WASHINGTON -- Congressional negotiators have agreed to cap the government share of the student loan market at 60% in 1999, giving banks an opportunity to prove their contention that the direct lending program won't work.

The tentative agreement is a large step toward cutting banks, thrifts, and other lenders out of the student loan market altogether. However, it is still a major improvement over legislation that cleared the House this year.

In the House bill, the government share of the market would have gone to 100% in four years, with no mechanism to reevaluate the program. The compromise approved Friday calls for creation of a presidential commission to evaluate the program after its fifth year.

'An Opportunity to Complete'

"We're glad we've been able to maintain an opportunity to compete," said Joe Belew, president of the Consumer Bankers Association. "We continue to believe that direct lending is a bad idea, and with the commission, we have a chance to Prove it."

The conferees also agreed to a "risk-sharing" measure that would force banks to absorb 2% of loan losses. And they approved a separate provision that sets a 50-basis-point origination fee, paid by the lender, on new loans. A plan to impose a 5% transfer fee on loans sold . secondary market was dropped.

The action on student loans came as a Houge-Senate conference committee labored to finish work on President Clinton's huge deficit-reduction bill.

Among other decisions, the conferees agreed to permit a 14-year amortization of intangible assets, including acquired core deposits, a step banks have been urging for years.

The panel also agreed to a "carve-out," or exemption, for one sort of intangible, purchased mortgage servicing rights.

The agreement would allow financial institutions to amortize servicing rights over nine years, said Mike Ferrell, chief lobbyist for the Mortgage Bankers Association, which lobbied hard for the exemption.

Under current law, servicing rights are amortized over seven years, the accepted useful life of mortgage loans. While the nineyear amortization is less generous, it is better than the 14-year timetable for other intangibles.

Feeling of Uncertainty

But while those deals have tentatively been set, a separate decision to hold the gas tax to 4.5 cents a gallon could force congressional negotiators back to the table to find ways to meet the President's deficit-reduction goals.

"It creates the possibility that they will have to go back over everything and see if they can squeeze out more revenue," said Henry Reumpler, tax lobbyist for the American Bankers Association. "So I don't think anybody knows exactly where they stand."

The deal on purchased mortgage servicing rights could be particularly vulnerable, since Rep. Dan Rostenkowski, chairman of the House Ways and Means Committee, opposes it.

One item that was still undecided Friday had to do with the tax treatment of debt-to-stock conversions for bankrupt companies.

Current law does not tax the income that might be attributable to such transactions, since it helps companies stay in business. However, the conferees are considering whether to make the conversions taxable as a means of raising revenue.

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