Statement by Assistant
to the President for Press Relations Fitzwater on Federal Loan Sales
Yesterday
marked the first major sale of our Federal loan portfolio. The Farmers Home
Administration brought over $1 billion in community development loans to
market. The investor reception has been so positive that the underwriters were
able to increase the price of the loans and guarantee a very good return to the
Treasury. The bonds that will be issued later this month will carry a Triple-A
rating and have an effective yield of less than 1 percent over comparable U.S.
Treasury bonds.
But
this sale means more than the simple return to the Government. First, it proves
that many Federal financial assets can be successfully sold without Federal
guarantees providing for more efficient servicing of these loans in the long
run. Second, and more importantly, the difference between the final price and
the face value of the loans will clearly indicate the implied Federal subsidy
in these credit programs.
Two
additional loan sales are scheduled this month. The first, $130 million in
Department of Education loans, should go to market in the next few days.
Hopefully, before the end of the month, Farmers Home will receive an additional
$1.7 billion for rural housing loans in the largest portfolio sale ever. The
preliminary filings have been made with the SEC, and we should be able to
complete this transaction by the end of September.
It
is often too easy, when faced with the choice of raising taxes to directly fund
a government program, to establish subsidized credit which competes with the
private sector and masks true costs to the taxpayers. These three loan sales
will tell us exactly how much subsidy is being provided while at the same time
assist with reducing our budget deficit.