Child Support Payment Corporation :::

CHILD SUPPORT Bonds A STIMULUS PACKAGE WITH Economic security For America’s children November 7, 2007

CHILD SUPPORT BOND PROPOSAL

EXECUTIVE SUMMARY

BACKGROUND

The Fiscal Year 2000 report from the Office of Family Support Enforcement stated that the total amount of child support arrearages in the United States is nearly $ 100 Billion. This consists of approximately $ 35 Billion dollars due to the State Governments and $ 35 Billion dollars due to the Federal Government for current and former assistance paid on the cases and $ 30 Billion due on cases that have never received assistance. There was nearly $7 Billion collected in the fiscal year 2000 on the child support arrearages. There are 10.7 million cases, with court ordered payments, for an average case of $7,850 . This information is supplied by the states on Form OCSE-157.

PROPOSAL

That the Federal Family Support Bond bill authorize the issuance of up to $100 Billion in Federally Insured Family Support Bonds. The bonds would be collateralized by the child support arrearages and the future income and collections on the arrearages would be assigned to the bondholders. The bonds would have terms of up to 30 years. There would be no cost to the Treasury to implement the program.

RATIONALE

The Federal Government receives up to $35 Billion to fund Federal programs.
The State Governments receive up to $35 Billion to fund State programs.
The individual needy families would receive up to $30 Billion dollars that will be spent to support their children and provide economic security.
The investors would receive an approximate yield of 7 % p.a on the Federally Insured Family Support Bonds, based on the year 2000 data reports.

This would create a portfolio of child support loans and case load similar in size to the existing “Sallie Mae” organization ( “Student Loans”). There are approximately 7 million cases and $ 70 Billion in loans in the Sallie Mae group of companies.

IMPLEMENTATION

The Family Support Payment Corporation, in cooperation with other public and private entities would assist in providing advisory services for the immediate implementation of the program.

Introduction

The system for payment of alimony and child support varies across the United States of America. The fifty states have different methods of payment and collections. This can create a strain on the financial, operations and court systems in each of the states. The present system can also place enormous emotional and financial strain on the relationships between parents and children.

The opportunity exists to create a solution to this problem that benefits all participants. It is a similar opportunity that existed in the 1980’s in the formation of the mortgage backed securities market and in the 1970’s in the formation of student loans. The rise of divorce, separation and the birth of children outside of marriage has become a reality that has grown in the last 20 years to affect nearly 50% of all American families.

The potential for the securitization of child support payments was identified in 2000 to be nearly USD $100 Billion dollars in back child support payments and USD $35 Billion dollars per year in current payments, affecting approximately 17 million cases. These were only child support cases, identified by court orders, whereby the court was ordered to accept payments and remit the proceeds. There are no statistics on the alimony payments and the amount of child support payments in the private system. If the child support payments are paid obligations for an average of 10 years, there is at least USD $300 Billion dollars available for securitization today that has been identified. There is estimated to be at least another USD $300 Billion available in the private sector for securitization.

The Family Support Payment Corporation (“FSPC”) Solution

Family Support Payment Corporation, (“FSPC”) a Delaware Corporation, has been recently formed to facilitate the proposal to various stakeholders. It is contracting with various states, legal, accounting, financial institutions and management information companies to implement the program .

It is proposed that a trust be formed and funded by the issuance of securities backed by past, present and future payments due to the beneficiaries in the system and up to 30 year US Treasury zero coupon notes for the face amount of the bonds.The funding commitment requirement would be up to $84 Billion for back child support payments. The securities being issued would be similar to “ Brady Bonds ” that were issued in the 1980’s for South American companies with potentially high default rates. It would be similar to the student loan program that would benefit 17 million American children.

It is proposed that these bonds would be initially issued by the individual states. They would then be purchased through the issuance of Federally Insured Family Support Bonds (“FICS”). The structure would be similar to the Federal Student Loan Marketing Corporation (“Sallie Mae”) that presently has approximately $70 Billion in loans for approximately 7 million accounts. The interest income could possibly be exempt from federal, state and local taxes and the loan interest possibly tax deductible to the obligor.

CHILD SUPPORT PAYMENT CORPORATION
A Public - Private Partnership

CHILD SUPPORT PAYMENT CORPORATION OF “ STATE A” Incorporated in “State A"

Objective
To provide funding for child support payments to parents.

Ownership
40% by the State
40% by Financial Institutions located/doing business in the State
20% by Public/Private Investors

Purpose

The corporation will establish a trust fund for the parents.
The corporation will fund the past welfare payments made by the State to the previous recipients and take the accrued obligations as collateral. The present default rates vary between the states with up to 50% default rates on present obligations.
The corporation will guarantee the future child support payments to the parent so that the State will not have to pay welfare for non-payment of child support.
The corporation will fund past child support payments for the parent and take the accrued obligations as collateral.
The corporation will guarantee the future child support payments to the parent.
The corporation will contract with the State and private entities for collection, enforcement and advisory services.
The corporation will fund the programs through the issuance of bonds that are collateralized by US Treasury Securities, past, present and future payment obligations and warrants or options in the 20% public/private ownership.

Programs

The programs would reflect many different repayment options to encourage a higher collection rate on past funds owed from welfare.

There could be future programs to repay over periods of up to thirty years to assist them with the financial costs of raising children.

BENEFITS ANALYSIS

FEDERAL
Repayment of outstanding arrearages

STATE
Repayment of outstanding arrearages
Continue to receive federal funds to improve collections and enforcements

FINANCIAL INSTITUTIONS
Funding opportunities to generate fees and underwriting income
Securities trading opportunities to generate profits

INVESTORS
Capital appreciation and possible future dividends
Opportunity for socially responsible investors, foundations and corporate sponsors

BONDHOLDERS
Principal guaranteed by US Treasury Securities, Interest possibly tax exempt
Variable Interest Rate of Return depending on collections and investments
Possible credit enhancement to guarantee minimum rate of return

OBLIGOR – 80% of the cases is the Father
Reduces the amount of annual payments by investing in Whole Life Insurance
Possible additional rebates and incentives to make payments to the trust
Possible tax deduction for interest on the child support loan

OBLIGEE – 80 % of cases is the Mother
Receives payment for past due child support
Receives guarantee for future payment of child support obligations

FEDERAL CHILD SUPPORT PAYMENT CORPORATION
A Government Sponsored Enterprise

Objective
To originate and purchase child support loans and obligations

Ownership
A Federally Chartered Stockholder Owned Corporation

Purpose

The corporation will purchase child support bonds from the individual state child support payment corporations.
The corporation will issue Federally Insured Family Support Bonds to fund the program that are securitized by a diversified portfolio of the individual state child support bonds and US Treasury Zero Coupon Securities.
The corporation will receive a revolving line of credit from the Federal Reserve Bank to initiate and continue to fund the program.

Benefits
The program provides an economic stimulus through the payment of a lump sum to the states and other recipients of the back child support obligations.

In the event of an economic downturn, the program provides a financial safety net to the 17 million children affected by child support payments

Conclusion
The objective is to have one or more states introduce the program in consultation with the appropriate federal government departments to be funded by the issuance of Federally Insured Family Support Bonds.

The Federal Family Support Corporation would issue bonds to pay up to $ 100 Billion Dollars in back child support payments. The payments would be up to approximately $35 Billion to the Federal Government, up to $35 Billion to the states and up to $35 Billion to America’s children to provide economic security.

It would then issue bonds on an annual basis to guarantee future payments. The Federal and State governments would no longer be required to make welfare payments for non- payment of child support. The portfolio would be similar in size to the present federal student loan (“Sallie Mae”) portfolio of $70 Billion dollars.

The FSPC Solution provides an opportunity for all interested parties to conservatively benefit from the program while providing a compassionate process for the beneficiaries and the contributors to the trust. The system is designed to make non-paying spouses contributing members to the trust, while providing benefits to the spouses and children.

The opportunity now exists to focus on the positive aspects of parenting. The opportunity to implement parenting programs that highlight the positive aspects of parenting responsibility. The ability to contribute to your child’s development without changing your present spending habits. It is evident from The Million Man March to the Promise Keepers that there is a strong desire to become responsible parents.

The objective is to maintain compliance with the use of strong enforcement and obtain additional compliance from positive reinforcement. If this is achieved during the period of this program then the FSPC Solution presents a success rate that exceeds any other solution and deserves to be implemented as soon as possible.

THIS PROPOSAL IS THE PROPERTY OF CHILD SUPPORT PAYMENT CORPORATION AND CONTAINS CONFIDENTIAL AND PROPRIETARY INFORMATION. THIS PROPOSAL CAN NOT BE REPRODUCED WITHOUT THE WRITTEN PERMISSION OF CHILD SUPPORT PAYMENT CORPORATION OR ITS REPRESENTATIVES. ANY RECIPIENT OF THIS PROPOSAL AGREES TO BE BOUND BY THE CONFIDENTIALITY OF THE PROPOSAL. ALL RIGHTS ARE RESERVED.