GINNIE MAE

Risk Management 

and Staffing-Related 

Challenges Need to 

Be Addressed

Report to the Ranking Member, 

Subcommittee on Housing, 

Community Development, and 

Insurance, Committee on Financial 

Services, House of Representatives

April 2019

GAO-19-191

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-19-191, a report to the 

Ranking Member, Subcommittee on Housing, 

Community Development, and Insurance, 

Committee on Financial Services, House of 

Representatives

April 2019

GINNIE MAE

Risk Management and Staffing-Related Challenges 

Need to Be Addressed

What GAO Found

The amount of mortgage-backed securities (MBS) that the Government National 

Mortgage Association (Ginnie Mae) guaranteed rose from $500 billion to $2 

trillion in fiscal years 2007–2018—exposing it to a greater risk of loss. From 2011 

to 2018, the majority of institutions issuing Ginnie Mae-guaranteed MBS

(issuers) shifted from banks to nonbanks, such as mortgage lenders. Unlike 

banks, nonbank issuers generally are not consistently subject to comprehensive 

federal safety and soundness standards.

Since GAO’s 2011 report, Ginnie Mae increased minimum financial requirements

for MBS issuers and developed new tools to monitor them. However, it has 

limited flexibility under law to raise the fee charged to guarantee single-family 

MBS in response to changes in risks. Ginnie Mae also has not assessed if the 

current fee would provide it with sufficient capital reserves to withstand losses 

under various scenarios, which would be consistent with federal internal control 

and risk-management standards. Such an analysis would provide Ginnie Mae 

with information necessary to help ensure the fee is set appropriately and inform 

Congress whether Ginnie Mae needs greater flexibility to adjust the fee. 

As GAO reported in 2011, Ginnie Mae still faces contracting and staffing 

challenges. It continues to rely heavily on contractors (because it has authority to

use certain fee revenue to fund contractors but not its own in-house staff).

However, it has not routinely analyzed if using its own in-house staff instead of 

contractors for certain functions would be more efficient. Such analyses could 

help inform Ginnie Mae and Congress about the optimal mix of contractors and 

staff and potential need for greater budget flexibility. Ginnie Mae also still faces

challenges recruiting and retaining staff, in part due to its lower pay scale relative 

to some of its competitors. But it has not exhausted all options under its current 

authority to revise its pay scale to mitigate these challenges or evaluated the 

costs and benefits of other options. Such actions could help inform Ginnie Mae 

about how it could use current authorities to address these challenges and 

provide Congress with the information needed to consider providing Ginnie Mae 

with additional pay flexibility.

The Department of Housing and Urban Development (HUD) oversees and sets

general policies that govern Ginnie Mae’s operations. However, GAO previously 

reported that HUD’s management challenges limit the effectiveness of its 

oversight of Ginne Mae and its other programs. In light of these challenges and 

Ginnie Mae’s increasing risks, GAO reviewed the oversight structures of three 

similar financial entities and found that certain alternative structures used by 

these entities, such as boards of directors, offer potential oversight benefits that 

could be considered as part of any future reform proposals for Ginnie Mae. As 

GAO previously reported, if Congress considers legislation to reform the federal 

role in housing finance, such reforms would need to be comprehensive and

consider all relevant federal entities, including Ginnie Mae. As part of such 

reforms, it also would be important to ensure that Ginnie Mae is adequately 

overseen and its risks effectively managed. View GAO-19-191. For more information, 

contact Daniel Garcia-Diaz at (202) 512-8678 

or garciadiazd@gao.gov.

Why GAO Did This Study

Ginnie Mae, a government corporation

within HUD, plays a significant role in 

the secondary mortgage market.

Institutions issue MBS (backed by 

federally insured or guaranteed 

mortgages). Ginnie Mae guarantees 

MBS investors timely payments of 

principal and interest on the MBS if 

issuers cannot make such payments.

In 2011, GAO identified challenges

related to Ginnie Mae’s issuer 

oversight, staffing, and contracting.

GAO was asked to re-examine these 

issues. This report reviews Ginnie 

Mae’s (1) MBS volume, issuers, and 

risks; (2) oversight of issuers and 

related risks; (3) staff levels and

contractor use; and (4) oversight 

structure compared to selected entities 

to identify areas for potential reforms.

GAO analyzed data on MBS volume,

reviewed Ginnie Mae policies and 

procedures, reviewed oversight 

structures of three similar financial 

entities, and interviewed agency 

officials.

What GAO Recommends

GAO makes four recommendations to

Ginnie Mae, including that it evaluate 

its issuer guaranty fee, contractor use, 

and alternative compensation 

structures. GAO also makes 

recommendations to Congress to 

consider requiring Ginnie Mae to report

on its evaluations of (1) the adequacy 

of its issuer guaranty fee, (2) its 

reliance on contractors and use of

certain fee revenue to hire in-house 

staff, and (3) use of greater flexibility to 

set staff compensation; and (4) to

consider possible reforms to Ginnie 

Mae’s oversight structure. Ginnie Mae 

concurred with GAO’s

recommendations.
Page i GAO-19-191 Ginnie Mae

Letter 1

Background 5

Ginnie Mae’s Continued Growth and Changes in Issuers Have 

Increased Its Counterparty Credit Risk Exposure Since 2007 14

Since 2011, Ginnie Mae Has Enhanced Its Oversight of Issuers 

but Has Not Yet Fully Considered a Key Option for Helping to 

Manage Aggregate Risks 27

Ginnie Mae Continues to Face Various Staffing and Contracting 

Challenges 46

Oversight Structures of Ginnie Mae and Other Entities Provide 

Insights for Potential Reforms of Ginnie Mae 61

Conclusions 71

Matters for Congressional Consideration 73

Recommendations for Executive Action 73

Agency Comments and Our Evaluation 74

Appendix I Objectives, Scope, and Methodology 76

Appendix II Housing Finance Reform Proposals Reviewed 80

Appendix III Comments from Ginnie Mae 82

Appendix IV GAO Contact and Staff Acknowledgments 84

Tables

Table 1: Description of Select Contracted Functions at Ginnie Mae 

and Total Obligated Amounts, Fiscal Years 2008–2018 47

Table 2: Ginnie Mae Funding for Staff and Full-Time Equivalent 

Staff, Fiscal Years 2005–2018 49

Contents
Page ii GAO-19-191 Ginnie Mae

Figures

Figure 1: Securitization of Ginnie Mae-Guaranteed MortgageBacked Securities 6

Figure 2: Examples of Potential Ginnie Mae Actions in the Case of 

Default of a Mortgage-Backed Security Issuer 9

Figure 3: Ginnie Mae’s Loss Position Compared with Fannie Mae 

and Freddie Mac’s Loss Position 10

Figure 4: Cumulative Outstanding Unpaid Principal Balance and 

New Annual Issuance, Ginnie Mae-Guaranteed MBS, at 

Year End, Fiscal Years 2005–2018 (in 2017 dollars) 15

Figure 5: Cumulative Outstanding Unpaid Principal Balances, 

Agency MBS (Ginnie Mae, Fannie Mae, and Freddie 

Mac) and Nonagency MBS, at Year-End, Calendar Years 

2005–2017 (in 2017 dollars) 16

Figure 6: Annual Issuance of Ginnie Mae-Guaranteed MBS 

Relative to Maximum Level of Commitment Authority, 

Fiscal Years 2005–2018 18

Figure 7: Number of Institutions Issuing Ginnie Mae-Guaranteed 

MBS (left) and Amount of Issuance in Millions (right and 

in 2017 dollars), Fiscal Years 2011–2018 20

Figure 8: Federally Insured and Guaranteed Mortgages Pooled 

into New Ginnie Mae-Guaranteed MBS, Fiscal Years 

2005–2018 (in 2017 dollars) 26

Figure 9: Oversight Structures for Ginnie Mae, the Enterprises, 

and FDIC as of February 2019 62
Page iii GAO-19-191 Ginnie Mae

Abbreviations 

CFPB Consumer Financial Protection Bureau

enterprises Fannie Mae and Freddie Mac

ERM enterprise risk management

FDIC Federal Deposit Insurance Corporation

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FTE full-time equivalent

Ginnie Mae Government National Mortgage Association

GSA General Services Administration

HUD Department of Housing and Urban Development

MBS mortgage-backed securities

OIG Office of Inspector General

OMB Office of Management and Budget

OPM Office of Personnel Management

VA Department of Veterans Affairs

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Page 1 GAO-19-191 Ginnie Mae

441 G St. N.W.

Washington, DC 20548

April 3, 2019

The Honorable Sean Duffy

Ranking Member

Subcommittee on Housing, Community Development, and Insurance

Committee on Financial Services

House of Representatives

Dear Mr. Duffy:

The Government National Mortgage Association (Ginnie Mae) plays an 

important role supporting federal housing initiatives by increasing liquidity 

in the secondary mortgage market.1 It guarantees the timely payment of 

principal and interest on mortgage-backed securities (MBS) issued 

primarily by financial institutions and backed by pools of federally insured 

or guaranteed mortgages.2 More specifically, Ginnie Mae relies on 

institutions that it approves as MBS issuers to pool mortgages and issue 

MBS and on federal agencies—including the Federal Housing 

Administration (FHA) and the Department of Veterans Affairs (VA)—to 

insure or guarantee the underlying mortgages against borrower default. In 

the event an issuer defaults by not making timely payments to its MBS 

investors, Ginnie Mae makes the payments to the investors and then may 

take control of the issuer’s MBS, including servicing the loans (receiving 

and depositing borrowers’ monthly principal and interest payments).

Members of Congress, researchers, and others have discussed the 

federal role in the housing finance system, including the continued 

conservatorship of Fannie Mae and Freddie Mac (enterprises), nearly a 

decade after the financial crisis of 2007–2009. We designated the federal 

role in housing finance as high risk in 2013 due to the government and 

taxpayers facing increased risk exposures to large losses in the mortgage 

 1

The secondary mortgage market consists of financial institutions and individuals that buy 

and sell mortgage-backed securities (MBS). In general, MBS are bonds representing an 

ownership interest in a pool of residential mortgages. Borrowers make mortgage 

payments to lenders that typically include principal, interest, and a servicing fee. The 

mortgage servicer then allocates the funds to compensate the mortgage servicer and pay 

Ginnie Mae a guaranty fee. The remaining amounts are “passed through” to investors.

2

Although Ginnie Mae issuers are primarily financial institutions, housing finance agencies 

and public housing agencies can be Ginnie Mae issuers.

Letter
Page 2 GAO-19-191 Ginnie Mae

market.3 Moreover, in 2016 and 2019, we suggested that Congress take 

steps related to continued conservatorship.4 Policymakers have 

considered ways to reform the federal role to reduce this risk exposure.

At the same time, Ginnie Mae has faced challenges that relate to its 

ability to oversee significant growth in its operations. In a 2011 report, we 

identified issues related to staffing, contractor oversight, and issuer 

approval and monitoring.5 Moreover, the Office of Inspector General 

(OIG) in the Department of Housing and Urban Development (HUD) 

issued a disclaimer of opinion on Ginnie Mae’s fiscal year 2017 financial 

statements, because the OIG was not able to obtain sufficient, 

appropriate evidence to provide a basis for an audit opinion for the fourth 

consecutive year.6

You asked us to examine the steps Ginnie Mae has taken to manage its 

financial, operational, and other risks related to its MBS program in light 

of our 2011 report. This report focuses on (1) changes in Ginnie Mae’s 

MBS volume and issuers and their effect on Ginnie Mae’s risks, (2) 

Ginnie Mae’s oversight of issuers and related risks, (3) Ginnie Mae’s staff 

levels and use of contractors, and (4) oversight structure of Ginnie Mae 

compared to selected entities to identify areas for potential reforms.

To analyze changes in Ginnie Mae’s MBS volume and issuers and their 

effects on Ginnie Mae’s risks, we collected and analyzed data from 

Ginnie Mae and Inside Mortgage Finance (which collects mortgage 

market data). We analyzed data on the cumulative outstanding principal 

balance and new annual issuance of Ginnie Mae-guaranteed MBS for 

fiscal years 2005–2018 and on the number and types of financial 

 3

GAO, High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: Feb. 14, 2013). We 

issue high-risk reports every 2 years that identify federal operations with greater 

vulnerabilities to fraud, waste, abuse, and mismanagement or the need for transformation 

to address economy, efficiency, or effectiveness challenges. 

4

GAO, Federal Housing Finance Agency: Objectives Needed for the Future of Fannie Mae 

and Freddie Mac After Conservatorships, GAO-17-92 (Washington, D.C.: Nov. 17, 2016); 

and Housing Finance: Prolonged Conservatorships of Fannie Mae and Freddie Mac 

Prompt Need for Reform, GAO-19-239 (Washington, D.C.: Jan. 18, 2019). 

5

GAO, Ginnie Mae: Risk Management and Cost Modeling Require Continuing Attention, 

GAO-12-49 (Washington, D.C.: Nov. 14, 2011).

6

Department of Housing and Urban Development, Office of Inspector General, Audit of the 

Government National Mortgage Association’s Financial Statements for Fiscal Years 2017 

and 2016 (Restated), 2018-FO-0002 (Washington, D.C.: Nov. 14, 2017).
Page 3 GAO-19-191 Ginnie Mae

institutions that issue MBS and their share of outstanding MBS for fiscal 

years 2011–2018. We assessed the reliability of the Ginnie Mae data by 

reviewing documentation on the systems that produced the data, 

performing data tests, and conducting interviews with relevant Ginnie 

Mae officials. We determined that the data were sufficiently reliable for 

our reporting objective. To analyze the effects of MBS market changes on 

Ginnie Mae’s risks, we reviewed academic and other studies identified 

through a literature search of relevant databases for the period from 2008 

through 2017, and we also reviewed relevant reports by Ginnie Mae, 

GAO, and HUD OIG.

To examine Ginnie Mae’s oversight of issuers and related risks, we 

reviewed its MBS Guide, all participant memorandums, and related issuer 

guidance; internal policies, procedures, and manuals for approving, 

monitoring, and managing issuers; and policies and procedures for 

managing fraud risk.7 We reviewed Ginnie Mae’s internal systems, data 

sources, and quantitative metrics used to monitor and evaluate issuers’

financial condition and operations and track its MBS portfolio. We also 

reviewed relevant laws, selected legislative history, relevant regulations, 

and Ginnie Mae, GAO, and HUD OIG reports.

To analyze Ginnie Mae’s staff levels and use of contractors, we reviewed 

Ginnie Mae’s budget justifications, budget requests, related policies and 

procedures, and studies and assessments Ginnie Mae conducted or 

commissioned on staffing or contracting. We also obtained and analyzed 

Ginnie Mae’s data on budget requests and authorizations, staff turnover, 

and amounts paid to contractors. We assessed the reliability of the staff 

turnover and contract data by reviewing documentation on the systems 

that produced the data. We determined that the data were sufficiently 

reliable for our reporting objective. We reviewed HUD’s policies and 

procedures for hiring, procurement, and contractor oversight and related 

guidance. We reviewed GAO and HUD OIG reports on resource 

challenges Ginnie Mae faced in overseeing issuers and contractors.

To compare the oversight structure of Ginnie Mae to selected entities to 

identify areas for potential reforms, we reviewed Ginnie Mae’s statutory 

authority, HUD policies on its oversight of Ginnie Mae, and relevant GAO 

and HUD OIG reports on HUD oversight of Ginnie Mae. For our 

 7

Ginnie Mae generally issues all participant memorandums (which issuers, document 

custodians, and other participants in Ginnie Mae programs access) to announce policy 

and MBS Guide changes.
Page 4 GAO-19-191 Ginnie Mae

comparative analysis, we selected the enterprises and the Federal 

Deposit Insurance Corporation (FDIC) based on their mission, functions, 

risks, and oversight structure.8 To analyze the oversight and other 

characteristics of the selected entities, we reviewed their annual reports, 

bylaws, strategic plans, and other relevant documents. We also 

conducted a literature search of congressional, academic, and other 

proposals to reform the housing finance system. Specifically, we reviewed 

14 proposals introduced in 2014–2018 that were (1) introduced in 

Congress, either in legislation or released as discussion drafts, or (2) 

introduced by industry stakeholders or discussed in Congressional 

hearings. We used our framework for assessing potential changes to the 

housing finance system to analyze Ginnie Mae’s role in the proposed 

reforms.9

For all the objectives, we interviewed officials at Ginnie Mae and HUD 

OIG. We also interviewed officials at HUD and the Office of Management 

and Budget (OMB) to analyze Ginnie Mae’s use of staff and contractors. 

To analyze oversight and other characteristics of Ginnie Mae and 

selected entities, we interviewed officials at FDIC and the Federal 

Housing Finance Agency (FHFA), which provided FHFA’s perspective on 

the enterprises as their conservator.10 For more information on our scope 

and methodology, see appendix I.

We conducted this performance audit from May 2017 to April 2019 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 our findings and 

conclusions based on our audit objectives.

 8

For purposes of this report, the discussion of FDIC’s operations is limited to its 

management of the Deposit Insurance Fund.

9

In a 2014 report, we outlined a framework composed of nine elements we consider to be 

critically important to help policymakers assess or craft proposals to change the housing 

finance system. See GAO, Housing Finance System: A Framework for Assessing 

Potential Changes, GAO-15-131 (Washington, D.C.: Oct. 7, 2014). For more information 

on the development of the framework, see appendix I.

10FHFA became the conservator of the enterprises in 2008. In addition, FHFA is the safety 

and soundness regulator of the enterprises and may set standards in certain areas that 

affect third parties that do business with the enterprises, including nonbanks that service 

loans on the enterprises’ behalf.
Page 5 GAO-19-191 Ginnie Mae

Ginnie Mae provides an explicit federal guarantee (full faith and credit of 

the United States) of the performance of MBS backed by mortgages 

insured or guaranteed by federal agencies, including FHA, VA, the Rural 

Housing Service in the Department of Agriculture, and the Office of Public 

and Indian Housing in HUD.11 Ginnie Mae does not issue MBS or 

originate the underlying mortgages; rather, it relies on approved financial 

institutions (issuers) to pool or securitize the eligible mortgages and issue 

Ginnie Mae-guaranteed MBS. Ginnie Mae’s issuers can service the MBS 

themselves or hire a third party to perform certain functions. Issuers can 

obtain these mortgages by originating the loans or purchasing the loans 

from another institution. Figure 1 provides an overview of Ginnie Mae 

securitization.

 11When Ginnie Mae acquires the portfolio of an issuer terminated from the MBS program 

and a borrower in the defaulted issuer’s portfolio defaults on an acquired mortgage, Ginnie 

Mae files a claim with the federal agency that insured or guaranteed the mortgage. In 

some instances, mortgages in pools may not be insured or guaranteed due to error, which 

may result in curtailment of claim payments to Ginnie Mae, or fraud. FHA’s single-family 

mortgage insurance program guarantees 100 percent of the mortgage, and FHA refers to 

its guarantee fees as insurance premiums. Similarly, the Office of Public and Indian 

Housing’s Loan Guarantee for Indian Housing program guarantees 100 percent of the 

mortgage. VA generally guarantees 25 percent of the mortgage amount but can guarantee 

up to 50 percent of the mortgage amount for smaller loans. The Rural Housing Service 

guarantees up to 90 percent of the mortgage.

Background

Overview of MBS 

Securitization and Ginnie 

Mae Guarantee
Page 6 GAO-19-191 Ginnie Mae

Figure 1: Securitization of Ginnie Mae-Guaranteed Mortgage-Backed Securities

Ginnie Mae operates an MBS program which includes mortgages on (1) 

single-family housing; (2) multifamily housing, such as apartment 

buildings and nursing homes; and (3) manufactured housing. The MBS 

program also includes home equity conversion mortgages (often called 

reverse mortgages) on single-family housing. Ginnie Mae charges issuers 

a monthly guaranty fee, which varies depending on the program, for 

guaranteeing timely payment of principal and interest. Issuers also pay a 

commitment fee to Ginnie Mae each time they request authority 
Page 7 GAO-19-191 Ginnie Mae

(commitment authority) to pool mortgages into Ginnie Mae-guaranteed 

MBS.12

Issuers of Ginnie Mae-guaranteed MBS are responsible for ensuring that 

investors who purchase the MBS receive monthly payments on time and 

in full, even if the borrower makes a late payment or defaults on an 

underlying mortgage. Ginnie Mae issuers are responsible for making 

advance payments to investors using their own funds and for recovering 

any losses from the federal agencies that insured or guaranteed the 

mortgages.

Ginnie Mae’s guarantee benefits lenders, borrowers, and investors in a 

number of ways. First, the guarantee benefits lenders by increasing the 

liquidity of mortgage loans, which may lower the cost of raising funds and 

allow lenders to transfer risks, such as the interest-rate risk of a 

mortgage, to investors.13 Second, the guarantee benefits borrowers by 

lowering the cost of raising funds for lenders, which helps lower interest 

rates on mortgage loans. Finally, Ginnie Mae’s guarantee provides 

investors with a fixed-income security that has the same credit quality as 

a U.S. Treasury bond. Investors face the risk that a mortgage will be 

removed from the MBS prematurely—for instance, because borrowers 

pay off their mortgage loans early or go into foreclosure—which reduces 

the amount of interest earned on the security.14 However, investors do not 

face credit risk—the possibility of loss from unpaid mortgages—because 

Ginnie Mae guarantees timely payment of principal and interest.

 12The commitment fee is based on the size of the commitment authority request—$500 for 

the first $1.5 million and $200 for each additional $1 million (or part thereof) in 

commitment authority. In 2017, Ginnie Mae reported approximately $101 million in 

commitment fee revenue.

13Interest-rate risk includes the risk that an increase in interest rates will reduce a loan’s

value.

14Prepayment occurs when a mortgage is paid off before it matures, which may occur 

because the home was sold or the mortgage was refinanced into a new loan. Prepayment 

also may occur as a result of a foreclosure action, if the loan is delinquent or defective, 

requiring the liquidation of the loan from the security.
Page 8 GAO-19-191 Ginnie Mae

Because of its MBS guarantee, Ginnie Mae is exposed to counterparty 

credit risk—the risk of loss arising from the default of an issuer or other 

counterparty (such as a mortgage servicer or custodian).15 If an issuer 

defaults (for instance, by failing to make timely payment of principal and 

interest to investors), Ginnie Mae may take a number of actions (see fig. 

2).16 For example, Ginnie Mae could

• terminate the issuer’s status as an approved Ginnie Mae issuer;

• extinguish, among other things, any legal or other right of the issuer in 

the pooled mortgages in MBS for which the issuer has responsibility. 

Based on its statutory authority, Ginnie Mae also can seize the 

issuer’s MBS portfolio and service it itself, or permit the transfer of the 

portfolio to another issuer (as discussed below);

• recover from the issuer all shortfalls in any principal and interest 

custodial account and certain other accounts;17 and

• seek civil money penalties against the issuer.

 15According to its 2017 Annual Report, Ginnie Mae considers several factors as part of the 

assessment process for counterparty credit risk, including the issuer’s financial and 

operational vulnerability, credit analysis, and other evidence of probability of default, such 

as known regulatory activity, interest rates, and other economic conditions. See 

Government National Mortgage Association, Ginnie Mae 2017 Annual Report

(Washington, D.C.: Jan. 25, 2018). While Ginnie Mae used the term “counterparty credit 

risk” in its 2017 Annual Report, it also used “counterparty risk” in its other annual reports 

to refer to the same risk.

16Federal law, guaranty or other contractual agreements between Ginnie Mae and 

issuers, and Ginnie Mae’s MBS Guide set forth grounds on which Ginnie Mae may 

declare an issuer in default of its responsibilities under the MBS program. 

17A funds custodian is an insured depository institution that maintains pool or loan 

package principal and interest custodial accounts and required escrow custodial accounts.

Financial Risks Ginnie 

Mae Faces
Page 9 GAO-19-191 Ginnie Mae

Figure 2: Examples of Potential Ginnie Mae Actions in the Case of Default of a 

Mortgage-Backed Security Issuer

After a default and extinguishment occurs, Ginnie Mae can suffer a loss if 

(1) borrowers default on loans or loans are not fully insured or 

guaranteed, (2) Ginnie Mae must pay another issuer to take over the 

portfolio (mortgage servicing rights), or (3) issuers engage in wrongdoing, 

such as fraud. Under the first two scenarios, Ginnie Mae would work to 

recover as much as possible from borrowers, the insuring or guaranteeing 

agencies, and the defaulted issuer. Under the third scenario, Ginnie Mae 

would seek recovery directly from the defaulted issuer.

Under its risk model, Ginnie Mae sits in the fourth loss position—that is, 

the agency experiences a loss after the borrower’s credit and equity, the 

federal agency guarantee or insurance (such as FHA or VA), and the 

issuer’s financial resources have been exhausted (see fig. 3). Ginnie Mae 

incurs losses when FHA, VA, or other federal insurance and guarantees 

do not cover expenses that result from issuer defaults. Such expenses 

include unrecoverable losses from borrower defaults because of 

coverage limitations on mortgage insurance or guarantees, ineligible 

mortgages included in defaulted Ginnie Mae pools, and improper use of 

proceeds by an issuer (for example, because of fraud).
Page 10 GAO-19-191 Ginnie Mae

Figure 3: Ginnie Mae’s Loss Position Compared with Fannie Mae and Freddie Mac’s Loss Position

Unlike Ginnie Mae, the enterprises purchase mortgages from lending 

institutions and pool them into MBS to be sold to investors. Because the 

enterprises own mortgages and issue and guarantee their own MBS, they 

sit in the third loss position.18 Before the enterprises were placed in 

conservatorship under FHFA, the market commonly viewed their MBS as 

backed by the federal government.19

 18Under FHFA’s direction, the enterprises have transferred increasing amounts of credit 

risk on their guaranteed MBS to the private market since 2013. When the enterprises 

purchase mortgages and issue guaranteed MBS, they retain the credit risk of those 

mortgages—that is, they are exposed to potential losses if a borrower cannot pay back the 

mortgage. The enterprises have transferred an increasing amount of credit risk on some 

of the mortgages they guarantee through a variety of credit risk transfer structures.

19This market perception lowered the enterprises’ overall cost of doing business and may 

have led to increased risk taking and moral hazard. For example, see GAO, Fannie Mae 

and Freddie Mac: Analysis of Options for Revising the Housing Enterprises’ Long-term 

Structures, GAO-09-782 (Washington, D.C.: Sept. 10, 2009).
Page 11 GAO-19-191 Ginnie Mae

Banks (depository institutions) and nonbanks (non-depository financial 

institutions) issue Ginnie Mae-guaranteed MBS. Banks and nonbanks 

typically have different business models.20 Banks offer financial products 

to consumers that include deposit accounts, loans, and credit cards and 

are funded by deposits (such as savings and checking accounts). In 

contrast, nonbank issuers generally are involved only in mortgage-related 

activities, including servicing and originating loans. Nonbanks rely on 

funding sources other than deposits, including lines of credit that can be 

less stable than deposits.

Banks are subject to supervision and regulation by federal or state 

banking regulators. The specific regulatory oversight configuration for a 

bank depends in part on its type of charter.21 Banks may obtain their 

charters at the state or federal level. State regulators charter some banks 

and participate in their oversight, but all banks that offer federal deposit 

insurance have a federal banking (prudential) regulator. The 

responsibilities of federal banking regulators include ensuring the safety 

and soundness of the banks they oversee, protecting federal deposit 

insurance funds, promoting stability in financial markets, and enforcing 

compliance with applicable consumer protection laws. They also are 

required to conduct on-site examinations of their supervised banks on a 

routine basis.

Nonbank issuers such as mortgage originators and servicers generally 

are not subject to consistently comprehensive federal safety and 

soundness standards. State regulators supervise nonbank entities that 

are chartered or licensed in their states to offer products and services 

related to the mortgage industry. According to the Conference of State 

Bank Supervisors, an industry organization that represents state banking 

regulators, there are initiatives currently in development intended to 

modernize state regulation of nonbank financial companies by 2020.

 20Nonbank can be defined broadly to cover any company that offers or provides consumer 

financial products or services but is not an insured depository institution. For our report, 

we generally use nonbank issuer to refer to a subset of nonbanks that engage primarily in 

mortgage-related activities, including loan origination and servicing.

21Depository institution charter types include commercial banks; thrifts, which include 

savings banks, savings associations, and savings and loans; and credit unions.

Institutions That Issue 

Ginnie Mae-Guaranteed 

MBS
Page 12 GAO-19-191 Ginnie Mae

Nonbanks also are subject to monitoring by market participants, such as 

the enterprises.22 FHFA is the safety and soundness regulator of the 

enterprises, and may set standards in certain areas that affect third 

parties that do business with the enterprises, including nonbanks that 

service loans on the enterprises’ behalf. For example, the enterprises, at 

FHFA’s direction, have issued updated eligibility requirements for their 

servicers.

Finally, the Dodd-Frank Wall Street Reform and Consumer Protection Act 

of 2010 subjects certain nonbanks to federal consumer financial 

protection laws.23 The Consumer Financial Protection Bureau (CFPB) has 

rulemaking authority to implement provisions of federal consumer 

financial law and has issued rules governing the mortgage market, 

including rules related to mortgage servicing. CFPB also has enforcement 

authority to assess nonbank mortgage originators and servicers for 

compliance with federal consumer financial laws, including CFPB’s 

mortgage servicing rules.24

Ginnie Mae’s mission statement is to link the U.S. housing market to the 

global capital markets, thus providing low-cost financing for federal 

housing programs. Ginnie Mae is a wholly owned government 

corporation, located within HUD, and is a primary funding mechanism for 

government-insured and government-guaranteed mortgage loans. Its 

administrative, staffing, and budgetary decisions are coordinated with 

HUD.25

 22For example, see GAO, Nonbank Mortgage Servicers: Existing Regulatory Oversight 

Could Be Strengthened, GAO-16-278 (Washington, D.C.: Mar. 10, 2016). In this report, 

we recommended that Congress consider granting FHFA explicit authority to examine 

third parties that do business with and play a critical role in the operations of the 

enterprises.

23See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-

203, §§ 1021-22, § 1024, 124 Stat. 1376, 1980 (2010) (codified at 12 U.S.C. §§5511 et 

seq.). 

24See Dodd-Frank Act, Pub. L. No. 111-203, § 1021-22, § 1024, 124 Stat. 1376, 1980, 

1987 (2010) (codified at 12 U.S.C. § 5511 et seq.).

25Ginnie Mae was created in 1968 with the passage of the Housing and Urban 

Development Act of 1968. Pub. L. No. 90-448, 82 Stat. 476 (1968) (codified as amended

at 12 U.S.C. §§ 1716-1723i). Ginnie Mae is authorized to guarantee the timely payment of 

principal and interest for securities backed by pools of federally insured or guaranteed 

mortgages. 12 U.S.C. § 1721(g).

Ginnie Mae’s Mission and 

Operations
Page 13 GAO-19-191 Ginnie Mae

Ginnie Mae comprises the following offices:

• Office of the President and Executive Vice President (oversees 

business and policy development),

• Office of the Chief Financial Officer (maintains financial management 

and operational controls),

• Office of Enterprise Risk (monitors and manages Ginnie Mae’s 

aggregate risk),

• Office of Capital Markets (directs and manages capital market 

activities),

• Office of Issuer and Portfolio Management (executes the MBS 

program through the institutions that issue and service Ginnie Maeguaranteed MBS),

• Office of Securities Operations (manages Ginnie Mae’s securitization 

platform),

• Office of Enterprise Data and Technology Solutions (manages 

enterprise-wide technical and information management strategies and 

solutions), and

• Office of Management Operations (manages human resources 

functions).

Ginnie Mae uses contractors to help support its offices and assist with 

many aspects of its work. Contracted functions include administering 

payments to investors, collecting data from issuers, and servicing 

defaulted portfolios.

Congress has considered proposals to make significant changes to the 

housing finance system. For example, during the 113th Congress (2013–

2015), three proposals—the Housing Finance Reform and Taxpayer 

Protection Act of 2014, S. 1217; the FHA Solvency Act of 2013, S. 1376; 

and the Protecting American Taxpayers and Homeowners Act of 2013, 

H.R. 2767—were reported out of committee but did not become law. The 

Protecting American Taxpayers and Homeowners Act of 2018 (H.R. 

6746) was introduced during the 115th Congress and referred to 

Reform of the Housing 

Finance System
Page 14 GAO-19-191 Ginnie Mae

committee, but no further action was taken. Industry groups and think 

tanks also have published reform proposals.26

Based on Ginnie Mae data, the dollar amount of Ginnie Mae-guaranteed 

MBS—in terms of the cumulative unpaid principal balance of outstanding 

Ginnie Mae-guaranteed MBS and annual issuance of new Ginnie Mae 

MBS—increased substantially since fiscal year 2007 (see fig. 4). The 

cumulative outstanding unpaid principal balance of Ginnie Mae MBS 

increased by 295 percent—from $500 billion as of September 30, 2007, 

to nearly $2.0 trillion as of September 30, 2018 (in fiscal year 2017 

dollars).27 The cumulative balance grew substantially after the 2007–2009 

financial crisis, largely because of the high growth rate in federally insured 

or guaranteed mortgages. New annual issuance of Ginnie Maeguaranteed MBS increased from $102 billion in fiscal year 2007 to nearly 

$427 billion in fiscal year 2018 and averaged nearly $442 billion per year 

in fiscal years 2009–2018 (in fiscal year 2017 dollars).

 26For example, see Michael Bright and Ed DeMarco, Toward a New Secondary Mortgage 

Market (Washington, D.C.: September 2016). 

27We adjusted the annual dollar amounts for inflation using the gross domestic product 

price index from the Bureau of Economic Analysis, with fiscal year 2017 as the base year.

Ginnie Mae’s 

Continued Growth 

and Changes in 

Issuers Have 

Increased Its 

Counterparty Credit 

Risk Exposure Since 

2007

Amount of MBS 

Outstanding Grew 

Substantially Since 2007 

and Increased Ginnie 

Mae’s Potential Exposure 

to Loss
Page 15 GAO-19-191 Ginnie Mae

Figure 4: Cumulative Outstanding Unpaid Principal Balance and New Annual Issuance, Ginnie Mae-Guaranteed MBS, at Year 

End, Fiscal Years 2005–2018 (in 2017 dollars)

Note: Annual dollar amounts are adjusted for inflation using the gross domestic product price index 

from the Bureau of Economic Analysis, with fiscal year 2017 as the base year.

While Ginnie Mae’s outstanding principal balance on its MBS grew from 

2007 through 2017, the enterprises’ year-end outstanding principal 

balances remained relatively stable. As a result, Ginnie Mae’s share of all 

year-end outstanding MBS increased from 8 percent in 2005 to 27 

percent in 2017 (see fig. 5).28 In the first quarter of 2017, Ginnie Mae’s 

outstanding balance surpassed Freddie Mac’s for the first time and 

reached $1.8 trillion by the end of 2017.29 Concurrently, the outstanding 

principal balance of nonagency (not federally guaranteed) MBS peaked at 

 28To compare Ginnie Mae’s outstanding principal balance to that of the enterprises, we 

used data from Inside Mortgage Finance. These data include single-family MBS but did 

not include multifamily MBS. See Inside Mortgage Finance, 2018 Mortgage Market 

Statistical Annual (Bethesda, Md.: 2018). 

29Inside Mortgage Finance data are reported by calendar year.
Page 16 GAO-19-191 Ginnie Mae

$2.6 trillion at year-end 2007 and fell to $474 billion by year-end 2017 (in 

2017 dollars).30

Figure 5: Cumulative Outstanding Unpaid Principal Balances, Agency MBS (Ginnie 

Mae, Fannie Mae, and Freddie Mac) and Nonagency MBS, at Year-End, Calendar 

Years 2005–2017 (in 2017 dollars)

Note: Annual dollar amounts are adjusted for inflation using the gross domestic product price index 

from the Bureau of Economic Analysis, with 2017 as the base year. Nonagency MBS, also referred to 

as private-label MBS, are issued by private institutions, such as investment banks, and are not 

guaranteed by Ginnie Mae or issued by the enterprises.

 30Nonagency MBS, also referred to as private-label MBS, are issued by private 

institutions, such as investment banks, and are not guaranteed by Ginnie Mae or issued 

by the enterprises.
Page 17 GAO-19-191 Ginnie Mae

In fiscal years 2008–2018, Ginnie Mae issued guarantees of MBS at a 

significantly higher rate than in previous years, leading Ginnie Mae to 

request increases in its commitment authority cap—the maximum amount 

of MBS Congress annually authorizes Ginnie Mae to guarantee (see fig. 

6).31 In response to the requests, Congress increased Ginnie Mae’s 

commitment authority from $200 billion to $300 billion for fiscal year 2009 

and to $500 billion for fiscal year 2010 to meet the increased demand for 

Ginnie Mae-guaranteed MBS. Ginnie Mae issued guarantees for $504.6 

billion of MBS in fiscal year 2017 and $427 billion in fiscal year 2018 (in 

fiscal year 2017 dollars).32 To address the increasing demand in recent 

years, Ginnie Mae requested an increase to the cap (to $550 billion) for 

fiscal year 2019.

 31The total annual amount of commitment authority that Ginnie Mae can approve in any 

fiscal year is limited by statute and administrative procedures. Before an approved issuer 

may issue Ginnie Mae MBS, it must apply to Ginnie Mae for commitment authority to 

guarantee MBS (in an amount equal to or greater than the MBS the issuer plans to issue).

32HUD’s annual appropriation has provided for annual caps on Ginnie Mae’s commitment 

authority—the limit on the dollar volume of new securities that the agency can guarantee. 

Annual commitment authority for Ginnie Mae generally has been available for 2 fiscal 

years. That is, Ginnie Mae can use “carry-over” authority from the prior year to make 

current year commitments (and used it in 2017, when the annual 1-year cap was 

exceeded). 
Page 18 GAO-19-191 Ginnie Mae

Figure 6: Annual Issuance of Ginnie Mae-Guaranteed MBS Relative to Maximum Level of Commitment Authority, Fiscal Years 

2005–2018

Note: The annual commitment authority Ginnie Mae receives generally has been available for 2 fiscal 

years. Ginnie Mae can use “carry-over” authority, when available, from the previous year to make 

current year commitments. In 2008, 2009, and 2017, Ginnie Mae used carry-over authority to 

continue to issue MBS. Numbers are not adjusted for inflation, as commitment authority represents 

budget data.

Ginnie Mae’s growing potential exposure to loss corresponded to the 

growth of its cumulative outstanding unpaid principal balance. Because of 

its MBS payment guarantee, Ginnie Mae is exposed to counterparty 

credit risk: the risk of loss if an issuer defaults. If an issuer defaulted, 

Ginnie Mae might need to service the loans underlying the MBS and 

advance principal and interest payments to investors. Ginnie Mae’s 

outstanding MBS balance of nearly $2.0 trillion largely represents its 

maximum potential exposure to loss. However, the amount does not 

represent Ginnie Mae’s actual exposure because it does not account for 

insurance or guarantee claims or the recoveries Ginnie Mae would 
Page 19 GAO-19-191 Ginnie Mae

receive by exercising its right to the underlying collateral.33 As previously 

discussed, Ginnie Mae could incur losses when FHA, VA, or other federal 

insurance and guarantees do not cover expenses that result from issuer 

defaults, and such expenses include unrecoverable losses from borrower 

defaults due to coverage limitations on mortgage insurance or 

guarantees.

Based on Ginnie Mae data, nonbanks became more prominent in Ginnie 

Mae’s issuer base as the amount of MBS issuance shifted from 82 

percent banks and 18 percent nonbanks in fiscal year 2011 to 22 percent 

banks and 78 percent nonbanks in fiscal year 2018 (see fig. 7).34 While 

the number of banks issuing Ginnie Mae-guaranteed MBS increased by 

52 percent from fiscal year 2011 to fiscal year 2018, the number of 

nonbanks doubled in that time period. Consequently, the average amount 

issued per nonbank issuer increased from $484 million to $1.16 billion in 

the same time frame (in fiscal year 2017 dollars). However, concentration 

of MBS issued by nonbanks also increased among the largest nonbank 

issuers, as discussed in more detail later.

 33Collateral includes mortgage servicing rights, which represent Ginnie Mae’s rights and 

obligations to service mortgage loans underlying a defaulted issuer’s entire Ginnie Maeguaranteed MBS portfolio. Ginnie Mae receives a monthly servicing fee based on the 

remaining unpaid principal balance of the loans. The servicing fees are included in and 

collected from payments made by the borrower. Ginnie Mae hires and pays contractors to 

service its pooled mortgage loans. According to Ginnie Mae officials, they use a riskbased capital model to estimate the agency’s potential future exposure from issuer 

defaults under a stressed environment.

34We did not include fiscal years 2005–2010 in figure 7 because we did not report 

information on the number of institutions and amount of issuance for these years in 

GAO-12-49. 

Issuer Base Shifted from 

Mostly Banks to 

Nonbanks, Presenting 

Oversight Challenges and 

Risk for Ginnie Mae

Changes to Issuer Base
Page 20 GAO-19-191 Ginnie Mae

Figure 7: Number of Institutions Issuing Ginnie Mae-Guaranteed MBS (left) and Amount of Issuance in Millions (right and in 

2017 dollars), Fiscal Years 2011–2018

Note: Annual dollar amounts are adjusted for inflation using the gross domestic product price index 

from the Bureau of Economic Analysis, with fiscal year 2017 as the base year.

The increase in nonbank issuers corresponded to banks exiting and 

reducing their share of the mortgage lending market after the 2007–2009 

financial crisis. A recent working paper by staff of the Board of Governors 

of the Federal Reserve System cited several reasons for banks reducing 

their share of the mortgage lending market, such as liability from legal 

settlements and increased capital requirements for mortgage servicing 

rights.35 Following the financial crisis, the enterprises and the federal 

government worked to recover credit losses from loan originators, most of 

 35The paper also cited rapid nonbank technology adoption and growth of the subservicing 

sector as factors facilitating the rise of the nonbank sector. You Suk Kim, Steven M. 

Laufer, Karen Pence, et al., Liquidity Crises in the Mortgage Market, Finance and 

Economics Discussion Series 2018-016 (Washington, D.C.: Mar. 7, 2018).
Page 21 GAO-19-191 Ginnie Mae

which were banks. Additionally, the passage of the Fraud Enforcement 

and Recovery Act in 2009 allowed the Department of Justice to litigate 

additional mortgage-related violations.36 These actions placed greater 

financial constraints on banks, as they carried more exposure from their 

previously issued loans than nonbanks.

As banks reduced their engagement and overall holdings in government 

lending programs, nonbanks generally were unhampered by bank capital 

requirements, allowing them to quickly adapt to innovations in financial 

technology and profit from refinancing mortgages. For example, 

according to a study by the Department of the Treasury, many nonbank 

lenders were early adopters of financial technology innovations, which 

simplified the loan application and approval process.37 Such factors 

allowed nonbanks to increase their issuance and servicing of MBS. 

Nonbanks went from holding $191 billion of Ginnie Mae’s outstanding 

balance as of September 30, 2011—versus $1.1 trillion for banks—to 

$1.3 trillion as of September 30, 2018—versus $692 billion for banks (in 

2017 dollars).

Nonbank issuers have helped ensure consumer access to federally 

insured mortgages, but according to Ginnie Mae officials, the sharp 

growth in nonbank issuers increased oversight challenges and costs 

associated with monitoring them. In its 2017 annual report, Ginnie Mae 

noted that the majority of nonbank issuers involve more third parties in 

their MBS transactions—making its oversight of the issuers more 

complicated.38 Ginnie Mae also noted that monitoring nonbanks greatly 

increased its staff workload. The number of Ginnie Mae issuers increased 

from 201 in 2011 (145 of which were nonbanks) to 375 in 2018 (290 of 

which were nonbanks).

As HUD OIG reported in 2017, when banks dominated the issuer base, 

Ginnie Mae relied, in part, on the oversight of federal banking regulators, 

 36Pub. L. No. 111–21, 123 Stat. 1617 (2009). This law enhanced criminal enforcement of 

federal fraud laws, especially regarding financial institutions, mortgage fraud, and 

securities or commodities fraud.

37Department of the Treasury, A Financial System That Creates Economic Opportunities: 

Nonbank Financials, Fintech, and Innovation (Washington, D.C.: July 2018).

38Ginnie Mae 2017 Annual Report.

Oversight Challenges and 

Potential Risks Associated with 

Nonbanks
Page 22 GAO-19-191 Ginnie Mae

which conduct safety and soundness supervision.39 As previously 

discussed, nonbank issuers generally are not subject to the same federal 

safety and soundness regulation as banks. Rather, market participants 

(including Ginnie Mae and the enterprises) monitor nonbank servicer 

activities to manage risk exposure to the nonbank mortgage servicers. 

HUD OIG reported that Ginnie Mae has functioned, in effect, as the “first 

line of defense” to evaluate nonbanks for financial and operational 

soundness. In addition, as we previously reported, some state regulators 

monitor nonbank servicers through their licensing and examination 

programs, but requirements are not consistent across states.40

Although nonbank issuers generally are not subject to the same federal 

safety and soundness regulations as banks, CFPB has supervisory and 

enforcement authority with respect to their compliance with federal 

consumer financial protection laws. We reported in 2016 that incomplete 

information on the identity of nonbanks may hinder those responsible for 

oversight of nonbanks.41 According to Ginnie Mae and CFPB officials, 

they meet to discuss broad issues and trends relating to nonbank 

servicing.

In 2018, the Department of the Treasury recommended that Ginnie Mae 

collaborate with FHFA, the enterprises, and the Conference of State Bank 

Supervisors to expand and align standard, detailed reporting 

requirements on the financial health of nonbank counterparties (including 

terms and covenants associated with funding structures) to provide 

confidence that taxpayers would be protected during a period of severe 

market stress.42 Furthermore, in 2015 a task force of the Conference of 

State Bank Supervisors issued proposed prudential standards for 

nonbank servicers after they found a lack of consistently comprehensive 

 39Department of Housing and Urban Development, Office of Inspector General, Ginnie 

Mae Did Not Adequately Respond to Changes in Its Issuer Base, 2017-KC-0008 (Kansas 

City, Kans.: Sept. 21, 2017).

40GAO-16-278.

41To improve CFPB’s ability to monitor the effect of nonbank servicers on consumers, we 

recommended that CFPB take action to collect more comprehensive data on the identity 

and number of nonbank mortgage servicers in the market. To address the 

recommendation, CFPB analyzed National Mortgage Licensing System data and identified 

880 additional servicers, resulting in a list of 1,050 mortgage servicing entities. See 

GAO-16-278. 

42See A Financial System That Creates Economic Opportunities: Nonbank Financials, 

Fintech, and Innovation.
Page 23 GAO-19-191 Ginnie Mae

safety and soundness standards. As of February 2019, the Conference of 

State Bank Supervisors had not reported on actions taken after receiving 

comment letters on the proposal.43

In addition, some recent research suggests that nonbanks may expose 

Ginnie Mae to greater liquidity, default, and other risks in comparison with 

banks. More specifically,

• In 2018, staff from the Board of Governors of the Federal Reserve 

System found that nonbanks are exposed to significant liquidity risks 

in their funding of mortgage originations and servicing of mortgages.44

They also found that nonbank issuers rely more on credit lines 

provided mostly by banks, securitizations involving multiple players, 

and more frequent trading of mortgage servicing rights than banks. 

For instance, during times of stress, lenders to nonbanks have the 

right to quickly pull their lines of credit and seize and sell the 

underlying collateral when nonbanks do not maintain certain levels of 

net worth.45

• According to researchers from the Urban Institute, nonbank servicers 

have substantial exposure to interest rate risk and default risk, and 

recent increases in Ginnie Mae’s capital, liquidity, and net worth 

requirements may not be sufficient to protect against these risks.46

We and HUD OIG also previously identified risks posed by nonbanks. In 

2016, we reported that some servicers, including specialty servicers, have 

business models that result in significant concentrations of mortgage 

servicing rights on their balance sheets relative to capitalization and 

 43As previously discussed, in March 2017, the Conference of State Bank Supervisors, an 

industry organization that represents state banking regulators, announced Vision 2020, a 

series of initiatives intended to modernize state regulation of nonbank financial companies 

by 2020 and make supervision more efficient by recognizing standards across state lines.

44Kim, Laufer, Pence, et al., Liquidity Crises in the Mortgage Market.

45Nonbank issuers typically rely on credit lines provided by warehouse lenders, which tend 

to be commercial and investment banks. Warehouse lending is a process by which 

lenders extend lines of credit to nonbanks to fund mortgages until the nonbank finds a 

willing investor. Warehouse lenders generally can adjust the terms or cancel lines if 

nonbanks violate any of the covenants of the contract, including maintaining certain levels 

of net worth and profitability. See Liquidity Crises in the Mortgage Market.

46Karen Kaul and Laurie Goodman, Nonbank Servicer Regulation: New Capital and 

Liquidity Requirements Don’t Offer Enough Loss Protection, Housing Finance Policy 

Center, Urban Institute (Washington, D.C.: Feb. 25, 2016).
Page 24 GAO-19-191 Ginnie Mae

servicing income as their principal source of revenue.47 As a result, while 

all holders of mortgage servicing rights are sensitive to changes in the 

value of mortgage servicing rights, some nonbanks are particularly 

vulnerable to these fluctuations due to a lack of diversification. Our report 

also noted that values of mortgage servicing rights are highly volatile, as 

they depend on interest rates and loan mortgage defaults.48 These 

fluctuations can affect perceptions of the financial condition of institutions 

and therefore the willingness of creditors to provide them with the liquidity 

required for critical operations. Additionally, in 2017, HUD OIG found that 

Ginnie Mae’s issuer base changed dramatically—from banks to 

nonbanks—but that Ginnie Mae did not assess and address the risks 

posed by nonbanks in a timely manner, citing a failure to consider 

strategic issues and determine the maximum-size issuer default Ginnie 

Mae could manage.

Since we last reported on this issue in 2011, the overall issuer 

concentration risk has decreased, but concentration risk among nonbank 

issuers has increased. Ginnie Mae faces concentration risk when a 

significant number of issuers are susceptible to similar changes in 

economic conditions that could affect their ability to meet contractual 

obligations.49 Ginnie Mae’s fiscal year 2017 Annual Report to Congress 

stated that the increase in nonbank issuers has distributed the amount of 

annually issued MBS across more issuers, thus decreasing its 

concentration of bank issuers.

• In fiscal year 2011, the top five issuers accounted for 70 percent of 

the approximately $383 billion (in fiscal year 2017 dollars) in MBS 

issued that year, and four of them were banks, including the top three 

issuers.

 47GAO-16-278. Ginnie Mae officials and Freddie Mac representatives said that some 

newer nonbank servicers issue debt to acquire mortgage servicing rights and then rely on 

returns from those mortgage servicing rights to repay their debts.

48GAO-16-278. As interest rates decline, loans are more likely to be prepaid due to 

enhanced refinancing opportunities. As a result, the total value of existing mortgage 

servicing rights declines because no further servicing fees are collected on the prepaid 

loans. 

49GAO-12-49. In 2011, we reported that Ginnie Mae planned to expand the number of 

issuers by marketing its MBS program to smaller financial institutions, such as credit 

unions and state housing finance agencies, because the concentration of the MBS 

portfolio among a few issuers represented some level of risk to Ginnie Mae. However, 

Ginnie Mae’s increase in issuers resulted from higher issuance by banks and independent 

mortgage banks (non-depository institutions).

Issuer Concentration Risk
Page 25 GAO-19-191 Ginnie Mae

• In fiscal year 2018, the top five issuers accounted for 34 percent of 

the approximately $429 billion (in fiscal year 2017 dollars) in MBS 

issued that year, and four of them were nonbanks, including the top 

three issuers.50

While the number of nonbanks issuing Ginnie Mae-guaranteed MBS 

increased, the concentration of MBS among the largest nonbank issuers 

also increased. Between 2011 and 2018, the average MBS issuance by 

the top five nonbank issuers increased from $7.2 billion to $28.7 billion (in 

fiscal year 2017 dollars). As a result, the concentration of nonbanks 

issuing Ginnie Mae-guaranteed MBS and the increase in MBS held by the 

largest nonbank issuers may expose Ginnie Mae to concentration risk. 

For example, as of September 2018, the vast majority of the issuers on 

Ginnie Mae’s Watch List—an enhanced oversight tool used to monitor 

issuers exposing Ginnie Mae to relatively high credit or operational risk 

(discussed in additional detail later)—were nonbank issuers.51

While the volume of loans that underlie Ginnie Mae-guaranteed MBS 

grew substantially, the share of fully guaranteed federal loans underlying 

Ginnie Mae MBS decreased (see fig. 8). This could expose Ginnie Mae to 

greater losses in the event of an issuer default and extinguishment. 

Specifically, FHA typically insures 100 percent of each loan, but VA 

typically insures 25 percent of each loan. We found that the total percent 

of FHA loans underlying Ginnie Mae-guaranteed MBS (issued each year) 

decreased from 72 percent in 2005 percent to 59 percent in 2018 but the 

percent of VA loans underlying Ginnie Mae-guaranteed MBS (each year) 

increased from 25 percent in 2005 to 37 percent in 2018. If issuers of 

MBS with a concentration of VA loans defaulted, they could expose 

Ginnie Mae to greater losses than issuers of MBS with a concentration of 

FHA loans.52 VA officials stated that historically low interest rates and 

 50The top five issuers’ share of issuance may not capture all elements of concentration 

risk. For example, if the top five issuers’ share declined but they issued MBS using 

mortgages on homes in the same state, then they would be susceptible to changes in 

economic conditions in that state, which also creates concentration risk.

51Operational risk is the risk of loss resulting from inadequate or failed internal processes, 

people, and systems or from external events.

52According to Ginnie Mae officials, VA loans typically have lower default rates than FHA 

loans, in part because their borrowers have higher credit scores, but VA loans can have a 

higher loss given default than FHA loans if home prices declined.

Growth in the Share of VA 

Loans Underlying MBS 

Could Increase Ginnie 

Mae’s Losses from Issuer 

Defaults
Page 26 GAO-19-191 Ginnie Mae

other market factors drove the growth in VA-insured loans, including an 

increase in the number of service members being discharged.

Figure 8: Federally Insured and Guaranteed Mortgages Pooled into New Ginnie Mae-Guaranteed MBS, Fiscal Years 2005–2018 

(in 2017 dollars)

Note: Due to their relatively small volume, the figure does not include mortgages from the Office of 

Public and Indian Housing, which accounted for $509 million of Ginnie Mae-guaranteed mortgagebacked securities in fiscal year 2011 and $563 million in fiscal year 2018. Annual dollar amounts are 

adjusted for inflation using the gross domestic product price index from the Bureau of Economic 

Analysis, with fiscal year 2017 as the base year.

In November 2016, CFPB published a report on trends found from its 

review of about 1,800 servicemember mortgage complaints on the topic 

of refinancing in roughly the past 6 years.

53 As the housing market 

rebounded, CFPB heard less about veterans struggling to refinance their 

loans when facing a financial hardship or imminent default and more 

 53Consumer Financial Protection Bureau, A Snapshot of Servicemember Complaints

(Washington, D.C.: Nov. 10 2016).
Page 27 GAO-19-191 Ginnie Mae

about veterans facing refinancing problems when trying to get potentially 

more favorable loan terms. For example, one of the key findings was that 

veterans reported aggressive solicitations, misleading advertisements, 

and failed promises by lenders. In 2017, Ginnie Mae recognized these 

problems and their negative effect on the value of Ginnie Mae MBS while 

increasing costs for VA borrowers. To combat potential lender abuses, 

Ginnie Mae and VA created a joint task force charged with analyzing 

monthly data and developing additional policy. Ginnie Mae changed 

eligibility requirements for VA-insured or guaranteed mortgages to help 

stop abuses connected with refinancing programs targeting veterans to 

refinance their loans multiple times (called churning). Additionally, Ginnie 

Mae identified and required a small number of issuers potentially 

engaging in churning to complete corrective action plans. Subsequently, 

Ginnie Mae restricted three issuers to pooling single-family loans 

guaranteed by VA in certain MBS until they met certain performance 

metrics. We discuss issuer oversight in more detail later in the report.

In light of the increase in its maximum potential exposure to loss, shift in 

issuer base, and other changes, Ginnie Mae has taken actions since we 

last reported on this issue in 2011 to enhance its risk-management 

framework to oversee MBS issuers. The risk-management framework 

covers (1) review and approval of new issuers, (2) monitoring of issuers, 

(3) enforcement actions, and (4) management of issuer defaults, 

Since 2011, Ginnie 

Mae Has Enhanced 

Its Oversight of 

Issuers but Has Not 

Yet Fully Considered 

a Key Option for 

Helping to Manage 

Aggregate Risks

Ginnie Mae Enhanced Its 

Issuer Risk-Management 

Framework, and Some 

Actions Are In Process
Page 28 GAO-19-191 Ginnie Mae

terminations, and extinguishments.54 A key risk to Ginnie Mae is that 

issuers will default because of a financial shortfall or an operational 

deficiency. We found that Ginnie Mae has been developing new and 

updated existing policies and procedures since 2011—including those for 

monitoring issuers and managing issuer defaults. We discuss some of the 

policies and procedures below.

Ginnie Mae enhanced its process for reviewing and approving new 

issuers in recent years.55 Ginnie Mae officials told us that the agency 

previously had a paper-based review process and one staff reviewing 

applications. Officials said that outstanding applications increased from 5 

in 2007 to 123 in 2012, which was unsustainable. According to the 

officials and our review of Ginnie Mae documentation, in 2014 Ginnie 

Mae implemented an electronic process to manage the application review 

work flow, assign tasks to staff, and establish time frames for tasks. 

Additionally, the officials said that Ginnie Mae increased staff resources 

for issuer analytics capabilities and leveraged a portion of staff time to 

resolve the application backlog.

According to Ginnie Mae officials, as of September 2018, the agency 

utilized four in-house staff and had three contractor staff supporting the 

review process.56 According to Ginnie Mae data, in fiscal years 2011–

2015, some applications took more than 1 year to be approved from the 

date of submission. Officials added that the agency’s efforts reduced the 

application review time of 9–12 months at the height of the backlog to an 

average of 3.7 months in 2017, under its new goal of completing each 

 54In accordance with its statute, regulations, guaranty agreements, and MBS Guide, at its 

sole discretion Ginnie Mae may declare an issuer in default of its responsibilities under the 

MBS program. For example, issuers may be in default due to failure to remit funds, 

impending insolvency, unauthorized use of custodial funds, or any submission of false 

reports. In the event of an issuer’s default, Ginnie Mae has the right to terminate the 

issuer’s status and extinguish the issuer’s rights in the Ginnie Mae portfolio.

55Under Ginnie Mae’s MBS Guide, potential issuers must meet certain minimum financial 

and other eligibility requirements to be approved by Ginnie Mae to issue MBS. Eligibility 

requirements include that an applicant is an FHA-approved mortgagee in good standing; 

conducts its business in accordance with accepted mortgage lending and servicing 

practices, ethics, and standards; has a fidelity bond and a mortgagee’s errors and 

omissions policy; and meets minimum net worth and liquidity requirements. 

56According to Ginnie Mae officials, in-house staff contribute 10–15 percent of their time to 

the process. Contractors generally conduct the initial review of applications, which is 

procedural and includes reviewing and gathering the submitted documents from 

applicants.

Review and Approval of New 

Issuers
Page 29 GAO-19-191 Ginnie Mae

application in 4–6 months.57 The officials said that the actual time it takes 

to complete this process depends on the size and complexity of the 

institution applying to be an issuer and how quickly the institution can 

submit the required documentation.

In 2014 and in response to the shift in its issuer base from banks to 

nonbanks, Ginnie Mae issued an “all participant” memorandum to 

announce its plan to revise its MBS Guide to increase the minimum 

financial requirements for new (and existing) issuers to participate in its 

MBS programs.58 When Ginnie Mae amended its MBS Guide, it 

increased the minimum adjusted net worth and liquid asset requirements 

for issuers participating in its single-family MBS program.59 According to a 

2014 Ginnie Mae press release, the new issuer requirements were 

intended to support the agency’s continued efforts to effectively monitor 

risk and appropriately evaluate issuers’ financial strength, performance, 

and stability.

Under its MBS Guide, Ginnie Mae also implemented a 1-year 

probationary period for newly approved issuers, which begins when they 

first issue MBS or acquire existing Ginnie Mae MBS. According to the 

MBS Guide, Ginnie Mae will monitor such issuers for data integrity and 

quality, among other things. Newly approved issuers also receive a 

compliance review after 6 months of program participation and annually 

for the next 2 years. In comparison, other issuers may receive compliance 

reviews every 1–3 years, depending on their risk level (discussed in the 

following section).

According to a Ginnie Mae publication on strategies for the MBS program, 

issuer monitoring helps Ginnie Mae to identify in advance those issuers at 

 57The total number of applications submitted annually declined from a high of 110 in 2012 

to a low of 42 in 2017, based on Ginnie Mae data.

58Government National Mortgage Association, New Issuer Net Worth and Liquidity 

Requirements, APM 14-16 (Washington, D.C.: Oct. 17, 2014). Issuers are required to 

follow the Ginnie Mae MBS Guide and all participant memorandums, which generally 

announce policy and MBS Guide changes. 

59More specifically, Ginnie Mae increased the minimum adjusted net worth requirement 

for single-family issuers from $2.5 million plus 0.20 percent of the issuer’s total effective 

outstanding single-family obligations to $2.5 million plus 0.35 percent of the issuer’s total 

effective outstanding single-family obligations. It revised the minimum liquidity requirement 

for single-family issuers from 20 percent of required net worth to the greater of $1 million 

or 0.10 percent of the issuer’s outstanding single-family MBS.

Monitoring of Issuers
Page 30 GAO-19-191 Ginnie Mae

risk of defaulting and to take action to minimize its losses.60 Ginnie Mae 

monitors bank and nonbank issuers using issuer risk scorecards, models, 

and other risk-management techniques, such as audits and reviews. As 

described in its annual reports to Congress and other documentation, 

Ginnie Mae has had to assume the responsibility of evaluating and 

monitoring nonbank issuers for financial and operational stability, 

because nonbank issuers generally are not subject to the same safety 

and soundness supervision and regulation as banks.61

Monitoring Tools and Techniques

Based on our review of Ginnie Mae’s policies and procedures, since we 

last reported on these issues in 2011, Ginnie Mae has developed new 

risk-management tools or techniques and enhanced existing ones to 

monitor issuers, including their financial condition and operational 

capabilities. Such tools and actions include the following:

• Watch List. Ginnie Mae developed the Watch List (which Ginnie Mae 

officials said was created in 2008) as a formal compilation of issuers 

warranting more intensive monitoring because of their credit or 

operational risk.62 According to the Watch List policy, Ginnie Mae 

uses financial and compliance data, among other things, to determine 

which issuers are placed on the list. The policy establishes three 

Watch List categories: category I issuers have a higher relative 

corporate risk of financial default, category II issuers represent serious 

financial or program noncompliance or operational risk to Ginnie Mae, 

and category III issuers are not in compliance with certain Ginnie Mae 

MBS program requirements or may have an inadequate operational 

 60Government National Mortgage Association, Ginnie Mae 2020: Roadmap for Sustaining 

Low-Cost Homeownership (Washington, D.C.: June 2018).

61In its 2017 audit, HUD OIG found that Ginnie Mae made progress on nonbank oversight 

but had not, among other things, considered the potential effects of the growth of 

nonbanks on its organization. See Department of Housing and Urban Development, Office 

of Inspector General, Audit Report No. 2017-KC-0008.

62According to Ginnie Mae officials, the Watch List’s format and organization underwent 

substantial revision following the 2012 implementation of CorporateWatch, which helps 

analyze the risk of defaults through the use of financial metrics. Ginnie Mae also uses the 

Watch List as the mechanism to determine which issuers must use a nonstreamlined 

commitment authority process, which requires additional reviews and approvals. Issuers 

not on the Watch List can apply for commitment authority using the streamlined approach, 

which requires fewer reviews. As discussed later in this section, Ginnie Mae may limit an 

issuer’s commitment authority to enforce findings.
Page 31 GAO-19-191 Ginnie Mae

risk-management infrastructure. Based on our review of the 

September 2018 Watch List, we found that the vast majority of issuers 

on the list were nonbanks. According to Ginnie Mae officials, if an 

issuer is on the Watch List, Ginnie Mae actively manages the account 

until the issuer is taken off the Watch List.63 Ginnie Mae officials also 

said they have continued to enhance the Watch List and have been 

incorporating both financial and nonfinancial information to further 

align the list with a credit rating agency methodology.

• CorporateWatch. In 2012, Ginnie Mae implemented 

CorporateWatch, which helps it analyze the risk of potential defaults 

through the use of financial metrics. CorporateWatch models and 

assigns an issuer an internal risk grade using an internally developed, 

proprietary risk‐rating methodology that leverages data from issuer 

financial statements.64 The issuer’s risk grade reflects its likelihood of 

default relative to its peers, often relating to an issuer’s financial 

health. According to its procedures, Ginnie Mae puts its highest-risk 

issuers on its Watch List (discussed above). Ginnie Mae officials said 

that staff review and assign each issuer an updated risk grade every 

month and that in 2019 the agency plans to begin educating the 

industry about the general drivers of risk grades and how it currently 

uses and potentially might use them. According to its fiscal year 2018 

procurement plan, Ginnie Mae planned to procure a contractor to 

validate its models and make recommendations for improving them.65

• Issuer Operational Performance Profile. In 2015, Ginnie Mae 

implemented a scorecard for issuers, the Issuer Operational 

Performance Profile, to measure an issuer’s operational performance 

against peer issuers through operational and default metrics. The 

operational metrics are to measure the ability of an issuer to operate 

 63Under the Watch List policy, Ginnie Mae staff are responsible for addressing causal 

factors that result in an issuer’s inclusion on the Watch List. Ginnie Mae officials said that

issuers also can be added due to their business profile and geographic concentration. For 

example, states with judicial foreclosure processes can lengthen default timelines.

64Ginnie Mae developed models to estimate the potential future exposure of individual 

issuers and probability of prepayment or borrower default. The models are used to 

compute loan-level forecasts for loan-level prepayment and probability of defaults. 

Another model estimates the amount of risk-based capital the agency should be holding.

65In fiscal year 2015, HUD OIG found weaknesses in Ginnie Mae’s governance framework 

for risk management. In fiscal year 2017, HUD OIG reported partial implementation of 

those recommendations and that Ginnie Mae’s entity-wide governance of models was not 

fully implemented, which included developer testing and independent validation. In its 

fiscal year 2018 follow-up on these recommendations, HUD OIG determined that the issue 

related to developer testing and independent validation was not fully resolved.
Page 32 GAO-19-191 Ginnie Mae

effectively within the scope of Ginnie Mae’s program requirements, 

and the default metrics are to measure the issuer’s ability to manage

its delinquent portfolio effectively. Scorecard results are to be 

provided to issuers on a monthly basis.66 According to Ginnie Mae 

officials, while the Issuer Operational Performance Profile remains in 

a pilot phase, they added metrics to the profile in 2017 and 2018 and 

continue to enhance the tool. The officials said that at this phase of 

implementation, the scorecard has been widely adopted by issuers as 

the basis for understanding their operational performance in the 

program. The officials also said that Ginnie Mae staff use the results 

to assist in the management of issuers and help ensure issuer 

compliance with program requirements.

• Spotlight and special situation issuers. Ginnie Mae adopted a 

policy to designate issuers as spotlight issuers and subject them to 

more intensive monitoring. According to a 2017 policy document, 

issuers are subject to more intensive monitoring based on factors 

such as size, growth, business model, complexity, or nontraditional 

structures or characteristics. According to Ginnie Mae officials, 12 of 

the largest and most complex issuers were spotlight issuers as of 

September 2018.67 Ginnie Mae officials said that during monthly calls, 

issuers report on any business changes and transactions to Ginnie 

Mae and submit regular reports. Additionally, in 2017, Ginnie Mae 

adopted a separate policy to identify certain issuers as special 

situation issuers, indicating the presence of a risk of compliance 

issues judged to be threatening to the issuer’s standing with Ginnie 

Mae. This policy subjects these issuers to additional compliance or 

risk considerations, such as nonstandard communication protocols or 

enhanced monitoring. Ginnie Mae officials said that they have been 

developing an enhanced monitoring plan and framework for these 

issuers.

According to Ginnie Mae officials, the agency has considered using issuer 

stress tests to help monitor and manage issuers since 2015 but has not 

 66Ginnie Mae scores issuers on a scale of 1–4, with 1 denoting good standing and 4 bad 

standing. The scores are determined by rating each issuer against a pre-defined peer 

group.

67In fiscal year 2017, the total principal balance of the 12 issuers represented 

approximately 49 percent of Ginnie Mae’s total outstanding unpaid principal balance, 

based on Ginnie Mae-provided data. Additionally, 11 of the 12 issuers were nonbanks.
Page 33 GAO-19-191 Ginnie Mae

yet implemented the tests.68 The officials said that they still plan to subject 

nonbank issuers to stress tests to manage counterparty credit risk and 

hired a contractor to help the agency design the stress test model and 

conduct the tests. In a publication from June 2018, Ginnie Mae noted that 

it would phase in the new stress test requirements to analyze how 

issuers’ financial strength could be affected by adverse future scenarios.69

Ginnie Mae further noted that stress testing exercises would play an 

increased role in its dialogues with issuers and future oversight activities. 

According to Ginnie Mae officials, once the stress test model is 

operational, Ginnie Mae will use the test results and inputs from other 

risk-management models to assess issuers.

Issuer Audits and Reviews

Based on our review of Ginnie Mae’s procedures and related documents, 

we found that Ginnie Mae also conducts audits and reviews to monitor 

issuers and assess their operational capabilities. Such audits and reviews 

include the following:

• Compliance reviews. In these on-site reviews, contractors examine 

an issuer’s operations and assess how well the operations conform to 

the requirements in Ginnie Mae’s MBS Guide and follow other 

guidance. There are two levels of compliance reviews: standard and 

expanded. Issuers can be subject to compliance reviews every 1–3 

years, depending on their level of risk. According to Ginnie Mae 

officials, the agency has been subjecting more issuers to expanded 

compliance reviews because of issuer complexity or newly discovered 

issues. The officials also said that high- and medium-risk findings 

increased from 2011 to 2016 because Ginnie Mae made its 

compliance reviews stricter since 2011 by adding additional tests.70

• Desktop audits. According to Ginnie Mae documentation, desktop 

audits review an issuer’s business processes to identify operational 

risk issues and gaps. For example, a desktop audit may be conducted 

because the issuer is unable to follow the agency’s requirements or 

 68A stress test is a “what-if” scenario that is not a prediction or expected outcome of the 

economy but shows the outcome of the model in extreme economic circumstances.

69Ginnie Mae 2020: Roadmap for Sustaining Low-Cost Homeownership.

70In 2011–2016, the number of reviews increased from 114 to 186 based on Ginnie Maeprovided data. Additionally, total high- and medium-risk findings increased from 323 to 

825. In the same period, the number of expanded reviews and resolved findings doubled.
Page 34 GAO-19-191 Ginnie Mae

has shown signs of financial distress. Desktop audits have a more 

limited scope than on-site operational reviews (discussed below) and 

findings could result in an operational review. According to Ginnie 

Mae officials, desktop audits can lead to enforcement actions, but 

Ginnie Mae typically uses compliance reviews for such purposes.

• Operational reviews. According to Ginnie Mae documentation, 

operational reviews have a broader focus than desktop audits and are 

conducted on-site. The document notes that operational reviews 

include assessments of loan administration, default management, and 

document custody—each considering 10 dimensions (corporate

governance, business content, human resources, policies and 

procedures, business continuity planning, technology, vendor 

management, internal and external audit, management oversight, and 

communications).

According to statute, regulations, and Ginnie Mae policy, Ginnie Mae’s 

enforcement program utilizes civil money penalties based on specific 

criteria for imposing such penalties.71 According to Ginnie Mae officials, 

the agency has issued civil money penalties totaling $6.2 million since 

2014. The officials told us that Ginnie Mae generally had issued letters 

advising issuers with recurring compliance issues to correct the issues 

instead of using civil money penalties. But the officials said that issuer 

conduct often showed little improvement, so stricter sanctions were 

necessary. According to Ginnie Mae officials, the use of civil money 

penalties has been effective in addressing compliance problems.

Ginnie Mae officials said the agency also has used letters of 

understanding to address compliance issues or other concerns with 

issuers. The officials said that letters of understanding can be used as a 

tool to compel an issuer to address concerns and practices that increase 

the risk exposure to Ginnie Mae, while allowing the issuer to remain in 

Ginnie Mae’s MBS program. For example, we found that Ginnie Mae sent 

an issuer a letter of understanding to direct the issuer to enhance its 

financial condition after finding the issuer marginally met the MBS Guide’s 

minimum net worth and liquidity requirements.

 71According to Ginnie Mae’s statute and implementing regulations, civil monetary 

penalties may be imposed for violations of the statute, regulations, MBS guide, guaranty 

agreements, and other agreements between Ginnie Mae and the issuer. The amount of 

the penalty is determined per violation or per pool.

Enforcement Tools
Page 35 GAO-19-191 Ginnie Mae

According to Ginnie Mae officials, under a new counterparty riskmanagement initiative, the agency also began using notification letters in 

June 2018 to advise issuers about Ginnie Mae’s concerns regarding net 

worth, liquidity, or other financial matters and mitigate counterparty credit 

risk to Ginnie Mae.72 Ginnie Mae officials said that the agency sent 

notification letters to around 12 issuers (as of September 2018), 

mandating that they meet specified financial or operational requirements. 

The Ginnie Mae officials added that they limit the amount of commitment 

authority they approve for the issuers until those issuers meet the 

requirements. The officials explained that this new policy will enable 

Ginnie Mae to link issuer deficiencies identified by its risk-management 

tools and techniques to specific remediation outcomes. Ginnie Mae 

officials said they plan to issue a memorandum to notify and inform 

issuers about its new policy and other program changes.73

Ginnie Mae may declare an issuer in default under the MBS program for 

reasons that include the failure or inability to make payments on its MBS. 

If an issuer were to default on certain obligations, Ginnie Mae may 

extinguish the issuer’s right, title, and interest to the MBS portfolio. In a 

2017 audit, HUD OIG found that Ginnie Mae had not developed a written 

default strategy.74 According to the HUD OIG audit, Ginnie Mae did not 

begin to implement a strategy to address defaults, extinguishments, and 

terminations of large or multiple issuers until July 2017.

Enhanced monitoring and management. Ginnie Mae officials told us 

that since 2017 the agency has been developing enhanced monitoring 

and management procedures to identify and manage issuers at potential 

risk of default, extinguishment, and termination. According to Ginnie Mae 

 72To issue Ginnie Mae-guaranteed MBS, issuers must receive approval from Ginnie Mae 

for commitment authority on the dollar amount of MBS they may issue. According to 

Ginnie Mae officials, for issuers on the Watch List to access commitment authority, Ginnie 

Mae’s Office of Counterparty Risk and Office of Issuer and Portfolio Management must 

analyze the issuer’s request. These offices coordinate on the decision to approve, reduce, 

suspend, or reject requests from issuers. Ginnie Mae makes this determination using 

factors such as the financial and operational condition of issuers.

73In November 2018, Ginnie Mae issued an all participant memorandum to update its 

counterparty risk-management framework, including guidance related to the issuer 

application process and new notification requirements for issuers. See Government

National Mortgage Association, Counterparty Risk Management Policy Series – Volume 1, 

APM 18-07 (Washington, D.C.: Nov. 15, 2018). 

74Department of Housing and Urban Development, Office of Inspector General, Audit 

Report No. 2017-KC-0008.

Management of Issuer Default 

and Extinguishments
Page 36 GAO-19-191 Ginnie Mae

documentation, the procedures are the first phase of Ginnie Mae’s 

default-management process. Under the procedures, an issuer that 

breaches thresholds determined by Ginnie Mae will be subject to 

enhanced monitoring and management, including remediation plans or 

other compliance and enforcement tools. Ginnie Mae plans to incorporate 

the procedures into a policy handbook called the default playbook. 

According to a 2018 HUD OIG report, the expected completion date for 

the project is September 30, 2019.75

Past defaults and extinguishments. According to Ginnie Mae officials, 

issuer defaults can result in a number of outcomes, including (1) an issuer 

curing the default and returning to full compliance, (2) an issuer curing the 

default but failing to return to full compliance, and (3) an issuer being 

unable to cure the default and Ginnie Mae extinguishing the issuer. 

Ginnie Mae officials said that Ginnie Mae can experience a loss if (1) 

borrowers default on loans or loans are not fully insured or guaranteed, 

(2) Ginnie Mae must pay another issuer to take over the portfolio 

(mortgage servicing rights), or (3) issuers engage in wrongdoing, such as 

fraud.

Based on our review of Ginnie Mae data, Ginnie Mae defaulted and 

extinguished from one to three issuers each year during fiscal years 

2011–2017. Ginnie Mae officials said the actual cost of a defaulted and 

extinguished portfolio for Ginnie Mae generally cannot be determined until 

insurance or guarantee claims are processed and the number of 

fraudulent, defective, or delinquent mortgages determined. During that 

period, Ginnie Mae’s total annual losses on issuer defaults and 

extinguishments did not exceed $4 million, based on Ginnie Mae’s 

estimates and after considering forecasted receipts from claims and 

recoveries.

Additionally, for a defaulted and extinguished issuer, Ginnie Mae may 

acquire and hold delinquent loans from the issuer’s MBS—called 

nonpooled loans. At the end of fiscal year 2017, Ginnie Mae held about 

$3.6 billion in nonpooled loans. However, since fiscal year 2014, HUD 

OIG has been unable to obtain sufficient, appropriate evidence to express 

an opinion on Ginnie Mae’s financial statements, due in part to Ginnie 

 75Department of Housing and Urban Development, Office of Inspector General, Top 

Management Challenges Facing the U.S. Department of Housing and Urban Development 

in 2019 and Beyond (Washington, D.C.: Oct. 15, 2018).
Page 37 GAO-19-191 Ginnie Mae

Mae’s inability to provide auditable support for its nonpooled loan assets 

from its defaulted issuers’ portfolio.76

Since then, both HUD OIG and Ginnie Mae officials said efforts have 

been underway to develop accounting systems to address financial 

management findings contributing to the disclaimers of opinion on Ginnie 

Mae’s financial statements. HUD OIG officials told us they generally have 

met with Ginnie Mae officials on a monthly basis to address these 

findings. According to Ginnie Mae and HUD officials, challenges related 

to staffing vacancies in both HUD and Ginnie Mae’s Office of the Chief 

Financial Officer and available data have affected timeliness in 

addressing these findings.

Default strategy. As discussed previously, in a 2017 audit, the HUD OIG 

found that Ginnie Mae had not developed a written default strategy, which 

HUD OIG said should include identifying, analyzing, and planning for all 

default scenarios and determining whether Ginnie Mae’s staff and 

servicing functions had the capacity to default and absorb large issuers.77

Ginnie Mae has been developing its default playbook that includes 

procedures for managing single-family issuer defaults and 

extinguishments. Ginnie Mae officials told us that the single-family 

procedures will serve as the basis for developing default strategies for its 

other MBS programs but such default strategies had not yet been 

completed.

Extinguishment and asset management. Ginnie Mae also has been 

developing procedures in its default playbook to manage and service an 

extinguished issuer’s MBS portfolio.78 According to Ginnie Mae 

 76Ginnie Mae’s management is responsible for the preparation and fair presentation of the 

agency’s financial statements in accordance with U.S. generally accepted accounting 

principles. This responsibility includes the design, implementation, and maintenance of 

internal controls relevant to the preparation and fair presentation of financial statements 

that are free from material misstatement, whether due to fraud or error. HUD OIG is 

responsible for expressing an opinion on Ginnie Mae’s financial statements based on 

conducting the audit in accordance with U.S. generally accepted government auditing 

standards.

77Department of Housing and Urban Development, Office of Inspector General, Audit 

Report No. 2017-KC-0008.

78If Ginnie Mae declares a default and extinguishment under the applicable guaranty 

agreement, the issuer forfeits and waives any and all rights to reimbursement or recovery 

of any advances and expenditures made by the issuer, all such rights of the issuer are 

extinguished, and Ginnie Mae becomes the absolute owner of such rights, subject only to 

the unsatisfied rights of the security holders.
Page 38 GAO-19-191 Ginnie Mae

procedures, the extinguishment process is unique to each issuer and its 

situation. For example, Ginnie Mae officials said issuer bankruptcy 

proceedings, uninsured loans, and other factors can affect the 

extinguishment process. During extinguishment, the new procedures call 

for Ginnie Mae to determine a course of action and analyze collateral, 

such as mortgage servicing rights.

Enterprise risk management (ERM) allows management to understand an 

organization’s portfolio of top-risk exposures, which could affect the 

organization’s success in meeting its goals. As such, ERM is a decisionmaking tool that allows leadership to view risks from across an 

organization’s portfolio of responsibilities. ERM is part of overall 

organizational governance and accountability functions and encompasses 

all areas in which an organization is exposed to financial, operational, 

compliance, and other types of risks.

OMB Circular A-123 directs executive agencies and encourages other 

government entities (including Ginnie Mae) to implement an ERM 

program. Such a program should incorporate the agency’s risk appetite, 

align the risk appetite with the agency’s strategies and objectives, and 

address the agency’s exposure to credit, operational, and other risks.79

The circular defines risk appetite as the broad-based amount of risk an 

organization is willing to accept in pursuit of its mission or vision. For 

example, an agency uses its risk appetite to help calibrate its risk 

tolerances—the acceptable level of variance in performance relative to 

the achievement of objectives. In addition, an agency uses its risk 

 79In July 2016, OMB updated Circular No. A-123 to establish management responsibilities 

for ERM. This circular is applicable to each executive agency, and all other nonexecutive 

agencies are encouraged to adopt it. While Ginnie Mae is not considered an executive 

agency for purposes of the circular, it has adopted the circular as a best practice.

Ginnie Mae Lacks 

Flexibility to Increase the 

Single-Family Guarantee 

Fee but Has Not 

Evaluated How Its MBS 

Portfolio Would Perform 

under Alternative 

Scenarios

Ginnie Mae Drafted a Risk 

Appetite as Part of Its 

Enterprise Risk-Management 

Program
Page 39 GAO-19-191 Ginnie Mae

appetite to guide its identification and assessment of options for 

responding to risks. Our prior work also has noted that a good practice in 

implementing ERM is to select the most appropriate risk response based 

on a risk appetite, including acceptance, avoidance, reduction, sharing, or 

transfer.80 Agency leaders review the prioritized list of risks and select the 

most appropriate treatment strategy to manage the risk.

In August 2017, Ginnie Mae began to implement a policy to establish the 

requirements and framework of its ERM program. According to the policy, 

the framework comprises four capability areas:

• Governance establishes guidelines for how the ERM program 

operates, how its progress and maturation will be monitored, and how 

ERM-related decisions should work.

• Process is used to produce and maintain Ginnie Mae’s enterprise risk 

profile and help ensure risks are managed within acceptable tolerance 

levels.

• People empowers stakeholders to help build a risk-aware culture, 

while clearly defining the roles and responsibilities involved.

• Technology includes tools and methodologies to enable the ERM 

process by automating manual steps (where appropriate), 

aggregating and analyzing data, and streamlining reporting.

While Ginnie Mae’s 2017 ERM policy did not include a risk appetite, the 

agency subsequently drafted an enterprise risk appetite. Ginnie Mae 

officials told us that they have been working during the past year to 

further develop their ERM program and include a risk appetite. As of 

September 2018, Ginnie Mae had a draft risk appetite, which consisted of 

risk appetite statements and risk-tolerance levels that were aligned to its 

strategic goals and objectives. Ginnie Mae also implemented a procedure 

in August 2018 to create a framework to apply its risk appetite when 

finalized. According to the procedure, the purpose of the agency’s riskappetite framework is to establish a series of boundaries delineating the 

amount of risk Ginnie Mae is willing to accept in pursuit of its mission and 

the associated strategic goals and objectives. The procedures further 

note that an explicit risk appetite helps establish consistency in the 

amount of risk accepted through enterprise, administrative, and 

 80See GAO, Enterprise Risk Management: Selected Agencies’ Experiences Illustrate 

Good Practices in Managing Risk, GAO-17-63 (Washington, D.C.: Dec. 1, 2016).
Page 40 GAO-19-191 Ginnie Mae

programmatic decisions. However, it is unclear based on Ginnie Mae’s 

recent risk appetite status report what the time frame is for finalizing the 

risk appetite.

Ginnie Mae has not evaluated how its capital reserves and MBS portfolio 

would perform under stressful conditions to help inform it and 

stakeholders, such as HUD, OMB, and Congress, about the adequacy of 

the guaranty fee for single-family MBS. The National Housing Act, as 

amended in 1987, mandates that Ginnie Mae set its guaranty fee for 

single-family MBS at no higher than 6 basis points (0.06 percent) per 

year. It currently charges issuers of single-family MBS a 6 basis point fee, 

the upper limit of the fee, on their outstanding principal balance. In 

contrast, the act establishes a standard under which Ginnie Mae can 

determine the amount of guaranty fees for multifamily and manufactured 

housing MBS. More specifically, Ginnie Mae can set these other guaranty 

fees at a level not more than necessary to create reserves sufficient to 

meet anticipated claims based upon actuarial analyses. Ginnie Mae has 

set the fee at 13 basis points for multifamily MBS, and 30 basis points for 

manufactured housing MBS.

Since the guaranty fee limit for single-family MBS was set statutorily in 

1987, Ginnie Mae has operated largely at a profit.81 As a result, Ginnie 

Mae has been able to use its guaranty and other fee income (in excess of 

expenses) to build its capital reserves, which can be used to cover credit 

losses from issuer defaults. According to Ginnie Mae officials, the agency 

held $25.6 billion in investment of retained earnings on its balance sheet 

as of September 30, 2018. In addition, Ginnie Mae annually estimates for 

budget purposes the cost of its MBS guarantee to the federal 

government, and Ginnie Mae’s 2017 analysis for its MBS found that its 

 81During fiscal years 2010–2017, Ginnie Mae reported in its financial statements that its 

revenues exceeded its expenses each year, except for fiscal year 2014. In 2015, Ginnie 

Mae revised its previously issued financial statements for fiscal year 2014. Ginnie Mae 

concluded that the agency misapplied accounting principles and materially misstated the 

financial statements in specific areas. 

Ginnie Mae Has Not Evaluated 

How MBS Portfolio Would 

Perform under Alternative 

Scenarios
Page 41 GAO-19-191 Ginnie Mae

MBS guarantee is estimated to produce a positive cash flow over the 

lifetime of the MBS.82

Ginnie Mae officials said that partly because the fee is set in statute, they 

do not periodically analyze how Ginnie Mae’s MBS portfolio (comprising 

issuers for which Ginnie Mae guarantees their MBS) would perform under 

alternative scenarios, including stressed scenarios, to help evaluate 

whether the fee was set at an appropriate level. But, as previously 

discussed, Ginnie Mae has experienced changes that increased or may 

increase its counterparty credit risk exposure, including the significant 

growth in its outstanding MBS, shift in issuer base, and increase in MBS 

backed by VA-guaranteed mortgages. While Ginnie Mae annually 

estimates the net lifetime costs of its MBS guarantees for budget 

purposes, a periodic actuarial or similar analysis that includes stress tests 

would provide complementary information. For example, such an analysis 

could estimate the value of Ginnie Mae’s capital reserves and cash 

inflows and outflows from its MBS portfolio under alternative economic 

scenarios, including both strong economic conditions and economic 

downturns, and show under which scenarios, if any, Ginnie Mae’s 

financial resources would be insufficient to cover losses.83

According to federal internal control standards, management should 

design control activities—such as policies, procedures, or techniques—to 

achieve objectives and respond to risks.84 The standards note that as part 

of the risk-assessment component, management identifies the risks 

related to the entity and its objectives, the entity’s risk tolerance, and risk

 82The Federal Credit Reform Act of 1990 requires OMB, the Congressional Budget Office, 

and other agencies to which the Director of OMB may delegate authority to estimate the 

cost to the government of extending or guaranteeing credit. This cost, referred to as 

subsidy cost, equals the net present value of estimated cash flows from the government 

minus estimated cash flows to the government over the life of the loan and excluding 

administrative costs. Ginnie Mae reestimated that the cost of guaranteeing MBS to the 

government (credit subsidy) was -0.34 percent for MBS guaranteed between 1996 and 

2017—indicating that Ginnie Mae expects to generate an estimated $0.34 for every $100 

of Ginnie Mae-guaranteed MBS over the lifetime of the MBS.

83In contrast to an actuarial analysis, Ginnie Mae’s budgetary reviews do not include 

analysis under alternative economic scenarios, such as stress scenarios. The budgetary 

reviews are required to use the President’s economic assumptions, which OMB provides 

to agencies for budget formulation. According to Ginnie Mae officials, the credit subsidy 

model incorporates estimates of counterparty failures that are independent of OMB 

economic assumptions.

84GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: Sept. 10, 2014).
Page 42 GAO-19-191 Ginnie Mae

responses. In turn, control activities help management fulfill 

responsibilities and address identified risk responses. In addition, OMB’s 

Circular A-123 notes that risk-management practices must be forwardlooking and designed, in part, to help leaders make better decisions.

Other federal agencies conduct reviews to help assess the adequacy of 

fees or premiums and fund or portfolio performance. For example, we 

reported that the Office of Personnel Management (OPM) annually 

conducts actuarial reviews of the Federal Employees’ Group Life 

Insurance program, and these reviews are effectively an internal control 

designed to help ensure the accuracy and adequacy of the program’s 

premium rates.85 We previously reported that while not required to do so, 

FHA conducts stress tests of the Mutual Mortgage Insurance Fund using 

alternative scenarios, including adverse scenarios, as part of its annual 

actuarial review.86

By not periodically conducting an actuarial or similar review that includes 

stress testing of its MBS portfolio, Ginnie Mae lacks important information 

for helping to ensure that its guaranty fee for single-family MBS is set at 

an appropriate level. For example, a fee that is set too high could impair 

Ginnie Mae’s stated purpose of promoting access to mortgage credit. 

Conversely, a fee that is set too low could result in Ginnie Mae lacking 

sufficient capital to cover losses and hinder its stated purpose of 

minimizing losses to the federal government.

As discussed above, the National Housing Act, as amended in 1987, set 

Ginnie Mae’s guaranty fee for single-family MBS at no higher than 6 basis 

points but established a standard under which Ginnie Mae can determine 

the amount of guaranty fees for multifamily and manufactured housing 

MBS. In 1987, Congress and the President disagreed on whether Ginnie 

Mae’s guaranty fee for single-family MBS should be a set amount or 

standards-based. In debating the bill, some members of Congress 

maintained that Ginnie Mae’s guaranty fee should be set at no higher 

than 6 basis points, in part because Ginnie Mae had $1.35 billion in 

reserves and historically suffered negligible losses on its guaranteed 

 85See GAO, Federal Employees’ Group Life Insurance: Retirement Benefit and Retained 

Asset Account Disclosures Could Be Improved, GAO-12-94 (Washington, D.C.: Nov. 10, 

2011).

86GAO, Federal Housing Administration: Capital Requirements and Stress Testing 

Practices Need Strengthening, GAO-18-92 (Washington, D.C.: Nov. 9, 2017).

Statute Limits the Extent to 

Which Ginnie Mae May 

Increase Its Guaranty Fee for 

Single-Family MBS
Page 43 GAO-19-191 Ginnie Mae

MBS.87 Although the President signed the bill that mandated Ginnie 

Mae’s guaranty fee for single-family MBS, the signing statement 

expressed reservations.88 Among other things, the signing statement 

argued that mandating a specific guaranty fee in statute would “hamper 

[Ginnie Mae’s] ability to maintain the reserves necessary to meet its 

obligations.”

In comparison, the enterprises use their guarantee fees, in part, as a riskmanagement tool. The enterprises set their guarantee fees to cover 

several cost components, including their (1) projected credit losses from 

borrower defaults; (2) cost of holding capital to protect against projected 

credit losses that could occur during stressful macroeconomic conditions, 

if the enterprises held risk-based capital; and (3) general and 

administrative expenses. Under conservatorship, FHFA is authorized to 

direct the enterprises to change their guarantee fees and has sought to 

protect taxpayers from losses by adjusting fees to cover estimated costs 

to the enterprises of providing credit guarantees.89 FHFA has followed a 

course of gradual guarantee fee increases as set forth in its 2012 

Strategic Plan for Enterprise Conservatorships.90

In addition, by statute, FDIC charges banks a risk-based assessment to 

fund the Deposit Insurance Fund.91 According to FDIC, a risk-based 

assessment system reduces the subsidy that lower-risk banks provide 

higher-risk banks and provides incentives for banks to monitor and 

 87See 133 Cong. Rec., 3964-67(1987); id. at 5187–89. 

88Presidential Statement on Signing H.R. 1056 into Law, 23 Weekly Comp. Pres. Doc. 

295 (Mar. 30, 1987).

89Section 1601 of the Housing and Economic Recovery Act of 2008 requires FHFA to 

study the enterprise guarantee fees, including analyze the cost of providing the guarantee, 

and report to Congress each year. Pub. L. No. 110-289 § 1601, 122 Stat 2654, 2824 

(2008) (codified at 12 U.S.C. § 4514a). 

90For example, FHFA directed the enterprises to increase their (1) guarantee fee by 10 

basis points in response to the Temporary Payroll Tax Cut Continuation Act of 2011; and 

(2) guarantee fee by 10 basis points, on average, in 2012 to more fully compensate 

taxpayers for bearing credit risk. The enterprises’ combined up-front and ongoing 

guarantee fee, on average, ranged from 36 basis points to 59 basis points in 2012–2016.

91FDIC administers the Deposit Insurance Fund, whose functions include insuring 

deposits and protecting depositors. The Deposit Insurance Fund is funded primarily from 

assessments paid by insured depository institutions for deposit insurance coverage. Other 

available funding sources, if necessary, are borrowings from the Department of the 

Treasury, the Federal Financing Bank, Federal Home Loan Banks, and insured depository 

institutions.
Page 44 GAO-19-191 Ginnie Mae

reduce risks that could increase potential losses to the Deposit Insurance 

Fund.92 In an internal 2013 study, Ginnie Mae analyzed the potential of 

making its fee risk-based but did not develop any recommendations.

According to OMB Circular A-123, an agency’s evaluation of how it will 

respond to risks under its ERM program, such as by developing a 

legislative proposal, should be used to inform decision-making through 

existing management processes. Ginnie Mae officials told us that they 

have discussed internally whether the agency should request the 

authority to change the guaranty fee. For example, at a 2017 

congressional hearing, the then Ginnie Mae executive vice president and 

chief operating officer testified that the agency could not change its 

guaranty fee because it was capped in statute but that the agency likely 

would consider small adjustments to the fee if it had the authority to do 

so.93 But Ginnie Mae officials said they had not requested such authority 

because they had not yet reached a decision as of September 2018. If 

Congress were to require Ginnie Mae to conduct an actuarial or other 

similar analysis as discussed above that includes stress testing, it would 

provide important information to help ensure the guaranty fee for singlefamily MBS was set at an appropriate level, and to determine if additional 

authority was needed from Congress to adjust the fee to respond to 

changing market conditions and manage aggregate risk posed by the 

MBS portfolio.94

 92See ex. 80 Fed. Reg. 40838 (July 13, 2015).

93Sustainable Housing Finance: The Role of Ginnie Mae in the Housing Finance System, 

House Financial Services Committee, Subcommittee on Housing and Insurance, 115th

Cong. (Nov. 29, 2017); statement of Michael R. Bright, Executive Vice President and Chief 

Operating Officer, Ginnie Mae.

94For example, the Department of the Treasury recommended in 2018 that Ginnie Mae 

have flexibility to charge guaranty fees appropriate to cover additional risk arising from 

changes in the overall market or at the program level. See A Financial System That 

Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation.
Page 45 GAO-19-191 Ginnie Mae

According to Ginnie Mae officials, the agency monitors potential issuer 

fraud through processes such as a loan matching program and on-site 

compliance reviews. The officials said that Ginnie Mae also periodically 

added antifraud procedures to its compliance reviews of issuers. For 

instance, according to Ginnie Mae officials, the agency added a 

procedure to check whether loans were pooled in more than one MBS 

(double pooling) after the default of Taylor, Bean & Whitaker in 2009—a 

large nonbank issuer that, among other things, defrauded Ginnie Mae. 

After the Taylor, Bean & Whitaker default, officials said that Ginnie Mae 

also added a procedure to its compliance review process to verify that 

issuers deposited escrow funds in appropriate bank accounts when the 

MBS was issued.95

According to its operating plan issued in October 2018, HUD’s Office of 

Strategic Planning and Management recently developed an enterprise 

fraud risk-management framework and has been implementing the 

approach at program offices, including Ginnie Mae. In response to a 

recommendation in our previous work, HUD designated the Office of 

Strategic Planning and Management’s Chief Risk Officer to oversee fraud 

risk-management activities in 2017.96 According to its 2018 operating 

plan, the office developed a framework approach to address and manage 

fraud risk at an enterprise level.97 The plan further noted that the office 

will work with all HUD offices, including Ginnie Mae, to develop or refine 

their current risk-management operations to create an enterprise-wide 

approach for managing fraud risk.

 95According to Ginnie Mae officials, they added 19 tests to compliance reviews between 

2012 and April 2017.

96See GAO, Department of Housing and Urban Development: Actions Needed to 

Incorporate Key Practices into Management Functions and Program Oversight, 

GAO-16-497 (Washington, D.C.: July 20, 2016).

97Additionally, HUD administered a fraud risk survey to program offices, including Ginnie 

Mae, and drafted an index of common fraud schemes affecting its programs based on a 

review by HUD’s Departmental Enforcement Center, HUD OIG, and the Federal Bureau of 

Investigation. See Department of Housing and Urban Development, Office of Strategic 

Planning and Management, Fiscal Year 2018 Operating Plan (Washington, D.C.: October 

2018).

Ginnie Mae Has Some 

Procedures to Monitor 

Issuer Fraud and HUD 

Has Been Developing a 

Fraud Risk-Management 

Framework, Including for 

Ginnie Mae
Page 46 GAO-19-191 Ginnie Mae

Historically, Ginnie Mae has operated with a small number of in-house 

staff and relied heavily on contractors to help it carry out its mission. A 

comparison of Ginnie Mae’s staffing levels to the estimated number of 

contracted staff illustrates its heavy reliance on contractors. Ginnie Mae 

does not routinely collect data on contractor full-time equivalent (FTE) 

staff, but a September 2016 staffing and operations study commissioned 

by Ginnie Mae estimated that the agency had 719 contractor FTEs at the

time—representing 84 percent of its total FTEs.98 Ginnie Mae’s budgetary 

data further illustrate its reliance on contractors. For example, while 

Ginnie Mae received $27 million in appropriations for in-house staff in 

fiscal year 2018, it obligated about $616 million on contractors.

Ginnie Mae uses contractors to perform a broad range of functions, 

including loan servicing and administering its MBS program. Based on 

our review of Ginnie Mae data, we found that Ginnie Mae spent about 

$2.7 billion on contracts in fiscal years 2008–2018. As shown in table 1, 

Ginnie Mae spent about half of its contracting dollars in that period on 

obtaining contractors for servicing its default portfolio, a quarter for 

administering its guaranty program, and the rest on consulting, 

technology, and compliance. According to Ginnie Mae officials, some 

contracts are for services—such as administering its guaranty program—

that would require a significant investment to develop in-house expertise 

or require expertise more readily available from an outside company. 

Moreover, the then Ginnie Mae executive vice president and chief 

operating officer testified in 2017 that Ginnie Mae’s use of contractors 

 98KPMG, Ginnie Mae Operations and Staffing Analysis (Sept. 26, 2016). To determine 

contractor FTE levels, KPMG asked Ginnie Mae to request estimates from its contractors. 

Per OMB guidance, full-time equivalent employment is defined as the total number of 

hours (worked or to be worked) divided by the number of compensable hours applicable to 

each fiscal year. Work years, or FTEs, are not employee “head counts.” One work year, or 

one FTE, is equivalent to 2,080 hours of work.

Ginnie Mae 

Continues to Face 

Various Staffing and 

Contracting 

Challenges

Ginnie Mae Has 

Continued to Rely Heavily 

on Contractors Due to Its 

Funding Structure but Has 

Not Assessed the Cost of 

This Reliance
Page 47 GAO-19-191 Ginnie Mae

enables it to quickly respond to market demands to scale its operations to 

address changing markets.99

Table 1: Description of Select Contracted Functions at Ginnie Mae and Total Obligated Amounts, Fiscal Years 2008–2018 

(Dollars in millions)

Contracted function Description of contracted services

Obligated amount 

2008–2017

Obligated amount 

2018

Loan servicinga Perform default services (which include servicing 

current, delinquent, and defaulted loans), 

foreclosure services, management and disposition 

of acquired property, and preparation and 

submission of insurance or guarantee claims.

1,068.5 332.0

Administration of its guaranty

program

(1) Perform pool processing and certification, 

central payment, and transfer agent service 

functions; (2) provide back-office support for 

Ginnie Mae to operate its guaranty program, 

including its review of new issuer applications, the 

monthly collection of data from issuers, and risk 

analysis and monitoring; and (3) assist in the 

review and execution of each multiclass securities 

transaction, including the review of each 

transaction to ensure compliance with Ginnie Mae 

policies and procedures.

511.1 134.0

Consultative Provide policy, financial analysis modeling, 

advisory, and legal support.

233.5 97.8

Technology Provide support for operational infrastructure and 

maintain compliance with information technology 

development rules and standards (also includes 

communications and subscriptions).

210.9 36.8

Compliance Perform issuer, financial statement, internal 

control, and contract reviews.

54.9 15.7

Total 2,078.9 616.3

Source: GAO analysis of Ginnie Mae data. | GAO-19-191

a

The amounts for servicing loans include obligation amounts and do not include revenue or 

reimbursement amounts Ginnie Mae may have received for this function.

 99Sustainable Housing Finance: The Role of Ginnie Mae in the Housing Finance System;

statement of Michael R. Bright, Executive Vice President and Chief Operating Officer, 

Ginnie Mae (Nov. 29, 2017).
Page 48 GAO-19-191 Ginnie Mae

We and HUD OIG previously raised concerns about Ginnie Mae’s 

relatively low in-house staffing levels, reliance on contractors, and 

associated operational risk. Most recently, in 2011 we reported that 

Ginnie Mae’s staffing levels remained relatively constant despite 

increases in its market share and MBS volume and discussed steps 

Ginnie Mae was taking to address staffing gaps.100 Similarly, in 2016, and 

again in 2017, HUD OIG testified that Ginnie Mae’s ability to significantly 

increase staffing was vital to the nation’s financial health.101 In 2017, HUD 

OIG also reported that Ginnie Mae’s small staff lacked the skills 

necessary to immediately respond to increased risks resulting from the 

rapid growth and shift in issuer base to nonbanks and that Ginnie Mae 

relied heavily on contractors to perform its core responsibilities.102

As shown in table 2, Ginnie Mae’s authorized in-house staffing levels 

increased substantially starting in fiscal year 2011. Ginnie Mae struggled 

to meet its authorized FTE levels, especially from fiscal years 2008 

through 2013. Ginnie Mae’s actual staffing levels averaged about 9 

percent below authorized levels from fiscal years 2005 through 2018. 

According to agency officials, this was partly due to recruitment and 

retention challenges (discussed in more detail later).

 100GAO-12-49. In 1993 and also in 2005, we reported on Ginnie Mae’s challenges in 

overseeing issuers and contractors, in part because of its staff levels. See GAO, 

Government National Mortgage Association: Greater Staffing Flexibility Needed to 

Improve Management, GAO/RCED-93-100 (Washington, D.C.: June 30, 1993); and 

Housing Finance: Ginnie Mae Is Meeting Its Mission but Faces Challenges in a Changing 

Marketplace, GAO-06-9 (Washington, D.C.: Oct. 31, 2005).

101HUD Office of Inspector General Fiscal Year 2017 Budget Request and HUD’s Top 

Management and Performance Challenges, Senate Committee on Appropriations, 

Subcommittee on Transportation, Housing, and Urban Development, and Related 

Agencies, 114th Cong. (Mar. 10, 2016); testimony of David A. Montoya, Inspector General, 

Department of Housing and Urban Development. Also see HUD Oversight and 

Management Issues, House Committee on Appropriations, Subcommittee on 

Transportation, Housing, and Urban Development, and Related Agencies, 115th Cong. 

(Mar. 16, 2017); testimony of David A. Montoya, Inspector General, Department of 

Housing and Urban Development.

102Department of Housing and Urban Development, Office of Inspector General, 

Government National Mortgage Association, Washington, D.C., Nonbank Oversight.
Page 49 GAO-19-191 Ginnie Mae

Table 2: Ginnie Mae Funding for Staff and Full-Time Equivalent Staff, Fiscal Years 

2005–2018

(Dollars in millions)

Fiscal 

year

Funding for staff Full-time equivalent staff

Requesteda Authorized Requesteda Authorized Actual

Actual as 

percent of 

authorized

2005 7.8 7.7 76 67 65 97

2006 8.5 8.0 76 69 66 96

2007 8.1 8.0 69 67 65 97

2008 9.0 8.3 73 69 61 88

2009 8.6 10.0 78 72 59 82

2010 11.1 11.1 90 78 70 90

2011 14.0 11.6 75 105 76 72

2012 30.0b 18.5 249b 104 89 86

2013 19.1 17.4 131 122 104 85

2014 20.0 17.3 130 119 112 94

2015 26.1 21.5 163 138 127 92

2016 26.3 21.7 168 135 134 99

2017 23.0 23.0 137 137 133 97

2018 26.2 27.0 146 150 140 93

Source: GAO analysis of Ginnie Mae data. | GAO-19-191

a

Requested full-time equivalent staff is the number Ginnie Mae submits to the Department of Housing 

and Urban Development (HUD). However, the number HUD presents to the Office of Management 

and Budget may not reflect Ginnie Mae’s original request.

b

According to Ginnie Mae officials, the agency requested much-increased staff funding numbers in 

fiscal year 2012 because leadership wanted to strengthen risk management and oversight and to 

move in-house some functions performed by contractors.

Ginnie Mae also recently cited the need for more in-house staff rather 

than contractors. For example, in its budget justifications for fiscal years 

2018 and 2019, Ginnie Mae requested increased funding and FTEs to 

address some of the functions, such as compliance and oversight, it could 

not perform due to staff shortages or because it would not be appropriate 

for contractors to perform the functions. In August 2017, Ginnie Mae 

analyzed its staffing needs and determined that it would need 186 FTEs 
Page 50 GAO-19-191 Ginnie Mae

in the medium-to-long term to fully carry out its activities.103 Although 

Ginnie Mae recently raised concerns over its staff levels, Ginnie Mae 

officials told us that based on the current funding structure, the agency’s 

fiscal year 2018 appropriations were sufficient to carry out the agency’s 

mission, including performing activities it was not able to perform in the 

past due to staff shortages.104

However, Ginnie Mae does not fully understand the relative costs of its 

reliance on contractors, and does not know the optimal mix of contractor 

and in-house staff because it has not fully assessed the relative costs and 

benefits of its use of contractors. Specifically, since we last reported on 

this issue in 2011, Ginnie Mae has conducted assessments of its 

contractor use, but these assessments generally were one-time—rather 

than regular—and did not specifically compare the costs and benefits of 

performing activities with contractors and in-house staff. Ginnie Mae’s 

assessments included the following:

• A September 2016 staffing and operations study found contractors 

were executing core functions and should have more oversight from 

Ginnie Mae. The study found that more than 530 contractor FTEs 

executed business operations identified by Ginnie Mae as core 

functions and that 503 of these contractor positions could be brought 

in house. The study recommended that Ginnie Mae grow its in-house 

staff from 133 to 1,218 FTEs (an increase of 1,085) and reduce its 

contractor staff from 719 to 216 FTEs (a decrease of 503), resulting in 

a net increase of 582 FTEs to support services, address gaps in 

staffing capabilities, and keep pace with market and workload 

demands. The study did not include the information on the costs of 

using contractors. Moreover, Ginnie Mae officials explained the study 

was commissioned under the agency’s previous leadership to address 

 103In response to Executive Order 13781, Ginnie Mae proposed in August 2017 to 

reorganize the agency to better align its functions, workload, and operational missions. As 

part of this effort, Ginnie Mae analyzed its staffing needs. It identified positions that were 

(1) currently filled, (2) vacant but for which funding was authorized, and (3) to be created 

and filled if funding was authorized.

104In fiscal year 2018, Ginnie Mae received $27 million in appropriations for salaries and 

expenses—a $4 million increase from the previous fiscal year. See Consolidated 

Appropriations Act, 2018, Pub. L. No. 115-141 (2018); Consolidated Appropriations Act, 

2017, Pub. L. No. 115-31 (2017). Ginnie Mae officials said that this increase would enable 

Ginnie Mae to eventually grow to 150 FTEs, a level at which officials said they expect the 

agency will be able to sufficiently perform all essential functions in-house but still would 

require support from contractors.
Page 51 GAO-19-191 Ginnie Mae

a business transformation initiative and is no longer aligned with the 

agency’s priorities.

• In 2017, Ginnie Mae assessed its management of contracts to identify 

opportunities to promote greater efficiencies. Unlike the 2016 study, 

this assessment did not recommend a specific level of in-house staff 

to perform activities; rather, it acknowledged Ginnie Mae’s heavy 

reliance on contractor support and identified a shortage of staff for 

overseeing its contractors. The study recommended that Ginnie Mae 

establish metrics for the acquisition process (for example, related to 

optimizing workload management and increasing productivity and 

efficiency), but did not include any metrics related to tracking costs or 

the optimal mix of contractors.

• In its fiscal year 2019 President’s Budget request, Ginnie Mae 

recognized that the growth and increased complexity of its MBS 

program expanded contractor dependence and increased enterprise 

risk in the most vulnerable areas. Ginnie Mae stated that its priorities 

include reducing dependence on contractors for certain core business 

functions and beginning to “right size” the significantly lopsided 

contractor-to-staff ratio. However, Ginnie Mae did not provide any 

specific information on what “right size” meant in terms of its 

contractor-to-staff ratio.

According to our framework for assessing the acquisition function, 

agencies should track and communicate financial information in a way 

that enables effective evaluation and assessment of acquisition activities 

to reduce the risk of inefficient or wasteful business practices.105

According to federal internal control standards, management should use 

quality information and externally communicate it to achieve the entity’s 

objectives.106 Such information could include potential costs savings and 

other benefits of bringing certain functions in house.

Ginnie Mae has not estimated the relative costs of relying on contractors, 

developed a plan to determine the optimal mix of contractor and in-house 

staff, or communicated this information to relevant parties such as HUD, 

OMB, and Congress. Without more information on the use of contractors 

versus in-house staff and an assessment of options to reduce its reliance 

on contractors, Ginnie Mae—and ultimately, HUD, OMB, and Congress—

 105GAO, Framework for Assessing the Acquisition Function, GAO-05-218G (Washington, 

D.C.: Sept. 1, 2005).

106GAO-14-704G.
Page 52 GAO-19-191 Ginnie Mae

will not know the extent to which taxpayer dollars were used efficiently 

and effectively or be able to determine an optimal mix for in-house and 

contractor staff. For example, Ginnie Mae could be paying contractors 

more for services (in addition to incurring costs for overseeing the 

contractors) than it would cost Ginnie Mae to bring the service in-house. 

In turn, the lack of such information could impede congressional 

consideration of more budgetary flexibility for Ginnie Mae to help reduce 

its reliance on contractors.

Ginnie Mae has broad flexibility to use certain fee revenue to hire 

contractors to support the operations of its MBS program.107 In contrast, 

Ginnie Mae’s in-house staff generally have been funded through the 

annual appropriation process, which typically involves coordination with 

HUD to develop a budget in accordance with OMB guidance.108

According to Ginnie Mae officials, the difference in the agency’s flexibility 

has sometimes caused Ginnie Mae to hire contractors to perform certain 

activities not because outsourcing would necessarily be the most efficient 

or effective approach but because the agency lacked the funds to hire inhouse staff to perform the activities.

In contrast to Ginnie Mae, other entities that we reviewed (discussed in 

more detail later in this report) have more autonomy to use revenue to 

hire in-house staff. For example, the enterprises are funded primarily by 

fees charged to mortgage lenders in exchange for the guarantee of timely 

 107Ginnie Mae’s authority to use these funds to hire such contractors comes from a 

permanent indefinite appropriation. A permanent appropriation is always available for 

specified purposes and does not require repeated action by Congress to authorize its use. 

An indefinite appropriation is for an unspecified amount of money and may appropriate all 

or part of the receipts from certain sources, the specific amount of which is determinable 

only at some future date, or it may appropriate “such sums as may be necessary” for a 

given purpose.

108Each fiscal year for the annual budget process, Ginnie Mae submits a request to HUD 

for a certain level of staffing funding and FTE staff. HUD then submits a request to OMB 

for its overall budget, which includes a request for a certain level of staffing funding and 

FTE staff for Ginnie Mae, which may or may not reflect Ginnie Mae’s original request. 

OMB develops HUD’s approved budgetary levels, which may be different from HUD’s 

budget request, and uses this to create the President’s Budget, which it submits to 

Congress. After the President’s Budget is submitted to Congress, OMB and HUD officials 

submit justifications of the budget request to Congress. Congress can approve funding 

levels in the President’s Budget request or increase or decrease those levels. In fiscal 

year 2018, Ginnie Mae also had the authority to use up to $3 million annually to hire 

temporary employees—nonpermanent staff hired as 1-year appointments with the option 

of renewing for up to 4 years.

Ginnie Mae Has Not 

Reviewed How It Would 

Use Fee Revenue to 

Address Staffing 

Challenges
Page 53 GAO-19-191 Ginnie Mae

payment of principal and interest.109 Similarly, FDIC determines its own 

budget and receives no appropriated funding. Its operational expenses 

are funded primarily by deposit insurance premiums it collects from 

insured depository institutions (banks and savings associations) and from 

earnings on investments in Treasury securities.

Although we and HUD OIG repeatedly reported on Ginnie Mae’s staffing 

and contracting challenges, these challenges remain. Ginnie Mae has yet 

to evaluate and report to Congress on how it could use fee revenue 

available to hire contractors to hire in-house staff. According to our 

framework for assessing the acquisition function, management should 

make strategic decisions about what work the agency should perform inhouse versus contract out.110 Furthermore, according to federal internal 

control standards, an agency should operate effectively and efficiently to 

fulfill its objectives.111 More specifically, the operations should produce 

the intended results in a manner that minimizes the waste of resources.

By requiring Ginnie Mae to provide such information, Congress could 

obtain the information necessary to determine whether changes to Ginnie 

Mae’s funding structure were warranted. Without this analysis, Ginnie 

Mae may continue to face challenges making strategic decisions about 

hiring in-house staff rather than contractors and balancing its ratio of 

contractor to in-house staff to achieve greater efficiencies.

 109The enterprises also receive revenue from the difference between the interest income 

earned on the assets in the enterprises’ retained mortgage portfolio and the interest 

expense paid on the debt that funds those assets. In recent years, the enterprises have 

earned a greater proportion of net income from guarantee fees than from interest income. 

The shift primarily has been driven by guarantee fee increases put in place during 

conservatorship and the reduction of the retained portfolios in accordance with the 

requirements of the preferred stock purchase agreements between the Department of the 

Treasury and the enterprises.

110GAO-05-218G.

111GAO-14-704G.
Page 54 GAO-19-191 Ginnie Mae

Ginnie Mae added new programs to assess contractors and manage 

operational risks, but reviews of Ginnie Mae’s contract monitoring found 

several deficiencies. Ginnie Mae developed a vendor risk-management 

program in 2016 to examine mission-critical vendors (contractors) and 

assess, measure, monitor, and manage operational, compliance, fraud, 

and other risks associated with such outsourcing. These reviews examine 

contractors across seven risk categories. Ginnie Mae officials said that 

the agency has assigned two in-house staff to conduct the vendor 

reviews and uses contractors for additional support. Furthermore, they 

said that the agency had reviewed three vendors in fiscal year 2017, 

three in fiscal year 2018, and planned to review four more in fiscal year 

2019.112

Ginnie Mae also took other steps to oversee contractors and manage 

operational risks. For example, in March 2016, Ginnie Mae hired a 

contractor to help implement a risk control program, which is designed to 

analyze, identify, and provide an enterprise view of Ginnie Mae’s 

operational risk and incidents using individual examinations of the 

agency’s various divisions. In November 2017, Ginnie Mae established 

an operational incident management program to help identify internal 

incidents and contractor deficiencies. The program allows staff to report 

any incidences or deficiencies to Ginnie Mae management, so it can then 

identify causes and determine corrective actions.

Despite these positive steps to improve contractor oversight, HUD, which 

oversees Ginnie Mae’s contracts, found that Ginnie Mae had not always 

properly followed HUD procedures for documenting contract monitoring. 

More specifically, in an August 2017 review of Ginnie Mae’s contract files, 

HUD found that Ginnie Mae had not adequately documented its contract 

monitoring duties. HUD made four recommendations, including that 

Ginnie Mae obtain missing contract documents and periodically review 

contract files. In October 2017, Ginnie Mae submitted a corrective action 

plan to address HUD’s recommendations, which included plans for Ginnie 

Mae to review all of its contracts annually beginning February 2018. In 

April 2018, Ginnie Mae completed its first internal annual review of its 

contract files and found that 19 of the 34 contracts reviewed were not in 

 112Ginnie Mae officials said they categorize vendors into three categories based on 

several factors, including the size of the contract and the risk the contract poses to Ginnie 

Mae. The officials said that as of October 2018, Ginnie Mae had 19 vendors in the top two 

categories—those that it planned to subject to the reviews.

Ginnie Mae Has 

Developed New Tools to 

Oversee Contractors, but 

Reviews of Its Contract 

Oversight Identified 

Deficiencies That It Has 

Been Working to Address
Page 55 GAO-19-191 Ginnie Mae

compliance with applicable regulations due to missing documentation. 

Ginnie Mae agreed to bring into compliance the files for all contracts.

As mentioned earlier, in 2017, Ginnie Mae’s contracting department 

assessed the agency’s contracts and overall acquisition function. The 

study’s nine recommendations included standardizing contract 

management and increasing subject-matter expertise in contract 

planning. For example, the study found that Ginnie Mae’s contracting 

officer’s representatives lacked standardized guidance to ensure 

consistent and effective contract oversight and that contract oversight 

was not a dedicated role. According to Ginnie Mae officials, the agency 

took or plans to take action on each of the recommendations. For 

example, Ginnie Mae officials said that contracting officer’s 

representatives are identified for each contract and its procurement office 

works with the representatives to ensure adequate oversight. The agency 

also plans to hire dedicated contracting officer’s representatives in some 

offices and established a contract oversight supervisor role to oversee all 

the representatives.

In addition to the oversight provided by the contracting officer’s 

representative, Ginnie Mae has relied on contractors to conduct contract

assessment reviews since 1993 to ensure that contract files meet 

requirements and that deliverables and services are received on time. 

According to Ginnie Mae officials, the agency allowed the contract to 

lapse in fiscal year 2014 because it intended to bring the contract 

assessment review function in house.113 Ginnie Mae officials 

acknowledged that the lapse of the contract for the reviews created gaps 

in contractor oversight. As of March 2019, Ginnie Mae had not yet 

renewed the contract, but Ginnie Mae officials said that they had decided 

to do so in part based on our review and recognized the need to provide 

more oversight of the agency’s contracts. They said that they issued a 

solicitation for a contract and expect it to be awarded in April 2019.

 113According to HUD’s procurement policies and procedures, a contracting officer’s 

representative or government technical representative should be assigned to oversee and 

monitor the contractor’s performance. For example, they state that the representatives 

should monitor the contract for timeliness and review invoices for accuracy. According to 

the contract assessment review contract, the third-party contractor reviews should include

determining whether the contractors complied with the terms of their contracts, conducted 

appropriate billing, and maintained adequate internal controls to minimize risk to Ginnie 

Mae. The review reports also provide information on any potential risks to Ginnie Mae 

based on other completed audits and reviews. 
Page 56 GAO-19-191 Ginnie Mae

Ginnie Mae has made significant changes to its contract administration, 

but has not assessed the cost and effectiveness of current or potential 

future options for contract administration. More specifically, in 2014, 

Ginnie Mae began transitioning some of its contract administration from 

HUD’s procurement office to the General Services Administration (GSA). 

Ginnie Mae officials said that HUD was not able to support Ginnie Mae’s 

contracting needs and award its contracts in a timely manner because of 

Ginnie Mae’s high volume of contracts. Prior to this transition, Ginnie Mae 

explored external contract administration options to meet its contracting 

needs, such as through the Departments of the Treasury and Health and 

Human Services. After conducting a pilot on five contracts, HUD and GSA 

signed an interagency agreement to allow GSA to provide administration 

services for Ginnie Mae contracts.

To administer these contracts, GSA charges Ginnie Mae a 3 percent fee 

for the first $500 million of contracts and 2 percent on the amount above 

$500 million. Ginnie Mae officials said that they expected to offset some 

of the fee costs because GSA’s purchasing power could obtain lower 

contractor rates for some services, but officials did not provide any 

analysis to confirm this expectation. Our review of fiscal year 2018 data 

found that GSA-administered contracts totaled $204 million, costing 

Ginnie Mae approximately $6.1 million in fees to GSA. GSA administered 

approximately 46 Ginnie Mae contracts (61 percent), and HUD 

administered 30 Ginnie Mae contracts (39 percent).

Since GSA started serving as contract administrator in 2014, Ginnie Mae 

has not comprehensively evaluated whether its outsourcing of its contract 

administration to GSA has met its intended purposes. In 2017, as part of 

its review of its acquisition processes, Ginnie Mae identified issues with 

GSA’s contract administration, including a lack of institutional knowledge, 

clear guidance, and oversight. The report stated the relationship with 

GSA had improved and a new relationship with another external 

administrator might not realize expected efficiencies due to time needed 

to learn Ginnie Mae’s specialized line of business. The study 

recommended that Ginnie Mae establish metrics for the acquisition 

process (for example, related to optimizing workload management and 

increasing productivity and efficiency), but did not recommend 

establishing metrics related to assessing financial costs or performance of 

its contract administration.

According to our framework for assessing the acquisition function, 

agencies should track and communicate financial information in a way 

Ginnie Mae Has Not 

Assessed the 

Effectiveness of 

Outsourcing Contract 

Administration to GSA
Page 57 GAO-19-191 Ginnie Mae

that enables effective evaluation and assessment of acquisition activities 

to reduce the risk of inefficient or wasteful business practices.114 In 

addition, federal internal control standards state that management should 

use quality information and externally communicate it to achieve the 

entity’s objectives.115

However, Ginnie Mae officials stated that they had not reevaluated their 

decision to use GSA as a contract administrator to determine whether 

continuing with GSA or selecting another provider (a federal agency or a 

private contractor) would be the most efficient or effective option. Without 

such an evaluation, Ginnie Mae—and ultimately, HUD, OMB, and 

Congress—lack the information necessary to help ensure the most 

efficient and effective use of taxpayer dollars.

Ginnie Mae has continued to face challenges hiring and retaining staff, 

but has not followed through on options to address its compensation 

structure, which limits its flexibility in hiring and paying in-house staff. As 

discussed previously, Ginnie Mae has not reached its authorized FTE 

level in each year since 2005. Moreover, in 2018, HUD OIG reported that 

a number of senior-level positions in Ginnie Mae’s finance office had 

remained vacant for an extended period.116

Ginnie Mae officials said they are disadvantaged when competing for job 

candidates against other similar entities because those entities are not 

subject to OPM’s General Schedule pay scale and can offer candidates 

higher salaries.117 As publicly traded companies, the enterprises are not 

subject to the General Schedule pay scale and generally may develop 

their own internal pay scale for their staff, which may be set at higher 

 114GAO-05-218G.

115GAO-14-704G.

116Department of Housing and Urban Development, Office of Inspector General, Top 

Management Challenges Facing the U.S. Department of Housing and Urban Development 

in 2019 and Beyond.

117OPM administers General Schedule classification standards, qualifications, pay 

structure, and related human resources policies on a government-wide basis. Each 

agency classifies its General Schedule positions and follows statutory and agency 

guidelines to appoint and pay employees in those positions.

Ginnie Mae Has Not 

Followed Through on 

Compensation Alternatives 

to Address Hiring and 

Retention Challenges
Page 58 GAO-19-191 Ginnie Mae

levels than the General Schedule.118 FDIC and FHFA, two financial 

regulators, also can offer pay on a scale higher than the General 

Schedule.119 For example, in January 2019, the maximum salary for an 

FHFA senior examiner was $213,280, but the maximum salary for an 

equivalent non-management position under the General Schedule was 

$148,967.120

In addition to hiring challenges, Ginnie Mae has continued to face 

challenges retaining staff, some of which also may be related to 

compensation. According to Ginnie Mae officials, some staff resigned 

because they received higher pay offers from public- or private-sector 

entities. For example, Ginnie Mae found that in 2010–2014, 65 percent of 

nonretiring Ginnie Mae staff took jobs at other agencies, such as FHFA, 

FDIC, CFPB, and the Securities and Exchange Commission, which have 

higher pay scales. Similarly, the September 2016 staffing and operations 

study commissioned by Ginnie Mae found that 54 percent of its 

nonretirement turnover from May 2010 through May 2016 went to 

organizations not subject to the General Schedule, including some federal 

entities.121 The study also found that turnover was disproportionately high 

in positions Ginnie Mae defined as hard-to-fill, such as positions requiring 

accounting, financial, or other technical knowledge, skills, or abilities.122

 118The enterprises must obtain FHFA’s approval before entering into new compensation 

arrangements or increasing amounts or benefits payable under existing compensation 

arrangements for positions at the level of senior vice president and above (and for other 

officers as FHFA may deem necessary to successfully execute its role as conservator).

119See 12 U.S.C. §§ 1819(a), 4515. FDIC and FHFA have authority to fix the 

compensation of their employees, which includes providing rates of pay higher than those 

under the General Schedule.

120As of January 15, 2019, FHFA had one senior examiner EL 12-14 position advertised 

on its website. We considered the equivalent General Schedule position to be grade 14, 

step 10, in the Washington, D.C., locality (effective January 2019).

121KPMG, Ginnie Mae Operations and Staffing Analysis.

122Specifically, the report said that hard-to-fill positions were in the Offices of Enterprise 

Risk, Issuer and Portfolio Management, Capital Markets, Accounting and Finance, and 

Securities Operations.
Page 59 GAO-19-191 Ginnie Mae

We previously identified strategic human capital management as a highrisk issue and staff turnover as a government-wide challenge.123 In 

particular, we reported that if turnover was not strategically monitored and 

managed, gaps could develop in an organization’s institutional knowledge 

and leadership. We also reported in 2016 that HUD’s management 

improvement efforts were hindered by significant turnover.124 According to 

principles that we previously identified for strategic workforce planning, 

once an agency identifies its workforce needs, it should develop 

strategies (including programs, policies, and practices) to address those 

needs, while considering flexibilities available under current authorities as 

well as those that might require legislation.125 Such strategies will help 

enable an agency to recruit, develop, and retain critical staff needed to 

achieve program goals.126

According to HUD officials, Ginnie Mae previously explored options to 

address challenges with its compensation structure. In September 2012, 

Ginnie Mae met with HUD to discuss options for addressing its 

compensation constraints under the General Schedule. HUD agreed on 

the need to explore greater pay flexibility and determined that such a 

request would require OPM approval. According to OPM regulations, 

OPM may establish higher rates of pay to address challenges in recruiting 

or retaining employees.127 Then in July 2014, according to Ginnie Mae 

 123See GAO, High-Risk Series: Progress on Many High-Risk Areas, While Substantial 

Efforts Needed on Others, GAO-17-317 (Washington, D.C.: Feb. 15, 2017); and High-Risk 

Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas, 

GAO-19-157SP (Washington, D.C.: Mar. 6, 2019).

124GAO-16-497.

125GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, 

GAO-04-39 (Washington, D.C.: Dec. 11, 2003). We added strategic human capital 

management to our high-risk list in 2001. In our 2015 update, we noted that agencies 

needed to do additional work to more fully use workforce analytics to identify their gaps, 

implement specific strategies to address these gaps, and evaluate the results of actions 

taken to demonstrate progress in closing the gaps. See GAO, High-Risk Series: An 

Update, GAO-01-263 (Washington, D.C.: January 2001); and High-Risk Series: An 

Update, GAO-15-290 (Washington, D.C.: Feb. 11, 2015).

126In addition, OPM’s human capital framework sets talent-management standards to help 

agencies plan for and manage future workforce needs; implement proven strategies to 

attract, hire, develop, and retain talent; and make progress in closing skills gaps.

127See 5 C.F.R. § 530.304. Additionally, according to OPM’s Superior Qualifications and 

Special Needs Pay-Setting Authority, agencies may set the rate of basic pay of a newly 

appointed employee at a rate above the minimum rate of the appropriate General 

Schedule grade because of (1) the superior qualifications of the candidate or (2) a special 

need of the agency for the candidate’s services. See 5 C.F.R. § 531.212(b).
Page 60 GAO-19-191 Ginnie Mae

correspondence, it finalized a memorandum detailing its recruitment and 

retention challenges. For example, it noted that from October 2012 to July 

2014, 60 percent of Ginnie Mae’s new hires were recruited outside of the 

federal government and that 78 percent of the selected candidates 

requested recruitment incentives to consider Ginnie Mae’s offer of 

employment. HUD and Ginnie Mae met with OPM in December 2014, 

and HUD officials said OPM declined Ginnie Mae’s request.

In September 2018, HUD officials told us that Ginnie Mae and HUD had

not taken any further action to obtain approval for a revised compensation 

structure. In March 2019, Ginnie Mae officials told us that Ginnie Mae, 

HUD, OMB, and OPM officials subsequently discussed how Ginnie Mae 

should proceed to prepare a proposal for OPM consideration, within the 

existing OPM framework. However, Ginnie Mae had not prepared and 

submitted such a proposal. In addition, in July 2018 the Department of the 

Treasury recommended that Ginnie Mae assess the costs and benefits of 

alternative pay structures to help it more readily attract personnel with 

requisite expertise by paying salaries comparable to those at other 

financial agencies with premium pay authority.128

By not assessing the costs and benefits of alternative compensation 

structures within its current authority or following through with further 

proposals for HUD’s review and consideration, Ginnie Mae may be 

missing an opportunity to enhance its ability to recruit and retain staff and 

develop a workforce with the skills necessary to achieve its goals. By 

requiring Ginnie Mae to report to Congress on how it would use greater 

flexibility or broader authority to set the compensation of its in-house staff, 

Congress also could have the information it needs to consider such 

changes, and if warranted, provide Ginnie Mae with any additional 

authority necessary to address these long-standing difficulties in hiring 

and retaining staff.

 128A Financial System That Creates Economic Opportunities: Nonbank Financials, 

Fintech, and Innovation.
Page 61 GAO-19-191 Ginnie Mae

The oversight structure of Ginnie Mae differs from the oversight structures 

of three selected entities—Fannie Mae and Freddie Mac, two 

government-sponsored enterprises, and FDIC, a government-controlled

corporation.

129 Unlike the selected entities, Ginnie Mae does not have a 

board of directors to independently oversee its management. Ginnie Mae 

also does not have an independent entity to supervise the safety and 

soundness of its business operations. In light of HUD’s persistent 

challenges overseeing Ginnie Mae and its other programs, we analyzed 

these alternative oversight structures to provide insights for how Ginnie 

Mae’s oversight might be reformed.

Oversight structures for Ginnie Mae, the enterprises, and FDIC include a 

federal agency, a federal regulator and a board of directors, and a board 

of directors, respectively (see fig. 9).130 Ginnie Mae is a government 

corporation within HUD and overseen by HUD. The enterprises are 

federally chartered corporations regulated by FHFA and overseen by 

boards of directors.131 FDIC is a government-controlled corporation, like 

Ginnie Mae, but is an independent regulatory agency and overseen by a 

board of directors.

 129Each of these entities exposes the federal government to a risk of loss. We based our 

selection of the enterprises and FDIC on their mission, functions, risks, and oversight. 

130Ginnie Mae’s mission statement is to “link the U.S. housing market to global capital 

markets, thus providing low-cost financing for federal housing programs,” and it relies on 

issuers to issue and service its MBS. We have previously reported that the enterprises’

mission is to provide liquidity, stability, and affordability to the U.S. housing market. 

According to FDIC, its mission is to maintain stability and public confidence in the U.S. 

financial system, including by insuring deposits and examining and supervising state 

nonmember banks and state savings associations for safety and soundness and 

consumer protection.

131Federally chartered corporations are chartered through an act of Congress. According 

to a Congressional Research Service report, the use of separate acts to charter each 

corporation resulted in a wide range of legal and organizational structures for government 

corporations. See Congressional Research Service, Federal Government Corporations: 

An Overview (Washington, D.C.: June 8, 2011).

Oversight Structures 

of Ginnie Mae and 

Other Entities Provide 

Insights for Potential 

Reforms of Ginnie 

Mae

Ginnie Mae’s Oversight 

Structure Differs from the 

Oversight Structures of the 

Enterprises and FDIC
Page 62 GAO-19-191 Ginnie Mae

Figure 9: Oversight Structures for Ginnie Mae, the Enterprises, and FDIC as of February 2019

Ginnie Mae is a government corporation overseen by the HUD Secretary, 

who is responsible for administering Ginnie Mae, and generally has 

delegated those duties to Ginnie Mae’s executive officers (as outlined in 

its bylaws).

132 A 2011 Congressional Research Service report found that 

Ginnie Mae was one of only two government corporations not overseen 

by a board of directors.133 The Secretary of HUD delegated management 

responsibilities to Ginnie Mae but retains authority to determine general 

 132Under Ginnie Mae’s statutory authority “[a]ll the powers and duties of the Government 

National Mortgage Association shall be vested in the Secretary of Housing and Urban 

Development and the Association shall be administered under the direction of the 

Secretary. Within the limitations of law, the Secretary shall determine the general policies 

which shall govern the operations of the Association, and shall have power to adopt, 

amend, and repeal bylaws governing the performance of the powers and duties granted to 

or imposed upon it by law.” 12 U.S.C. § 1723(a).

133Federal Government Corporations: An Overview.

Ginnie Mae
Page 63 GAO-19-191 Ginnie Mae

policies that govern Ginnie Mae’s operations. HUD officials said that 

HUD’s oversight of Ginnie Mae is similar to its oversight of FHA and its 

other program offices.

As federally chartered and shareholder-owned companies, the 

enterprises have boards of directors that oversee and determine the 

general policies that govern their operations.134 The enterprises also are 

regulated by FHFA, which is responsible for ensuring that the enterprises 

operate in a safe and sound manner.135

In 2008, FHFA placed the enterprises into conservatorship (which 

according to FHFA was and still is intended to be temporary) out of 

concern that their deteriorating financial condition threatened the stability 

of financial markets.136 As conservator, FHFA established boards of 

directors to oversee and manage operations, so that the enterprises can 

continue to operate, but the boards exercise functions and authority as 

directed by FHFA. FHFA reviews all significant business activities of the 

enterprises and works with the boards to establish priorities and 

milestones for accomplishing the goals of the conservatorship.

Like Ginnie Mae, FDIC is a government corporation. But unlike Ginnie 

Mae, FDIC is an independent regulatory agency and overseen by a board 

of directors.137 One board member is designated as the chairperson. The 

 134The board of directors of each enterprise generally consists of 13 persons, elected 

annually by the voting common stockholders. In terms of board composition, at least one 

person is to be from the homebuilding industry, at least one person from the mortgage 

lending industry, at least one person from the real estate industry, and at least one person 

from an organization that has represented consumer or community interests for not less 

than 2 years or one person who has demonstrated a career commitment to the provision 

of housing for low-income households.

135The Housing and Economic Recovery Act of 2008 established FHFA. Pub. L. No. 110-

289 § 1101, 122 Stat. 2654, 2661 (2008). Before 2008, the Office of Federal Housing 

Enterprise Oversight—an agency in HUD—oversaw the enterprises’ safety and 

soundness but lacked certain resources and authorities to monitor the enterprises. The 

2008 act augmented safety and soundness responsibilities and authorities with the 

creation of FHFA and dissolved the Office of Federal Housing Enterprise Oversight.

136According to FHFA, conservatorship is the legal process in which a person or entity is 

appointed to establish control and oversight of a company to put it in a sound and solvent 

condition. In a conservatorship, the powers of the company’s directors, officers, and 

shareholders are transferred to the designated conservator. See Pub. L. No. 110-289, § 

1145, 122 Stat. 2654, 2734 (codified at 12 U.S.C. § 4617).

137FDIC’s board of directors consists of five members (Comptroller of the Currency, 

Director of the Consumer Financial Protection Bureau, and three other persons appointed 

by the President with the advice and consent of the Senate).

Enterprises

FDIC
Page 64 GAO-19-191 Ginnie Mae

chairperson, with the other members or officers as designated, is 

responsible for the management and direction of FDIC’s executive and 

administrative functions and oversight. FDIC officials said that formal 

board oversight occurs through required reporting requirements. 

Additionally, the board meets with staff outside of board meetings on a 

regular and ad hoc basis.

As an office within HUD, Ginnie Mae generally is subject to HUD’s 

policies and procedures related to human capital, procurement, financial 

management, strategic planning, and risk management.

• Human capital. HUD’s human capital office provides guidance in 

areas such as workforce planning and organizational structure and 

according to HUD officials, meets with Ginnie Mae (often weekly) to 

discuss and coordinate recruitment and retention issues and help 

manage vulnerabilities (loss of knowledge) associated with staff 

attrition.

• Procurement. Ginnie Mae generally is subject to HUD’s acquisition 

and contracting policies. HUD officials said that HUD’s procurement 

office generally is responsible for reviewing Ginnie Mae’s contracting 

files, providing training for contracting officer’s representatives, and 

conducting reviews to determine whether Ginnie Mae’s contracts 

comply with federal requirements.

• Financial management. Ginnie Mae is required to complete annual 

reports to Congress, and submits its budget formulation through 

HUD’s financial office. In January 2018, the Financial Management 

Council, which includes staff from HUD’s financial and program offices 

(including Ginnie Mae), held its first meeting to discuss financial 

governance across the agency. Additionally, as part of its 

responsibilities within HUD, HUD OIG conducted several audits of 

Ginnie Mae’s financial statements and operations.

• Strategic planning and risk management. HUD’s strategic planning 

and management office oversees the development of Ginnie Mae’s 

strategic plan and annual performance plan. HUD’s 2018 operating 

plan notes that the office will work with Ginnie Mae to develop its 

Scope and Activities of 

Oversight Bodies Differ

Ginnie Mae
Page 65 GAO-19-191 Ginnie Mae

fraud risk-management efforts.138 HUD’s financial office directs Ginnie 

Mae in the development of its enterprise risk-management efforts. 

HUD officials said that they work with Ginnie Mae’s Chief Risk Officer 

regularly in this effort.139

As a prudential regulator, FHFA’s oversight of the enterprises differs from 

HUD’s oversight of Ginnie Mae. We previously reported that unlike Ginnie 

Mae, the enterprises face potential conflicts between their profit 

motivations and housing missions.140 Like Ginnie Mae, the enterprises 

face credit, operational, and other risks (in differing degrees than Ginnie 

Mae, due to differences in their business models) that can expose 

taxpayers to risk of loss and raise safety and soundness concerns.

According to its 2017 Annual Report to Congress, FHFA oversees the 

enterprises using different monitoring tools and techniques to ensure their 

safety and soundness.141 Examples discussed in the 2017 report include 

the following:

• Examinations. FHFA conducts on-site examinations and ongoing 

supervision of the enterprises.142 For example, in 2017, FHFA 

performed examination activities in the areas of credit, market, model, 

and operational risk, as well as governance, compliance, accounting, 

auditing, and financial disclosure. The examinations included 

assessment of the safety and soundness of each enterprise (financial 

performance, condition, and overall risk-management practices) and 

compliance with regulations.

 138See Department of Housing and Urban Development, Office of Strategic Planning and 

Management, Fiscal Year 2018 Operating Plan (Washington, D.C.: October 2018).

139As previously discussed, HUD has been implementing a fraud risk-management 

framework. In fiscal year 2017, HUD assessed Ginnie Mae’s risks related to improper 

payments.

140GAO-09-782.

141Federal Housing Finance Administration, 2017 Annual Report to Congress 

(Washington, D.C.: May 23, 2018).

142FHFA has permanent on-site examination teams at each enterprise but also conducts 

off-site reviews. FHFA’s Division of Enterprise Regulation is responsible for carrying out 

on-site examinations and ongoing supervision of the enterprises. 

Enterprises
Page 66 GAO-19-191 Ginnie Mae

• Stress tests. FHFA requires the enterprises to conduct stress tests to 

determine whether they have sufficient capital to absorb losses and 

support operations during adverse economic conditions.143

• Housing goals evaluation. FHFA evaluates whether each enterprise 

met single-family and multifamily housing goals, in part by comparing 

their performance to a benchmark.144

As publicly traded companies and registrants under the Exchange Act, 

the enterprises also are subject to filing and disclosure requirements of 

the Securities and Exchange Commission and comply with certain other 

public reporting requirements under federal securities laws. FHFA officials 

told us that under the conditions of conservatorship, FHFA reviews the 

enterprises’ Securities and Exchange Commission filings prior to 

submission.

Among its duties, the board of directors appoints officers, such as the 

chief financial officer and chief operating officer; approves the operating 

budget and strategic plan; and reviews progress reports and other FDIC 

reports. FDIC’s bylaws specify the roles of and requirements of the 

different divisions of FDIC and the reports required to be prepared for 

review by the board. However, FDIC officials told us that unlike HUD and 

Ginnie Mae, the board typically does not get involved with organizational 

changes or human capital functions, although the budget includes 

authorized staff levels and compensation. FDIC manages risk through the 

use of committees to identify and assess internal risk, as well as forums 

to assess enterprise risk.

 143Stress testing assesses the potential effect on a regulated entity of economic and 

financial conditions (“scenarios”) on the consolidated earnings, losses, and capital of the 

regulated entity over a set planning horizon, taking into account the current condition of 

the regulated entity and the regulated entity’s risks, exposures, strategies, and activities. 

Since 2014, FHFA has required the enterprises to conduct annual stress tests pursuant to 

Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

The Department of the Treasury also may provide capital support to the enterprises while 

in conservatorship according to the terms of the senior preferred stock purchase 

agreements.

144Under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 

as amended by the Housing and Economic Recovery Act of 2008, the enterprises are 

subject to affordable housing goals covering their purchases of single-family and 

multifamily mortgages. 12 U.S.C. §§ 4561 et seq.

FDIC
Page 67 GAO-19-191 Ginnie Mae

HUD has delegated day-to-day management and oversight 

responsibilities to Ginnie Mae, but retained authority to determine the 

general policies for its programs, including Ginnie Mae, and remains 

responsible for overseeing them to ensure their efficiency and 

effectiveness. However, we and others have found that HUD has 

struggled to resolve persistent management challenges that limit the 

efficiency and effectiveness of its programs. In 2016, we reported that 

HUD struggled to resolve persistent challenges across several 

management functions, in part because it had not consistently 

incorporated requirements and key practices to help ensure effective 

management of its operations.145 For example, we found that HUD had 

not yet established a formal enterprise risk-management office to lead 

fraud risk-management activities agency-wide. We recommended that 

HUD designate entities within the program offices or an entity with 

agency-wide responsibilities for overseeing fraud risk-management 

activities. In March 2017, HUD selected the Chief Risk Officer within the 

Office of Strategic Planning and Management as the departmental lead 

for fraud risk management. HUD recently developed an enterprise fraud 

risk-management framework but still is implementing the approach at 

Ginnie Mae.

We also reported in 2016 that HUD had struggled to maintain up-to-date 

and complete policies and procedures across its human capital, financial, 

information technology, and acquisition management functions and gaps 

in its policies adversely affected performance of these functions. We 

recommended that HUD establish a mechanism for reviewing and 

updating policies and procedures to help ensure that policies and 

procedures for key management functions remain current and complete. 

 145GAO-16-497.

HUD Has Faced 

Challenges Overseeing 

Ginnie Mae and Its Other 

Programs, but Our 

Comparison to Other 

Oversight Structures 

Could Provide Insights for 

Reform

HUD Has Faced Challenges 

Monitoring and Overseeing 

Ginnie Mae and Its Other 

Programs
Page 68 GAO-19-191 Ginnie Mae

In response to our recommendation, HUD stated that it would develop a 

schedule but, as of March 2019, had not finalized its efforts.

Furthermore, HUD’s departmental offices have not always provided 

Ginnie Mae with adequate support. For example, HUD officials told us 

that until 2017, HUD’s financial office had little input into Ginnie Mae’s 

annual report to Congress or internal controls for financial reporting. They 

stated that the office plans to become more involved in these matters. 

HUD and Ginnie Mae officials continue to address numerous deficiencies 

with Ginnie Mae’s financial management, including HUD OIG’s disclaimer 

of opinion on Ginnie Mae’s financial statements each year since fiscal 

year 2014.146 In addition, as previously discussed, Ginnie Mae officials 

said that HUD’s procurement office is currently unable to fully support 

Ginnie Mae’s contract administration needs.

While HUD departmental offices recently made or committed to make 

improvements, uncertainty remains about HUD’s ability to sustain or 

complete these efforts. As we noted in 2016, HUD’s remedial actions 

were not always effective because they were not sustained. Turnover 

among senior leadership, shifting priorities, and resource constraints also 

have contributed to HUD’s difficulties in implementing and sustaining 

needed changes. For example, both the financial and information offices 

have experienced significant turnover at the leadership and staff levels, 

limiting their capacity to follow through on major initiatives and other 

improvements. Furthermore, HUD’s Deputy Secretary resigned from the 

agency in early 2019.

Finally, HUD OIG has listed HUD’s oversight of its program activities as a 

top management challenge for 2019.147 Specifically, beginning in 2015, 

HUD OIG reported that HUD was not conducting routine or timely 

management control reviews and could not ensure that its programs were 

operating as required by HUD policies. Untimely reviews hamper 

management’s efforts to provide key feedback and ensure the 

effectiveness and efficiency of departmental operations.

 146For example, see Department of Housing and Urban Development, Office of Inspector 

General, 2018-FO-0002.

147Department of Housing and Urban Development, Office of Inspector General, Top 

Management Challenges Facing the U.S. Department of Housing and Urban in 2019 and 

Beyond (Washington, D.C.: Oct. 15, 2018).
Page 69 GAO-19-191 Ginnie Mae

In a January 2019 report, we suggested that Congress consider 

legislation for the future federal role in housing finance that considers all 

relevant federal entities, such as FHA and Ginnie Mae. We identified and 

reviewed 14 housing finance reform proposals released or introduced in 

2014–2018. We found, among other things, that half of the proposals did 

not address if and how the reforms would affect other federal entities in 

the housing finance system, such as FHA and Ginnie Mae.148 As a result, 

these seven proposals lacked a system-wide focus. We concluded that 

housing finance reform should have a comprehensive approach that 

considers all relevant entities.149 A comprehensive approach would help 

to promote consistency, transparency, and reduce unnecessary overlap 

and duplication between the enterprises and other federal entities, 

including Ginnie Mae.150

In addition to having a system-wide focus, we noted that government 

entities should have the capacity to manage risk. Specifically, government 

entities in the housing finance system need adequate skills and resources 

to understand, price, and manage risks.151 As previously discussed, 

Ginnie Mae’s risks have increased, and HUD has continued to face 

challenges overseeing Ginnie Mae and its other programs. Yet, our 

review of the 14 housing finance reform proposals found that only five 

discussed Ginnie Mae’s organization or oversight structure and included 

a discussion of ways Ginnie Mae could develop the capacity to manage 

risk (discussed in more detail below). For example, four of these 

proposals recommended that Ginnie Mae become an independent 

agency, three recommended that Ginnie Mae be governed by a board of 

directors, and one suggested that Ginnie Mae be regulated by FHFA. 

Furthermore, three of these proposals recommended that staff 

 148GAO-19-239.

149In prior work, we developed a framework for assessing housing finance reform 

proposals. One element in our framework stated housing finance reform should have a 

comprehensive approach that considers all relevant entities. See GAO, Financial 

Regulation: A Framework for Crafting and Assessing Proposals to Modernize the 

Outdated U.S. Financial Regulatory System, GAO-09-216 (Washington, D.C.: Jan. 8, 

2009).

150See GAO-15-131 and GAO-09-216. 

151GAO-15-131.

Some Reform Proposals 

Suggest Revising Ginnie Mae’s 

Oversight Structure and Our 

Comparison Provides Insights 

into Such Changes
Page 70 GAO-19-191 Ginnie Mae

compensation be comparable with federal banking agencies or the private

sector.152

For this review, we examined the oversight of the enterprises and FDIC 

(which, like Ginnie Mae, are complex, face large financial exposure, and 

play significant roles in the financial markets) to see if they could provide 

any insights into possible oversight models for Ginnie Mae. Similar to the 

reform proposals that discussed Ginnie Mae’s organization and oversight, 

our analysis found that potential oversight models might include: (1) an 

independent entity, (2) a board of directors, or (3) HUD (the status quo as 

currently required by statute). These models can operate individually or in 

combination with each other but would entail the following benefits and 

trade-offs related to the capacity to manage risk.

• An independent oversight entity, outside of HUD, may be more 

proficient and objective in evaluating the safety and soundness of 

Ginnie Mae’s business operations; have a greater level of expertise, 

resources, and prominence; or promote greater oversight consistency 

and minimize unintended consequences. For example, like FHFA but 

unlike HUD, an independent oversight entity may be able to employ 

on-site examiners to assess the safety and soundness of Ginnie 

Mae’s business operations and overall risk-management practices. 

But, depending on its authority, an independent entity also may 

impose restrictions on Ginnie Mae’s operations if it found safety and 

soundness deficiencies. Creating an independent oversight entity may 

affect HUD’s ability to coordinate Ginnie Mae’s and FHA’s missions 

and operations.

• A board of directors to oversee Ginnie Mae, rather than the current 

oversight structure in which HUD oversees multiple program offices, 

may result in more narrowly focused, independent, and flexible 

oversight. As previously mentioned, in 2011, the Congressional 

Research Service reported that Ginnie Mae is one of only two 

government corporations not overseen by a board of directors.153 For 

example, a board could operate separately from HUD; oversee Ginnie 

Mae’s operational and management needs; and focus singularly on 

Ginnie Mae’s mission and role in the secondary market. However, 

similar to an independent oversight entity, a board of directors may 

 152Of the 14 proposals we reviewed, one discussed Ginnie Mae’s role in securitizing loans 

but did not discuss or make recommendations to reform its organization or oversight.

153Federal Government Corporations: An Overview.
Page 71 GAO-19-191 Ginnie Mae

affect HUD’s ability to coordinate Ginnie Mae’s and FHA’s missions 

and operations.

• HUD could continue to oversee Ginnie Mae but would need to expand 

its functions, such as by examining safety and soundness and riskmanagement practices, and continue to address persistent 

management challenges described earlier. Unlike an independent 

entity such as FHFA or a board of directors, HUD must manage the 

tradeoffs raised by its multiple programs and determine how best to 

focus its attention and resources to achieve its housing goals. As 

previously discussed, HUD has faced challenges providing ongoing 

support to Ginnie Mae and does not have staff assessing the safety 

and soundness of Ginnie Mae’s business operations. As a result, 

enhancing oversight of Ginnie Mae would require substantial 

commitments by HUD and also might require additional resources for 

HUD.

As of February 2019, Congress had not enacted legislation to reform the 

housing finance system that focuses on the capacity of relevant entities, 

such as Ginnie Mae, to manage risks. Given HUD’s challenges in 

overseeing Ginnie Mae, we believe that any housing finance reform 

proposal that does not address Ginnie Mae’s current structure may miss 

an opportunity to help ensure that Ginnie Mae is adequately overseen 

and has the capacity to manage risks.

Since 2007, Ginnie Mae’s role in the secondary mortgage market has 

grown significantly, with Ginnie Mae guaranteeing around $2 trillion in 

MBS at the end of fiscal year 2018. Ginnie Mae has taken a range of 

actions to address the risks and challenges created by the rapid growth of 

its MBS program and shifting issuer base, some of which have been 

implemented while others remain in progress. However, challenges 

remain in a number of areas:

• Guaranty fee. Ginnie Mae has not analyzed the extent to which the 

current level of its guaranty fee for single-family MBS is sufficient to 

cover potential losses under different economic scenarios. By 

conducting such an analysis, Ginnie Mae could better understand its 

ability to absorb losses and, in turn, whether its guaranty fee is set at 

an appropriate level. Moreover, such analysis could help inform 

Congress about Ginnie Mae’s financial position and the potential 

benefits of granting Ginnie Mae authority to increase, if needed, its 

guaranty fee.

Conclusions
Page 72 GAO-19-191 Ginnie Mae

• Reliance on contractors. Ginnie Mae relies heavily on contractors 

for many of its functions, largely because it has the authority to use its 

fee revenue to hire contractors but must rely on appropriations to hire 

in-house staff. However, Ginnie Mae has not routinely analyzed the 

extent to which it would be more efficient or effective to use its own 

staff instead of contractors to perform certain core business functions. 

Planning and routinely performing such analyses could help Ginnie 

Mae communicate to HUD, OMB, and Congress the relative costs of 

its heavy reliance on contractors. Moreover, some uncertainty 

remains about whether its current funding structure provides Ginnie 

Mae with sufficient flexibility to readily adjust staffing levels to increase 

oversight (for instance, to address increasing MBS volume and 

changing issuer base). An evaluation by Ginnie Mae on how it could 

use its fee revenue to hire in-house staff and reduce its reliance on 

contractors and associated costs and risks could help inform 

congressional decision-making on providing Ginnie Mae with 

additional flexibility.

• Contract administration. Ginnie Mae has turned to GSA to 

administer its contracts because of HUD’s lack of resources. But 

Ginnie Mae has not analyzed whether its use of GSA continues to be 

the best option. Performing such an analysis could help Ginnie Mae 

better understand its contract administration costs and inform Ginnie 

Mae’s future decisions about contract administration.

• Compensation. Ginnie Mae has continued to face challenges 

recruiting and retaining staff, largely because of its compensation 

limitations under HUD policies and federal statutes and regulations, 

but has not fully reviewed or developed strategies to revise its 

compensation structure to address these issues. By following through 

and completing an assessment of potential reforms to its 

compensation structure, Ginnie Mae could communicate to HUD, 

OMB, and Congress the information necessary to justify changes in 

its authority that would allow it to address recruitment and retention 

challenges and structure its workforce to meet operational needs.

• Oversight structure. Our current (and past) work highlights important 

considerations for Congress relating to how Ginnie Mae is overseen. 

Ginnie Mae’s prominent and central role in the housing finance 

system warrants that its capacity to manage risk be addressed. Ginnie 

Mae’s status as a government corporation within HUD has contributed 

in part to the internal oversight challenges that Ginnie Mae, we, and 

HUD OIG identified over the years (including lack of flexibility in hiring 

and compensation that impeded efforts to increase oversight of 

issuers and contractors). Furthermore, more recent growth in Ginnie 
Page 73 GAO-19-191 Ginnie Mae

Mae’s MBS balances, concomitant growth in potential fiscal exposure, 

and changes in its issuer base underscore the importance of ensuring 

appropriate and adequate oversight. Alternatives to Ginnie Mae’s 

current oversight structure (such as an independent entity or a board 

of directors) could enhance its capacity to manage risk by providing 

better safety and soundness oversight or result in more focused and 

flexible oversight.

We are making the following four matters for congressional consideration:

Congress should consider requiring Ginnie Mae to evaluate the adequacy 

of its current guaranty fee for single-family mortgage-backed securities 

and report to Congress with recommendations, if any, on revising the fee, 

such as by adopting standards under which the fee should be 

determined. (Matter for Consideration 1)

Congress should consider requiring Ginnie Mae to evaluate its reliance 

on contractors and report to Congress on how it would use fee revenue 

available to hire contractors to also hire in-house staff. (Matter for 

Consideration 2)

Congress should consider requiring Ginnie Mae to provide a report on 

how it would use greater flexibility or broader authority to set the 

compensation of its in-house staff. (Matter for Consideration 3)

Congress should consider reforms to Ginnie Mae’s oversight structure 

that can help address its increasing risks. (Matter for Consideration 4)

We are making the following four recommendations to Ginnie Mae:

The Chief Risk Officer of Ginnie Mae should periodically conduct an 

actuarial or similar analysis that includes a stress test to evaluate the 

extent to which the current level of the guaranty fee for single-family MBS 

provides Ginnie Mae with sufficient reserves to cover potential losses 

under different economic scenarios. (Recommendation 1)

The Senior Vice President of Ginnie Mae’s Office of Management 

Operations should analyze the costs of using contractors for its 

operations and develop a plan to determine the optimal mix of contractor 

or in-house staff for operations. (Recommendation 2)

Matters for 

Congressional 

Consideration

Recommendations for 

Executive Action
Page 74 GAO-19-191 Ginnie Mae

The Senior Vice President of Ginnie Mae’s Office of Management 

Operations should assess its contract administration options to determine 

the most efficient and effective use of funds. (Recommendation 3)

The Chief Financial Officer of Ginnie Mae and Senior Vice President of 

Ginnie Mae’s Office of Management Operations should finalize efforts to 

assess the costs and benefits of options to revise its compensation 

structure within current authority and submit proposals, if warranted, to 

HUD for review and consideration. (Recommendation 4)

We provided a draft of this report to HUD, the Department of Agriculture, 

VA, FHFA, FDIC, and CFPB for review and comment. In its comments, 

reproduced in appendix III, Ginnie Mae (HUD) concurred with our 

recommendations. In addition, Ginnie Mae, the Department of Agriculture, 

FHFA, FDIC, and CFPB provided technical comments, which we 

incorporated as appropriate.

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees, the Secretary of Housing and Urban 

Development, the Secretary of Agriculture, the Secretary of Veterans 

Affairs, the Acting Director of the Federal Housing Finance Agency, the 

Chairman of the Federal Deposit Insurance Corporation, the Director of 

the Consumer Financial Protection Bureau, and other interested parties. 

In addition, the report will be available at no charge on the GAO website 

at http://www.gao.gov.

Agency Comments 

and Our Evaluation
Page 75 GAO-19-191 Ginnie Mae

If you or your staff have any questions about this report, please contact 

me at (202) 512-8678 or garciadiazd@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 IV.

Sincerely yours,

Daniel Garcia-Diaz

Director, Financial Markets and Community Investment
Appendix I: Objectives, Scope, and 

Methodology

Page 76 GAO-19-191 Ginnie Mae

This report focuses on (1) changes in the Government National Mortgage 

Association’s (Ginnie Mae) mortgage-backed securities (MBS) volume 

and issuers and their effect on Ginnie Mae’s risks, (2) Ginnie Mae’s 

oversight and management of issuers and related risks, (3) Ginnie Mae’s 

staff levels and use of contractors, and (4) the oversight structure of 

Ginnie Mae compared to selected entities to identify areas for potential 

reforms.1

To analyze changes in Ginnie Mae’s MBS volume and issuers and their 

effect on Ginnie Mae’s risks, we collected and analyzed data from Ginnie 

Mae and Inside Mortgage Finance, a firm that collects data on the primary 

and secondary mortgage markets. Additionally, we used data we 

collected and analyzed for a previous report.2

• The data from Ginnie Mae on its (1) cumulative outstanding principal 

balance and new annual issuance of Ginnie Mae-guaranteed MBS 

covered fiscal years 2005–2018 and (2) issuers covered fiscal years 

2011–2018. We analyzed information on the number and types of 

financial institutions that issue Ginnie Mae-guaranteed MBS, including 

banks (depository institutions) and nonbanks (non-depository 

institutions), and their share of outstanding MBS. We included 

information on the amount of federally insured and guaranteed 

mortgages pooled into new Ginnie Mae-guaranteed MBS.

• The data from Inside Mortgage Finance covered calendar years 

2005–2017. We analyzed information on the volume of MBS issuance 

by Ginnie Mae issuers, private-label issuers, and governmentsponsored enterprises, and cumulative outstanding guaranteed MBS.3

We assessed the reliability of the data provided by Ginnie Mae by 

reviewing documentation on the systems that produced the data, 

performing data tests, and conducting interviews with relevant Ginnie 

Mae officials. We determined that the data were sufficiently reliable for 

our reporting objective. To identify and review recent studies on changes 

 1

We selected entities that participate in the housing market or operate with potential 

financial exposure for the federal government. 

2

GAO, Ginnie Mae: Risk Management and Cost Modeling Require Continuing Attention, 

GAO-12-49 (Washington, D.C.: Nov. 14, 2011).

3

Nonagency MBS, also referred to as private-label MBS, are issued by private institutions, 

such as investment banks, and are not guaranteed by Ginnie Mae or issued by Fannie 

Mae or Freddie Mac, two government-sponsored enterprises.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 77 GAO-19-191 Ginnie Mae

in the MBS market that affected Ginnie Mae, we searched relevant 

databases from 2008 through 2017, such as ABI/INFORM, EconLit, and 

Social SciSearch. We also reviewed Ginnie Mae’s annual reports to 

Congress from 2012 through 2017, our previous reports, and relevant 

reports by the Department of Housing and Urban Development’s (HUD) 

Office of Inspector General (OIG). Finally, we interviewed officials from 

Ginnie Mae, HUD, and HUD OIG about changes in Ginnie Mae’s MBS 

volume, concentration of issuers, and risks associated with these 

changes.

To analyze Ginnie Mae’s oversight of issuers and related risks, we 

reviewed Ginnie Mae’s issuer guidance, including its MBS Guide and all 

participant memorandums; and internal policies, procedures, and 

manuals for approving, monitoring, and managing issuers. We also 

reviewed HUD and Ginnie Mae policies and procedures for managing 

fraud risk against our fraud risk framework and federal internal control 

standards. We reviewed Ginnie Mae’s statutory authority (Title III of the 

National Housing Act) and selected legislative history, and its annual 

reports for fiscal years 2012–2018 and annual budget justifications and 

submissions for fiscal years 2012–2019. We reviewed Ginnie Mae’s 

internal systems (applications and models), data sources, and 

quantitative metrics used to monitor and evaluate issuers’ financial 

condition and operations and track its MBS portfolio. We analyzed 

financial data on issuer defaults for fiscal years 2011–2017 to determine 

the number of issuer defaults and the associated losses. In addition, we 

reviewed our prior reports and HUD OIG reports covering audits of Ginnie 

Mae, including its oversight of issuers. We interviewed Ginnie Mae 

officials about the risks the agency faces and how it manages such risks. 

We also interviewed HUD OIG officials about open recommendations 

from their prior Ginnie Mae audits and Ginnie Mae officials about the 

steps taken to close the recommendations. Finally, we reviewed federal 

internal control standards and enterprise and risk-management guidance 

(such as Standards for Internal Control in the Federal Government and 

Circular A-123) issued by the Office of Management and Budget (OMB), 

GAO, and federal entities to evaluate Ginnie Mae’s risk-management 

processes.

To analyze Ginnie Mae’s staff levels and use of contractors, we reviewed 

Ginnie Mae’s budget authority (Government Corporation Control Act and 

appropriations acts) and budget requests for fiscal years 2012–2017; 

policies and procedures for budget formulation and workforce planning; 

and other related internal documents, such as its strategic, workforce 

development, and reorganization plans, and a contractor study on its 
Appendix I: Objectives, Scope, and 

Methodology

Page 78 GAO-19-191 Ginnie Mae

staffing, contracting, and operations. We also reviewed HUD policies and 

procedures for hiring, procurement, and contractor oversight and GAO 

and HUD OIG reports on the resource challenges that Ginnie Mae has 

faced in overseeing contractors. In addition, we obtained and analyzed 

Ginnie Mae data on its budget requests and authorizations (dollar amount 

and staff level) for fiscal years 2005–2018, staff turnover for fiscal years 

2011–2016, and functions that it contracts out and obligated amounts for 

fiscal years 2008–2018. We assessed the reliability of the Ginnie Mae 

staff turnover and contract data by reviewing documentation on the 

systems that produced the data. We determined that the data were 

sufficiently reliable for our reporting objective. We interviewed Ginnie 

Mae, HUD, OMB, and HUD OIG officials about budgetary, staff resource, 

and contracting issues, such as requested changes to budget authority 

and functions that are outsourced to contractors.

To compare the oversight structure of Ginnie Mae to selected entities to 

identify areas for potential reforms, we reviewed Ginnie Mae’s statutory 

authority; HUD documentation of its oversight of Ginnie Mae, such as 

guidance and risk assessments; and GAO and HUD OIG reports on 

HUD’s oversight of Ginnie Mae. We interviewed Ginnie Mae officials and 

HUD officials from several offices, including strategic planning and 

management, finance, procurement, and human capital about HUD’s 

processes for overseeing Ginnie Mae. We selected three other entities for 

our comparison: Fannie Mae and Freddie Mac—two governmentsponsored enterprises—and the Federal Deposit Insurance Corporation 

(FDIC)—a government-controlled corporation.4 We based our selection 

on their mission, functions, risks, and oversight. To analyze oversight and 

other characteristics of these selected entities, we reviewed their annual 

reports, bylaws, internal reporting requirements, strategic plans, and other 

related documents. To identify and review congressional, academic, and 

other proposals to reform the housing finance system, we searched 

relevant databases from 2008 through 2017, such as ABI/INFORM, 

EconLit, and Social SciSearch. We reviewed 14 proposals introduced in 

2014–2018 that were (1) introduced in Congress, either in legislation or 

released as discussion drafts, or (2) introduced by industry stakeholders 

or discussed in congressional hearings. We used our framework for 

assessing potential changes to the housing finance system to analyze 

 4

For purposes of this report, the discussion of FDIC’s operations is limited to its 

management of the Deposit Insurance Fund.
Appendix I: Objectives, Scope, and 

Methodology

Page 79 GAO-19-191 Ginnie Mae

Ginnie Mae’s role in the proposed reforms.5 We interviewed officials from 

FDIC and the Federal Housing Finance Agency, which regulates and 

serves as the conservator of the enterprises, about how FDIC and the 

enterprises respectively are overseen, such as in terms of their 

management and operations.

We conducted this performance audit from May 2017 to April 2019 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 our findings and 

conclusions based on our audit objectives.

 5

In a 2014 report, we outlined a framework composed of nine elements we consider to be 

critically important to help policymakers assess or craft proposals to change the housing 

finance system. To develop this framework, we reviewed other frameworks we had 

developed, reviewed reform proposals, and met with government officials, researchers, 

and other relevant parties at discussion groups. For additional details on how we 

developed the framework, see GAO, Housing Finance System: A Framework for 

Assessing Potential Changes, GAO-15-131 (Washington, D.C.: Oct. 7, 2014). Also see

Financial Regulation: A Framework for Crafting and Assessing Proposals to Modernize 

the Outdated U.S. Financial Regulatory System, GAO-09-216 (Washington, D.C.: Jan. 8, 

2009).
Appendix II: Housing Finance Reform 

Proposals Reviewed

Page 80 GAO-19-191 Ginnie Mae

For this report, we reviewed the following housing finance reform 

proposals released between 2014 and September 2018 (see appendix I 

for more information about how we selected the proposals):

Legislative Proposals:

Bipartisan Housing Finance Reform Act of 2018 (discussion draft). 

Released by House Financial Services Chairman Jeb Hensarling, 

Representative John Delaney, and Representative Jim Hines on 

September 6, 2018.

Housing Finance Reform and Taxpayer Protection Act of 2014 (S. 1217). 

Released by Senate Banking Committee Chairman Tim Johnson and 

Ranking Member Michael Crapo on March 16, 2014.

Housing Opportunities Move the Economy (HOME) Forward Act of 2014 

(discussion draft). Released by House Financial Services Committee 

Ranking Member Maxine Waters on March 27, 2014.

Mortgage Finance Act of 2015 (S. 495). Introduced by Senator Johnny 

Isakson on February 12, 2015.

Partnership to Strengthen Homeownership Act of 2014 (H.R. 5055). 

Introduced by Representative Delaney on July 10, 2014.

Protecting American Taxpayers and Homeowners Act of 2018 (H.R. 

6746). Introduced by House Financial Services Chairman Jeb Hensarling 

on September 7, 2018 (originally introduced on July 22, 2013).

Proposals from Other Sources:

Bright, Michael, and Ed DeMarco. Toward a New Secondary Mortgage 

Market. Washington, D.C.: Milken Institute, September 2016.

Federal Housing Finance Agency. Perspectives on Housing Finance 

Reform. Washington, D.C.: January 2018.

Independent Community Bankers of America. ICBA Principles for GSE 

Reform and a Way Forward. Washington, D.C.: 2017.

Moelis & Company LLC. Blueprint for Restoring Safety and Soundness to 

the GSEs. June 2017.

Appendix II: Housing Finance Reform 

Proposals Reviewed
Appendix II: Housing Finance Reform 

Proposals Reviewed

Page 81 GAO-19-191 Ginnie Mae

Mortgage Bankers Association. GSE Reform: Creating a Sustainable, 

More Vibrant Secondary Market. Washington, D.C.: April 2017.

National Association of Home Builders. Why Housing Matters: A 

Comprehensive Framework for Reforming the Housing Finance System. 

Washington, D.C.: September 2015.

Office of Management and Budget. Delivering Government Solutions in 

the 21st Century: Reform Plan and Reorganization Recommendations. 

Washington, D.C.: June 2018.

Parrott, Jim, Lewis Ranieri, Gene Spalding, Mark Zandi, and Barry Zigas. 

A More Promising Road to GSE Reform. Washington, D.C.: Urban 

Institute, March 2016.
Appendix III: Comments from Ginnie Mae

Page 82 GAO-19-191 Ginnie Mae

Appendix III: Comments from Ginnie Mae
Appendix III: Comments from Ginnie Mae

Page 83 GAO-19-191 Ginnie Mae
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 84 GAO-19-191 Ginnie Mae

Daniel Garcia-Diaz, (202) 512-8678 or garciadiazd@gao.gov

In addition to the contact named above, Nadine Garrick Raidbard 

(Assistant Director), Rich Tsuhara (Assistant Director), Christopher Forys 

(Analyst in Charge), Jordan Anderson, Sarah Belford, Angeline Bickner, 

Marcia Carlsen, Robert Dacey, Jennifer Dougherty, Carol Henn, Risto 

Laboski, Courtney LaFountain, Marc Molino, Barbara Roesmann, 

Rebecca Shea, Tyler Spunaugle, Farrah Stone, Frank Todisco, and 

William Woods made key contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(102099)
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