Summary: In response to a congressional request, GAO evaluated the proposed sale of federal government loan assets to the public to determine its: (1) feasibility; and (2) costs and benefits.
GAO found that: (1) many of the loan sales it reviewed were not in accordance with the Office of Management and Budget's (OMB) guidelines requiring investors to assume the full risk of loss after a loan sale; (2) many of the sales included some form of government protection against future losses; (3) the full costs and benefits of the pilot sale program will not be obvious until the loan terms have expired; (4) the loan servicing cost will not diminish, since the government will continue to originate new loans and service delinquent or defaulted loans; (5) an overall increase in the budget deficit will occur if the proceeds from a loan sale are less than the present value of the loan's principal and interest payments; and (6) loan asset sales do not accurately measure subsidy costs. GAO also found that the federal government: (1) would maximize its asset sales if it shared post-sale loan losses with investors; and (2) should make sales of loan assets on a portfolio-by-portfolio basis because of the wide range of loan terms, collateral, and borrowers in loan programs.
