An Assessment of the Government's Loan Assets Sale Program

T-AFMD-87-7: Published: Mar 26, 1987. Publicly Released: Mar 26, 1987.

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GAO reviewed the Office of Management and Budget's (OMB) proposed sale of selected government-owned loan portfolios included in the initial loan asset sales pilot program, focusing on the status of the loan sales initiatives and borrowers prepayment of loans. The objectives of the sale program are to: (1) reduce the government's costs of managing credit activities; (2) provide incentives to improve loan origination and documentation; (3) determine the actual subsidy of federal credit programs; and (4) increase the government's receipts to reduce the budgetary deficit in the year of the sale. GAO found that: (1) the characteristics of federal loans are so varied that sales decisions must be made on a portfolio-by-portfolio basis; (2) the high rate of noncurrent loans could adversely affect the net proceeds from their sale; (3) OMB guidelines, which do not allow agencies to sell loan portfolios with any recourse to the government, may effectively depress the net proceeds from some loan sales; (4) the government may realize larger cash receipts over the term of some loans if it retains the loan portfolios rather than selling them to meet short-term deficit reduction goals; and (5) even though the government would get the full value of the loans when they are sold, that would not reduce the structural budget deficit because loan sales shift revenues from future years to the year of the sale. GAO believes that the government needs to improve: (1) its management of credit activities; (2) documentation for some portfolios; and (3) development and maintenance of accounting records.

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