2012   Financial Report of the United States Government

Notes to the Financial Statements

Note 4. Loans Receivable, Mortgage-Backed Securities and Loan Guarantee Liabilities, Net

Direct Loan, Mortgage-Backed Securities and Defaulted Guaranteed Loan Programs as of September 30, 2012, and 2011
 
Face Value of Loans Outstanding
Long-term Cost of (Income from) Direct Loans and Defaulted Guaranteed Loans Outstanding
Loans Receivable, Mortgage-Backed Securities, Net
Subsidy Expense (Income) for the Fiscal Year
(In billions of dollars)
2012
2011
2012
2011
2012
2011
2012
2011
Federal Direct Student Loans - Education 495.5 356.1 -31.6 -25.3 527.1 381.5 -10.7 -28.6
Federal Family Education Loans - Education 147 147.3 0.9 -0.8 146.1 148 -2.8 -4.9
Electric Loans - USDA 43.3 42.2 1.4 2.1 41.9 40.2 - -0.2
Rural Housing Services - USDA 31.5 30.7 6.8 7.1 24.7 23.6 0.3 0.5
Housing and Urban Development Loans 15.5 13.9 1.9 1.3 13.6 12.6 -0.9 0.2
International Monetary Fund
Program - Treasury
13.9 8.2 0.3 0.1 13.6 8.1 - 0.1
State and Local Housing Finance Agency Initiative - Treasury 13.7 15.1 1.1 0.8 12.6 14.3 0.5 -
Water and Environmental Loans - USDA 12.1 11.9 0.5 0.7 11.6 11.1 -0.1 -
Export-Import Bank Loans 13.9 9.9 2.8 2.8 11.1 7 -0.6 -0.4
Farm Loans - USDA 8.8 8.6 0.4 0.4 8.4 8.3 - 0.2
Disaster Loan Programs - SBA 7.2 7.5 1.4 1.5 5.8 6 - 0.2
Telecommunications Loans - USDA 4.6 4.5 -0.1 - 4.7 4.5 - -
U. S. Agency for International Development Loans 4.1 4.7 1.3 1.3 2.8 3.4 - -
Food Aid - USDA 4.5 5.2 2 2.5 2.5 2.7 - -
GSE Mortgage-Backed Securities Purchase Program - Treasury - 70.6 - -1.8 - 72.4 -0.7 1.8
All other programs 44 40.1 10.9 11.7 33.1 28.4 1.3 2.1
Total direct loans, Mortgage-Backed Securities and defaulted guaranteed loans 859.6 776.5 - 4.4 859.6 772.1 -13.7 -29

Loan Guarantees as of September 30, 2012, and 2011
 
Principal Amount of Loans under Guarantee
Principal Amount Guaranteed by the United States
Loan Guarantee Liabilities
Subsidy Expense (Income) for the Fiscal Year
(In billions of dollars)
2012
2011
2012
2011
2012
2011
2012
2011
Federal Housing Administration Loans - HUD 1,253.40 1,167.10 1,170.20 1,096.80 55 36.1 -6 -7.2
Federal Family Education Loans - Education 290.7 327.6 284.6 320.7 1 10 -11.6 -11.2
Export-Import Bank Guarantees 76.4 70.7 76.4 70.7 1.8 1.2 -0.4 -0.2
Veterans Housing Benefit Programs - VA 286.6 247.7 76.1 66.2 5.6 5.1 0.6 0.6
Small Business Loans - SBA 87.4 82.2 74.4 70 3.7 4.7 0.3 2.4
Rural Housing Services - USDA 77 63.3 69.3 56.9 3.2 2.5 0.7 0.3
Israeli Loan Guarantee Program - AID 11.3 11.6 11.3 11.6 1.3 1.3 -0.1 -
Export Credit Guaranteed Programs - USDA 6.2 6.1 6.1 6 0.2 0.1 - 0.1
Overseas Private Investment Corporation Credit Program 5.4 4.9 5.4 4.9 0.2 0.2 - -
Business and Industry Loans - USDA 7.1 7 5.3 5.3 0.9 0.8 0.2 0.4
Federal Ship Financing Fund (Title XI) - DOT 2 1.8 2 1.8 0.2 0.2 - -
All Other Guaranteed Loan Programs 26.3 22.6 23.7 20.8 1.5 0.8 0.6 -0.1
Total loan guarantees 2,129.80 2,012.60 1,804.80 1,731.70 74.6 63 -15.7 -14.9

The Government has two different types of loans and loan guarantees. One major type of loan is direct loans such as the Department of Education’s (Education) Federal Direct Student Loans. The second type is loan guarantee programs, such as the Department of Housing and Urban Development’s (HUD’s) Federal Housing Administration Loans program.

Direct loans and loan guarantee programs are used to promote the Nation’s welfare by making financing available to segments of the population not served adequately by non-Federal institutions, or otherwise providing for certain activities or investments. For those unable to afford credit at the market rate, Federal credit programs provide subsidies in the form of direct loans offered at an interest rate lower than the market rate. For those to whom non-Federal financial institutions are reluctant to grant credit because of the high risk involved, Federal credit programs guarantee the payment of these non-Federal loans and absorb the cost of defaults.

The amount of the long-term cost of post-1991 direct loans and loan guarantees outstanding equals the subsidy cost allowance for direct loans and the liability for loan guarantees as of September 30. The amount of the long-term cost of pre-1992 direct loans and loan guarantees equals the allowance for uncollectible amounts (or present value allowance) for direct loans and the liability for loan guarantees. The long-term cost is based on all direct loans and guaranteed loans disbursed in this fiscal year and previous years that are outstanding as of September 30. It includes the subsidy cost of these loans and guarantees estimated as of the time of loan disbursement and subsequent adjustments such as modifications, reestimates, amortizations, and writeoffs.

Net loans receivable includes related interest and foreclosed property. Foreclosed property is property that is transferred from borrowers to a Federal credit program, through foreclosure or other means, in partial or full settlement of post-1991 direct loans or as a compensation for losses that the Government sustained under post-1991 loan guarantees. Please refer to the individual financial statements of the Department of Veterans Affairs (VA) and HUD for significant detailed information regarding foreclosed property.

The total subsidy expense/(income) is the cost of direct loans and loan guarantees recognized during the fiscal year. It consists of the subsidy expense/(income) incurred for direct and guaranteed loans disbursed during the fiscal year, for modifications made during the fiscal year of loans and guarantees outstanding, and for upward or downward re-estimates as of the end of the fiscal year of the cost of loans and guarantees outstanding. This expense/(income) is included in the Statements of Net Cost.

Loan Programs

The majority of the loan programs are provided by Education, HUD, United States Department of Agriculture (USDA), Treasury, Small Business Administration (SBA), VA, and Export-Import Bank. For significant detailed information regarding the direct and guaranteed loan programs listed in the tables above, please refer to the individual financial statements of the agencies.

Education has two major loan programs, authorized by Title IV of the Higher Education Act of 1965 (HEA). The first program, is the William D. Ford Federal Direct Student Loan Program, (referred to as the Direct Loan Program) that was established in fiscal year 1994. The Direct Loan Program offers four types of educational loans: Stafford, Unsubsidized Stafford, PLUS for parents and graduate or professional students, and consolidation loans. With this program, the Government makes loans directly to students and parents through participating institutions of higher education. Direct loans are originated and serviced through contracts with private vendors. Education disbursed approximately $142.0 billion in Direct Loans to eligible borrowers in fiscal year 2012 and approximately $133.0 billion in fiscal year 2011.The second program is the Federal Family Education Loan (FFEL) Program. This program was established in fiscal year 1965, and is a guaranteed loan program. Like the William D. Ford Federal Direct Student Loan Program, it offers four types of loans: Stafford, Unsubsidized Stafford, PLUS for parents and graduate or professional students, and consolidation loans. The Student Aid and Fiscal Responsibility Act (SAFRA), which was enacted as part of the Health Care Education and Reconciliation Act of 2010 (Public Law 111-152), eliminated the authority to guarantee new FFEL after June 30, 2010.

The Housing and Economic Recovery Act of 2008 (HERA) authorized Treasury to purchase GSE MBS consisting of mortgage pass-through securities issued by Fannie Mae and Freddie Mac. Treasury, using private sector asset managers, purchased such securities on the open market. By purchasing these credit-guaranteed securities, Treasury sought to broaden access to mortgage funding for current and prospective homeowners and to promote stability in the mortgage market. The authority granted by Congress to purchase MBS expired on December 31, 2009, at which point the purchase of new securities ended.

Treasury originally planned to hold the MBS securities to maturity. However, in fiscal year 2011, Treasury decided its goals had been achieved and began an orderly sale of its MBS portfolio. Sales were completed during fiscal year 2012.

As of September 30, 2011, the $72.4 billion MBS net credit program receivable included a negative subsidy allowance of $1.8 billion. The subsidy allowance was negative in that the Treasury expected to generate earnings in excess of costs on its portfolio. Since Treasury originally planned to hold all MBS securities to maturity, the sale of the GSE MBS portfolio was not considered in the formulation estimate for the GSE MBS program. Accordingly, Treasury recorded a modification in fiscal year 2011, resulting in an upward reestimate or increase in the cost of the program by $9.7 billion. Subsequently, at September 30, 2011, Treasury performed a financial statement reestimate of the program’s cost that resulted in a downward reestimate, or a decrease in the cost of the program by $7.9 billion. The decrease in program costs was the result of higher than projected sales proceeds when compared to projected sales proceeds in the modification. The effects of the modification and financial statement reestimate, when combined with other reconciling items, resulted in the $1.8 billion negative subsidy allowance at September 30, 2011. As of September 30, 2012, Treasury performed a financial statement reestimate of the program’s cost that identified excess sales proceeds of $705.0 million for fiscal year 2012. A closing reestimate will be performed in early fiscal year 2013.

In 2009, Congress passed the Supplemental Appropriations Act of 2009 which authorized an increase in the U.S. quota in the IMF, as well as an increase in U.S. participation in the New Arrangements to Borrow, one of the IMF’s supplemental borrowing arrangements. For the first time, Congress subjected both program increases to FCRA. Under FCRA, both program increases are treated as direct loans to the IMF.

HUD’s Federal Housing Administration (FHA) provides mortgage insurance to encourage lenders to make credit available to expand home ownership. FHA serves many borrowers that the conventional market does not serve adequately. This includes first-time homebuyers, minorities, low-income, and other underserved households to realize the benefit of home ownership. Borrowers obtain an FHA insured mortgage and pay an upfront premium and an annual premium to FHA. The proceeds from those premiums are used to fund FHA program costs, including claims on defaulted mortgages and holding costs, property management fees, property sales, and other associated costs. The possibility of a sizable volume of delinquencies remains a significant risk for the housing market and for FHA in the near term. The number of FHA mortgages has risen dramatically. HUD decided to raise the annual premium and lower the upfront premium to aid in returning the Mutual Mortgage Insurance Fund to congressionally mandated levels of capital reserves without disruption to the marketplace.

USDA offers direct and guaranteed loans through credit programs in the Farm and Foreign Agricultural Services (FFAS) mission area through the Farm Service Agency (FSA), and the Commodity Credit Corporation (CCC), and in the Rural Development (RD) mission area.

The FFAS delivers commodity, credit, conservation, disaster and emergency assistance programs that help strengthen and stabilize the agricultural economy. The FSA offers direct and guaranteed loans to farmers who are temporarily unable to obtain private, commercial credit. Through this supervised credit offered by FSA, the goal is to graduate its borrowers to commercial credit. The CCC offers both credit guarantee and direct credit programs for buyers of U.S. exports, suppliers, and sovereign countries in need of food assistance. The RD provides affordable housing and essential community facilities to rural communities through its rural housing loan and grant programs. The Rural Utilities Program helps to improve the quality of life in rural America through a variety of loan programs for electric energy, telecommunications, and water and environmental projects.

The Export-Import Bank aids in financing and promoting U.S. exports. The average repayment term for these loans is approximately 7 years.

The Small Business Administration’s (SBA’s) Disaster Assistance Loan Program makes direct loans to disaster victims primarily for homes and personal property.


Last Updated:  February 27, 2013