December 26, 1995
OMB BULLETIN NO.
TO THE HEADS OF EXECUTIVE
DEPARTMENTS AND AGENCIES
Credit Data requirement for Credit Programs
1. Purpose. This
Bulletin informs Federal agencies of new credit data reporting requirements
included in the report language of the Treasury-Postal Appropriations
Act of 1996, P.L. 104-52. For both performing and non-performing
loans, the report language requires the Administration to provide
two estimates of the value of the Government's outstanding loan
portfolio: (1) expected cash flows to the Government (along with
a separate estimate of the administrative costs); and (2) expected
cash flows to or from a private holder (if the loans were sold)
for both the financing and liquidating accounts. Data collected
in accordance with this report language will be used by Congress
and OMB to determine whether it would be worthwhile to pursue loan
asset sales. These data will be included in the FY 1997 Budget.
Report language accompanying the Treasury-Postal Appropriations
Act of 1996 instructs OMB to "direct, and coordinate with, the Federal
agencies involved in credit programs to evaluate the value of their
credit programs, including the cost of annual administrative expenses
and develop a plan for the privatization [sic] of such credit programs."
For the purposes of this analysis, "outstanding portfolio" is defined
as direct loans and loan guarantees outstanding as of September
conferees believe that the private sector is willing to pay substantially
more than the Government's expected value of its portfolio. The
report language states that "[u]sing conservative estimates, it
may be that between $20,000,000,000 to $50,000,000,000 could be
realized if much of the Federal credit program was to be turned
over to the private sector."
To allow for the comparison
of the value of different types of loans, agencies are asked to
divide the outstanding portfolios in the liquidating and financing
accounts as of September 30, 1995, into two categories: Category
A (substantially performing) and Category B
(non-performing). Substantially performing loans are defined as
loans that are current or delinquent less than 90 days. Non-performing
loans are those loans delinquent for 90 days or more. For international
programs, Category B loans include loans to countries
that currently have a rescheduling or a debt reduction program with
the Paris Club.
3. Action required.
Provide the information outlined below for each loan program. To
assist in the data collection, a Lotus spreadsheet ("port _yal.wk3")
will be sent with this Bulletin. Data should be delivered to the
OMB examiner with primary responsibility using this spreadsheet
by February 9, 1996.
A. Loan categorization.
Agencies are asked to categorize loans outstanding as of September 30,
1995, into either Category A (substantially performing) or Category
B (non-performing). For Loan Guarantee programs, please specify
the cumulative balance of defaulted loans that were previously guaranteed
and have resulted in loans receivable. Agencies are requested to
provide the weighted average number of years remaining to
maturity for Categories A and B.1
B. Scheduled direct
loan repayments. For direct loan programs, agencies are asked
to report the scheduled repayments (the amounts that would be received
if there were no defaults or recoveries) for each direct loan program.
If scheduled repayments are not known, agencies are asked to report
best estimates of scheduled repayments.
C. Expected cash
flows to Government. Agencies are asked to report the loan program's
expected net cash flows to (+) or from (-) the Government, excluding
administrative costs. For direct loan programs, expected cash flows
(primarily principal and interest payments, net of defaults and
recoveries) should be positive (+). For loan guarantee programs,
as a result of claim payments, expected cash flows will typically
be negative (-). Note: Please separate the defaulted loan
guarantees that resulted in a loan receivable from the rest of the
loan guarantee cash flows.
D. Factors affecting
cash flow assumptions to the Government. Agencies are asked
to provide the assumptions (default rate, recovery rate, weighted-average
remaining maturity, weighted-average interest rate, fees, etc.)
used in estimating the expected cash flows to the Government.
E. Expected cash
flows to private sector. Agencies are asked to report for each
direct loan and loan guarantee program the expected net cash flows
for Category A and Category B if these loans and guarantees were
sold to the private sector with no Federal guarantee (recourse)
on the sale transaction.
F. Factors affecting
private sector cash flow assumptions. Agencies are asked to
list the assumptions and conditions which could cause cash flows
to a private purchaser to differ from the expected cash flows to
the Government.Some examples of generic conditions may be:
- The private sector
would lose the IRS tax offset, if currently used by the agency.
- Differences in
efficiency and quality of servicing and liquidating practices.
- The private sector
can be expected to pursue non-current loans more aggressively
because of the profit motive.
Some examples of conditions
specific to individual loans programs may be:
- Legal or regulatory
forbearance procedures. Agency regulations may allow purchasers
to take more aggressive collection steps than the Government.
For example, HUD must hold assigned mortgages for at least three
years and practice detailed forbearance procedures.
- Different recovery
rates on collateral pledged on loans.
- Type and value
of collateral pledged.
- Connections to
other benefits (grants).
- Other provisions
that could change the value of proceeds.
costs. Agencies are asked to estimate the annual expenses
directly associated with administering the loans outstanding on
September 30, 1995. Administrative costs should be defined consistent
with OMB Circular No. A-11, Section 33.5(n).
Agencies may use Method
I: their own methodology for projecting administrative expenses
or Method II: the methodology contained in the Lotus spreadsheet
("port_val.wk3") which accompanies this guidance. Method II relies
on per loan costs in FY 1995 for projecting future administrative
costs. If using Method II, agencies must:
(1) estimate the
number of loans outstanding each year until maturity;
(2) project the
net growth in administrative expenses (rising wages, productivity
gains, and other factors should be taken into consideration);
(3) project the
percent of substantially performing loans as of September 30,
1995, that will become non-performing each year.
Agencies may modify
Method II to more accurately reflect the expected annual administrative
costs of their outstanding portfolios on September 30, 1995.
4. Comparison of
cash flow projections. Using the data provided by agencies,
OMB will compare: (1) the net present value of the Government's
expected cash flows and administrative expenses, to (2) the expected
net proceeds from selling the loans to the private sector, which
is the net present value of the projected cash flows if the loans
were sold to the private sector. Consistent with the estimation
of loan modification cost (as defined in OMB Circular No. A-34,
Section 65.3), Governmental cash flows will be discounted at the
"applicable interest rate (yield) in the quarter when the modification
occurs." For the purposes of this analysis, present value calculations
will assume the Government's loan portfolio was sold to the private
sector on September 30, 1995. Calculating the values as of the
end of FY 1995 will minimize the assumptions underlying this analysis,
such as the size of the portfolio outstanding and appropriate
5. Due Date.
Estimates should be delivered to the OMB examiner with primary
responsibility for the credit account using this spreadsheet by
February 9, 1996.
Alice M. Rivilin
Consistent with guidance on modifications in OMB Circular No. A-34,
Section 65.3, the average years remaining to maturity will determine
the appropriate discount rate for net present value calculations
of Governmental cash flows.