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					The Metrics of Default Recovery


Kevin Tharp - USA Funds
Don Taylor - Account Control
 Technology (ACT)
Kris Lyon - Asset Performance Group
 (APG)



       2008 Debt Management Conference, Orlando, FL
          The Metrics of Default Recovery
                       Goals of the Session


• Explore the objectives of constituents
• Uses of the industry scorecard
   – Rankings
   – Retention per dollar of inventory
• Constituent perspectives
   – Guarantor
   – Portfolio Manager
   – Collection Agency
• Bringing it all together
• Appendices



                2008 Debt Management Conference, Orlando, FL
          The Metrics of Default Recovery
             Goals of the Department of Education



•   Help borrowers emerge from default
•   Maximize post-default recoveries
•   Ensure compliance with all regulations
•   Provide results of the FFELP system to
    constituents




               2008 Debt Management Conference, Orlando, FL
        The Metrics of Default Recovery
        Goals of Guarantors and their Portfolio Managers



• Help borrowers emerge from default
• Maximize net recovery retention (gross
  retention less cost of servicing) while meeting
  the needs of other constituents
• Maximize post-default recoveries for the
  Dept. of Education (rankings)
• Ensure compliance with all regulations




                 2008 Debt Management Conference, Orlando, FL
        The Metrics of Default Recovery
              Goals of Collection Agencies



• Help borrowers emerge from default
• Maximize post-default recoveries for
  guarantors or portfolio managers
• Maximize fee income and recovery mix
• Minimize servicing costs
• Ensure compliance with all regulations




             2008 Debt Management Conference, Orlando, FL
           The Metrics of Default Recovery
               Goals of Defaulted Borrowers & Lenders


• Defaulted Borrowers
   – Emergence from default
       • Reinstate Title IV eligibility and credit; stop AWG and/or TOP
   – Avoidance of perceived pain from:
       • Collection letters and calls
       • Embarrassment
       • Credit impairment
   – Introduction to, understanding of, and access to appropriate
     recovery programs
   – Respect and understanding during a difficult financial period
• Lenders
   – Profitability of FFELP consolidation and rehabilitation loans
   – Preservation of their brands



                    2008 Debt Management Conference, Orlando, FL
            The Metrics of Default Recovery
                          Industry Scorecard

• Dept. of Education Guaranty Agency Collection Rankings
   – Top 10 as of 12/31/2007

                          12/31/2007                        9/30/2007
                                         Non-                              Non-
 Guaranty              Gross     Consolidation           Gross     Consolidation
 Agency             Resolution     Resolution         Resolution     Resolution
 MAINE                       1               1                 2               2
 ARKANSAS                    2               2                 1               1
 USAF                        3               3                 5               7
 NELA                        4               4                 3               3
 PENNSYLVANIA                5              18                 6              10
 GEORGIA                     6              11                 9              11
 COLORADO                    7               5                33              30
 KENTUCKY                    8              29                 4              15
 MISSOURI                    9               6                10               4
 MONTANA                    10              22                25              31




                  2008 Debt Management Conference, Orlando, FL
            The Metrics of Default Recovery
                    Industry Scorecard Derivatives


• Estimated retention per dollar of inventory
  – Top 5 (average 8.4%)
      Guarantor                     2007 Retention/$ Inventory
      SLGFA (Arkansas)                       10.3%
      FAME (Maine)                           10.1%
      NELA                                    9.6%
      USA Funds                               8.3%
      Missouri                                8.0%


  – Average:                                  6.5%
  – Low:                                      2.6%
  – Retention opportunity lost:            $272 million
      • If bottom 30 performed at average of top 5 they would have each
        earned (on average) $9 million more in retention during FFY2007




                   2008 Debt Management Conference, Orlando, FL
          The Metrics of Default Recovery
                      Guarantor Perspective


• Compliance
• Net retention per dollar of inventory
   – Recovery rate
   – Recovery mix
   – Expenses
      • Internal operating costs
      • Portfolio Manager fees
      • Collection Agency fees
   – Anticipation of industry changes and speed of
     implementation
• Forecasting, reporting and evaluation



                  2008 Debt Management Conference, Orlando, FL
        The Metrics of Default Recovery
                Portfolio Manager Perspective



• Performance for each guarantor client
  – Ensuring compliance
  – Achieving industry leading retention per dollar of
    inventory
  – Providing strategic, managerial and administrative
    services
     • Inventory management
     • Collection agency management
     • Transactional services: Rehab tracking/packaging/funding, AWG,
       LVC, TPD, Bankruptcy, Treasury Offsets, Deceased,
       Subrogation, Payment Processing and Reconciliations
     • Forecasting, especially rehabilitation funding




                2008 Debt Management Conference, Orlando, FL
        The Metrics of Default Recovery
               Portfolio Manager Perspective


• Net retention per dollar of inventory
   – Aggressive recovery rate and mix targets
   – Alignment of Portfolio Manager and Collection
     Agency fees
   – Anticipation of industry changes and speed of
     implementation
   – Investment in inventory management and
     performance evaluation systems
• Partnerships with Collection Agencies
   – Finding, collaborating with, growing, and retaining
     industry leaders


              2008 Debt Management Conference, Orlando, FL
      The Metrics of Default Recovery
          Guarantor & Portfolio Manager Partnership


• Establish goals and targets
  –   Recovery rate
  –   Recovery mix
  –   Goal/Fee alignment
  –   Gross and Net retention
• Develop a written recovery plan
  –   Recovery policies
  –   Compliance checks
  –   Placement strategy
  –   Goals and targets

               2008 Debt Management Conference, Orlando, FL
      The Metrics of Default Recovery
          Guarantor & Portfolio Manager Partnership



• Align collection objectives and approach with
  fees and reward programs
  – Example: rehabilitation fees and credits
• Implement performance evaluation metrics
  and reporting
  – Batch performance monitoring and forecasting




                2008 Debt Management Conference, Orlando, FL
      The Metrics of Default Recovery
         Guarantor & Portfolio Manager Partnership


• Invest in systems to accelerate placements,
  monitoring and recall of inventory &
  compliance
  – Rules-based decision engine
  – Placement volume forecasting
• Communicate often and effectively
  – Weekly informal discussions
  – Monthly business reviews
  – Annual budget and work plan sessions



               2008 Debt Management Conference, Orlando, FL
     The Metrics of Default Recovery
              Collection Agency Perspective



• Changing Times – New Mode of
  Operations
  – Collection Agencies: 20 years of declining fees
  – Focus Change: cash to consolidation to
    rehabilitation
  – Increase effectiveness, improve efficiencies,
    reduce operating costs
  – Systems and procedures
  – Staffing: training, incentives and retention



              2008 Debt Management Conference, Orlando, FL
     The Metrics of Default Recovery
               Collection Agency Perspective



• Guarantors: Learn from Collection Agency
  Experiences
  – Rethink Collection Process – prioritization
  – Become selective in work flow – driven by
    retention
  – Efficient - eliminate non-critical administrative
    requirements
  – Systems, procedures and staffing




               2008 Debt Management Conference, Orlando, FL
      The Metrics of Default Recovery
              Collection Agency Perspective



• Choose Your Partners Wisely
  –   Experience & Management & Commitment
  –   Performance History & References
  –   Key Staffing & Longevity
  –   Financial Stability & Security
  –   Are you a big fish in their pond?




              2008 Debt Management Conference, Orlando, FL
     The Metrics of Default Recovery
             Collection Agency Perspective



• Contract for Performance
  – Compensation Plan: critical to achieving
    maximum results
  – Incent the desired behavior
  – Eliminate administrative requirements and
    “due diligence”
  – Work as a team: mutual support




              2008 Debt Management Conference, Orlando, FL
      The Metrics of Default Recovery
                 Bringing It All Together


• Understanding each others goals + choosing
  partners wisely + creating and carrying out
  recovery plans + measuring success = greater
  benefits for all:
  – More borrowers ‘recovering’ from default
  – Higher recoveries for the Dept. of Education
  – Higher gross and net retention for guarantors
  – Fee income for collection agencies and portfolio
    managers
  – Quality rehabilitations for lenders


              2008 Debt Management Conference, Orlando, FL
            Thank you!
  Please be sure to complete your
conference evaluation forms after the
            conference!

Kevin Tharp - USA Funds
Don Taylor - Account Control Technology
Kris Lyon - Asset Performance Group




       2008 Debt Management Conference, Orlando, FL
                      The Metrics of Default Recovery
                                                    Industry Scorecard

• Dept. of Education Guaranty Agency Collection Rankings
                     1/31/2008                    12/31/2007                   11/30/2007                   10/31/2007                  9/30/2007
                                     Non-                         Non-                         Non-                         Non-                     Non-
 Guaranty          Gross     Consolidation      Gross     Consolidation      Gross     Consolidation      Gross     Consolidation      Gross Consolidation
 Agency         Resolution     Resolution    Resolution     Resolution    Resolution     Resolution    Resolution     Resolution    Resolution Resolution
 MAINE                   1               1            1               1            3               4            4               6            2           2
 ARKANSAS                2               2            2               2            2               1            2               2            1           1
 NELA (WA)               3               4            4               4            1               2            1               1            3           3
 USAF                    4               3            3               3            4               3            3               3            5           7
 KENTUCKY                5              23            8              29            9              30            7              30            4          15
 GEORGIA                 6              11            6              11            6               9            6              11            9          11
 PENNSYLVANIA            7              18            5              18            5              16            5              13            6          10
 NORTH DAKOTA            8              13           14              12           17              12           19              21            7          17
 MICHIGAN                9              16           11              16           11              17           15              12            8          16
 MISSOURI               10               5            9               6            7               5           11               5           10           4
 MONTANA                11              27           10              22            8              22           16              27           25          31
 COLORADO               12               6            7               5           12               6           13               9           33          30
 TEXAS                  13               9           12              10           10              10            9              10           12           6
 NEW YORK               14               7           13               7           13               7           12               7           24          20
 IOWA                   15              22           19              23           18              28            8              23           17          22
 RHODE ISLAND           16              19           16              15           14              14           18              24           11          14
 CONNECTICUT            17              12           17              13           15              11           17               8           20           8
 TENNESSEE              18              10           15               9           20              13           23              17           18           5
 ECMC II (VA)           19               8           18               8           16               8           14               4           27          24
 N. HAMPSHIRE           20              15           21              19           22              20           21              16           14          12
 CALIFORNIA             21              17           20              17           21              15           22              15           30          25
 FLORIDA                22              14           23              14           25              18           27              14           28          18
 NSLP (NEB)             23              20           25              21           24              19           31              19           13           9
 S. CAROLINA            24              33           22              33           19              29           10              26           15          29
 LOUISIANA              25              32           30              35           30              35           20              32           16          23
 EAC (SD)               26              29           26              28           27              34           26              34           19          21
 ASA (MASS)             27              21           24              20           23              21           28              28           22          13
 ILLINOIS               28              24           27              25           28              25           24              22           29          28
 OKLAHOMA               29              25           28              24           31              26           32              25           23          19
 VERMONT                30              28           31              31           26              23           35              35           32          34
 N. CAROLINA            31              34           29              32           29              32           25              31           21          32
 NEW MEXICO             32              30           33              27           33              27           29              18           31          33
 GREAT LAKES            33              26           32              26           32              24           30              20           34          27
 UTAH                   34              35           35              34           35              33           34              33           26          26
 NEW JERSEY             35              31           34              30           34              31           33              29           35          35




                                       2008 Debt Management Conference, Orlando, FL
                   The Metrics of Default Recovery
                                          Industry Scorecard Derivative

•   Est. retention per dollar of inventory based on FFY 2007 recoveries 1
                                      Retention Per $ of                                2007 Beginning                                   Estimated                          Decrease in Retention
      Agency                             Inventory2                                        Inventory                                     Retention                        Based on 08 Rate Changes3
      ARKANSAS                             10.3%                                                76,619,411                                   7,853,566                                      (435,685)
      MAINE                                10.1%                                                23,424,807                                   2,368,224                                      (134,763)
      NELA                                  9.6%                                               156,672,370                                  15,097,605                                      (836,150)
      USAF                                  8.3%                                             2,446,330,789                                 202,733,793                                   (11,764,589)
      MISSOURI                              8.0%                                               171,977,017                                  13,802,446                                      (850,010)
      PENNSYLVANIA                          7.7%                                             1,103,483,572                                  84,858,137                                    (6,927,086)
      KENTUCKY                              7.6%                                               147,841,475                                  11,238,343                                      (655,627)
      TEXAS                                 7.4%                                             1,120,108,920                                  83,205,530                                    (7,441,254)
      TENNESSEE                             7.4%                                               276,430,990                                  20,454,278                                    (1,056,896)
      NSLP (NEB)                            7.2%                                               222,796,064                                  15,987,054                                    (1,040,542)
      CONNECTICUT                           7.1%                                                91,343,186                                   6,513,654                                      (632,752)
      GEORGIA                               7.1%                                                99,644,708                                   7,067,454                                      (421,474)
      ASA (MASS)                            7.1%                                               764,370,012                                  54,045,642                                    (2,654,649)
      RHODE ISLAND                          6.9%                                                82,416,330                                   5,708,063                                      (379,927)
      N. HAMPSHIRE                          6.8%                                                37,722,942                                   2,549,635                                      (164,112)
      MICHIGAN                              6.6%                                               174,996,495                                  11,502,150                                    (1,172,526)
      NORTH DAKOTA                          6.5%                                                22,769,733                                   1,474,615                                      (154,561)
      IOWA                                  5.9%                                               119,712,501                                   7,084,921                                      (572,511)
      NEW YORK                              5.9%                                             1,607,813,090                                  94,259,280                                   (10,134,488)
      FLORIDA                               5.8%                                               516,085,838                                  30,043,184                                    (2,640,371)
      OKLAHOMA                              5.8%                                               222,030,999                                  12,786,343                                    (1,161,768)
      ECMC II (VA)                          5.4%                                               764,106,042                                  41,136,970                                    (2,346,016)
      CALIFORNIA                            5.1%                                             1,452,925,204                                  74,095,417                                    (7,879,829)
      S. CAROLINA                           5.0%                                                67,128,810                                   3,326,033                                      (384,586)
      COLORADO                              5.0%                                               264,095,608                                  13,078,494                                    (1,005,255)
      UTAH                                  4.9%                                                85,167,480                                   4,214,113                                      (574,922)
      GREAT LAKES                           4.9%                                               629,876,127                                  30,639,487                                    (1,704,827)
      LOUISIANA                             4.9%                                               113,644,969                                   5,516,705                                      (676,781)
      ILLINOIS                              4.9%                                               515,087,852                                  24,983,332                                    (2,455,173)
      EAC (SD)                              4.7%                                                66,955,265                                   3,145,204                                      (346,025)
      MONTANA                               4.5%                                                47,160,993                                   2,107,880                                      (227,086)
      VERMONT                               4.3%                                                51,003,628                                   2,170,123                                      (221,049)
      N. CAROLINA                           4.1%                                                47,057,910                                   1,935,584                                      (340,101)
      NEW MEXICO                            4.0%                                                36,979,403                                   1,487,174                                      (129,855)
      NEW JERSEY                            2.6%                                               432,157,147                                  11,264,864                                    (2,007,170)
        AVERAGE or TOTAL                    6.5%                                            14,057,937,688                                 909,735,295                                   (71,530,418)

                           1
                               Retention per $ of inventory is calculated as: (Recoveries x Corresponding Retention Rate) / Beginning Inventory.
                           2
                               Effective retention rate assumptions are as follows: Cash/AWG - 23.0%, Rehabilitation - 33.5%, Treasury Offset - 0.0%, Consolidations - 8.44%
                           3
                               This calculation reduces the retention earned on Cash/AWG to 16%.




                                  2008 Debt Management Conference, Orlando, FL

				
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