000

BILLING CODE 3110-01-C

[[Page 71224]]

Appendix B to OMB Circular A-129

Checklist for Credit Program Legislation, Testimony, and Budget 
Submissions

    The following checklist provides guidelines to be followed in 
reviewing credit program legislation, testimony, and budget 
submissions.
    The checklist is to be used by agencies and OMB in proposing 
legislation, reviewing credit proposals, and preparing testimony on 
credit activities. If the proposed provisions or language are not in 
conformity with the policies of this Circular as listed in these 
checklists, agencies will be required to request in writing that the 
Office of Management and Budget modify or waive the requirement. 
Waiver request forms are available from OMB for this purpose. Such 
requests will identify the modification(s) or waiver(s) requested, 
and also will state the reasons for the request and the time period 
for which the exception is required. Exceptions, when allowed, will 
ordinarily be granted only for a limited time, in order to allow for 
continuing review by OMB.
    Agencies are to use the checklist in the budget submission 
process for the evaluation of existing legislation, regulations, or 
program policies. The OMB program examiner with primary 
responsibility for the credit account will determine the use of this 
checklist. Use of the list includes review of changes in financial 
markets and the status of borrowers and beneficiaries to ensure that 
Federal objectives require continuation of the credit program. If 
these policies are found to be not in conformity with the policies 
of this Circular, agencies will propose changes to correct the 
inconsistency in their annual budget submission and justification to 
OMB and the Congress. When an agency does not deem a change in 
existing legislation, regulations, or policies to be desirable, it 
will provide a justification for retaining the existing non-
conforming legislation or policies in its budget submission to OMB 
at the request of the budget examiner.

Checklist--Federal credit program justification should include the 
following elements:

    1. Program title: ________
    2. Form of Assistance (direct or guarantee): ______
    3. Federal objectives of this program: (II.1.a.).
    4. Reasons why Federal credit assistance is the best means to 
achieve these objectives: (II.1.a.).
    5. Any draft bill establishing a credit program should contain 
the following:

Authorization to extend direct loans or make loan guarantees subject 
to the requirements of the Federal Credit Reform Act of 1990, as 
amended.
Authorization and requirement for a subsidy appropriation.
Cap on volume of obligations or commitments. (II.3.e.)
Terms and conditions defined sufficiently and precisely enough to 
estimate subsidy rate. (State estimated subsidy of this program 
(rate and dollar amount).) (II.1.e.)
Authorization of administrative expenses.

    6. Describe briefly the existing and potential private sources 
of credit (and type of institution): (I.1.a.(2)(a)).
    7. Explain reasons why private sources of financing and their 
terms and conditions must be supplemented and subsidized, including:
    <bullet> To correct a defined capital market imperfection;
    <bullet> To subsidize identified borrowers or other 
beneficiaries; and/or
    <bullet> To encourage certain specified activities. 
(II.1.a.(1)).
    8. State reasons why a federal credit subsidy is the most 
efficient way of providing assistance, how it provides assistance in 
overcoming market imperfections, and how it assists the identified 
borrowers or beneficiaries or encourages the identified activities. 
(II.1.b.).
    9. Summarize briefly the benefits expected from the program. Can 
the value of these benefits (or some of these benefits) be estimated 
in dollar terms? If so, state the estimate of their value. Further 
information on conducting cost-benefit analysis can be found in OMB 
Circular No. A-94. (II.1.c.).
    10. Describe any elements of program design which encourage and 
supplement private lending activity, such that private lending is 
displaced to the smallest degree possible by agency programs. 
(II.1.d.).
    11. Estimate the expected administrative (including origination, 
servicing, and collection) resource requirements and costs of the 
credit program (dollar amounts over next 5 fiscal years). (II.1.f.).
    12. Prohibitions: (II.2.c.&d.).
Agencies will not guarantee federally tax-exempt obligations 
directly or indirectly.
Agencies will not subordinate direct loans to tax-exempt obligations 
and will provide that effective subordination of guaranteed loans to 
tax-exempt obligations will render the guarantee void.
    Risk sharing: (II.3.a.).
    <bullet> Lenders and borrowers share a substantial stake in full 
repayment according to the loan contract.
    <bullet> Private lenders who extend Government guaranteed credit 
bear at least 20 percent of any potential losses.
    <bullet> Borrowers deemed to pose less of a risk receive a lower 
guarantee as a percentage of the total loan amount.
    <bullet> Borrowers have an equity interest in any asset being 
financed by the credit assistance.
    Fees and interest rates: (II.3.b).
    <bullet> Interest and fees are set at levels that minimize 
default and other subsidy costs.
    <bullet> 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:
    <bullet> Contractual agreements include all covenants and 
restrictions (e.g., liability insurance) necessary to protect the 
Federal Government's interest. (II.3.c.).
    <bullet> Maturities on loans shorter than the estimated useful 
economic life of any assets financed. (II.3.c.(1)).
    <bullet> 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)).
    <bullet> Loan contracts to be standardized and private sector 
documents used to the extent possible. (II.3.f.).
    13. Describe the methods used to evaluate the program and the 
results of evaluations that have been made. (II.4.c.(1)).

Appendix C to OMB Circular A-129

Model Bill Language for Credit Programs

A Bill

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,
    That, this Act may be cited as ``  ''.

Authorization

    Sec. 2.(a) The Administrator is authorized to make or guarantee 
loans to * * * (Define eligible applicants).
    (b) There are authorized to be appropriated $______ for the cost 
of direct loans or loan guarantees authorized in subsection (1) and 
$______ for administrative expenses for fiscal year ______ and such 
sums as shall be necessary for each fiscal year thereafter. [The 
amounts authorized must be consistent with the amounts proposed in 
the President's budget for that fiscal year. Generally, a specific 
amount should be specified for the first fiscal year and sums for 
subsequent fiscal years (see OMB Circular No. A-19.)]
    Within the resources and authority available, gross obligations 
for the principal amount of direct loans offered by the 
Administrator will not exceed $______ , or the amount specified in 
appropriations acts for fiscal year ______ and such sums as shall be 
necessary for each fiscal year thereafter. Commitments to guarantee 
loans may be made by the Administrator only to the extent that the 
total loan principal, any part of which is guaranteed, will not 
exceed $______ , or the amount specified in appropriations acts for 
fiscal year ______ and such sums as shall be necessary for each 
fiscal year thereafter.

Terms and Conditions

    Sec. 3. Loans made or guaranteed under this Act will be on such 
terms and conditions as the Administrator may prescribe, except 
that:
    (a) The Administrator will allow credit to any prospective 
borrower only when it is necessary to alleviate a credit market 
imperfection, or when it is necessary to achieve specified Federal 
objectives by providing a credit subsidy and a credit subsidy is the 
most efficient way to meet those objectives on a borrower-by-
borrower basis.
    (b) The final maturity of loans made or guaranteed within a 
period shall not exceed ______ years, or ______ percent of the 
useful life of any physical asset to be financed by the loan, 
whichever is less as determined by the Administrator.
    (c) No loan guaranteed to any one borrower will exceed 80% of 
the loss on the loan. Borrowers who are deemed to pose less of a 
risk will receive a lower guarantee as a percentage of the loan 
amount.
    (d) No loan made or guaranteed will be subordinated to another 
debt contracted by the borrower or to any other claims against the 
borrowers in the case of default.

[[Page 71225]]

    (e) No loan will be guaranteed unless the Administrator 
determines that the lender is responsible and that adequate 
provision is made for servicing the loan on reasonable terms and 
protecting the financial interest of the United States.
    (f) No loan will be guaranteed if the income from such loan is 
excluded from gross income for the purposes of Chapter 1 of the 
Internal Revenue Code of 1986, as amended, or if the guarantee 
provides significant collateral or security, as determined by the 
Administrator, for other obligations the income from which is so 
excluded.
    (g) Direct loans and interest supplements on guaranteed loans 
will be at an interest rate that is set by reference to a benchmark 
interest rate (yield) on marketable Treasury securities with a 
similar maturity to the direct loans being made or the non-Federal 
loans being guaranteed. The minimum interest rate of these loans 
will be (at) (______ percent above) (no more than ______ percent 
below) the interest rate of the benchmark financial instrument.
    (h) The minimum interest rate of new loans will be adjusted 
every quarter (month(s)) (weeks) (days) to take account of changes 
in the interest rate of the benchmark financial instrument. (see
    (i) Fees or premiums for loan guarantee or insurance coverage 
will be set at levels that minimize the cost to the Government (as 
defined in Section 502 of the Federal Credit Reform Act of 1990, as 
amended) of such coverage, while supporting achievement of the 
program's objectives. The minimum guarantee fee or insurance premium 
will be (at) (no more than ______ percent below) the level 
sufficient to cover the agency's costs for paying all of the 
estimated costs to the Government of the expected default claims and 
other obligations. Loan guarantee fees will be reviewed every ______ 
month(s) to ensure that the fees assessed on new loan guarantees are 
at a level sufficient to cover the referenced percentage of the 
agency's most recent estimates of its costs.
    (j) Any guarantee will be conclusive evidence that said 
guarantee has been properly obtained; that the underlying loan 
qualified for such guarantee; and that, but for fraud or material 
misrepresentation by the holder, such guarantee will be presumed to 
be valid, legal, and enforceable.
    (k) The Administrator will prescribe explicit standards for use 
in periodically assessing the credit risk of new and existing direct 
loans or guaranteed loans. The Administrator must find that there is 
a reasonable assurance of repayment before extending credit 
assistance.
    (l) New direct loans may not be obligated and new loan 
guarantees may not be committed except to the extent that 
appropriations of budget authority to cover their costs are made in 
advance, as required in Section 504 of the Federal Credit Reform Act 
of 1990, as amended.

Payment of Losses

    Sec. 4(a). If, as a result of a default by a borrower under a 
guaranteed loan, after the holder thereof has made such further 
collection efforts and instituted such enforcement proceedings as 
the Administrator may require, the Administrator determines that the 
holder has suffered a loss, the Administrator will pay to such 
holder ______ percent of such loss, as specified in the guarantee 
contract. Upon making any such payment, the Administrator will be 
subrogated to all the rights of the recipient of the payment. The 
Administrator will be entitled to recover from the borrower the 
amount of any payments made pursuant to any guarantee entered into 
under this Act.
    (b) The Attorney General will take such action as may be 
appropriate to enforce any right accruing to the United States as a 
result of the issuance of any guarantee under this Act.
    (c) Nothing in this section will be construed to preclude any 
forbearance for the benefit of the borrower which may be agreed upon 
by the parties to the guaranteed loan and approved by the 
Administrator, provided that budget authority for any resulting 
subsidy costs as defined under the Federal Credit Reform Act of 
1990, as amended, is available.
    (d) Notwithstanding any other provision of law relating to the 
acquisition, handling, or disposal of property by the United States, 
the Administrator will have the right in his discretion to complete, 
recondition, reconstruct, renovate, repair, maintain, operate, or 
sell any property acquired by him pursuant to the provisions of this 
Act.

[FR Doc. 00-29928 Filed 11-28-00; 8:45 am]
BILLING CODE 3110-01-P