Credit Management: Deteriorating Credit Picture Emphasizes Importance of OMB's Nine-Point Program

This action is considered completed. On April 26, 1996, the Debt Collection Improvement Act was passed. The act prevents borrowers from obtaining federal credit if the borrower is delinquent on other federal loans. Internal Revenue Code section 26 USC 6103 (l) (3) states, "In general, upon written request, the Secretary may disclose to the head of the Federal agency administering any included Federal loan program whether or not an applicant for a loan under such program has a tax delinquent account." This provision is restricted to determining the creditworthiness of the applicant for the loan in question. The Debt Collection Improvement Act expands the IRS provision to all federal loan programs and eliminates the limitation that application of the screening provision substantially prevent or reduce future delinquencies under such programs thereby resolving this previous impediment to prescreen applicants.

FmHA has adopted and in summer 1994 began using the "Uniform Residential Loan Application" developed and used by Fannie Mae and other government agencies and GSEs. Page 3 of the form has the question about delinquency on federal debt. FmHA was previously in compliance with this requirement for its other loan programs.

Final regulations addressing this recommendation were published in December 1992. A task force is developing a common form to be used by all guaranty agencies. According to Education, this form was approved on April 16, 1993, and disseminated to program participants for use.

VA revised its credit standards in May 1991. The standards state that an applicant will not be considered a satisfactory credit risk, if presently delinquent or in default on any federal government debt, and may not be approved for the loan until the delinquent account has been brought current or satisfied.

Education is revising its regulations to require full disclosure of collection practices. Final regulations were published in December 1992 requiring all guaranty agencies to use a common form. The common application form was approved on April 16, 1993, and has been disseminated to program participants for use.

HUD agrees to modify those applications which do not include such a certification. Final regulations were published during October 1991.

Education recently increased resources for oversight activities. Education and a contractor conducted 46 reviews of guaranty agencies during FY 1990 and 1991. Reviews focused on financial management and financial conditions at agencies.

SBA directed program managers to continue emphasis on annual bank visits and requested increased field office staffing in its 1992 and 1993 budget requests for oversight functions. Field offices are implementing direction to the extent possible, according to an agency official. Visits are made on the basis of on priority--banks with troubled accounts and/or those with a large volume of loans are visited first.

Education sent a "Dear Colleague" letter to guarantee agencies in March 1990 advising them to participate fully and stated that participation would become mandatory. An agency official stated that all guaranty agencies were participating. However, Education's analysis of guaranty agencies' loan portfolios showed that about 71 percent of eligible loans had been assigned to Education.

HUD has referred $128 million in Title I debts and has implemented procedures for referring single family deficiency judgments.

Since February 1990, SBA has referred more than 500 accounts worth $23 million. However, it continues to refer accounts only after field personnel have pursued all avenues of collection and consider the account no longer collectible. SBA referred $262 million to private collection agencies during FY 1991. SBA does not plan to change its policy on this issue.

Education began charging each active account $3 per month to cover Education's administrative costs.

On October 18, 1991, the final rule was published requiring lenders to provide notice to borrowers that the government may assess penalties and administrative costs on delinquent debts. HUD published its final rules for calculation of initial debt owed and for assessing interest on that debt on September 7, 1993. This rule applies to HUD's Title I debt collection process.

The Department has agreed to charge interest and administrative costs on loan guaranty debts only.

SBA published proposed regulations in the Federal Register in 1989. The final regulations were published in the Federal Register on September 23, 1993 (Federal Register Volume 58, Number 183, page 49422).

FmHA began reporting writeoffs to IRS in January 1990 and plans to continue this reporting.

HUD established a procedure for reporting single family accounts to IRS. HUD reported accounts totalling $849,000 to IRS in 1992.

SBA began such reporting in January 1990.