prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: The Federal Housing Administration (FHA) is an agency of the Department of Housing and Urban Development (HUD) that insures private mortgage lenders against the possibility of borrowers defaulting on certain mortgage loans  If a mortgage borrower defaults on a mortgage—that is, does not repay the mortgage as promised—and the home goes to foreclosure, FHA is to pay the lender the remaining amount that the borrower owes  FHA insurance protects the lender, rather than the borrower, in the event of borrower default; a borrower who defaults on an FHA-insured mortgage will still experience the consequences of foreclosure  To be eligible for FHA insurance, the mortgage must be originated by a lender that has been approved by FHA, and the mortgage and the borrower must meet certain criteria  FHA is one of three government agencies that provide insurance or guarantees on certain home mortgages made by private lenders, along with the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA)  Of these federal mortgage insurance programs, FHA is the most broadly targeted  Unlike VA- and USDA-insured mortgages, the availability of FHA-insured mortgages is not limited by factors such as veteran status, income, or whether the property is located in a rural area  However, the availability or attractiveness of FHA-insured mortgages may be limited by other factors, such as the maximum mortgage amount that FHA will insure, the fees that it charges for insurance, and its eligibility standards  This report provides background on FHA's history and market role and an overview of the basic eligibility and underwriting criteria for FHA-insured home loans  It also provides data on the number and dollar volume of mortgages that FHA insures, along with data on FHA's market share in recent years  It does not go into detail on the financial status of the FHA mortgage insurance fund  For information on FHA's financial position, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund)   The Federal Housing Administration was created by the National Housing Act of 1934, during the Great Depression, to encourage lending for housing and to stimulate the construction industry  Prior to the creation of FHA, few mortgages exceeded 50% of the property's value and most mortgages were written for terms of five years or less  Furthermore, mortgages were typically not structured to be fully repaid by the end of the loan term; rather, at the end of the five-year term, the remaining loan balance had to be paid in a lump sum or the mortgage had to be renegotiated  During the Great Depression, lenders were unable or unwilling to refinance many of the loans that became due  Thus, many borrowers lost their homes through foreclosure, and lenders lost money because property values were falling  Lenders became wary of the mortgage market  FHA institutionalized a new idea: 20-year mortgages on which the loan would be completely repaid at the end of the loan term  If borrowers defaulted, FHA insured that the lender would be fully repaid  By standardizing mortgage instruments and setting certain standards for mortgages, the creation of FHA was meant to instill confidence in the mortgage market and, in turn, help to stimulate investment in housing and the overall economy  Eventually, lenders began to make long-term mortgages without FHA insurance if borrowers made significant down payments  Over time, 15- and 30-year mortgages have become standard mortgage products  When the Department of Housing and Urban Development (HUD) was created in 1965, FHA became part of HUD  Today, FHA is intended to facilitate access to affordable mortgages for some households who otherwise might not be well-served by the private market  Furthermore, it facilitates access to mortgages during economic or mortgage market downturns by continuing to insure mortgages when the availability of mortgage credit has otherwise tightened  For this reason, it is said to play a "countercyclical" role in the mortgage market—that is, it tends to insure more mortgages when the mortgage market or overall economy is weak, and fewer mortgages when the economy is strong and other types of mortgages are more readily available  Some prospective homebuyers may have the income to sustain monthly mortgage payments but lack the funds to make a large down payment or otherwise have difficulty obtaining a mortgage  Borrowers with small down payments, weaker credit histories, or other characteristics that increase their credit risk might find it difficult to obtain a mortgage at an affordable interest rate or to qualify for a mortgage at all  This has raised a policy concern that some borrowers with the income to repay a mortgage might be unable to obtain affordable mortgages  FHA mortgage insurance is intended to make lenders more willing to offer affordable mortgages to these borrowers by insuring the lender against the possibility of borrower default  FHA-insured loans have lower down payment requirements than most conventional mortgages  (Conventional mortgages are mortgages that are not insured by FHA or guaranteed by another government agency, such as VA or USDA  ) Because saving for a down payment is often the biggest barrier to homeownership for first-time homebuyers and lower- or moderate-income homebuyers, the smaller down payment requirement for FHA-insured loans may allow some households to obtain a mortgage earlier than they otherwise could  (Borrowers with down payments of less than 20% could also obtain non-FHA mortgages with private mortgage insurance  See the nearby text box on "FHA and Private Mortgage Insurance ") FHA-insured mortgages also have less stringent requirements related to credit history than many conventional loans  This might make FHA-insured mortgages attractive to borrowers without traditional credit histories or with weaker credit histories, who would either find it difficult to take out a mortgage absent FHA insurance or may find it more expensive to do so  FHA-insured mortgages play a particularly large role for first-time homebuyers, low- and moderate-income households, and minorities  For example, 83% of FHA-insured mortgages made to purchase a home (rather than to refinance an existing mortgage) in FY2018 were obtained by first-time homebuyers  Over one-third of all FHA loans (both purchase and refinance loans) were obtained by minority households, and FHA-insured mortgages accounted for about 57% of all forward mortgages made to low- or moderate-income borrowers during the year  Since FHA-insured mortgages are often obtained by borrowers who cannot make large down payments or those with weaker credit histories, some have questioned whether FHA-insured mortgages are similar to subprime mortgages  Like subprime mortgages, FHA-insured mortgages are often obtained by borrowers with lower credit scores, though some borrowers with higher credit scores also obtain FHA-insured mortgages  However, FHA-insured mortgages are prohibited from carrying the full range of features that many subprime mortgages could carry  For example, FHA-insured loans must be fully documented, and they cannot include features such as negative amortization  (FHA mortgages can include adjustable interest rates ) Some of these types of features appear to have contributed to high default and foreclosure rates on subprime mortgages  Nevertheless, some have suggested that FHA-insured mortgages are too risky, and that they can harm borrowers by providing mortgages that often have a higher likelihood of default than other mortgages due to combinations of risk factors such as low down payments and lower credit scores  Traditionally, FHA plays a countercyclical role in the mortgage market, meaning that it tends to insure more mortgages when mortgage credit markets are tight and fewer mortgages when mortgage credit is more widely available  A major reason for this is that FHA continues to insure mortgages that meet its standards even during market downturns or in regions experiencing economic turmoil  When the economy is weak and lenders and private mortgage insurers tighten credit standards and reduce lending activity, FHA-insured mortgages may be the only mortgages available to some borrowers, or may have more favorable terms than mortgages that lenders are willing to make without FHA insurance  When the economy is strong and mortgage credit is more widely available, many borrowers may find it easier to qualify for affordable conventional mortgages  This section briefly describes some of the major features of FHA-insured mortgages for purchasing or refinancing a single-family home  Single-family homes are defined as properties with one to four separate dwelling units  FHA-insured loans are available to borrowers who intend to be owner-occupants and who can demonstrate the ability to repay the loan according to the terms of the contract  FHA-insured loans must be underwritten in accordance with accepted practices of prudent lending institutions and FHA requirements  Lenders must examine factors such as the applicant's credit, financial status, monthly shelter expenses, funds required for closing expenses, effective monthly income, and debts and obligations  In general, individuals who have previously been subject to a mortgage foreclosure are not eligible for FHA-insured loans for at least three years after the foreclosure  As a general rule, the applicant's prospective mortgage payment should not exceed 31% of gross effective monthly income  The applicant's total obligations, including the proposed housing expenses, should not exceed 43% of gross effective monthly income  If these ratios are not met, the borrower may be able to present the presence of certain compensating factors, such as cash reserves, in order to qualify for an FHA-insured loan  Since October 4, 2010, FHA has required a minimum credit score of 500, and has required higher down payments from borrowers with credit scores below 580 than from borrowers with credit scores above that threshold  See the " Down Payment " section for more information on down payment requirements for FHA-insured loans  In general, borrowers must intend to occupy the property as a principal residence  FHA-insured loans may be used to purchase one-family detached homes, townhomes, rowhouses, two- to four-unit buildings, manufactured homes and lots, and condominiums in developments approved by FHA  FHA-insured loans may also be obtained to build a home; to repair, alter, or improve a home; to refinance an existing home loan; to simultaneously purchase and improve a home; or to make certain energy efficiency or weatherization improvements in conjunction with a home purchase or mortgage refinance  FHA-insured mortgages may be obtained with loan terms of up to 30 years  The interest rate on an FHA-insured loan is negotiated between the borrower and lender  The borrower has the option of selecting a loan with an interest rate that is fixed for the life of the loan or one on which the rate may be adjusted annually  FHA requires a lower down payment than many other types of mortgages  Under changes made by the Housing and Economic Recovery Act of 2008 (HERA, P L  110-289 ), borrowers are required to contribute at least 3 5% in cash or its equivalent to the cost of acquiring a property with an FHA-insured mortgage  (Prior law had required borrowers to contribute at least 3% in cash or its equivalent ) Prohibited sources of the required funds include the home seller, any entity that financially benefits from the transaction, and any third party that is directly or indirectly reimbursed by the seller or by anyone that would financially benefit from the transaction  HUD has interpreted the 3 5% cash contribution as a down payment requirement and has specified that contributions toward closing costs cannot be counted toward it  Since October 4, 2010, FHA has required a 10% down payment from borrowers with credit scores between 500 and 579, while borrowers with credit scores of 580 or above are still required to make a down payment of at least 3 5%  FHA no longer insures loans made to borrowers with credit scores below 500  There is no income limit for borrowers seeking FHA-insured loans  However, FHA-insured mortgages cannot exceed a maximum mortgage amount set by law  The maximum mortgage amounts allowed for FHA-insured loans vary by area, based on a percentage of area median home prices  Different limits are in effect for one-unit, two-unit, three-unit, and four-unit properties  The limits are subject to a statutory floor and ceiling; that is, the maximum mortgage amount that FHA will insure in a given area cannot be lower than the floor, nor can it be higher than the ceiling  In 2008, Congress temporarily increased the maximum mortgage amounts in response to turmoil in the housing and mortgage markets, with the intention of allowing more households to qualify for FHA-insured mortgages during a period of tighter credit availability  New permanent maximum mortgage amounts were later established by the Housing and Economic Recovery Act of 2008  The maximum mortgage amounts established by HERA were higher than the previous permanent limits, but in many cases lower than the temporarily increased limits  However, the higher temporary limits were extended for several years, until they expired at the end of calendar year 2013  Since January 1, 2014, the maximum mortgage amounts have been set at the permanent HERA levels  For a one-unit home, HERA established the maximum mortgage amounts at 115% of area median home prices, with a floor set at 65% of the Freddie Mac conforming loan limit and a ceiling set at 150% of the Freddie Mac conforming loan limit  For calendar year 2019, the floor is $314,827 and the ceiling is $726,525  (That is, FHA will insure mortgages with principal balances up to $314,827 in all areas of the country  In higher-cost areas, it will insure mortgages with principal balances up to 115% of the area median home price, up to a cap of $726,525 in the highest-cost areas ) These maximum mortgage amounts, and the maximum mortgage amounts for 2-4 unit homes, are shown in Table 1   Borrowers of FHA-insured loans pay an up-front mortgage insurance premium (MIP) and annual mortgage insurance premiums in exchange for FHA insurance  These premiums are set as a percentage of the loan amount  The maximum amounts that FHA is allowed to charge for the annual and the upfront premiums are set in statute  However, since these are maximum amounts, HUD has the discretion to set the premiums at lower levels  The maximum up-front premium that FHA may charge is 3% of the mortgage amount, or 2 75% of the mortgage amount for a first-time homebuyer who has received homeownership counseling  Currently, FHA is charging the same up-front premiums to first-time homebuyers who receive homeownership counseling and all other borrowers  Since April 9, 2012, HUD has set the up-front premium at 1 75% of the loan amount, whether or not the borrower is a first-time homebuyer who received homeownership counseling  This premium applies to most single-family mortgages  The amount of the maximum annual premium varies based on the loan's initial loan-to-value ratio  For most loans, (1) if the loan-to-value ratio is above 95%, the maximum annual premium is 1 55% of the loan balance, and (2) if the loan-to-value ratio is 95% or below, the maximum annual premium is 1 5% of the loan balance  FHA increased the actual annual premiums that it charges several times in recent years in order to bring more money into the FHA insurance fund and ensure that it has sufficient funds to pay for defaulted loans  However, in January 2015, FHA announced a decrease in the annual premium for most single-family loans  For most FHA case numbers assigned on or after January 26, 2015, the annual premiums are 0 85% of the outstanding loan balance if the initial loan-to-value ratio is above 95% and 0 80% of the outstanding loan balance if the initial loan-to-value ratio is 95% or below  This is a decrease from 1 35% and 1 30%, respectively, which is what FHA had been charging from April 1, 2013, until January 26, 2015  These premiums apply to most single-family mortgages; FHA charges different annual premiums in certain circumstances, including for loans with shorter loan terms or higher principal balances  Table 2 shows the up-front and annual mortgage insurance premiums that have been in effect for most loans since January 26, 2015  In the past, if borrowers prepaid their loans, they may have been due refunds of part of the up-front insurance premium that was not "earned" by FHA  The refund amount depended on when the mortgage closed and declined as the loan matured  The Consolidated Appropriations Act 2005 ( P L  108-447 ) amended the National Housing Act to provide that, for mortgages insured on or after December 8, 2004, borrowers are not eligible for refunds of up-front mortgage insurance premiums except when borrowers are refinancing existing FHA-insured loans with new FHA-insured loans  After three years, the entire up-front insurance premium paid by borrowers who refinance existing FHA-insured loans with new FHA-insured loans is considered "earned" by FHA, and these borrowers are not eligible for any refunds  The annual mortgage insurance premiums are not refundable  However, beginning with loans closed on or after January 1, 2001, FHA had followed a policy of automatically cancelling the annual mortgage insurance premium when, based on the initial amortization schedule, the loan balance reached 78% of the initial property value  However, for loans with FHA case numbers assigned on or after June 3, 2013, FHA will continue to charge the annual mortgage insurance premium for the life of the loan for most mortgages  This change responded to concerns about the financial status of the FHA insurance fund  FHA has stated that, since it continues to insure the entire remaining mortgage amount for the life of the loan, and since premiums were cancelled on the basis of the loan amortizing to a percentage of the initial property value rather than the current value of the home, FHA has at times had to pay insurance claims on defaulted mortgages where the borrowers were no longer paying annual mortgage insurance premiums  An FHA-insured mortgage is considered delinquent any time a payment is due and not paid  Once the borrower is 30 days late in making a payment, the mortgage is considered to be in default  In general, mortgage servicers may initiate foreclosure on an FHA-insured loan when three monthly installments are due and unpaid, and they must initiate foreclosure when six monthly installments are due and unpaid, except when prohibited by law  A program of loss mitigation strategies was authorized by Congress in 1996 to minimize the number of FHA loans entering foreclosure, and has since been revised and expanded to include additional loss mitigation options  Prior to initiating foreclosure, mortgage servicers must attempt to make contact with borrowers and evaluate whether they qualify for any of these loss mitigation options  The options must be considered in a specific order, and specific eligibility criteria apply to each option  Some loss mitigation options, referred to as home retention options, are intended to help borrowers remain in their homes  Other loss mitigation options, referred to as home disposition options, will result in the borrower losing his or her home, but avoiding some of the costs of foreclosure  The loss mitigation options that servicers are instructed to pursue on FHA-insured loans are summarized in Table 3   Additional loss mitigation options are available for certain populations of borrowers  For example, defaulted borrowers in military service may be eligible to suspend the principal portion of monthly payments and pay only interest for the period of military service, plus three months  On resumption of payment, loan payments are adjusted so that the loan will be paid in full according to the original amortization  Certain loss mitigation options are also available in areas affected by presidentially declared major disasters  FHA's single-family mortgage insurance program is funded through FHA's Mutual Mortgage Insurance Fund (MMI Fund)  Cash flows into the MMI Fund primarily from insurance premiums and proceeds from the sale of foreclosed homes  Cash flows out of the MMI Fund primarily to pay claims to lenders for mortgages that have defaulted  This section provides a brief overview of (1) how the FHA-insured mortgages insured under the MMI Fund are accounted for in the federal budget and (2) the MMI Fund's compliance with a statutory capital ratio requirement  For more detailed information on the financial status of the MMI Fund, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund)   The Federal Credit Reform Act of 1990 (FCRA) specifies the way in which the costs of federal loan guarantees, including FHA-insured loans, are recorded in the federal budget  The FCRA requires that the estimated lifetime cost of guaranteed loans (in net present value terms) be recorded in the federal budget in the year that the loans are insured  When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in more money coming into the account than flowing out of it, the program is said to generate negative credit subsidy  When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in less money coming into the account than flowing out of it, the program is said to generate positive credit subsidy  Programs that generate negative credit subsidy result in offsetting receipts for the federal government, while programs that generate positive credit subsidy require an appropriation to cover the cost of new loan guarantees  The MMI Fund has historically been estimated to generate negative credit subsidy in the year that the loans are insured and therefore has not required appropriations to cover the expected costs of loans to be insured  The MMI Fund does receive appropriations to cover salaries and administrative contract expenses  The amount of money that loans insured in a given year actually earn for or cost the government over the course of their lifetime is likely to be different from the original credit subsidy estimates  Therefore, each year as part of the annual budget process, each prior year's credit subsidy rates are re-estimated based on the actual performance of the loans and other factors, such as updated economic projections  These re-estimates affect the way in which funds are held in the MMI Fund's two primary accounts: the Financing Account and the Capital Reserve Account  The Financing Account holds funds to cover  expected  future costs of FHA-insured loans  The Capital Reserve Account holds additional funds to cover any additional unexpected future costs  Funds are transferred between the two accounts each year on the basis of the re-estimated credit subsidy rates to ensure that enough is held in the Financing Account to cover updated projections of expected costs of insured loans   If FHA ever needs to transfer more funds to the Financing Account than it has in the Capital Reserve Account, it can receive funds from Treasury to make this transfer under existing authority and without any additional congressional action  This occurred for the first time at the end of FY2013, when FHA received $1 7 billion from Treasury to make a required transfer of funds between the accounts  The funds that FHA received from Treasury did not need to be spent immediately, but were to be held in the Financing Account and used to pay insurance claims, if necessary, only after the remaining funds in the Financing Account were spent  The MMI Fund has not needed any additional funds from Treasury to make required transfers of funds between the two accounts since that time  The MMI Fund is also required by statute to maintain a capital ratio of at least 2%, which is intended to ensure that the fund is able to withstand some increases in the costs of loans guaranteed under the insurance fund  The capital ratio measures the amount of funds that the MMI Fund currently has on hand, plus the net present value of the expected future cash flows associated with the mortgages that FHA currently insures (e g , the amounts it expects to earn through premiums and lose through claims paid)  It then expresses this amount as a percentage of the total dollar volume of mortgages that FHA currently insures  In other words, the capital ratio is a measure of the amount of funds that would remain in the MMI Fund after all expected future cash flows on the loans that it currently insures have been realized, assuming that FHA did not insure any more loans going forward  Beginning in FY2009, and for several years thereafter, the capital ratio was estimated to be below this mandated 2% level  The capital ratio again exceeded the 2% threshold in FY2015, when it was estimated to be 2 07%  This represented an improvement from an estimated capital ratio of 0 41% at the end of FY2014, and from negative estimated capital ratios at the ends of FY2013 and FY2012  The capital ratio has remained above 2% since that time, and was estimated to be 2 76% in FY2018  A low or negative capital ratio does not in itself trigger any special assistance from Treasury, but it raises concerns that FHA could need assistance in order to continue to hold enough funds in the Financing Account to cover expected future losses  In the years since the housing market turmoil that began around 2007, FHA has taken a number of steps designed to strengthen the insurance fund  These steps have included increasing the mortgage insurance premiums charged to borrowers; strengthening underwriting requirements, such as by instituting higher down payment requirements for borrowers with the lowest credit scores; and increasing oversight of FHA-approved lenders  The number of new mortgages insured by FHA in a given year depends on a variety of factors  In general, the number of new mortgages insured by FHA increased during the housing market turmoil (and resulting contraction of mortgage credit) that began around 2007, reaching a peak of 1 8 million mortgages in FY2009 before beginning to decrease somewhat  FY2014 was the only year since FY2007 that FHA insured fewer than 1 million new mortgages  As shown in Table 4 , FHA insured just over 1 million new single-family purchase and refinance mortgages in FY2018  Together, these mortgages had an initial loan balance of $209 billion  About 77% (776,284) of the mortgages were for home purchases, while about 23% (238,325) were for refinancing an existing mortgage  The overall number of mortgages insured by FHA in FY2018 represented a decrease from FY2017, when it insured 1 25 million mortgages  Many FHA-insured mortgages are obtained by first-time homebuyers, lower-and moderate-income homebuyers, and minority homebuyers  Of the home purchase mortgages insured by FHA in FY2018, about 83% were made to first-time homebuyers  Over a third of all mortgages (both for home purchases and refinances) insured by FHA in FY2018 were made to minority borrowers  As shown in Table 5 , at the end of FY2018 FHA was insuring a total of over 8 million single-family loans that together had an outstanding balance of nearly $1 2 trillion  Since it was first established in 1934, FHA has insured a total of over 47 5 million home loans  FHA's share of the mortgage market is the amount of mortgages that are insured by FHA compared to the total amount of mortgages originated or outstanding in a given time period  FHA's market share can be measured in a number of different ways  Therefore, when evaluating FHA's market share, it is important to recognize which of several different figures is being reported  First, FHA's share of the mortgage market can be computed as the number of FHA-insured mortgages divided by the total number of mortgages, or as the dollar volume of FHA-insured mortgages divided by the total dollar volume of mortgages  Furthermore, FHA's market share is sometimes reported as a share of all mortgages , and sometimes only as a share of home purchase mortgages (as opposed to both mortgages made to purchase a home and mortgages made to refinance an existing mortgage)  A market share figure can be reported as a share of all mortgages originated within a specific time period , such as a given year, or as a share of all mortgages outstanding at a point in time , regardless of when they were originated  Finally, FHA's market share is sometimes also reported as a share of the total number of mortgages that have some kind of mortgage insurance (including mortgages with private mortgage insurance and mortgages insured by another government agency) rather than as a share of all mortgages regardless of whether or not they have mortgage insurance  FHA's market share tends to fluctuate in response to economic conditions and other factors  Between calendar years 1996 and 2002, FHA's market share averaged about 14% of the home purchase mortgage market and about 11% of the overall mortgage market (both home purchase mortgages and refinance mortgages), as measured by number of mortgages  However, by 2005 FHA's market share had fallen to less than 5% of home-purchase mortgages and about 3% of the overall mortgage market  Subsequently, as economic conditions worsened and mortgage credit tightened in response to housing market turmoil that began around 2007, FHA's market share rose sharply, peaking at over 30% of home-purchase mortgages in 2009 and 2010, and over 20% of all mortgages (including both home purchases and refinances) in 2009  In 2017, FHA insured 19 5% of new home purchase mortgages and about 16 7% of new mortgages overall, a small decrease compared to its market share in 2016  Figure 1 shows FHA's market share as a percentage of the total number of new mortgages originated for each calendar year between 1996 and 2017  As described, FHA's market share can be measured in a number of different ways  The figure shows FHA's share of (1) all newly originated mortgages, (2) just newly originated purchase mortgages, and (3) just newly originated refinance mortgages  FHA's share of home purchase mortgages tends to be the highest, largely because borrowers who refinance are more likely to have built up a greater amount of equity in their homes and, therefore, might be more likely to obtain conventional mortgages  For the number of mortgages insured by FHA in each year calendar since 1996, see the Appendix   The increase in FHA's market share after 2007 was due to a variety of factors related to the housing market turmoil and broader economic instability that was taking place at the time  Housing and economic conditions led many banks to limit their lending activities, including lending for mortgages  Similarly, private mortgage insurance companies, facing steep losses from past mortgages, began tightening the underwriting criteria for mortgages that they would insure  Furthermore, in 2008 Congress increased the maximum mortgage amounts that FHA can insure, which may have made FHA-insured mortgages a more viable option for some borrowers in certain areas  More recently, FHA's market share has decreased somewhat from its peak during the housing market turmoil, although it generally remains somewhat higher than it was in the late 1990s and early 2000s  A number of factors may have contributed to this decrease, including lower loan limits in some high-cost areas, higher mortgage insurance premiums, and greater availability of non-FHA-insured mortgages  While not the focus of this report, the appropriate market share for FHA has been a subject of ongoing debate among policymakers  It is likely to continue to be a topic of debate, both in the context of policies specifically related to FHA as well as part of broader debate about the future of the U S  housing finance system  Table A-1 provides data on the number of mortgages insured by FHA in each calendar year since 1996, along with FHA's overall market share in each calendar year 


Report 2:  FSA staff from all four of our selected regional offices told us that they provisionally certify schools for a variety of reasons, including when a school submits a late compliance audit or when a recent compliance audit indicates that a school could potentially have significant problems  Generally, schools in provisional certification status are subject to additional monitoring by FSA compared to schools that have been fully certified  For example, Education officials said that if they have concerns about a provisionally certified school’s student withdrawal rate, they can add provisional conditions requiring the school to submit monthly enrollment rosters for review  Staff in two FSA regional offices told us that in other cases, if they have concerns about how a school is administering federal student aid or suspected fraud, they can put a school on provisional status and conduct a program review to collect more detailed information on compliance with federal requirements  Education data also show that most schools remain in provisional status the first time they are recertified—62 percent from 2006 to 2017  In contrast, FSA staff fully recertified over three-quarters of schools that applied for recertification a second time during the same time period (see table 2)  For more information on first and second recertification outcomes by school sector, see appendix II  We found that FSA generally relies on compliance audits as the only annual on-site review to determine how schools applying for recertification administer federal student aid  The audits provide direct information collected by independent auditors from school visits and file reviews examining how schools administer federal student aid and comply with program requirements  For example, OIG audit guidance directs auditors to check whether schools are distributing federal student aid to eligible students and accurately calculating student loan amounts  FSA officials and staff from all four of our selected regional offices said that compliance audits are a key source of information they use to assess a school’s administrative capability  Officials from Education’s OIG said that the quality of information in compliance audits varies substantially and depends on the auditor  The OIG has found quality problems in some of the compliance audits it selects—based on auditor and school risk factors—for its annual quality control reviews  Because the OIG selects higher risk audits to review, its reviews are more likely to detect problems, and OIG officials said they cannot make any conclusions about the overall prevalence of quality problems in compliance audits  However, our analysis of OIG quality review data found that of the 739 compliance audits reviewed by the OIG from fiscal years 2006 through 2017, the OIG passed 23 percent (173) and failed 59 percent (436)  An additional 18 percent (130) passed with deficiencies  For example, across the 41 compliance audits it reviewed in fiscal year 2016, the OIG identified 264 quality deficiencies with the auditor’s work, according to our analysis of quality reviews provided by the OIG  The most frequently cited issues in these 41 audits were: reporting (24 audits), such as lack of evidence that the auditor tested whether the school correctly reported student enrollment status; student eligibility (20 audits), such as lack of evidence that the auditor verified student school attendance; and administrative capability (19 audits), such as lack of evidence that the auditor determined whether the accreditor had been notified about a change in school ownership within 10 days  FSA officials also identified quality issues with the compliance audits of some schools  FSA headquarters officials and staff we interviewed in several regional offices said they have seen schools with significant program review findings that had not been identified in annual compliance audits  FSA staff said they have referred some compliance audits to the OIG for quality reviews when they have had questions about the thoroughness of an audit  We also found a couple of examples in our review of school certification documents in which the findings identified in a school’s compliance audit were different from the findings identified by FSA in a program review of the same school covering the same time period  In one case, FSA staff said they probably would have fully recertified the school if they had relied solely on the compliance audit  Instead, they used the program review to determine that the school should be provisionally recertified  Compliance audits and program review findings are based on a sample of student records, and FSA staff said some differences in findings might be explained by differences in the records reviewed  FSA and OIG officials cited several issues that can affect the quality of compliance audits  FSA and OIG officials we interviewed said that some auditors conducting compliance audits have insufficient training in federal student aid, which contributes to audit quality problems  OIG staff also said that even if an auditor meets the general training hour requirements for auditors, the training content may not be relevant for federal student aid audits  In addition, FSA and OIG officials said some schools— particularly smaller schools—tend to hire less experienced auditors in order to save money, often resulting in poor quality audits  FSA officials in most selected regional offices said that additional training on federal student aid for auditors who are new to or unfamiliar with federal student aid could help improve audit quality  FSA and the OIG recently have taken steps to address audit quality and the information available to FSA staff when making certification decisions  These efforts include: Training for auditors: The OIG has taken steps to enhance training offered to auditors of schools’ administration of federal student aid and is exploring opportunities to provide additional training  In December 2017, the OIG and the American Institute of Certified Public Accountants cosponsored training for auditors on the OIG’s 2016 revised guide for audits of for-profit schools, and other topics related to auditing federal student aid  The training included discussion of common audit quality issues and areas of highest risk  According to an OIG official, about 200 auditors attended, and after the event, the American Institute of Certified Public Accountants and the OIG posted a recording of the training to their websites to make it available to additional auditors  In addition, OIG officials said they maintain an email account—listed on the OIG website—through which auditors can ask questions and receive responses  In March 2018, the OIG posted frequently asked questions and answers to the website  Timeliness of OIG quality reviews: Both FSA and OIG officials said that the OIG has recently renewed efforts to issue compliance audit quality reviews more quickly, after several years in which staffing shortages and other issues led to some delayed quality reviews  Guidance to schools on selecting an auditor: OIG officials said that at the 2017 FSA training conference for school financial aid staff, they presented to more than 400 participants about factors schools should consider when hiring an auditor  For example, they suggested that schools verify the licenses of certified public accountants, ask about the types of engagements an auditing firm has conducted, request and check references, check for any actions that may have been taken against a firm, and ask whether the auditor has been subject to a previous review by the OIG or another agency  FSA officials said they expected to invite the OIG to present at future FSA conferences, and OIG officials said they were seeking additional opportunities to share information on auditor selection with schools, including a planned presentation to an association of postsecondary schools  FSA working group: FSA recently established a working group to update its guidance to FSA staff on how to coordinate with the OIG to address compliance audits with quality problems  Among other topics, the working group has consulted with the OIG about how schools are made aware of the OIG’s findings regarding the quality of their audits  FSA officials said that OIG officials have provided input and feedback on FSA’s proposed changes to the guidance  Audit guide revisions: In addition, OIG and FSA staff told us they expected the OIG’s 2016 revisions to the for-profit school audit guide to improve the quality of compliance audits for those schools  They said that because the revised guide clarified some issues that were confusing to auditors in the previous guide issued in 2000, auditors might be better able to implement the guidance  The audit guide revisions include more testing and reporting requirements, clarified procedures, and guidance on issues such as fraud reporting and coordinating financial and compliance audits  The 2016 revisions first applied to audits for fiscal years beginning after June 30, 2016, and FSA began receiving those audits at the end of 2017  In addition, although the OIG’s 2016 revisions only apply to audits of for-profit schools, FSA officials said they planned to establish a working group to consider improvements to audit guidance for public and nonprofit schools  FSA and OIG efforts to address audit quality could help ensure that compliance audits provide accurate and reliable information on school administrative capability for Education’s recertification decisions  We provided a draft of this report to Education for review and comment  Education’s Office of Inspector General provided technical comments, which we considered and incorporated as appropriate  Education did not provide other comments on the report  We are sending copies of this report to the appropriate congressional committees; the Secretary of Education; and other interested parties  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (617) 788-0534 or emreyarrasm@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix III  In addition to the contact named above, Michelle St  Pierre (Assistant Director), Kristy Kennedy (Analyst-in-Charge), Edward Bodine, Marissa Jones, and Mark Ward made significant contributions  Also contributing to this report were Susan Aschoff, Deborah Bland, Nagla’a El-Hodiri, Monika Gomez, Sheila R  McCoy, Jessica Orr, Mimi Nguyen, John Mingus, Rhiannon Patterson, Monica Savoy, Benjamin Sinoff, and Rosemary Torres Lerma 

ground_truth: The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), was created by the National Housing Act of 1934. FHA insures private lenders against the possibility of borrowers defaulting on mortgages that meet certain criteria, thereby expanding the availability of mortgage credit beyond what may be available otherwise. If the borrower defaults on the mortgage, FHA is to repay the lender the remaining amount owed. A household that obtains an FHA-insured mortgage must meet FHA's eligibility and underwriting standards, including showing that it has sufficient income to repay a mortgage. FHA requires a minimum down payment of 3.5% from most borrowers, which is lower than the down payment required for many other types of mortgages. FHA-insured mortgages cannot exceed a statutory maximum mortgage amount, which varies by area and is based on area median house prices but cannot exceed a specified ceiling in high-cost areas. (The ceiling is set at $726,525 in high-cost areas in calendar year 2019.) Borrowers are charged fees, called mortgage insurance premiums, in exchange for the insurance. In FY2018, FHA insured over 1 million new mortgages (including both home purchase and refinance mortgages) with a combined principal balance of $209 billion. FHA's share of the mortgage market tends to vary with economic conditions and other factors. In the aftermath of the housing market turmoil that began around 2007 and a related contraction of mortgage lending, FHA insured a larger share of mortgages than it had in the preceding years. Its overall share of the mortgage market increased from about 3% in calendar year 2005 to a peak of 21% in 2009. Since that time, FHA's share of the mortgage market has decreased somewhat, though it remains higher than it was in the early 2000s. In calendar year 2017, FHA's overall share of the mortgage market was about 17%. FHA-insured mortgages, like all mortgages, experienced increased default rates during the housing downturn that began around 2007, leading to concerns about the stability of the FHA insurance fund for single-family mortgages, the Mutual Mortgage Insurance Fund (MMI Fund). In response to these concerns, FHA adopted a number of policy changes in an attempt to limit risk to the MMI Fund. These changes have included raising the fees that it charges and making changes to certain eligibility criteria for FHA-insured loans.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.



Report 2: Since 1993, USAID has obligated more than $5 billion in bilateral assistance to the Palestinians in the West Bank and Gaza, primarily using funds appropriated through the ESF  According to State officials, through the ESF, USAID provides project assistance and debt relief payments to PA creditors  USAID, with overall foreign policy guidance from State, implements most ESF programs, including programs related to private sector development, health, water and road infrastructure, local governance, civil society, rule of law, education, and youth development  According to USAID officials, this assistance to the West Bank and Gaza contributes to building a more democratic, stable, prosperous, and secure Palestinian society—a goal that USAID described as being in the interest of the Palestinians, the United States, and Israel  Figure 1 shows the location of the West Bank and Gaza relative to surrounding countries  USAID assistance to the West Bank and Gaza is conducted under antiterrorism policies and procedures outlined in an administrative policy document known as Mission Order 21  The stated purpose of the mission order, as amended, is to describe policies and procedures to ensure that the mission’s program assistance does not inadvertently provide support to entities or individuals associated with terrorism  We have previously reported on the status of ESF assistance to the Palestinians and USAID’s antiterrorism policies and procedures in the West Bank and Gaza  As of March 31, 2018, USAID had obligated about $544 1 million (over 99 percent) and expended about $350 6 million (over 64 percent) of approximately $544 5 million in ESF assistance allocated for the West Bank and Gaza in fiscal years 2015 and 2016 (see table 1)  USAID obligated portions of the allocated funds for direct payments to PA creditors—specifically, payments to two Israeli fuel companies, to cover debts for petroleum purchases, and to a local Palestinian bank, to pay off a line of credit used for PA medical referrals to six hospitals in the East Jerusalem Hospital network  Project assistance obligated for fiscal years 2015 and 2016 accounted for about $215 million (74 percent) and $184 million (72 percent), respectively, of USAID’s obligations of ESF assistance for the West Bank and Gaza for those fiscal years (see fig  1)  Payments to the PA’s creditors accounted for the remaining obligations—about $75 million (26 percent) of fiscal year 2015 obligations and about $70 million (28 percent) of fiscal year 2016 obligations  According to USAID documents, ESF project assistance for the West Bank and Gaza for fiscal years 2015 and 2016 was obligated for three USAID development objectives: Economic Growth and Infrastructure (about $239 million), Investing in the Next Generation (about $107 million), and Governance and Civic Engagement (about $25 million)  Program support—which sustains all development objectives, according to USAID—accounted for about $29 million (see table 2)  Economic Growth and Infrastructure  The largest share—about 60 percent—of USAID’s ESF project assistance for the West Bank and Gaza for fiscal years 2015 and 2016 supported the agency’s Economic Growth and Infrastructure development objective  According to USAID documents, as of March 31, 2018, the agency had obligated about $239 million and expended approximately $89 million (about 37 percent) for projects under this objective  USAID officials stated that the agency funded these projects under the following standard State-budgeted program areas: health (including water), infrastructure, private sector competiveness, and stabilization operations and security sector reform  The largest project—the Architecture and Engineering Services project—received about $20 million of fiscal year 2015 ESF assistance and $17 million of fiscal year 2016 ESF assistance  The purpose of the project was to rehabilitate and construct infrastructure through the procurement of infrastructure services, including engineering design and construction management, among other things  The contractor was required to coordinate with relevant PA and Israeli entities, as well as with USAID, to assist in the selection of PA water and wastewater projects and in the planning and design of water projects such as small- to large-scale water distribution systems, water treatment systems, and institutional capacity building  Investing in the Next Generation  The second-largest share—about 27 percent—of USAID’s fiscal years 2015 and 2016 ESF project assistance for the West Bank and Gaza supported the agency’s Investing in the Next Generation development objective  According to USAID documents, as of March 31, 2018, the agency had obligated about $107 million and expended approximately $79 million (about 74 percent) for projects under this objective  Program areas funded included education, health, social and economic services and protection of vulnerable populations  The largest project funded under this objective—a grant to the World Food Program for assistance to vulnerable groups—received $12 million in fiscal year 2015 and $15 million in fiscal year 2016 ESF assistance  The project focused on ensuring food security, including meeting food needs, of the nonrefugee population; increasing food availability and dietary diversity for the most vulnerable and food-insecure nonrefugee population; and establishing linkages with the Palestinian private sector (shopkeepers, farms, and factories) to produce and deliver the aid being provided to Palestinians  For example, the project directly distributed a standard food ration through both direct food distribution and electronic food vouchers to vulnerable nonrefugee families  Governance and Civic Engagement  The smallest share—about 6 percent—of USAID’s fiscal years 2015 and 2016 ESF project assistance for the West Bank and Gaza supported the agency’s Governance and Civic Engagement development objective  According to USAID documents, as of March 31, 2018, USAID had obligated about $24 6 million and expended approximately $14 5 million (about 60 percent) for projects in program areas that included civil society, good governance, and rule of law  The largest project funded under this objective—a contract for the Communities Thrive Project— received about $5 2 million and $8 million in fiscal years 2015 and 2016 ESF assistance, respectively  The project aimed to help 55 West Bank municipalities improve fiscal management, fiscal accountability and transparency, and delivery and management of municipal services, among other things  Under debt relief grant agreements with the PA, USAID made direct payments of ESF assistance to PA creditors totaling about $75 million from fiscal year 2015 funds and $70 million from fiscal year 2016 funds  USAID paid about $40 million from fiscal year 2015 funds and $45 million from fiscal year 2016 funds to two oil companies to cover debts for petroleum purchases  In addition, USAID paid about $35 million from fiscal year 2015 funds and $25 million from fiscal year 2016 funds to the Bank of Palestine, to pay off a PA line of credit that was used to cover PA medical referrals to six hospitals in the East Jerusalem Hospital network  Before using fiscal years 2015 and 2016 ESF assistance to pay PA creditors, USAID vetted the creditors to ensure that the assistance would not provide support to entities or individuals associated with terrorism, as required by its policies and procedures  USAID determined that certain legal requirements, including the requirement for an assessment of the PA Ministry of Finance and Planning, were not applicable for direct payments of these funds to PA creditors  Nevertheless, USAID continued to commission external assessments and financial audits of the PA Ministries of Health and Finance and Planning  USAID documentation for payments to creditors shows that before signing debt relief agreements with the PA, mission officials checked, as required by Mission Order 21, the vetting status of PA creditors who would receive direct payments under the agreements, to ensure their eligibility before any payment was made  USAID Mission Order 21 requires that before payments to PA creditors are executed, the creditors must be vetted—that is, the creditors’ key individuals and other identifying information must be checked against the federal Terrorist Screening Center database and other information sources to determine whether they have links to terrorism  According to USAID policies and procedures, each PA creditor must be vetted if more than 12 months have passed since the last time the creditor was vetted and approved to receive ESF payments  We found that for payments made to PA creditors using fiscal years 2015 and 2016 ESF assistance, USAID vetted each PA creditor that received payments and completed the vetting during the 12- month period before the debt relief agreements with the PA were signed (see table 3)  USAID determined that certain legal requirements applicable to cash transfers to the PA were not applicable to direct payments to PA creditors of fiscal years 2015 and 2016 ESF assistance  In September 2015, we reported that USAID ceased making cash payments directly to the PA in 2014 and began making payments of ESF assistance directly to PA creditors  In reviewing USAID’s compliance with key legal requirements, we found that USAID had complied with the requirements when making cash transfers to the PA in fiscal year 2013  However, USAID had determined that some requirements were not applicable to direct payments made to PA creditors in fiscal year 2014, because no funds were being provided directly to the PA  After fiscal year 2015, USAID further defined the scope of statutory requirements it deemed applicable to payments to PA creditors using fiscal years 2015 and 2016 ESF assistance, under the rationale that these payments do not constitute direct payments to the PA  Specifically, according to USAID, the agency determined that the following statutory requirements discussed in our prior report were not applicable to direct payments to PA creditors  A requirement to notify the Committees on Appropriations 15 days before obligating funds for a cash transfer to the PA A requirement for the PA to maintain cash transfer funds in a separate account A requirement for the President to waive the prohibition on providing funds to the PA and to submit an accompanying report to the Committees on Appropriations A requirement for the Secretary of State to provide a certification and accompanying report to the Committees on Appropriations when the President waives the prohibition on providing funds to the PA Requirements for direct government-to-government assistance, including an assessment of the PA Ministry of Finance and Planning According to USAID officials, they currently do not plan to resume cash payments to the PA, because making direct payments to creditors minimizes the misuse of funds and assures full transparency and appropriateness of transfers  Although USAID concluded that the statutory requirement mandating assessments of the PA Ministry of Finance and Planning did not apply to direct payments to PA creditors, the West Bank and Gaza mission commissioned external assessments of the PA Ministry of Health’s medical referral services and Ministry of Finance and Planning’s petroleum procurement system  According to a USAID document, while the payments to the creditors did not constitute direct budget support to the PA, the agency chose to commission external assessments to determine whether the PA’s financial systems were sufficient to ensure adequate accountability for USAID funds consistent with legislative requirements for direct budget support funds  These external assessments identified weaknesses in both systems  Ministry of Health medical referrals  The assessment report stated that the ministry did not have approved policies and procedures for the medical referral process, a list of medical services covered by the referral system, and written criteria for selecting referral hospitals in the medical referral systems  In response, in a January 2016 internal memorandum, the West Bank and Gaza mission officials concluded, among other things, that the findings did not pose a significant risk to USAID funds  They also stated that the Ministry of Health’s medical referral system had adequate policies and procedures for referrals to local hospitals  However, after the assessment report was issued, a USAID contractor worked with the Ministry of Health to update, revise, and approve guidelines for medical referrals  Ministry of Finance and Planning petroleum procurements  The assessment report stated that the ministry lacked specific policies and procedures to prevent or detect fraud in the petroleum procurement systems  In the West Bank and Gaza mission’s January 2016 memorandum, USAID mission officials disagreed with the assessment’s findings regarding the petroleum procurement system, stating that the assessment did not take into account sufficient and adequate internal controls at the ministry as a first line of defense against fraud  The memorandum also stated that the finding did not affect USAID debt relief payments to the PA creditors  USAID officials told us that, while they did not believe the external assessments’ findings affected the integrity of USAID’s debt relief payment process, they took four additional steps to mitigate findings noted in the assessment of the Ministry of Finance and Planning’s fuel procurement processes  According to USAID officials, they (1) confirmed that the fuel companies had controls and systems to ensure an objective and transparent system in receiving and recording PA orders, (2) dispatched orders with official and properly signed shipping delivery and receipt documents, (3) obtained written confirmation from the fuel companies of the costs of the fuel provided to the PA, and (4) confirmed the PA’s petroleum debt with the fuel companies before initiating the payments and after making the payments  In addition, in 2016, USAID commissioned two routine financial audits of the debt relief grant agreed to by USAID and the PA for the use of fiscal year 2015 ESF assistance to make direct payments to PA creditors  According to USAID officials, the auditors were to examine the PA Ministry of Finance and Planning’s recording of USAID payments to PA creditors in its financial records as well as the ministry’s and USAID’s compliance with the terms of the grant agreement and related implementation letters  The audits did not identify any questioned or ineligible costs, reportable material weaknesses in internal control, or material instances of noncompliance with the terms of the debt relief grant  Also, in 2017, USAID contracted for a financial audit of the fiscal year 2016 debt relief grant agreed to by USAID and the PA  According to a USAID document, in May 2018, USAID held an entrance conference with the PA Ministry of Finance and Planning for the audit of the fiscal year 2016 grant  In July 2018, USAID sent the final audit report to the Regional Inspector General for review  According to the USAID document, the report did not identify any questioned or ineligible costs, reportable material weaknesses in internal controls, or material instances of noncompliance with the terms of the grant  We provided a draft of this report to USAID and State for review and comment  USAID provided comments, which we have reproduced in appendix II, as well as technical comments, which we incorporated as appropriate  State did not provide comments  We are sending copies of this report to the appropriate congressional committees, the Administrator of USAID, and the Secretary of State  In addition, the report is available at no charge on the GAO website at http://www gao gov If you or your staff have any questions about this report, please contact me at (202) 512-3149 or gootnickd@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who contributed to this report are listed in appendix III  Appropriations acts for fiscal years 2015 and 2016 included provisions for GAO to review the treatment, handling, and uses of funds provided through the ESF for assistance to the West Bank and Gaza  This report examines (1) the status of ESF assistance and projects provided to the West Bank and Gaza for fiscal years 2015 and 2016, including payments to PA creditors, and (2) the extent to which USAID conducted required vetting of PA creditors to ensure that assistance would not support entities or individuals associated with terrorism and assessed PA ministries’ capacity to use ESF assistance as intended  To address our first objective, we reviewed appropriations legislation, related budget justification documents, and financial data for fiscal years 2015 and 2016, including expenditures as of March 31, 2018, provided by USAID’s West Bank and Gaza mission in Tel Aviv, Israel  We reviewed data that USAID provided on obligations and expenditures of all ESF assistance for the West Bank and Gaza as of March 31, 2018, from annual allocations for fiscal years 2015 and 2016  We also reviewed relevant USAID documents, including notifications to Congress regarding the use of appropriated funds  In addition, we interviewed USAID and State officials in Washington, D C , and Tel Aviv  To determine whether the data were sufficiently reliable for the purposes of this report, we requested and reviewed information from USAID officials about their procedures for entering contract and financial information into USAID’s data system  We determined that the USAID data were sufficiently reliable  For the project information included in this report, we relied on data that USAID provided, showing its obligations and expenditures of fiscal year 2015 and 2016 ESF assistance for West Bank and Gaza  For illustrative purposes, we requested and obtained from USAID descriptions of projects that, according to USAID officials, represented the largest financial obligations for each development objective in fiscal years 2015 and 2016  To address our second objective, we identified and reviewed relevant legal requirements as well as USAID policies and procedures to comply with those requirements  USAID Mission Order 21 is the primary document that details USAID procedures to ensure that the mission’s assistance program does not provide support to entities or individuals associated with terrorism, consistent with the prohibition on such support found in relevant laws and executive orders  In addition, we reviewed 27 USAID determinations of compliance for payments to PA creditors and discussed with USAID mission officials their efforts to comply with the policies and procedures in Mission Order 21 before executing payments to hospitals, companies, and banks that facilitated the payments  We also reviewed the timing of USAID’s vetting of each PA creditor that received payments, to ensure that, as required by Mission Order 21, the vetting occurred within 12 months before USAID signed the relevant debt relief grant agreement with the PA  Further, we reviewed external assessments of the PA Ministries of Health and Finance and Planning and financial audits of the PA Ministry of Finance and Planning, and we discussed the assessments’ and audits with USAID officials responsible for payments to PA creditors  We conducted this performance audit from September 2017 to August 2018, in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for findings and conclusions based on our audit objectives  In addition to the contact named above, Judith McCloskey (Assistant Director), Tom Zingale (Analyst-in-Charge), Eddie Uyekawa, Jeff Isaacs, and Nicole Willems made significant contributions to this report  David Dornisch, Neil Doherty, Reid Lowe, and Roger Stoltz also contributed to the report 
Report 2:  FSA staff from all four of our selected regional offices told us that they provisionally certify schools for a variety of reasons, including when a school submits a late compliance audit or when a recent compliance audit indicates that a school could potentially have significant problems  Generally, schools in provisional certification status are subject to additional monitoring by FSA compared to schools that have been fully certified  For example, Education officials said that if they have concerns about a provisionally certified school’s student withdrawal rate, they can add provisional conditions requiring the school to submit monthly enrollment rosters for review  Staff in two FSA regional offices told us that in other cases, if they have concerns about how a school is administering federal student aid or suspected fraud, they can put a school on provisional status and conduct a program review to collect more detailed information on compliance with federal requirements  Education data also show that most schools remain in provisional status the first time they are recertified—62 percent from 2006 to 2017  In contrast, FSA staff fully recertified over three-quarters of schools that applied for recertification a second time during the same time period (see table 2)  For more information on first and second recertification outcomes by school sector, see appendix II  We found that FSA generally relies on compliance audits as the only annual on-site review to determine how schools applying for recertification administer federal student aid  The audits provide direct information collected by independent auditors from school visits and file reviews examining how schools administer federal student aid and comply with program requirements  For example, OIG audit guidance directs auditors to check whether schools are distributing federal student aid to eligible students and accurately calculating student loan amounts  FSA officials and staff from all four of our selected regional offices said that compliance audits are a key source of information they use to assess a school’s administrative capability  Officials from Education’s OIG said that the quality of information in compliance audits varies substantially and depends on the auditor  The OIG has found quality problems in some of the compliance audits it selects—based on auditor and school risk factors—for its annual quality control reviews  Because the OIG selects higher risk audits to review, its reviews are more likely to detect problems, and OIG officials said they cannot make any conclusions about the overall prevalence of quality problems in compliance audits  However, our analysis of OIG quality review data found that of the 739 compliance audits reviewed by the OIG from fiscal years 2006 through 2017, the OIG passed 23 percent (173) and failed 59 percent (436)  An additional 18 percent (130) passed with deficiencies  For example, across the 41 compliance audits it reviewed in fiscal year 2016, the OIG identified 264 quality deficiencies with the auditor’s work, according to our analysis of quality reviews provided by the OIG  The most frequently cited issues in these 41 audits were: reporting (24 audits), such as lack of evidence that the auditor tested whether the school correctly reported student enrollment status; student eligibility (20 audits), such as lack of evidence that the auditor verified student school attendance; and administrative capability (19 audits), such as lack of evidence that the auditor determined whether the accreditor had been notified about a change in school ownership within 10 days  FSA officials also identified quality issues with the compliance audits of some schools  FSA headquarters officials and staff we interviewed in several regional offices said they have seen schools with significant program review findings that had not been identified in annual compliance audits  FSA staff said they have referred some compliance audits to the OIG for quality reviews when they have had questions about the thoroughness of an audit  We also found a couple of examples in our review of school certification documents in which the findings identified in a school’s compliance audit were different from the findings identified by FSA in a program review of the same school covering the same time period  In one case, FSA staff said they probably would have fully recertified the school if they had relied solely on the compliance audit  Instead, they used the program review to determine that the school should be provisionally recertified  Compliance audits and program review findings are based on a sample of student records, and FSA staff said some differences in findings might be explained by differences in the records reviewed  FSA and OIG officials cited several issues that can affect the quality of compliance audits  FSA and OIG officials we interviewed said that some auditors conducting compliance audits have insufficient training in federal student aid, which contributes to audit quality problems  OIG staff also said that even if an auditor meets the general training hour requirements for auditors, the training content may not be relevant for federal student aid audits  In addition, FSA and OIG officials said some schools— particularly smaller schools—tend to hire less experienced auditors in order to save money, often resulting in poor quality audits  FSA officials in most selected regional offices said that additional training on federal student aid for auditors who are new to or unfamiliar with federal student aid could help improve audit quality  FSA and the OIG recently have taken steps to address audit quality and the information available to FSA staff when making certification decisions  These efforts include: Training for auditors: The OIG has taken steps to enhance training offered to auditors of schools’ administration of federal student aid and is exploring opportunities to provide additional training  In December 2017, the OIG and the American Institute of Certified Public Accountants cosponsored training for auditors on the OIG’s 2016 revised guide for audits of for-profit schools, and other topics related to auditing federal student aid  The training included discussion of common audit quality issues and areas of highest risk  According to an OIG official, about 200 auditors attended, and after the event, the American Institute of Certified Public Accountants and the OIG posted a recording of the training to their websites to make it available to additional auditors  In addition, OIG officials said they maintain an email account—listed on the OIG website—through which auditors can ask questions and receive responses  In March 2018, the OIG posted frequently asked questions and answers to the website  Timeliness of OIG quality reviews: Both FSA and OIG officials said that the OIG has recently renewed efforts to issue compliance audit quality reviews more quickly, after several years in which staffing shortages and other issues led to some delayed quality reviews  Guidance to schools on selecting an auditor: OIG officials said that at the 2017 FSA training conference for school financial aid staff, they presented to more than 400 participants about factors schools should consider when hiring an auditor  For example, they suggested that schools verify the licenses of certified public accountants, ask about the types of engagements an auditing firm has conducted, request and check references, check for any actions that may have been taken against a firm, and ask whether the auditor has been subject to a previous review by the OIG or another agency  FSA officials said they expected to invite the OIG to present at future FSA conferences, and OIG officials said they were seeking additional opportunities to share information on auditor selection with schools, including a planned presentation to an association of postsecondary schools  FSA working group: FSA recently established a working group to update its guidance to FSA staff on how to coordinate with the OIG to address compliance audits with quality problems  Among other topics, the working group has consulted with the OIG about how schools are made aware of the OIG’s findings regarding the quality of their audits  FSA officials said that OIG officials have provided input and feedback on FSA’s proposed changes to the guidance  Audit guide revisions: In addition, OIG and FSA staff told us they expected the OIG’s 2016 revisions to the for-profit school audit guide to improve the quality of compliance audits for those schools  They said that because the revised guide clarified some issues that were confusing to auditors in the previous guide issued in 2000, auditors might be better able to implement the guidance  The audit guide revisions include more testing and reporting requirements, clarified procedures, and guidance on issues such as fraud reporting and coordinating financial and compliance audits  The 2016 revisions first applied to audits for fiscal years beginning after June 30, 2016, and FSA began receiving those audits at the end of 2017  In addition, although the OIG’s 2016 revisions only apply to audits of for-profit schools, FSA officials said they planned to establish a working group to consider improvements to audit guidance for public and nonprofit schools  FSA and OIG efforts to address audit quality could help ensure that compliance audits provide accurate and reliable information on school administrative capability for Education’s recertification decisions  We provided a draft of this report to Education for review and comment  Education’s Office of Inspector General provided technical comments, which we considered and incorporated as appropriate  Education did not provide other comments on the report  We are sending copies of this report to the appropriate congressional committees; the Secretary of Education; and other interested parties  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (617) 788-0534 or emreyarrasm@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix III  In addition to the contact named above, Michelle St  Pierre (Assistant Director), Kristy Kennedy (Analyst-in-Charge), Edward Bodine, Marissa Jones, and Mark Ward made significant contributions  Also contributing to this report were Susan Aschoff, Deborah Bland, Nagla’a El-Hodiri, Monika Gomez, Sheila R  McCoy, Jessica Orr, Mimi Nguyen, John Mingus, Rhiannon Patterson, Monica Savoy, Benjamin Sinoff, and Rosemary Torres Lerma 

ground_truth: Since 1993, the U.S. government has committed more than $5 billion in bilateral assistance to the Palestinians in the West Bank and Gaza. According to the Department of State, this assistance to the Palestinians promotes U.S. economic and political foreign policy interests by supporting Middle East peace negotiations and financing economic stabilization programs. USAID is primarily responsible for administering ESF assistance to the West Bank and Gaza. Appropriations acts for fiscal years 2015 and 2016 included provisions for GAO to review the treatment, handling, and uses of funds provided through the ESF for assistance to the West Bank and Gaza. This report examines (1) the status of ESF assistance and projects provided to the West Bank and Gaza for fiscal years 2015 and 2016, including project assistance and payments to PA creditors, and (2) the extent to which USAID conducted required vetting of PA creditors to ensure that this assistance would not support entities or individuals associated with terrorism and assessed PA ministries' capacity to use ESF assistance as intended. GAO reviewed relevant laws and regulations and USAID financial data, policies, procedures, and documents. GAO also interviewed USAID and State Department officials. As of March 2018, the U.S. Agency for International Development (USAID) had allocated about $545 million of funding appropriated to the Economic Support Fund (ESF) for assistance in the West Bank and Gaza for fiscal years 2015 and 2016. USAID obligated about $544 million (over 99 percent) and expended about $351 million (over 64 percent) of the total allocations. Project assistance accounted for approximately $399 million of the obligated funds, while payments to Palestinian Authority (PA) creditors accounted for $145 million (see figure). USAID's obligations for project assistance in the West Bank and Gaza for fiscal years 2015 and 2016 supported three development objectives—Economic Growth and Infrastructure ($239 million), Investing in the Next Generation ($107 million), and Governance and Civic Engagement (about $25 million). In fiscal years 2015 and 2016, USAID made payments directly to PA creditors—two Israeli fuel companies, to cover debts for petroleum purchases, and a local Palestinian bank, to pay off a line of credit used for PA medical referrals to six hospitals in the East Jerusalem Hospital network. USAID vetted PA creditors to ensure that the program assistance would not provide support to entities or individuals associated with terrorism and also conducted external assessments and financial audits of PA ministries of Health and Finance and Planning. USAID documentation showed that, as required, officials checked the vetting status of each PA creditor within 12 months before USAID signed its debt relief grant agreements with the PA. In addition, although USAID determined that it was not legally required to assess the PA Ministry of Health's medical referral services and the Ministry of Finance and Planning's petroleum procurement system, the agency commissioned external assessments of both ministries. These assessments found some weaknesses in both ministries' systems; however, USAID mission officials stated that these weaknesses did not affect USAID debt relief payments to the PA creditors. Nevertheless, USAID took additional steps to mitigate the identified weaknesses. For example, a USAID contractor worked with the Ministry of Health to update, revise, and approve guidelines for medical referrals. In addition, USAID commissioned financial audits of the debt relief grant agreements between USAID and the PA for direct payments to PA creditors in fiscal year 2015 and 2016. The audits did not identify any ineligible costs, reportable material weaknesses in internal control, or material instances of noncompliance with the terms of the agreements. GAO is not making recommendations in this report.