Maritime Administration: Weaknesses Identified in Management of the Title XI Loan Guarantee Program Page: 4 of 31
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While Title XI of the Merchant Marine Act of 1936, as amended,
established the requirements of the loan guarantee program, the loan
guarantees are also subject to the Federal Credit Reform Act of 1990
(FCRA). Under the FCRA, federal agencies must account for the estimated
costs of direct and guaranteed loans on a net present value basis, over the
full term of the credit, and agencies must receive appropriations for these
costs before they disburse a loan or enter into loan guarantee
Because of concerns about the scale of recent defaults experienced by
MARAD, particularly those associated with AMCV, you asked us to
conduct a study of the Title XI loan guarantee program. Specifically, you
asked us to (1) determine whether MARAD complied with key Title XI
program requirements in approving initial and subsequent agreements,
monitoring and controlling funds, and handling defaults; (2) describe how
MARAD's practices for managing financial risk compare to those of
selected private-sector maritime lenders; and (3) assess MARAD's
implementation of credit reform as it relates to the Title XI program.
To determine whether MARAD complied with key Title XI program
requirements, we identified key program requirements and reviewed how
these were applied to the management of five loan guarantee projects. To
determine how MARAD's practices for managing financial risk compare to
those of selected private-sector maritime lenders, we interviewed three
maritime lenders to learn about lending practices, and compared these
practices to MARAD's. To assess MARAD's implementation of credit
reform, we analyzed MARAD's subsidy cost estimation and reestimation
processes and examined how the assumptions MARAD uses to calculate
subsidy cost estimates compare to MARAD's actual program experience.
We conducted our work in Washington, D.C., and New York, N.Y., between
September 2002 and April 2003 in accordance with generally accepted
government auditing standards.
MARAD has not fully complied with some key Title XI program
requirements. We found that MARAD generally complied with
requirements to assess an applicant's economic soundness before issuing
loan guarantees. However, MARAD used waivers or modifications, which,
although permitted by MARAD regulations, allowed MARAD to approve
some applications even though borrowers had not met all financial
requirements. MARAD did not fully comply with regulations and
established practices pertaining to project monitoring and fund
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United States. General Accounting Office. Maritime Administration: Weaknesses Identified in Management of the Title XI Loan Guarantee Program, text, May 15, 2003; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc290207/m1/4/: accessed January 23, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.