The Government's Loan Asset Sales Pilot Program

T-AFMD-87-6: Published: Mar 10, 1987. Publicly Released: Mar 10, 1987.

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GAO testified on the administration's current pilot sale of existing federal loan assets under the Office of Management and Budget's (OMB) guidelines and fiscal year (FY) 1988 sales plans. GAO found that: (1) the provisions relating to the sale of loan assets in the Budget Reconciliation Act of 1987 and the President's FY 1988 budget request have shifted the emphasis of loan sales from a credit reform tool to a revenue enhancement tool; (2) the government will not be able to maximize proceeds from the loan asset sales, since OMB guidelines still require that agencies conduct sales without future recourse to the government; (3) since OMB guidelines require the transfer loan-servicing to the investor, OMB should ensure that this policy would not affect borrowers in any way counter to their lawful rights or government policy; (4) OMB should measure the subsidy costs to the government for credit programs, rather than subsidy benefits, and reflect those costs in the budget; (5) the administration's focus on subsidy benefits effectively shifts the calculation to interest rates and the private investor's cost of money at the time of the loan sale; (6) the market plan for selling new loans could potentially have very different effects on short- and long-run budget deficits; and (7) the OMB-proposed budget classification for loan sale proceeds is an impediment to agencies selling loan assets with recourse and thereby maximizing sales proceeds.

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