RURAL HOUSING 

SERVICE

Actions Needed to 

Strengthen 

Management of the 

Single Family 

Mortgage Guarantee 

Program

Report to Congressional Requesters

March 2016

GAO-16-193

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-193, a report to 

congressional requesters

March 2016

RURAL HOUSING SERVICE

Actions Needed to Strengthen Management of the 

Single Family Mortgage Guarantee Program

Why GAO Did This Study

In recent years, RHS’s single-family 

mortgage guarantee program has 

grown significantly, and RHS currently 

manages a guaranteed portfolio of 

more than $100 billion. RHS helps lowand moderate-income rural residents 

purchase homes by guaranteeing 

mortgages made by private lenders. 

GAO was asked to examine the 

program’s cost estimation methodology 

and risk-management structure. This 

report discusses (1) recent trends in 

the credit subsidy costs of RHS’s 

guarantee program and the process for 

estimating those costs and (2) the 

extent to which RHS’s policies and 

procedures for the program are 

consistent with federal standards for 

managing credit programs. GAO 

analyzed RHS budget data for fiscal 

years 2004 through 2014, examined 

RHS policies and procedures, 

reviewed OMB standards, and 

interviewed RHS officials.

What GAO Recommends

GAO is making 11 recommendations 

to USDA to help ensure that RHS’s 

policies and procedures are consistent 

with OMB standards and to strengthen 

management of the guarantee program

and other credit programs. Areas on 

which the recommendations focus

include overseeing lenders, formalizing 

or establishing key risk management 

functions, and assessing and reporting

on portfolio risk and performance. RHS 

agreed with or said it was acting on 

five of the recommendations. RHS 

neither agreed nor disagreed with the 

rest but said it generally recognized the 

underlying risk implications. GAO 

maintains that the recommendations 

are valid, as discussed in the report. 

What GAO Found

The estimated credit subsidy costs (expected net lifetime costs) of single-family 

mortgages guaranteed by the Department of Agriculture’s (USDA) Rural Housing 

Service (RHS) substantially increased in recent years, partly due to high losses 

from the 2007 through 2011 housing crisis. For example, the fiscal year 2013 and 

2014 reestimates (which federal agencies must do annually) indicated higher 

expected costs of $804 million and $615 million, respectively, compared with the 

prior reestimates (see fig.). To improve the current estimation method (which 

relies on average historical losses), RHS hired a contractor to develop statistical 

models that will predict losses based on loan, borrower, and economic variables. 

Rural Housing Service Guaranteed Single-Family Mortgage Portfolio and Annual Net Credit

Subsidy Reestimates for the Portfolio, Fiscal Years 2004-2014 

RHS’s policies and procedures are not fully consistent with all Office of 

Management and Budget (OMB) standards for managing credit programs (OMB 

Circular A-129). RHS’s policies and procedures are consistent with the OMB 

standards in most areas, including loan documentation, collateral requirements, 

and aspects of applicant screening and lender oversight. However, RHS 

• has not established and published all required lender eligibility standards

such as principal officer qualifications (e.g., experience level ) and financial

standards (e.g., minimum net worth);

• lacks written policies and procedures for a committee responsible for

analyzing and addressing the credit quality (default risk) of guaranteed loans;

• has not established a position independent of program management to help

manage the risks of its guaranteed portfolio;

• has not established risk thresholds (for example, maximum portfolio- or loanlevel loss tolerances) and uses certain loan performance benchmarks that

have limited value for risk management; and

• has not incorporated a discussion of areas needing increased management

focus into its “dashboard” reports.

These and other inconsistencies occurred in part because RHS has not

completed an ongoing assessment of its policies and procedures against Circular 

A-129. Furthermore, the Office of Rural Development (which oversees RHS) has 

not established procedures for prioritizing Circular A-129 reviews of its credit 

programs based on risk. More fully adhering to Circular A-129 standards would 

enhance RHS’s effectiveness in managing the risks of its guarantee program.

View GAO-16-193. For more information, 

contact Mathew Scirè at (202) 512-8678 or 

sciremj@gao.gov
Page i GAO-16-193 RHS Mortgage Guarantees

Letter 1

Background 3

Estimated Costs of Guarantee Program Have Risen, and Rural 

Development Has Enhanced Its Cost Estimation Process 8

RHS Has Not Fully Aligned Its Policies and Procedures with OMB 

Guidance 20

Conclusions 37

Recommendations for Executive Action 38

Agency Comments and Our Evaluation 39

Appendix I: Objectives, Scope, and Methodology 43

Appendix II: GAO Contact and Staff Acknowledgments 47

Tables

Table 1: Assessment of Rural Housing Service (RHS) Policies and 

Procedures for Extending Credit against Office of 

Management and Budget (OMB) Circular A-129 

Standards (as of November 2015) 21

Table 2: Assessment of Rural Housing (RHS) Service Policies and 

Procedures for Loan Documentation and Collateral 

against Office of Management and Budget (OMB) 

Standards (as of November 2015) 24

Table 3: Assessment of Rural Housing Service (RHS) Policies and 

Procedures for Managing Lenders and Servicers against 

Office of Management and Budget (OMB) Standards (as 

of November 2015) 25

Table 4: Assessment of Rural Housing Service (RHS) Policies and 

Procedures for Credit Program Management against 

Office of Management and Budget (OMB) Standards (as 

of November 2015) 30

Figures

Figure 1: Rural Housing Service Guaranteed Single-Family 

Mortgage Portfolio and Annual Net Credit Subsidy 

Reestimates for the Portfolio, Fiscal Years 2004-2014 10

Contents
Page ii GAO-16-193 RHS Mortgage Guarantees

Figure 2: Actual Cumulative Loss Rates for Rural Housing Service 

Guaranteed Single-Family Mortgages for 2000-2013 

Cohorts by Year Since Origination, as of September 30, 

2014 12

Abbreviations

CSC Centralized Servicing Center 

COSO Committee of Sponsoring Organizations of the Treadway 

Commission

FCRA Federal Credit Reform Act of 1990 

FHA Federal Housing Administration 

OMB Office of Management and Budget 

RD Rural Development

RHS Rural Housing Service 

Treasury Department of the Treasury

USDA Department of Agriculture

VA Department of Veterans Affairs

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Page 1 GAO-16-193 RHS Mortgage Guarantees

441 G St. N.W.

Washington, DC 20548

March 31, 2016

The Honorable Blaine Luetkemeyer

Chairman

Subcommittee on Housing and Insurance

Committee on Financial Services

House of Representatives

The Honorable Randy Neugebauer

House of Representatives

The Department of Agriculture’s (USDA) Rural Housing Service (RHS) 

has helped more than 1 million families residing in rural communities 

finance homes through its Single Family Mortgage Guarantee Program 

(guarantee program).1 The program insures private lenders against 

losses on loans that finance the purchase of properties in areas statutorily 

designated as rural or that refinance existing RHS mortgages. RHS has 

experienced a substantial increase in its business volume due, in part, to 

contraction of other mortgage market segments stemming from the 2007 

through 2011 housing crisis.2 From 2007 through 2014, the amount of 

outstanding RHS guarantees grew from less than $20 billion to more than 

$100 billion. At the same time, the estimated long-term costs of the 

guarantee program—known as credit subsidy costs—have risen. Similar 

to other federal credit agencies, USDA is required to estimate and 

annually reestimate the budgetary costs of each guaranteed loan cohort 

in accordance with the Federal Credit Reform Act of 1990 (FCRA).3 For 

the past several fiscal years, USDA has submitted upward credit subsidy 

 1

The program was authorized by Section 502(h) of the Housing Act of 1949, as amended 

[codified at 42 U.S.C. 1472(h)]. 

2

We use the 2007-2011 date range to identify the housing crisis based on trends in 

average home prices. According to the S&P/Case Shiller National Home Price Index, 

average home prices fell each calendar year from 2007 through 2011, for a total decline of 

almost 27 percent. This index is a composite of single-family home price indexes for the 

nine U.S. Census divisions and is calculated monthly. The methodology used to calculate 

these indexes is described in S&P/Case Shiller Home Price Indices Methodology 

(February 2015).

3

A cohort is the set of loans an agency guarantees in a fiscal year. FCRA was enacted as 

part of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. No. 101-508). 

Letter
Page 2 GAO-16-193 RHS Mortgage Guarantees

reestimates for the guarantee program, reflecting an increase in the 

program’s expected cost.

In light of these developments, you requested that we assess the cost 

estimation methodology and risk-management structure for RHS’s 

guarantee program.4 This report discusses (1) recent trends in the credit 

subsidy costs of RHS’s guarantee program and the process for estimating 

and reestimating those costs and (2) the extent to which RHS’s policies 

and procedures for the guarantee program are consistent with Office of 

Management and Budget (OMB) standards for managing credit 

programs.

To examine recent trends in the guarantee program’s credit subsidy costs 

and the process for estimating those costs, we analyzed credit subsidy 

estimates and reestimates from the President’s budgets for fiscal years 

2006–2016 (which include the final reestimates for fiscal years 2004 

through 2014). We reviewed relevant requirements and guidance, 

including FCRA, OMB Circular A-11, and federal financial accounting 

guidance.5 We examined documentation on the processes and tools RHS 

uses to determine subsidy costs, including the cash flow model 

maintained by Rural Development (RD), the USDA component that 

oversees RHS. We also interviewed RD and RHS officials and RD 

contractor staff about current credit subsidy estimation processes and 

planned changes. To provide context for recent trends in the program’s 

credit subsidy costs, we analyzed RD data on the number of loans 

guaranteed annually from fiscal year 1992 (the first year RHS made 

guarantees nationwide) through fiscal year 2014 and the total dollar 

amount of outstanding guarantees each year from fiscal years 2004 

through fiscal year 2014. We also analyzed RD data on loss amounts for 

the fiscal year 2000 through 2013 cohorts as of September 30, 2014. We 

assessed the reliability of these data by reviewing related documentation, 

 4

In May 2015, we testified on preliminary observations from our work in response to this 

request. See GAO, Rural Housing Service: Progress on GAO Recommendations and 

Preliminary Observations on Loan Guarantee Risk Management, GAO-15-625T 

(Washington, D.C.: May 19, 2015).

5

Office of Management and Budget, Federal Credit, OMB Circular No. A-11 Part 5 

(revised 2015), and Government-Wide Audited Financial Statement Task Force 

Subcommittee on Credit Reform, Issue Paper 96-CR-7: Model Credit Program Methods 

and Documentation for Estimating Subsidy Rates and the Model Information Store (May 

1996).
Page 3 GAO-16-193 RHS Mortgage Guarantees

interviewing knowledgeable agency officials, and comparing the data with 

other data sources, where possible. We found the data to be sufficiently 

reliable for the purposes of describing trends in the guarantee program’s 

business activity, portfolio size, and loss experience.

To determine the extent to which RHS’s policies and procedures were 

consistent with OMB standards, we reviewed OMB Circular A-129, which 

contains a number of standards pertinent to managing the risks of a loan 

guarantee program, including standards for extending credit, managing 

and overseeing credit programs, and managing guaranteed loan lenders 

and servicers.6 We reviewed RHS’s policies and procedures for the 

guarantee program—contained in regulations, handbooks, and other 

agency guidance and documentation—and assessed the extent to which 

they were consistent with the OMB standards. We did not verify RHS’s 

compliance with its own policies and procedures or assess their 

effectiveness. However, we reviewed related USDA Office of the 

Inspector General reports, which included some compliance testing, and 

determined the status of the Inspector General’s audit recommendations.7

Additionally, we interviewed RD and RHS officials with responsibilities for 

managing the guarantee program and OMB staff knowledgeable of the 

2013 update of Circular A-129.

We conducted this performance audit from May 2014 to March 2016 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. Appendix I contains additional information on our objectives, 

scope, and methodology.

 6

Office of Management and Budget, Policies for Federal Credit Programs and Non-Tax 

Receivables, OMB Circular No. A-129 (revised 2013).

7

As of September 2015, the Inspector General had classified all recommendations 

specific to the guarantee program as closed.

Background
Page 4 GAO-16-193 RHS Mortgage Guarantees

RHS, a component of USDA’s RD mission area, is responsible for rural 

housing and community facilities programs.8 Under the single-family 

guarantee program, RHS provides lenders guarantees on residential 

mortgage loans to households with low to moderate incomes in areas 

statutorily designated as rural.9 The guarantees cover 30-year fixed-rate 

loans made to purchase a home or refinance an existing RHS direct or 

guaranteed loan. The guarantee program requires no down payment from 

borrowers and currently charges a 2.75 percent up-front guarantee fee 

(which borrowers may finance in the approved loan amount) and a 0.5 

percent annual guarantee fee. The guarantee provides coverage for 

eligible losses of up to 90 percent of the original loan balance, including 

unpaid principal and interest, principal and interest on USDA-approved 

advances for protection and preservation of the property, and the costs 

associated with selling a foreclosed property.

RHS-approved lenders and servicers originate, underwrite, and service 

the mortgage loans that RHS guarantees. According to RHS, in fiscal 

year 2014, about 1,700 lenders originated loans guaranteed by RHS. A 

borrower (home buyer) applies for a guaranteed loan through an RHSapproved lender. Since 2006, RHS has provided an automated 

underwriting system for lenders to submit loan information and determine 

borrower eligibility. RHS staff are to review the loan information and, if it 

meets RHS’s requirements, issue a conditional commitment to guarantee

the loan. Upon receiving and satisfying the commitment conditions, the 

lender closes the loan and submits the closing package to RHS. After 

reviewing the closing package, RHS issues the loan guarantee. A lender 

may service its own loans—including collecting monthly mortgage 

payments, maintaining escrow accounts for property taxes and hazard 

insurance, and conducting loss mitigation activities—or pay a fee for 

another organization to service its loans. Servicers also are responsible 

for liquidating foreclosed properties.

In December 2014, new program regulations went into effect that 

expanded the pool of lenders eligible to participate in the guarantee 

 8

RD is headed by the Undersecretary for Rural Development.

9

Section 520 of the Housing Act of 1949, as amended, defines rural for most RHS housing 

programs. The definition is largely based on population, but also considers other factors, 

such as proximity to metropolitan areas. Low income is defined as income totaling no 

more than 80 percent of the area’s median income. Moderate income is defined as no 

more than 115 percent of the area’s median income.

RHS Guarantee Program

Lenders and Servicers
Page 5 GAO-16-193 RHS Mortgage Guarantees

program.10 With the regulation change, any lender supervised and 

regulated by the Federal Deposit Insurance Corporation, the National 

Credit Union Administration, the Office of the Comptroller of the Currency, 

the Federal Reserve System, or the Federal Housing Finance Board was 

eligible.11 According to RHS, the regulation enables many small 

community banks and credit unions that were ineligible prior to the 

change in regulations to participate in the guarantee program.

RD offices at the national, state, and local levels play important roles in 

the guarantee program. The Single Family Housing Guaranteed Loan 

Division in Washington, D.C., is responsible for developing, implementing, 

and monitoring program policy and procedures. The division’s functions 

include legislative and budget planning; management reporting; issuance 

of regulatory and policy directives; portfolio monitoring; and approval, 

training, and review of nationwide lenders and servicers. RD state and 

local offices conduct program operations within their geographic 

jurisdictions. Their responsibilities include approving lenders that operate 

in a single state to participate in the program and monitoring the lenders’

underwriting and servicing of guaranteed loans. In addition, staff in state 

and local offices are responsible for reviewing loan applications and 

closing documentation and issuing conditional and final loan guarantee 

commitments. They also are to provide loan servicing guidance to lenders 

and servicers and train lenders on program requirements.

Other offices play key roles in administering and overseeing the 

guarantee program including, but not limited to, the following:

• RHS’s Centralized Servicing Center (CSC) in St. Louis, Missouri, 

reviews and approves lender loss-mitigation efforts and lender claims, 

among other functions.

 10See 7 C.F.R. pt. 3555.

11Prior to December 2014, eligible lenders included state housing agencies, lenders 

approved with direct endorsement authority for the Department of Housing and Urban 

Development’s Federal Housing Mortgage Insurance program, lenders with authority to 

close loans guaranteed by the Department of Veterans Affairs, lenders approved by 

Fannie Mae and Freddie Mac, Farm Credit System institutions with direct lending 

authority, and lenders participating in other guaranteed loan programs of Rural 

Development or the Farm Service Agency. These categories of lenders are still eligible to 

participate in the program.

National, State, and Local 

Offices
Page 6 GAO-16-193 RHS Mortgage Guarantees

• RD’s Office of the Chief Financial Officer calculates credit subsidy 

estimates and reestimates; oversees periodic management control 

reviews and state internal reviews of RD programs, including the 

guarantee program; and reviews documentation related to 

implementation of USDA Office of the Inspector General audit 

recommendations and forwards it to USDA’s Office of the Chief 

Financial Officer, which determines whether the recommendation can 

be closed.

12

Under FCRA, USDA and other federal agencies must estimate the credit 

subsidy costs of their direct loan and loan guarantee programs and 

include the costs to the government in their annual budgets. Agencies 

annually estimate credit subsidy costs for each program by cohort—the 

loans agencies commit to insure or guarantee in a given fiscal year. The 

credit subsidy cost is equal to the net present value of estimated lifetime 

cash flows to and from the government, excluding administrative costs. 

For a mortgage guarantee program, cash inflows consist primarily of 

premiums received from borrowers and cash outflows consist mostly of 

claim payments to lenders. Credit programs have a positive subsidy cost 

when the present value of estimated payments by the government 

exceeds the present value of estimated premiums and other funds 

received by the government (collections). When credit programs have a 

positive subsidy cost, they require appropriations. Conversely, negative 

subsidy programs are those in which the present value of estimated 

collections is expected to exceed the present value of estimated 

payments.

FCRA requires that agencies have budget authority to cover credit 

subsidy costs before entering into credit transactions. To estimate their 

subsidy costs for annual appropriation requests, credit agencies estimate 

the future performance of direct loans and loan guarantees. Agencies are 

responsible for accumulating relevant, sufficient, and reliable data on 

 12Management control reviews, which are conducted every 5 years, are detailed 

examinations of assessable units from the highest operational level to the lowest 

operational level to determine whether necessary controls are in place and producing the 

intended results, comply with applicable laws and regulations, and provide solutions to 

reduce or eliminate any deficiencies. Assessable units are RD functional areas or 

components that have the appropriate nature and size to facilitate meaningful risk 

assessments and management control reviews. State internal reviews are comprehensive 

evaluation reviews of the delivery of programs and administrative functions in field offices 

and centralized program functions within the state.

Requirements for 

Estimating Credit Subsidy 

Costs
Page 7 GAO-16-193 RHS Mortgage Guarantees

which to base these estimates. To estimate future credit performance, 

agencies generally have models that include assumptions about defaults, 

prepayments, recoveries, and the timing of these events and are based 

on the nature of their credit programs. As needed, agencies also 

incorporate economic assumptions provided by the President into credit 

subsidy calculations. Further, OMB requires agencies to discount cash 

flows using projected Treasury interest rates that are consistent with the 

economic assumptions underlying the President’s budget. The discount 

rates are used to derive the present value of future cash flows that, in 

turn, indicate the credit subsidy costs. The costs can be expressed as a 

rate. For example, if an agency commits to guarantee loans totaling $1 

million and has estimated that the present value of cash outflows will 

exceed the present value of cash inflows by $15,000, the estimated credit 

subsidy rate is 1.5 percent.

Under FCRA, agencies generally must produce annual updates of their 

credit subsidy estimates—known as reestimates—of each cohort based 

on information about the actual performance and estimated changes in 

future credit performance. This requirement reflects the fact that 

estimates of credit subsidy costs can change over time. Beyond changes 

in estimation methodology, each additional year provides more historical 

data on credit performance that may influence estimates of the amount 

and timing of future cash flows. Economic assumptions also can change 

from one year to the next, including assumptions on interest rates. When 

reestimated credit subsidy costs exceed agencies’ original cost 

estimates—resulting in an upward reestimate—the additional subsidy 

costs are not covered by new discretionary appropriations but rather are 

funded from permanent, indefinite budget authority.13

In January 2013, OMB reissued its Circular A-129, which provides 

guidance to federal agencies on managing credit programs. The guidance 

addresses key aspects of managing a loan guarantee program, including 

assessing the eligibility and creditworthiness of borrowers, overseeing 

guaranteed loan lenders and servicers, developing performance 

indicators and risk thresholds, and analyzing and reporting on portfolio 

risks. The circular also provides guidance on management structures, 

 13Permanent budget authority is available as the result of previously enacted legislation 

and is available without further legislative action. Indefinite budget authority is budget 

authority that, at time of enactment, is for an unspecified amount.

OMB Circular A-129
Page 8 GAO-16-193 RHS Mortgage Guarantees

including the need for risk-management functions that are independent 

from credit program administration. According to OMB staff, the 2013 

update to the circular incorporated best practices for risk management. 

RD’s Office of the Chief Financial Officer has primary responsibility for 

ensuring the guarantee program’s compliance with the circular.

In part due to the recent housing crisis, the estimated credit subsidy costs 

of RHS’s guarantee program rose in recent years. RD uses information 

on historical average performance to develop its cost estimates, although 

it adjusted its method in recent years to account for the effects of the 

housing crisis. Furthermore, RD has been developing econometric 

(statistical) models to estimate future credit subsidy costs that should help 

address the limitations of its current method, such as reduced reliability 

when economic conditions vary from those in the past.

RHS estimated the initial subsidy rates of its most recent single-family 

mortgage guarantee cohorts to be around zero. As required by FCRA, RD 

annually estimates the credit subsidy cost of the loans it plans to 

guarantee in the upcoming fiscal year and reestimates credit subsidy 

costs for prior loan cohorts.14 According to RHS officials, since 2010 RHS 

has had the goal of making each new loan guarantee cohort “subsidy 

neutral”—that is, initially, the present value of lifetime estimated cash 

inflows equals the present value of lifetime estimated cash outflows. 

Accordingly, the initial credit subsidy rate estimates for the 2011 through 

2014 cohorts were close to zero (ranging from -0.04 percent to -0.25 

percent).15 However, the current reestimated rates for the 2011 and 2012 

cohorts are slightly positive (1.39 percent and 0.86 percent, respectively). 

The current reestimated rates for the 2013 and 2014 cohorts—the most 

recent cohorts to be reestimated—are slightly negative, each at -0.31 

percent.

 14Beginning with the budget estimate for the fiscal year 2011 cohort, RD estimated and 

reported credit subsidy costs for new guaranteed loans and refinanced guaranteed loans 

as one “blended” cohort. Previously, RD estimated separate credit subsidy costs for new 

loan guarantees and refinanced loans.

15Throughout this report, the loan cohort year refers to the fiscal year. 

Estimated Costs of 

Guarantee Program 

Have Risen, and 

Rural Development 

Has Enhanced Its 

Cost Estimation 

Process

Losses from the Housing 

Crisis Contributed to an 

Increase in Credit Subsidy 

Reestimates
Page 9 GAO-16-193 RHS Mortgage Guarantees

The reestimated costs of the RHS guarantee portfolio as a whole 

substantially increased in recent years. In part, the larger reestimates 

reflected growth in the size of RHS’s loan cohorts. RHS has submitted net 

upward credit subsidy reestimates—expectations that the guaranteed 

portfolio as a whole will cost more or produce less revenue than 

previously estimated—in 8 of the last 11 years (see fig. 1).16 The upward 

reestimates for fiscal years 2012 through 2014 were significantly larger 

than those of prior years. For example, the reestimates for 2012, 2013, 

and 2014 were $364 million, $804 million, and $615 million, respectively, 

compared with $42 million for 2010. A change in the estimated subsidy 

rate (even a small one) will result in larger reestimated amounts in dollar 

terms for relatively larger loan cohorts because the change would apply to 

a higher dollar volume of loans. RHS guaranteed fewer than 40,000 loans 

annually from 1992 (the first year RHS made guarantees nationwide) 

through 2007, but volume grew significantly from 2008, when RHS 

guaranteed about 62,000 loans, through 2014 when RHS guaranteed 

about 140,000 loans. The total amount of guarantees outstanding 

increased from less than $22 billion in 2008 to more than $100 billion in 

2014.

 16These annual reestimates represent the sum of the reestimates for each cohort. As 

previously noted, upward reestimates are not funded by new appropriations but rather 

through permanent, indefinite budget authority. 
Page 10 GAO-16-193 RHS Mortgage Guarantees

Figure 1: Rural Housing Service Guaranteed Single-Family Mortgage Portfolio and Annual Net Credit Subsidy Reestimates for 

the Portfolio, Fiscal Years 2004-2014

According to RD management, the large upward credit subsidy 

reestimates for fiscal years 2013 and 2014 also were due to higher-thanexpected loss amounts (claims paid to lenders after defaults) and to 

changes in the estimation methodology RD used those years (discussed 

later in this report).17 RD’s financial statement auditor for federal credit 

subsidy issues (credit subsidy auditor) agreed with RD management’s 

explanation.18 Cumulative loss rates (total losses divided by the dollar 

volume of loans guaranteed) were especially high for cohorts guaranteed 

 17RHS’s losses are net of proceeds from the sale of defaulted properties because lenders 

subtract the proceeds or expected proceeds from the sale of the properties from the claim 

amount they submit to RHS.

18USDA’s Office of the Inspector General conducts RD’s annual financial audits. 

According to an Inspector General official, RD contracts with a private firm to conduct the 

portion of the audit related to federal credit reform requirements. 
Page 11 GAO-16-193 RHS Mortgage Guarantees

directly before and during the early years of the 2007 through 2011 

housing crisis. (In a loan cohort, losses are expected, and any losses are 

offset in part or in whole by guarantee fees.) As of the end of fiscal year 

2014, the 2007 cohort had the highest cumulative loss rate of any cohort 

since 2000, followed by cohorts from 2006, 2005, and 2008, respectively 

(see fig. 2). For example, the 2007 cohort had a cumulative loss rate of 

almost 10 percent. In contrast, the 2003 cohort had a cumulative loss rate 

under 3 percent at the comparable point in its life cycle (8 years) and a 

cumulative loss rate of 4.7 percent at the end of 2014. The higher losses 

for these cohorts may have stemmed from homeowners’ inability to build 

equity before housing prices declined. Borrowers who owe more on their 

mortgages than their homes are worth may be more likely to default 

because (1) they may not be able to sell or refinance their homes to 

relieve unsustainable mortgage payments and (2) they may choose to 

stop making mortgage payments to minimize losses. Furthermore, when 

lenders foreclose on the borrowers, the lower home values reduce the 

amount that lenders recover through sale of the properties, resulting in 

higher losses for RHS.19

 19When a borrower defaults, the lender must subtract the actual or estimated net recovery 

value of the property from the loss claim submitted to RHS. Therefore, the less the lender 

receives from the property sale, the higher RHS’s loss payment will be.
Page 12 GAO-16-193 RHS Mortgage Guarantees

Figure 2: Actual Cumulative Loss Rates for Rural Housing Service Guaranteed Single-Family Mortgages for 2000-2013 

Cohorts by Year Since Origination, as of September 30, 2014

Note: In a loan cohort, losses are expected. Losses are offset in part or in whole by guarantee fees, 

which are not depicted in the figure.
Page 13 GAO-16-193 RHS Mortgage Guarantees

As shown in figure 2, cohorts guaranteed since 2010 had lower loss rates 

in each year of their life cycle after the first year than all other cohorts 

since 2000. For example, the 2011 cohort had a 0.3 percent cumulative 

loss rate at the end of fiscal year 2014, whereas the 2000 cohort had a 

1.6 percent rate at the comparable point (after 4 years). Improved 

economic conditions as well as other factors contributed to the improved 

performance of recent cohorts. For example, a report from USDA’s Office 

of the Inspector General on RD’s fiscal year 2014 financial statements 

noted that losses that year were lower than expected for the 2012 through 

2014 cohorts as a result of stricter credit requirements RHS had 

implemented in response to the housing crisis.20 For instance, in 2009, 

RHS began requiring lenders to provide additional documentation to 

waive RHS underwriting guidelines for maximum borrower debt ratios and 

adverse credit histories.21 Also, according to an RHS official, some 

lenders may have tightened credit standards more than required by RHS 

as a result of the housing crisis and the risks associated with managing 

defaulted loans.

RD—the USDA division that estimates the credit subsidy costs of RHS’s 

guarantee program—averages historical information on loan performance 

to estimate certain expected cash outflows and inflows for loan cohorts. 

As previously noted, cash outflows consist primarily of losses (claims paid 

to lenders after defaults) and inflows primarily of fees from borrowers and 

 20Department of Agriculture, Office of Inspector General, Rural Development’s Financial 

Statements for Fiscal Years 2014 and 2013, 85401-0004-11 (Washington, D.C.: 

November 2014).

21According to RHS guidelines, applicants are considered to have repayment ability when 

they do not have to spend more than 41 percent of their income on total debt. Total debt 

includes monthly housing expenses plus any other monthly credit obligations incurred by 

the applicant. Adverse credit events include, but are not limited to, a foreclosure or a 

Chapter 7 bankruptcy that was discharged in the last 3 years.

Rural Development Has 

Been Developing 

Econometric Models to 

Address Limitations of Its 

Cost Estimation Method

Current Process for Estimating 

Credit Subsidy Costs Is Based 

on Historical Averages
Page 14 GAO-16-193 RHS Mortgage Guarantees

recoveries.22 In turn, the expected cash flows are inputs in the 

calculations that produce estimates of credit subsidy costs. Federal 

guidance states that the historical averages method is an acceptable 

approach for estimating credit subsidy costs.23

Beginning with the credit subsidy cost estimate for the 2013 cohort, RD 

has calculated average loss and recovery rates using the total dollar 

amounts of losses and recoveries for all prior loans. Previously, RD 

calculated the rates by averaging the average loss and recovery rates for 

all prior loan cohorts. By using total dollar amounts instead of an average 

of individual loss and recovery rates, RD’s method of projecting losses 

and recoveries for new loans accounts for variations in the size of loan 

cohorts. That is, the method gives more weight to the performance of 

large cohorts than smaller ones.

To project losses and recoveries for a new cohort, RD averages historical 

information on loan performance (from 1992 through the last complete 

fiscal year).24 To illustrate, RD calculates the expected first-year loss rate 

for a new cohort as the total losses experienced by all prior cohorts during 

their first year divided by the total dollar amount of guarantees for loans 

aged at least 1 year.25 RHS then performs the calculations for the

second-year loss rates and so on. RD calculates expected recovery 

 22RHS’s recoveries are a portion of any additional funds recovered from the lender after a 

loss claim is paid—for example, a credit for prepaid real estate taxes. 

23Government-wide Audited Financial Statement Task Force Subcommittee on Credit 

Reform, Model Credit Program Methods and Documentation for Estimating Subsidy Rates 

and the Model Information Store, Issue Paper 96-CR-7 (May 1, 1996). The subcommittee 

was formed under the Accounting and Auditing Policy Committee of the Federal 

Accounting Standards Advisory Board. The subcommittee merged into the Credit Reform 

Task Force, which addresses accounting, auditing, budgeting, and reporting issues 

encountered by agencies subject to the Credit Reform Act of 1990. 

24RD uses historical averages as a basis for the expected losses and recoveries during 

the first 23 years of a new loan (the number of years for which there are historical data for 

the guarantee program). For later, or “out” years, RD projects losses, prepayments, and 

recoveries using a logarithmic regression that predicts future values based on historical 

data. 

25In this context, the loss rate is the total claim amounts for all cohorts in their nth year 

divided by outstanding loan amounts of all loans that have aged to that year. 
Page 15 GAO-16-193 RHS Mortgage Guarantees

rates—total recoveries divided by the total dollar amount of losses—in a 

similar manner.26

RD also projects cash inflows from annual and up-front guarantee fees. 

To project the annual guarantee fees for a new cohort, RD first estimates 

what portion of loans will prepay using a historical average method similar 

to the one used to estimate losses and recoveries. RD calculates an 

expected prepayment rate for each year of the new cohort’s life using 

data on the prepayment experience of prior cohorts in corresponding 

years.27 RD then uses the expectations for prepayments and loan 

terminations (for example, defaulted loans resulting in loss claims) to 

estimate the total outstanding loan balance expected at the end of each 

year of the cohort’s life. More specifically, RD reduces the amount of the 

estimated outstanding loan balance by the amount of prepayments and 

terminations expected each year. RD calculates the annual fee revenue 

using the estimated outstanding loan balance and the annual fee rates in 

effect at the time the guarantees were made. Finally, RD bases its 

estimate of cash flows from up-front guarantee fees on the dollar value of 

loans expected to be guaranteed in the given budget year and the 

guarantee fee percentage in effect.

Then, to estimate the credit subsidy rate for a new cohort, RD runs its 

cash flow projections for losses, recoveries, and fees through OMB’s 

credit subsidy calculator.28 This tool produces the net present value of the

cash flows, which is the credit subsidy cost estimate for that cohort, and 

an associated credit subsidy rate.

 26That is, the recovery rate is the total recovery amounts for all cohorts in their nth year 

divided by all losses in that year.

27The prepayment rate includes loans RD expects to be paid in full before the maturity 

date and loan guarantees that RD expects to be terminated. For example, RD terminates 

a loan guarantee when a loss claim is paid on the guarantee or when a loan is sold to a 

servicer not approved to participate in the program. 

28OMB provides this tool (a software program) to agencies to calculate the cost of direct 

loans and loan guarantees using the agencies’ cash flow estimates. OMB Circular A-11 

requires agencies with credit programs to use the calculator to discount their credit 

subsidy estimate and reestimate cash flows. Current discount rates are built into the 

calculator.
Page 16 GAO-16-193 RHS Mortgage Guarantees

The methodology RD currently uses to calculate reestimates includes 

certain adjustments made in 2012, 2013 and 2014 intended to more 

accurately predict cash flows by accounting for the effects of the housing 

crisis. To calculate reestimates, RD generally uses the same historical 

averages methodology that it uses to calculate the original credit subsidy 

estimates for new cohorts. However, according to RD officials, for the 

2013 and 2014 reestimates, RD made adjustments to this method, as 

follows:

• Increased loss expectations for cohorts most affected by the 

housing crisis (2005 through 2008 cohorts). RD’s credit subsidy 

auditor found that during the housing crisis, the historical averages 

method underpredicted losses for certain cohorts. To more accurately 

predict losses, the credit subsidy auditor recommended that RD 

assess whether it should make manual adjustments to the reestimate 

calculations for cohorts most affected by the crisis. As a result of this 

assessment, RD increased loss amounts used to calculate the 

average loss rates for the 2005 through 2008 cohorts. RD increased 

the losses by a percentage equivalent to the difference between the 

defaults predicted when using the historical averages approach for 

each cohort and the actual defaults experienced by each cohort in the 

most recent fiscal year.

29

• Decreased losses for cohorts made with higher credit standards 

(2009 through 2014 cohorts). In a 2012 report, RD’s credit subsidy 

auditor also found that the historical averages method was likely 

overpredicting losses for the 2009 through 2012 cohorts. Similarly, an 

RD analysis in 2014 (that did not include the 2014 cohort) showed 

that this method overpredicted losses for the 2009 through 2013 

cohorts. According to RD, the overprediction of losses was due to the 

historical averages method incorporating the unusually high defaults 

of the 2005 through 2008 cohorts into the default projections for the 

more recent cohorts. In addition, the cohorts guaranteed in 2009 and 

later were originated using higher borrower credit standards, which 

lowered their default risk, according to RD. To reduce the 

overestimation of losses for more recent cohorts, RD removed the 

default data for the 2005 through 2008 cohorts when calculating 

historical average loss rates for certain cohorts. For example, for the 

 29In addition to the adjustments for the 2013 and 2014 reestimates, for the 2012 credit 

subsidy reestimate RD made adjustments to the 2004 through 2008 cohorts.

RD Adjusted Its Reestimation 

Method to Account for Effects 

of the Housing Crisis on Loan 

Performance
Page 17 GAO-16-193 RHS Mortgage Guarantees

2014 reestimate, RD removed these data from the loss rate 

calculation for the 2009 through 2014 cohorts.

Third parties that reviewed these manual adjustments found them to be 

acceptable. For example, RD’s credit subsidy auditors found the 

adjustments to be reasonable, and OMB approved the methodology used 

to calculate the reestimates. In 2013 and 2014, respectively, a consultant 

and RD conducted analyses that found that excluding the 2005 through 

2008 data when estimating cash flows for cohorts of more recent years 

improved the accuracy of the estimates. But subsequent analysis 

illustrated some limitations in making manual adjustments to the historical 

averages method. During the fiscal year 2014 audit, the credit subsidy 

auditor found that RD still might have been overprojecting defaults for the 

more recent cohorts even with the data exclusions. Also, in 2014 RD’s 

credit subsidy auditor found that the revised methodology continued to 

underestimate losses for the 2007 and 2008 cohorts.

In 2014, RD contracted with a firm to develop econometric models to 

predict loan performance based on various loan, borrower, and economic 

variables.30 Federal guidance states that the historical averages method 

is an accepted approach for estimating credit subsidy costs, but the 

method has limitations that may prevent it from reliably predicting cash 

flows under certain conditions.31 Specifically, results may be less reliable 

when economic conditions, program policy, and borrower composition 

change, as follows:

• Economic conditions. When economic conditions vary from those in 

the past, estimates of future losses based solely on historical 

averages may not take into account the effects of the changed 

conditions on future performance. For instance, when interest rates 

decrease, homeowners may choose to refinance (and therefore 

prepay) their mortgages to receive lower interest rates. Cost 

estimates developed using only historical data on loan performance 

may not account for the increased likelihood of prepayments given the 

changed economic conditions.

 30Econometric modeling is a discipline in which observed, statistically significant 

relationships between selected variables in a given model are used to forecast future 

performance.

31Government-wide Audited Financial Statement Task Force Subcommittee on Credit 

Reform, Model Credit Program Methods and Documentation for Estimating Subsidy 

Rates.

RD Has Been Developing 

Econometric Models to 

Address Limitations in Its 

Estimation Method
Page 18 GAO-16-193 RHS Mortgage Guarantees

• Policy. Policy changes such as changes to underwriting standards 

may result in new loans having a different default risk than loans 

made before the change. For instance, changes to loan-to-value 

ratios or maximum borrower debt ratios allowed by the program may 

result in borrowers participating in the program who present a different 

level of risk than previous borrowers.

• Composition of borrowers. Even without policy changes, the 

composition of the borrowers receiving RHS guarantees may change 

from year to year. For example, the geographic dispersion, average 

credit scores, or other characteristics of borrowers may shift. These 

changes may result in changed expectations for the future 

performance of the loans, which would not be reflected in the loss 

rates calculated using only historical data.

The firm was contracted to develop the econometric models to estimate 

the likelihood of claims and prepayments on RHS guaranteed loans—key 

inputs into estimates of future cash flows used to develop RHS credit 

subsidy estimates and reestimates.32 According to the contractor, the 

models will incorporate RHS’s historical loan performance and borrower 

data, and economic data that may be predictive of loan performance, 

such as macroeconomic forecasts and home price forecasts. RD officials 

indicated that OMB has reviewed and approved the contractor’s models

and that RD plans to use the models to develop its initial credit subsidy 

cost estimate for the 2017 cohort and the 2016 reestimate.33 Additionally, 

RD noted that based on its preliminary analysis, the new models will 

correct for the overestimation of future losses that resulted from using the 

historical method in recent years. As a result, RHS expects the 2016 

reestimate to be a downward reestimate.

According to federal guidance, econometric models have a number of 

advantages over other methods for estimating credit subsidy costs, such 

 32According to representatives of the firm, the firm may also develop models to predict 

other aspects of loan performance, including recovery rates, loss severity, and the amount 

of time from default to claim.

33Under FCRA, OMB has final responsibility for approving estimation methodologies and

determining subsidy estimates. The 2016 reestimate will be prepared as part of the 2018 

budget and will represent the sum of the reestimates for the 2016 cohort and prior cohorts.
Page 19 GAO-16-193 RHS Mortgage Guarantees

as historical averages and informed opinion.34 For example, econometric 

models can

• identify key relationships between loan performance and economic 

and other indicators;

• take into account changes in policy;

• be easily commented on and reestimated to take comments into 

account; and

• be easily transferred between analysts (for instance, if the agency’s 

knowledgeable staff leave, the model and its key assumptions remain 

in place).

Certain attributes of econometric models—in particular, the ability to take 

into account changes in economic conditions or policy—address 

limitations of the historical averages method that RHS currently uses. To 

illustrate, RD’s credit subsidy auditor noted that RD’s historical averages 

method did not produce accurate forecasts when the housing crisis 

caused losses to deviate from predictable patterns seen in prior years. 

The auditor reported that the historical averages method may not 

adequately take into account changes in the composition of borrowers or 

economic conditions that could materially affect the future performance of 

the program relative to its historical performance. Furthermore, the 

auditor said that using an econometric modeling methodology would allow 

RD to improve the quality of its estimates.

The quality of the credit subsidy cost estimates produced by RD’s 

econometric models will depend on many factors. In a March 2004 report 

on another federal guarantee program, we found that the choice of which 

variables to include in an economic model is based on professional 

judgement, statistical testing, and economic theory.35 Excluding key 

predictive variables can reduce model quality. In addition, model 

validation is important to help ensure the models continue to be 

 34Government-wide Audited Financial Statement Task Force Subcommittee on Credit 

Reform, Model Credit Program Methods and Documentation for Estimating Subsidy 

Rates.

35GAO, Small Business Administration: Model for 7(a) Program Subsidy Had Reasonable 

Equations, but Inadequate Documentation Hampered External Reviews, GAO-04-9 

(Washington, D.C.: Mar. 31, 2004). 
Page 20 GAO-16-193 RHS Mortgage Guarantees

appropriate for the purpose they are intended and are calculating 

correctly. Further, once the models are developed, regularly updating 

them is important to help ensure their continued reliability.

In addition to estimating credit subsidy costs, RHS program management 

may be able to use the econometric models for other risk-management 

functions. For instance, according to federal guidance, econometric 

models can be used in policy formulation to estimate how alternative 

changes to policies would affect future cash flows and thereby the 

subsidy cost of the guarantees.36 Econometric models also may allow 

RHS management to conduct simulations of portfolio performance under 

different scenarios of future economic conditions. For example, 

management could stress test the portfolio—a technique that allows 

managers to measure the vulnerability of the portfolio to unexpected 

losses.37 RHS officials told us that they plan to use the econometric 

models under development to help anticipate and assess potential risk to 

the program caused by changing conditions such as a future economic 

downturn.

RHS’s policies and procedures for the guarantee program were 

consistent with 19 of 26 OMB A-129 standards for managing federal 

credit programs, but were not fully consistent with the other 7.38

Specifically, RHS policies and procedures were consistent with 10 of the 

11 standards for extending credit, but partially consistent with the 

remaining standard. The agency’s policies and procedures were 

consistent with 7 of 9 standards for managing lenders and servicers, but 

partially consistent with the remaining 2. Finally, the policies and 

procedures were partially consistent with 4 of 6 standards for credit 

program management and consistent with the remaining 2.

 36Government-wide Audited Financial Statement Task Force Subcommittee on Credit 

Reform, Model Credit Program Methods and Documentation for Estimating Subsidy 

Rates.

37A stress test is a “what-if” scenario that is not a prediction or expected outcome of the 

economy. Unexpected losses are losses associated with extreme yet plausible events. 

38While we did not test RHS’s compliance with the policies and procedures, we reviewed 

audits by USDA’s Office of the Inspector General that included compliance testing and 

reviewed information on RHS actions to address the Inspector General’s 

recommendations. As of September 2015, all the Inspector General’s recommendations 

specific to the guarantee program were classified as closed.

RHS Has Not Fully 

Aligned Its Policies 

and Procedures with 

OMB Guidance
Page 21 GAO-16-193 RHS Mortgage Guarantees

RHS’s policies and procedures were consistent with Circular A-129 

standards for extending credit, with the exception of one standard 

concerning applicant screening.

As shown in table 1, RHS’s policies and procedures were consistent with 

four of the five A-129 standards for screening applicants and partially 

consistent with the remaining one. Applicant screening refers to 

determining an applicant’s eligibility and creditworthiness for a loan.

Table 1: Assessment of Rural Housing Service (RHS) Policies and Procedures for Extending Credit against Office of 

Management and Budget (OMB) Circular A-129 Standards (as of November 2015)

OMB Circular A-129 standard RHS policy or procedure Assessment

Lender must determine the applicant’s 

program eligibility, and applicants must 

certify and document their inability to 

obtain credit from private sources on 

reasonable terms and certify the 

accuracy of information in the 

application.

• The lenders must determine whether the applicant and the property 

meet key program eligibility requirements, including that the 

applicant’s income is no more than 115 percent of the area median, 

that the property to be purchased or refinanced is in a designated 

rural area, and that the applicant is not eligible for “traditional 

conventional credit,” as defined by RHS.

a

• Applicants must certify that they are unable to obtain the necessary 

credit from other sources on terms and conditions they could 

reasonably fulfill and must provide lenders with documentation to 

make a credit assessment. Applicants may make the certification if 

they are not eligible for traditional conventional credit.

• Applicants must certify that the statements they made in the 

mortgage guarantee application are true, complete, and correct.

Consistent

Lender must determine whether an 

applicant is delinquent on federal debt, 

suspend application processing for 

those who are delinquent, and continue 

application processing only when the 

debt is satisfactorily resolved (for 

example, pays in full or negotiates a 

new repayment plan).

• Lenders must check whether applicants are delinquent on federal 

debt using the Department of Housing and Urban Development’s 

Credit Alert Verification Reporting System and must include the 

results of this check in the loan file.

• Applicants are ineligible for a guaranteed loan if they are presently 

delinquent on nontax federal debt or delinquent on federal tax debt 

without evidence of acceptable payment arrangements.

Consistent

Lender must determine whether the 

applicant has the ability to repay the 

loan, considering credit reports and 

supplementary data sources.

• The lender must evaluate the applicant against established debt 

burden and credit score thresholds.

• A mortgage scorecard (an evaluative algorithm) within RHS’s 

Guaranteed Underwriting System considers information in the 

mortgage loan application, applicant credit history, and applicant 

income and property information to provide an underwriting 

recommendation.

Consistent

RHS Policies Were 

Generally Consistent with 

OMB Standards for 

Extending Credit, but Did 

Not Fully Meet One 

Standard for Screening 

Applicants

Applicant Screening
Page 22 GAO-16-193 RHS Mortgage Guarantees

OMB Circular A-129 standard RHS policy or procedure Assessment

Agency should deny an applicant who 

is subject to administrative offset 

(interception of certain federal 

payments) to collect delinquent child 

support payments.

• RHS policy requires court-ordered payments such as child support 

to be considered in assessing an applicant’s ability to repay a 

mortgage, but it does not address the eligibility of applicants who are 

subject to administrative offset for delinquent child support 

payments.

Partially 

consistent

Agency must obtain the taxpayer 

identification number of applicants.

• RHS’s form for requesting a loan guarantee requires applicants to 

provide their Social Security number.

Consistent

Source: GAO analysis of OMB and RHS documents. | GAO-16-193

a

RHS defines traditional conventional credit as mortgages with 20 percent down payments and other 

loan and borrower characteristics associated with lower-risk, uninsured private mortgages. Loans with 

less than a 20 percent down payment generally require mortgage insurance.

RHS policies were consistent with the standard for an applicant’s program 

eligibility and certifications. For example, RHS requires lenders to assess 

compliance with a number of eligibility requirements—for example, that 

the applicant’s income is no more than 115 percent of the area median, 

that the property to be purchased or refinanced is in a designated rural 

area, and that the applicant is not eligible for “traditional conventional 

credit.”39 RHS defines this term as mortgages with 20 percent down 

payments and other loan and borrower characteristics associated with 

lower-risk, uninsured private mortgages.40 Consequently, applicants who 

may qualify for other types of conventional credit, such as those with 

private mortgage insurance, or mortgages guaranteed by other federal 

agencies, such as the Federal Housing Administration (FHA) or 

 39According to RHS, for the large majority of loans, lenders make the income and property 

determinations using RHS’s Guaranteed Underwriting System, which incorporates the 

program eligibility criteria into its evaluations. 

40RHS defines traditional conventional credit as a 30-year fixed-rate mortgage loan 

without a condition to obtain private mortgage insurance and for which the applicant meets 

all of the following criteria: (1) has personal nonretirement liquid asset funds of at least 20 

percent of the purchase price that can be used as a down payment; (2) has a housing 

payment-to-income ratio of no more than 28 percent and a total recurring debt paymentto-income ratio of no more than 36 percent; and (3) demonstrates qualifying credit for 

such a loan (among other things, this means that the applicant is not 30 days or more past 

due on any credit account, has not been 60 days or more past due on any credit account, 

and has not had a foreclosure or bankruptcy over the past 36 months).
Page 23 GAO-16-193 RHS Mortgage Guarantees

Department of Veterans Affairs (VA), also may be eligible for an RHSguaranteed loan.41

However, RHS’s policies and procedures were not fully consistent with 

the standard that states that the agency must deny an applicant who is 

subject to an administrative offset to collect delinquent child support 

payments. An administrative offset is an enforcement remedy that allows 

for the interception of certain federal payments—for example, tax 

refunds—to collect past-due child support. RHS policy requires courtordered payments such as child support to be considered in assessing an 

applicant’s ability to repay a mortgage. Additionally, RHS officials said 

that delinquent child support payments should be reflected in an 

applicant’s credit report and that it was unlikely a lender would approve 

an applicant with that type of adverse credit history. However, RHS policy 

does not disqualify applicants solely on the basis of delinquent child 

support payments and does not address the ineligibility of applicants 

subject to administrative offsets for past-due child support. Furthermore, 

RHS has lacked the information needed to identify these ineligible 

applicants. The Department of the Treasury (Treasury) maintains a 

database of individuals subject to administrative offset that federal 

agencies can access through Treasury’s “Do Not Pay” portal. However, 

RHS officials acknowledged that they had not yet taken the necessary 

steps to access it because they were not aware of the tool. Consequently, 

it is possible that applicants subject to administrative offsets for past-due 

child support may be able to obtain RHS-guaranteed mortgages, contrary 

to the OMB standard.

As shown in table 2, RHS’s policies and procedures were consistent with 

the six standards in Circular A-129 for loan documentation and loan 

collateral. Loan documentation refers to the maintenance of files 

containing key information used in loan underwriting. Collateral refers to 

the assets that secure the loan (for the guarantee program, the 

mortgaged property).

 41For perspective, according to data from Inside Mortgage Finance—which does not 

include loans guaranteed by RHS—about one-third of mortgage originations in 2014 (as 

measured by dollar volume) was either privately insured, insured by FHA, or guaranteed 

by VA.

Loan Documentation and 

Collateral
Page 24 GAO-16-193 RHS Mortgage Guarantees

Table 2: Assessment of Rural Housing (RHS) Service Policies and Procedures for Loan Documentation and Collateral against 

Office of Management and Budget (OMB) Standards (as of November 2015)

OMB Circular A-129 standard RHS policy or procedure Assessment

Loan origination file should contain loan 

applications, credit bureau reports, credit 

analysis, loan contracts, and other 

documents necessary to conform to privatesector standards for that type of loan.

• Lenders must maintain loan files that include the

• loan application,

• sales contract,

• summary of program-eligible income and repayment income 

calculations,

• verification of employment and income,

• credit reports (including explanations for adverse credit),

• property appraisal report, and

• closing documents. 

Consistent

Agency should require property appraisals 

to be consistent with the Uniform Standards 

of Professional Appraisal Practice and 

prepared by a state-licensed or statecertified appraiser.

• Appraisers and appraisal reports must comply with the current 

version of the Uniform Standards of Professional Appraisal Practice

• The appraisers lenders select must be properly licensed or certified 

in the state in which the property is located.

Consistent

Agency should explicitly define the 

components of the loan-to-value ratio.

• RHS defines the loan-to-value ratio as the relationship between the 

amount to be financed (which may include some financed closing 

costs and the upfront guarantee fee) and the appraised value of the 

property securing the loan.

Consistent

Loan maturity period should be shorter than 

the estimated useful economic life of the 

collateral.

• The economic life of a property (the collateral) must meet or exceed 

the term of the proposed loan, and the term of the loan generally 

may not exceed 30 years.a

Consistent 

Lenders should be required to liquidate any 

real property collateral for a defaulted 

guaranteed loan before filing a claim.

• Lenders or loan servicers are responsible for liquidating foreclosed 

properties for RHS-guaranteed loans. Liquidation occurs when the 

lender acquires title to the property, a third party buys the property at 

the foreclosure sale, or the borrower sells the property to a third 

party to avoid or cure a default situation with the prior approval of the 

lender and RHS.

• A lender may file a loss claim at any time after property liquidation.b

Consistent

Agency should establish policies, 

procedures, and cost tracking systems for 

the acquisition, management, and disposal 

of real property.

• RHS requires lenders and loan servicers to follow specific policies 

and procedures in carrying out their responsibilities for acquiring, 

managing, disposing of, and tracking the costs associated with 

foreclosed properties.

Consistent

Source: GAO analysis of OMB and RHS documents. | GAO-16-193

a

Under certain conditions, RHS can allow loan modifications that extend the loan term up to 40 years.

b

A lender may use an estimated or actual net recovery value depending on whether, at the time the 

loss claim is filed, the lender retains title to the property or has sold it.

RHS also has made or has been pursuing process enhancements related 

to loan documentation and collateral. In March 2015, it implemented a 

paperless processing system that uses web-based document uploads 

and electronic signatures to help save the time and expense of sending 

paper documents between lenders and RHS field offices for every 

guarantee. In addition, RHS officials told us that they were in discussions 
Page 25 GAO-16-193 RHS Mortgage Guarantees

with VA, which also administers a loan guarantee program, about an 

interagency agreement that would allow RHS to use an automated 

appraisal evaluation tool that VA implemented in June 2015. An RHS 

official said that the tool would increase the efficiency of the appraisal 

review process and help identify problematic appraisals, such as those 

that may overvalue a property.

As shown in table 3, RHS’s policies and procedures for managing entities 

that originate or service RHS-guaranteed mortgages (lenders and 

servicers) were consistent with seven of the nine standards in Circular A129, but only partially consistent with the remaining two.42 The circular 

contains standards for lender and servicer eligibility, monitoring, 

recertification, and reporting.

Table 3: Assessment of Rural Housing Service (RHS) Policies and Procedures for Managing Lenders and Servicers against 

Office of Management and Budget (OMB) Standards (as of November 2015)

OMB Circular A-129 standard RHS policy or procedure Assessment

Agency should establish and publish in the 

Federal Register lender and servicer 

eligibility criteria, including requirements that 

the lender or servicer not be debarred or 

delinquent on government debt, qualification 

requirements for principal officers and staff, 

appropriate bonding or insurance, and 

financial and capital requirements for lenders 

not supervised by a federal financial 

institution regulator.

• In December 2013, RHS published a Federal Register notice 

containing its current lender and servicer eligibility criteria 

[See 78 Fed. Reg. 73927 (Dec.9, 2013)].

• The notice addresses requirements concerning debarment, 

government debt, bonding, and qualifications for loan 

underwriters, but it does not contain qualification 

requirements for principal officers or financial and capital 

requirements for lenders not supervised by a federal financial 

institution regulator.

Partially consistent

Agency should review and document a 

lender or servicer’s eligibility for continued 

participation at least every 2 years.

• According to RHS officials, the agency’s practice is to assess 

the eligibility of previously approved lenders and servicers 

every 2 years and to maintain documentation of eligibility in 

paper files.

• However, RHS has not established standing written policies 

or guidance requiring eligibility reviews to be conducted at 

least every 2 years.

Partially consistent

 42Homeowners generally make their mortgage payments to an entity known as a 

mortgage servicer, which accepts payments from borrowers and manages mortgage loans 

on behalf of banks and other mortgage owners. 

RHS’s Program Eligibility 

Policies Did Not Fully Align 

with Certain OMB 

Standards for Managing 

Lenders and Servicers
Page 26 GAO-16-193 RHS Mortgage Guarantees

OMB Circular A-129 standard RHS policy or procedure Assessment

Agency should establish specific procedures 

to decertify lenders, end servicing contracts, 

or take other appropriate action for not 

meeting compliance or eligibility standards. 

• RHS’s program handbook sets forth conditions under which 

RHS may revoke a lender’s or servicer’s eligibility to 

participate in the guarantee program.

• It also specifies how RHS will notify the lender or servicer of 

its decision and the process for appealing the decision.

• In addition, the handbook describes the types of 

noncompliance that may lead RHS to reduce or deny lenders’

loss claims.

Consistent

Lenders transferring or assigning the right to 

service loans should use only servicers that 

meet agency standards or are approved by a 

government-sponsored enterprise.

• RHS requires that lenders sell loans only to RHS-approved 

lenders or servicers or the housing enterprises Fannie Mae 

and Freddie Mac.

• RHS requires lenders that do not intend to service loans to 

certify that they will contract with an RHS-approved lender or 

servicer.

Consistent 

Agency should enter into written agreements 

with lenders and servicers that include 

participation requirements and performance 

standards. 

• RHS’s standard agreement for lenders and servicers contains 

requirements and standards for participation in the guarantee 

program. The standards address performance of origination, 

servicing, reporting, and other activities.

Consistent

Agency should ensure through the claims 

review process that lenders have met 

performance standards and should reduce 

claim amounts or reject claims for 

nonperformance.

• RHS’s program handbook requires a review of the loss claim 

package from the lender to determine whether the lender has 

fulfilled all program obligations and, if not, whether reduction 

or denial of the loss claim was warranted.

Consistent

Agency should collect and maintain data 

from lenders and servicers to monitor the 

health of its credit portfolio and track and 

evaluate lender and servicer performance.

• RHS requires lenders and servicers to submit monthly and 

quarterly data on the guaranteed loans they originate or 

service that allow RHS to monitor its guaranteed portfolio.

• RHS also uses these data to monitor lender and servicer 

performance.

Consistent

Agency should conduct on-site lender and 

servicer reviews—prioritizing such reviews 

based on performance and exposure—and 

summarize review findings in written reports 

with recommended corrective actions.

• Lenders and servicers participating in the guarantee program 

are subject to periodic on-site compliance reviews. According 

to RHS guidance, lenders and servicers should be prioritized 

for review based on a number of risk factors, including 

origination volume and delinquency rates.

• Agency or contractor staff prepare written reports that 

communicate review findings and recommended corrective 

actions. 

Consistent

Agency should establish penalties for serious 

and frequent offenses of program 

requirements. 

• RHS’s program handbook states that failure by the lender to 

comply with RHS reporting requirements or other program 

guidelines, or failure to provide high-quality origination, 

underwriting, or servicing, can result in actions such as 

requiring the lender to indemnify RHS if a loss is paid, 

denying or reducing future loss claims, or withdrawing the 

loan guarantee.

Consistent

Source: GAO analysis of OMB and RHS documents. | GAO-16-193
Page 27 GAO-16-193 RHS Mortgage Guarantees

The seven standards with which RHS’s policies and procedures were 

consistent include those concerning on-site reviews of lenders and 

servicers, review of lender claims, and collection and maintenance of data 

from lenders and servicers. For example, RHS lenders and servicers are 

to be subject to periodic compliance reviews conducted either on-site (at 

lenders’ offices) or off-site (“desk” reviews). RHS’s compliance review 

guide contains risk factors for prioritizing the reviews. RHS policy also 

requires reviews of loss claim packages to determine whether lenders 

fulfilled all program obligations and, if not, whether reduction or denial of 

the loss claims would be warranted.

However, RHS does not have policies and procedures that address all 

aspects of two standards for lender and servicer eligibility. First, the 

circular describes the various lender and servicer eligibility criteria 

agencies should publish. Although RHS published a Federal Register 

notice in 2013 containing such criteria, it did not include qualification 

requirements for principal officers, such as years of experience in the 

mortgage industry. The notice also does not include financial and capital 

requirements for lenders not regulated by a federal financial institution 

regulator (referred to as nonsupervised lenders).43 RHS officials said they 

effectively relied on the requirements of other mortgage institutions, such 

as FHA and VA, because approval by these institutions is generally the 

means by which nonsupervised lenders become eligible to participate in 

the guarantee program. They also expressed concern that imposing 

additional requirements would increase the complexity of the lender 

approval process. But FHA’s and VA’s requirements differ and may not 

be well-suited for RHS’s program. For example, FHA calibrates its net 

worth requirement to the amount of FHA business a lender does. 

Specifically, FHA requires nonsupervised lenders to have a minimum 

adjusted net worth of $1 million, plus 1 percent of their total FHA business 

volume in excess of $25 million, up to a maximum required adjusted net 

worth of $2.5 million. As such, FHA’s requirement does not take into 

account any additional risk represented by a lender’s business with RHS. 

In contrast, VA requires nonsupervised lenders to have a minimum 

adjusted net worth of $250,000 or have at least $50,000 in working 

capital, regardless of lending volume. The suitability of VA’s net worth 

requirement for RHS may be limited, among other things, by VA’s lower 

loss coverage for lenders—from 25 percent to 50 percent compared with 

 43See 78 Fed. Reg. 73927 (Dec.9, 2013).
Page 28 GAO-16-193 RHS Mortgage Guarantees

up to 90 percent for RHS. In previously issued work, we discussed the 

view of some mortgage industry observers that a lower level of loss 

coverage may provide lenders an incentive to improve underwriting 

quality, thus reducing the risk of default.44 By not specifying its own 

requirements, RHS increases the potential that entities that originate and 

service RHS-guaranteed mortgages may lack the experience and 

financial soundness to perform these functions in a manner that protects 

RHS’s financial interests or lack the ability to cover any liability for 

violations of RHS requirements.

Second, the circular states that agencies should review and document a 

lender’s or servicer’s eligibility at least every 2 years. According to RHS 

officials, the agency’s practice is to biennially assess the eligibility of 

previously approved lenders and servicers and to maintain documentation 

of eligibility in paper files.45 They said that they issue instructions every 

other year directing staff to complete the eligibility reviews within 180 

days of the issuance date. However, RHS has not established standing 

written policies or guidance requiring eligibility reviews to be completed at 

least every 2 years. RHS officials said they had not seen the need to 

disclose the 2-year review cycle to lenders by putting it in the guarantee 

program handbook. Without explicitly stating the required frequency of 

eligibility reviews, RHS increases the risk of not complying with the OMB 

2-year minimum standard and of guaranteeing loans originated or 

serviced by ineligible lenders. For example, RHS issued the 2013 

instruction more than 2 years and 7 months after the 2011 instruction, 

which is not consistent with a standard of reviewing eligibility within the 

minimum 2-year time frame.

While RHS’s policies and procedures did not fully comply with all the 

Circular A-129 standards for managing lenders and servicers, the agency 

has been taking steps to improve its lender and servicer oversight. For 

example, RHS officials told us that they were taking steps to automate the 

eligibility recertification process, which could facilitate implementation of a 

more regular and streamlined review of lenders and servicers. In addition, 

RHS has proposed regulations that would strengthen its authority to 

require lenders to indemnify (compensate) RHS for loss claims on 

 44GAO, Federal Housing Administration: Analysis of Options for Modifying Its Products, 

Market Presence, and Powers, GAO-13-682 (Washington, D.C.: Sept. 9, 2013).

45RHS officials said they were in the process of automating the eligibility review process.
Page 29 GAO-16-193 RHS Mortgage Guarantees

defaulted loans that were not properly underwritten. Current regulations 

authorize RHS to seek indemnification within 24 months of loan closing 

when RHS concludes that the lender did not comply with the agency’s 

underwriting standards. In March 2015, RHS issued a proposed rule that 

would increase the indemnification period to 5 years.46 According to RHS, 

the comment period has ended, and the agency plans to issue the final 

rule upon completing its review of the comments. However, the agency 

did not have a specific time frame for issuing the final rule.

In addition, in December 2015, Congress enacted legislation authorizing 

the Secretary of Agriculture to grant qualified lenders the authority to 

determine the eligibility of loans for RHS guarantees without RHS’s prior 

approval (similar to FHA’s and VA’s single-family mortgage guarantee 

programs).47 According to RHS, this change will improve program delivery 

and increase efficiency, while also requiring RHS to shift additional 

resources to lender and servicer monitoring. RHS officials said the 

change will take several years to implement.

As shown in table 4, RHS’s policies and procedures were consistent with 

two of the six standards in Circular A-129 concerning credit program 

management and partially consistent with the remaining four. OMB added 

the six standards as part of its revision of the circular in 2013. The

standards address various aspects of credit program management, 

including lines of authority and communication, performance and risk 

indicators, and reporting mechanisms.

 46See 80 Fed. Reg. 11950 (Mar. 5, 2015). In cases in which RHS determines that fraud or 

misrepresentation occurred in the origination of the loan, the existing regulation authorizes 

RHS to seek indemnification regardless of when the loan was closed. The proposed rule 

would clarify that RHS could seek indemnification in those cases regardless of when the 

loan was closed or when the default occurred. The public comment period for the 

proposed rule ended in May 2015.

47Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, Div. A, § 743 (2015).

RHS Has Not Established 

Risk-Related Metrics and 

Responsibilities Fully 

Consistent with All OMB 

Standards for Credit 

Program Management
Page 30 GAO-16-193 RHS Mortgage Guarantees

Table 4: Assessment of Rural Housing Service (RHS) Policies and Procedures for Credit Program Management against Office 

of Management and Budget (OMB) Standards (as of November 2015)

OMB Circular A-129 standard RHS policy or procedure Assessment

Risk-management functions are 

generally expected to have clearly 

defined responsibilities and codified 

lines of authority and communication.

• Rural Development (RD) has position descriptions for individuals involved 

in risk-management functions that specify duties and responsibilities. 

However, the Rural Housing Service’s (RHS) Credit Policy Committee—

which analyzes credit quality (default risk) issues and proposes policy 

changes—operates without policies and procedures describing its purpose, 

scope, or membership.

• RD has basic organizational charts for the different components of the 

guaranteed program’s risk-management structure that show lines of 

authority. However, RHS has not documented the lines of communication 

among these components. 

Partially 

consistent

Agency should develop oversight and 

control functions that are sufficiently 

independent of program 

management to identify emerging 

issues, including credit and 

operational risks.

• A number of United States Department of Agriculture (USDA) components 

that operate independently of program management provide some 

oversight and control for the guarantee program. These include RD’s Office 

of the Chief Financial Officer, RHS’s Centralized Servicing Center, and 

USDA’s Office of the Inspector General.

• In June 2014, the House Committee on Appropriations directed RD to 

expeditiously create and fill a position of Chief Risk Officer. However, RD 

has not established this position. RD officials said they planned to create 

and fill the position sometime in 2016.

Partially 

consistent 

Agencies should separate critical 

program functions, as appropriate; 

retain inherently governmental 

functions and establish agreements 

to ensure appropriate contractor 

oversight when outsourcing 

functions; and establish and 

document a policy for 

communications with credit 

counterparties and other 

stakeholders for periods when an 

agency decision on credit support is 

pending. 

• RD’s program operations are structured to provide separation between key 

functions such as approving loan guarantees, obligating funds, monitoring 

the overall loan portfolio, approving loss claims, and formulating credit 

policy.

• RD requires periodic reviews of program operations that include 

assessments of whether an appropriate separation of duties exists.

• The Agriculture Acquisition Regulation, which contains USDA’s contracting 

policies and procedures, incorporates federal requirements concerning the 

retention of inherently governmental functions. The regulation requires 

clauses in advisory and assistance services contracts that require 

contractors to submit a schedule of estimated start and completion dates 

for all assigned tasks, progress reports on those tasks, and descriptions of 

any problems that may impede performance as well as proposed corrective 

actions.

• RHS’s program handbook includes policies for communicating with lenders 

during the period when RHS reviews the lender’s loan guarantee 

application package. For example, the handbook specifies time frames and 

methods for notifying lenders of the status and results of RHS’s review.

Consistent

High-level credit performance data 

should be supplied to the appropriate 

senior-level official with primary 

responsibility for the program on at 

least a quarterly basis.

• RHS generates monthly reports containing a variety of performance data, 

including information on delinquencies, foreclosures, and loss claims. 

Senior RHS officials, including the Undersecretary for Rural Development, 

the RHS Administrator, the RHS Deputy Administrator for Single Family 

Housing, and the Director of the guarantee program receive these reports.

Consistent
Page 31 GAO-16-193 RHS Mortgage Guarantees

OMB Circular A-129 standard RHS policy or procedure Assessment

Agency should establish and 

periodically review appropriate 

performance and other indicators for 

the program and establish risk 

thresholds to balance policy goals 

with risks and costs to the taxpayer.

• RHS reviews a number of performance indicators for its guaranteed 

portfolio such as the volume of new loans, delinquency rates, and losses. 

However, two key performance measures—which compare the overall 

performance of RHS’s portfolio with the Federal Housing Administration’s 

insured portfolio—are of limited value because they do not account for 

potential differences in the composition of the portfolios.

• RHS has expressed the program’s “risk appetite” primarily through the goal 

of making each annual cohort of loan guarantees subsidy-neutral, while 

keeping guarantee fees at a level affordable to low- and moderate-income 

households. RHS has not established risk thresholds—for example, 

maximum portfolio- or loan-level loss tolerances—to inform riskmanagement decisions. 

Partially 

consistent

Performance information should be 

reported in documents such as watch 

lists and portfolio dashboards (easyto-comprehend summaries of key 

quantitative and qualitative 

information). High-level dashboards 

should include information on 

program activity, performance trends, 

forward-looking risk indicators, and a 

high-level qualitative discussion 

noting areas that merit increased 

management focus.

• RHS’s performance reports include a watch list that identifies lenders and 

servicers with relatively high delinquency and foreclosure rates and 

portfolio summary reports (including a report specifically called a 

dashboard) that succinctly present information on the performance of the 

portfolio, largely through graphics. Among other things, the portfolio 

summary reports contain information on loan originations, delinquency and 

foreclosure trends, and delinquencies occurring within 1 year of origination 

(an early indicator of potential losses). However, the reports do not contain 

a qualitative discussion noting areas that merit increased management 

focus.

Partially 

consistent

Source: GAO analysis of OMB and RHS documents. | GAO-16-193

RHS policies and procedures were consistent with two standards 

(performance data and separation of program functions). For example, 

RHS produces a monthly Portfolio Performance Report that includes 

national summary statistics on delinquencies, foreclosures, loss mitigation 

actions, and loss claims as well as detailed loss claim data organized by 

state. Senior RHS officials, including the Undersecretary for Rural 

Development, the RHS Administrator, the RHS Deputy Administrator for 

Single Family Housing, and the Director of the guarantee program receive 

these reports. In addition, program operations are structured to separate 

key functions such as approval of loan guarantees and approval of loss 

claims. Furthermore, agency contracting policies and procedures 

incorporate requirements concerning the retention of inherently 

governmental functions and require progress reporting for advisory and 

assistance services contracts.48 Finally, RHS’s handbook for the 

 48Contractor responsibilities for the guarantee program include services supporting lender 

oversight, portfolio analysis, and credit subsidy cost estimation. RD has agreements with 

the contractors that include requirements for regular status and performance reports.
Page 32 GAO-16-193 RHS Mortgage Guarantees

guarantee program contains policies for how agency staff should 

communicate with lenders when RHS reviews the lender’s loan guarantee 

application package.

However, RHS’s policies and procedures did not fully align with the other 

four standards, as follows:

• Defined responsibilities and codified lines of authority and 

communication. While RD has position descriptions for individuals 

involved in risk-management functions that specify duties and 

responsibilities, RHS does not have written procedures for a key part 

of its risk-management structure and documented lines of 

communication, as required by OMB’s Circular A-129. 49

• Specifically, since 2009 RHS has had a Credit Policy Committee 

that, according to RHS officials, meets regularly to detect, discuss, 

and analyze credit quality issues and address them through policy 

changes. However, as we testified in May 2015, the committee 

operated without policies and procedures describing its purpose, 

scope, membership, or decision-making process.50 We also 

testified that RHS had not defined the roles and responsibilities of 

committee members and did not prepare minutes of meeting 

discussions and results. RHS officials said they saw no need to 

formalize the committee’s operations when the committee was 

created because the staff was small and in frequent 

communication. But in November 2015, the officials told us they 

had drafted a charter for the committee in response to our 

findings. Without written policies and procedures, accountability 

for and transparency of the credit policy committee’s activities may 

be limited.

• Additionally, RHS has not documented the lines of communication 

between the agency components that have risk-management 

functions and responsibilities. RHS’s risk-management structure is 

decentralized and complex. According to RHS, it involves staff in 

 49Similar to the OMB standard, the International Association of Credit Portfolio Managers 

cites clearly documenting the roles and responsibilities of the credit portfolio management 

function as a sound practice. See International Association of Credit Portfolio Managers, 

Sound Practices in Credit Portfolio Management (New York, N.Y.: 2005).

50GAO-15-625T.
Page 33 GAO-16-193 RHS Mortgage Guarantees

47 state offices; the Centralized Servicing Center and National 

Financial and Accounting Operations Center in St. Louis, Missouri; 

and USDA headquarters. RHS has basic organizational charts for 

these components that show lines of authority, but has not 

codified how and what types of information should flow among the 

components.51 Instead, they share information on a less formal 

basis built on established working relationships. While we found 

evidence that communication on financial, budget, and operational 

matters occurs between key staff, not documenting lines of 

communication increases the risk that information flows will break 

down in the event that these staff transfer or retire.

• Independent oversight and control functions for risk 

management, including credit and operational risks. RHS’s 

management structure does not fully align with OMB standards or a 

congressional directive, which call for an independent risk 

management function. RHS officials identified various USDA 

components that perform oversight and control functions and operate 

independently of guaranteed loan program staff. For example, RD’s 

Office of the Chief Financial Officer oversees periodic management 

control reviews of the guarantee program and other programs. These 

reviews, which occur every 5 years, are designed to assess the 

effectiveness and efficiency of management controls, inform senior 

managers of the status of operations and internal controls, and 

provide solutions to reduce or eliminate any deficiencies.52 In addition, 

the Centralized Servicing Center reviews lenders’ loss claims to help 

ensure that lenders complied with program guidelines before the 

agency pays the claims. However, neither RHS nor RD has an

independent function specifically tasked with identifying the range of 

credit and operational risks facing the guarantee program. Circular A-

 51Communication within an organization includes information that flows downward (e.g., 

from management to staff), upward (e.g., from staff to management), and horizontally 

(between people or divisions at the same level of the organization). Other considerations 

in establishing lines of communication may include what information is shared, how it is 

shared, and who sends and receives it.

52The most recent management control review of the guarantee program was conducted 

in 2013. The report accompanying the review made four recommendations to RHS to 

address weaknesses in documenting lender eligibility and reviewing lender quality control 

plans; targeting and conducting lender compliance reviews; obtaining explanations and 

documentation for lender underwriting decisions; and conducting program operations 

efficiently. As of May 2015, RD’s Office of the Chief Financial Officer considered all four 

recommendations closed and implemented.
Page 34 GAO-16-193 RHS Mortgage Guarantees

129 states that agencies should strongly consider the formalization of 

risk-management functions through the creation of a riskmanagement office led by a Chief Risk Officer. Consistent with this 

recommendation, the House Committee on Appropriations directed 

RD in June 2014 to “expeditiously create and fill a position of Chief 

Risk Officer” whose responsibility would be to manage and mitigate 

the agency’s financial risk.53 RD officials told us that in early 2015 

they had created a working group to examine how to create the 

position, including looking at similar efforts at other federal agencies. 

But as of March 2016, RD had not established the position. RD 

officials told us they expected to create and fill the position sometime 

in 2016 but did not have a more detailed timeline. As a result, RD’s 

efforts to manage and mitigate the risks of the guarantee program 

may not be as effective as they could be.

• Performance indicators and risk thresholds. Although RHS uses a 

number of indicators to assess the performance of its guaranteed 

portfolio, two key indicators have limitations that diminish their 

usefulness and appropriateness. In addition, RHS has not established 

risk thresholds for the guarantee program.

• Circular A-129 states that agencies should establish and 

periodically review appropriate performance measures for their 

credit programs. According to RHS officials, since 2004, they have 

compared the overall delinquency and foreclosure rates for RHS’s 

portfolio with corresponding rates for FHA’s insured portfolio of 30-

year fixed-rate mortgages. RHS officials justified the performance 

measures based on the similarity of the FHA and RHS mortgage 

programs. Additionally, they noted that performance data on 

FHA’s portfolio was readily available from a mortgage industry 

group. RHS has established performance goals stating that RHS 

should be within a specified range of FHA’s delinquency and 

foreclosure rates at the end of each fiscal year. Although RHS 

generally has met these goals, the performance measures are not 

fully consistent with certain attributes of successful performance 

measures—such as objectivity and reliability—that we identified in 

previously issued work.54 The weaknesses in the performance 

 53H.R. Rep. No. 113-468, at 37-38 (2014).

54We developed criteria for successful performance measures (that drew on prior GAO 

work) in GAO, Tax Administration: IRS Needs to Further Refine Its Tax Filing Season 

Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 22, 2002).
Page 35 GAO-16-193 RHS Mortgage Guarantees

measures are two-fold. First, a simple comparison of two portfolios 

ignores potential differences in their composition—for example, in 

the age and geographic distribution of loans—that may influence 

loan performance and make comparisons of the portfolios invalid. 

FHA maintains data that can be segmented by loan cohort and 

property location, which could help address some limitations of the 

industry group data. Second, it implies that FHA has been 

effectively managing its risk. However, FHA has at times exhibited 

shortcomings in this area. For example, in a 2006 report, we found 

that FHA had not developed sufficient standards and controls to 

manage risks associated with the substantial proportion of FHAinsured loans with down payment assistance.55 Because of these 

weaknesses, a performance measure that does not account for 

such portfolio differences may not provide a useful and 

appropriate benchmark for RHS risk management.

• Circular A-129 also states that agencies should establish risk 

thresholds for their credit programs. RHS has established a risk 

appetite—the amount and type of risk an organization is willing to 

accept in pursuit of its objectives—for the single-family guarantee 

program.56 According to RHS officials, the program’s risk appetite 

is expressed primarily through the goal of making each annual 

cohort of loan guarantees subsidy-neutral, while keeping 

guarantee fees at a level affordable to low- and moderate-income 

households. However, RHS has not established associated risk 

thresholds—that is, target values above which risks are not 

tolerated or that trigger application of additional risk controls. For 

example, RHS has not developed thresholds for the magnitude of 

expected losses that are acceptable at the portfolio or loan level.57

 55GAO, Mortgage Financing: Additional Action Needed to Manage Risks of FHA-Insured 

Loans with Down Payment Assistance, GAO-06-24 (Washington, D.C.: Nov. 9, 2005).

56According to the Committee of Sponsoring Organizations of the Treadway Commission 

(COSO), establishing a risk appetite is an integral part of risk management. See Larry 

Rittenberg and Frank Martens, Understanding and Communicating Risk Appetite, a report 

commissioned by COSO (January 2012). COSO is a joint initiative of five professional 

associations and works to develop frameworks and guidance on enterprise risk 

management, internal control, and fraud deterrence.

57RHS has statutory limits on the volume of new loans it can guarantee each year and the 

percentage of each mortgage that is guaranteed. However, these limits define RHS’s 

maximum possible financial exposure rather than loss tolerances established by agency 

management.
Page 36 GAO-16-193 RHS Mortgage Guarantees

Without established risk thresholds, RHS’s ability to determine 

when risk levels are too high is diminished.

• Reporting of performance information in watch lists and 

dashboards. RHS’s performance reports were not fully consistent 

with the OMB standard concerning portfolio dashboards. RHS 

produces three reports—one specifically called a dashboard and two 

others with some characteristics of a dashboard—that generally 

contain the types of quantitative information identified in the OMB 

guidance. However, these reports do not include a qualitative 

discussion of areas meriting increased management focus, as 

specified in Circular A-129. RHS officials said they orally discussed 

issues warranting greater management attention in briefings and 

meetings in which the reports are used. However, by not highlighting 

and documenting issues for management attention in the performance 

reports, RHS increases the possibility that senior managers will not 

have the information necessary to address emerging risks in a timely 

manner.

The inconsistencies we identified between RHS’s policies and procedures 

and Circular A-129 standards—both for credit program management and 

the areas discussed previously—occurred, in part, because RD did not 

compare and align its requirements with all elements of the circular. 

Circular A-129 requires agencies to periodically conduct program reviews 

that assess whether credit programs are achieving policy goals while 

mitigating risk and cost to the taxpayer and minimizing displacement of 

private credit markets. The reviews also should identify any area where a 

program is not consistent with the requirements of Circular A-129,

evaluate the effects of any deviation, and whether the deviation is still

necessary. RD officials told us that RD’s Office of the Chief Financial 

Officer was primarily responsible for ensuring that policies and 

procedures for the guarantee program were consistent with the circular. 

They said that the office began reviewing the compliance of all RD credit 

programs with the circular in 2014. RD officials said they did not expect to 

complete the review of the single-family loan guarantee program until 

2016. RD officials added that this program review was begun on an ad 

hoc basis rather than part of a schedule. Furthermore, they noted that 

because of the large number of credit programs RD operates, they 

intended to complete the program reviews on a rotating basis, an 

approach that does not establish priorities based on risk. Federal internal 

control standards state that agencies should identify risks, including by 
Page 37 GAO-16-193 RHS Mortgage Guarantees

using qualitative and quantitative ranking activities, and have controls 

such as policies and procedures to address risks.58 At present, RD 

operates 27 loan and loan guarantee programs. Without procedures for 

prioritizing program reviews based on risk level, RD may not be able to 

fully realize the intended benefits of the reviews, which include mitigating 

risk and cost to the taxpayer.

Congress and OMB have established requirements and standards for 

estimating the costs of and managing federal credit programs, including 

FCRA and OMB Circular A-129. In the wake of the recent housing crisis, 

RHS’s guarantee program has expanded dramatically and the estimated 

costs of the guarantee program have risen, due partly to higher-thanexpected losses from mortgages made shortly before or during the 

housing downturn. Furthermore, RHS has recently been granted the 

authority to give qualified lenders the ability to determine the eligibility of 

loans for guarantees without RHS’s prior approval. These developments 

underscore the importance of complying with requirements and standards 

intended to improve the reliability of cost estimates and help ensure that 

risks are prudently managed. RHS has taken a number of steps to 

enhance its administration of the guarantee program, including 

development of an econometric model to estimate credit subsidy costs 

and potentially enhance risk analysis.

However, RHS could further strengthen its policies and procedures for 

managing the guarantee program by addressing inconsistencies with 

Circular A-129 standards related to applicant screening, lender oversight, 

management frameworks, and risk assessment and reporting. By doing 

so, the agency would help decrease the risk that ineligible borrowers 

would receive guaranteed loans and that unqualified or ineligible firms 

would originate or service the loans. RHS also would enhance its 

capabilities to manage its expanded portfolio and strengthen its ability to 

identify and mitigate risks in a timely manner. Finally, by not having 

procedures for risk-based scheduling of the program reviews required by 

OMB guidance, RD may be limiting its ability to manage its multiple credit 

programs in the most effective manner.

 58GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: Nov. 1, 1999). GAO recently revised and reissued Standards for 

Internal Control in the Federal Government, the new revision effective beginning with 

fiscal year 2016. GAO-14-704G (Washington, D.C.: September 2014).

Conclusions
Page 38 GAO-16-193 RHS Mortgage Guarantees

To improve compliance with OMB Circular A-129 standards and 

strengthen management and oversight of the guarantee program, we 

recommend that the Secretary of Agriculture direct the Undersecretary for 

Rural Development to take the following 11 actions:

• To enhance screening of loan guarantee applicants, complete steps 

to obtain access to Treasury’s Do Not Pay portal and establish 

policies and procedures to deny loan guarantees to applicants who 

are subject to administrative offsets for delinquent child support 

payments.

• To strengthen oversight of lenders and servicers,

• develop and publish in the Federal Register qualification 

requirements for the principal officers of lenders and servicers 

seeking initial or continued approval to participate in the guarantee 

program,

• develop and publish in the Federal Register capital and financial 

requirements for guarantee program lenders that are not regulated 

by a federal financial institution regulatory agency, and

• establish standing policies and procedures to help ensure that the 

agency reviews the eligibility of lenders and servicers participating 

in the guarantee program at least every 2 years.

• To enhance and formalize the guarantee program’s risk-management 

structure,

• finalize and adopt policies and procedures for the guarantee 

program’s Credit Policy Committee,

• document lines of communication between the different 

components of the risk-management structure for the guarantee 

program, and

• complete steps to create and fill a Chief Risk Officer position for 

RD as soon as practicable.

• To strengthen risk assessment and reporting,

Recommendations for 

Executive Action
Page 39 GAO-16-193 RHS Mortgage Guarantees

• improve performance measures comparing RHS and FHA loan

performance, potentially by making comparisons on a cohort basis

and limiting comparisons to loans made in similar geographic

areas,

• develop risk thresholds for the guarantee program, potentially in

the form of maximum portfolio- or loan-level loss tolerances, and

• identify issues for increased management focus in high-level

dashboard reports.

• To more effectively fulfill the requirements for conducting program

reviews described in OMB Circular A-129, develop procedures for

selecting RD credit programs for review based on risk and establish a

prioritized schedule for conducting the reviews.

We provided a draft of this report to OMB and USDA for their review and

comment. OMB staff provided technical comments, which we 

incorporated into the report. USDA provided comments in an e-mail 

from the audit liaison officer in RD’s Financial Management Division. 

In its comments, RD agreed with or indicated that it was taking steps to 

address 5 of our 11 recommendations and neither agreed or disagreed 

with the remaining 6. Concerning our recommendation to enhance 

screening of loan guarantee applicants using Treasury’s Do Not Pay 

portal, RD noted that it did not have the resources to manually conduct 

Do Not Pay searches for all loan guarantee applicants at this time 

because of the large volume of applicants and the technological 

limitations of the portal. RD also said that RHS staff had completed the 

Do Not Pay enrollment process and were working with Treasury to begin 

accessing the portal as an additional verification resource. Concerning 

our recommendation to create and fill a Chief Risk Officer position as 

soon as practicable, RD said it planned to hire someone for the position in 

fiscal year 2016. RD stated it agreed with our recommendations to 

establish standing policies and procedures governing the frequency of 

lender and servicer eligibility reviews, finalize and adopt policies and 

procedures for the Credit Policy Committee, and document lines of 

communication among components of the risk-management structure.

For four of the six recommendations with which RD neither agreed nor 

disagreed, RD said it recognized the underlying risk implications and was 

Agency Comments 

and Our Evaluation
Page 40 GAO-16-193 RHS Mortgage Guarantees

continuing to consider the recommendations. The recommendations 

concern the development of qualification requirements for principal 

officers of guarantee program lenders and servicers, capital and financial 

requirements for nonsupervised guarantee program lenders, risk 

thresholds for the guarantee program, and improved measures for 

comparing RHS and FHA loan performance. For the first three of these 

recommendations, RD stated that “existing requirements may currently 

address [the] concern,” but it did not cite the requirements to which it was 

referring or otherwise elaborate. We maintain that existing requirements 

do not address the concerns underlying our recommendations. As our 

report notes, RHS effectively relies on requirements of other mortgage 

institutions (such as FHA and VA) for lender and servicer approval, and 

these requirements may not be well-suited to RHS’s program. For 

example, FHA’s net worth requirement for nonsupervised lenders is 

calibrated to the amount of FHA business the lender does, and the 

suitability of VA’s net worth requirement for RHS is limited by the 

substantially lower loss coverage of VA’s program compared with RHS’s. 

Furthermore, while it is possible that detailed analysis of FHA and VA 

requirements would find them sufficient for RHS’s program, RHS did not 

provide any evidence that it had conducted such an analysis. Regarding 

risk thresholds, while our report notes that statutory limits exist on RHS’s 

annual business volume and the percentage of each mortgage it can 

guarantee, these limits define RHS’s maximum possible financial 

exposure rather than loss tolerances established by agency 

management. OMB Circular A-129 requirements, including the 

requirement for establishing risk thresholds, outline steps agency officials 

should take to manage the risks of their credit programs. 

For the remaining two recommendations—which concern identifying 

areas for increased management focus in dashboard reports and 

prioritizing Circular A-129 program reviews based on risk—RD elaborated 

on current agency practices but did not indicate whether or how it planned 

to address the recommendations. RD stated that its dashboard reports 

provided differing levels of detail, but also acknowledged that they 

contained no specific issues for increased focus despite the existence of 

program challenges identified by agency staff. Including a qualitative 

discussion of areas meriting greater attention in dashboard reports would 

help ensure that agency managers address emerging risks in a timely 

manner. Finally, RD described its process for prioritizing programs for 

Management Control Reviews. As we described in our report, these

periodic reviews are a USDA requirement designed to determine whether 

necessary controls are in place and producing intended results, comply 

with applicable laws and regulations, and provide solutions to reduce or 
Page 41 GAO-16-193 RHS Mortgage Guarantees

eliminate any deficiencies. While we acknowledge RHS’s risk-based 

process for prioritizing programs for Management Control Reviews, our 

recommendation addressed program reviews required by OMB Circular 

A-129. Although the two types of reviews may be complementary, the A129 program reviews are broader in scope than Management Control 

Reviews. For example, A-129 program reviews should assess whether 

programs are achieving policy goals while mitigating risk and cost to the 

taxpayer and minimizing displacement of private credit markets. In 

addition, they should identify any area in which a program is not 

consistent with the requirements of Circular A-129, and evaluate the 

effects of any deviation and if the deviation is still necessary. USDA and 

RD instructions for Management Control Reviews do not include these 

requirements and do not reference A-129. Using a risk-based approach 

for selecting programs for A-129 program reviews, rather than the 

rotational process RD previously described and that we discussed in our 

report, would help RD manage its multiple credit programs in the most 

effective manner. We added language to the body of our report and to our 

recommendation to clarify that our focus was on risk-based selection of 

programs for program reviews conducted in accordance with A-129 

requirements.

In addition, in its comments, RD concurred with our characterization of 

trends in the estimated long-term costs of the guarantee program and 

RD’s efforts to develop an econometric model to improve the quality of 

cost estimates. RD also said that, based on its preliminary analysis, the 

econometric models will correct for the overestimation of future losses 

that resulted from using the historical method in recent years. As a result, 

RD said that it expects its 2016 credit subsidy reestimate will be a 

downward reestimate. RD also provided clarification on the role of RD’s 

Office of the Chief Financial Officer in reviewing RHS actions to address 

Office of the Inspector General audit recommendations. We incorporated 

the information about the potential impact of the econometric models and 

the role of RD’s Office of the Chief Financial Officer into the final report. 
Page 42 GAO-16-193 RHS Mortgage Guarantees

As agreed with your offices, 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 Agriculture, the Director of 

the Office of Management and Budget, and other interested parties. In 

addition, the report will be available at no charge on the GAO website at 

http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-8678 or sciremj@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 II.

Mathew J. Scirè

Director, Financial Markets and Community Investment
Appendix I: Objectives, Scope, and 

Methodology

Page 43 GAO-16-193 RHS Mortgage Guarantees

Our objectives were to examine: (1) recent trends in the credit subsidy 

costs of the Rural Housing Service’s (RHS) single-family guarantee 

program (guarantee program) and the process for estimating those costs

and (2) the extent to which RHS’s policies and procedures for the 

guarantee program are consistent with Office of Management and Budget 

(OMB) standards for managing credit programs.

To examine recent trends in credit subsidy costs for the guarantee 

program and the process for estimating these costs, we analyzed credit 

subsidy cost estimates and reestimates from the President’s budgets for 

fiscal years 2006 through 2016 (which include the final reestimates for 

fiscal years 2004 through 2014). We reviewed related requirements and 

guidance, including the Federal Credit Reform Act of 1990; the Office of 

Management and Budget (OMB) Circular No. A-11 (Preparation, 

Submission, and Execution of the Budget); the Federal Accounting 

Standards Advisory Board’s Federal Financial Accounting and Auditing 

Technical Release 6 (Preparing Estimates for Direct Loan and Loan 

Guarantee Subsidies under the Federal Credit Reform Act); and the 

Government-wide Audited Financial Statement Task Force Subcommittee 

on Credit Reform Issue Paper 96-CR-7 (Model Credit Program Methods 

and Documentation for Estimating Subsidy Rates and the Model 

Information Store). We examined documentation on the processes and 

tools Rural Development (RD) uses to determine subsidy costs for the 

guarantee program, including RD’s cash flow model and technical and 

other guidance associated with the model. We also reviewed 

documentation of analyses RD’s independent financial statement auditor 

conducted on the model as part of RD’s fiscal years 2012 through 2014 

financial statement audits and associated findings and recommendations. 

In addition, we reviewed analyses conducted by an independent 

contractor in 2013 on the model’s ability to predict cash flows and 

associated recommendations. To obtain information about manual 

adjustments made to the model for credit subsidy cost reestimates in 

recent years, we interviewed officials from RD’s Office of the Chief 

Financial Officer, including staff from the National Financial and 

Accounting Operations Center. In addition, we reviewed the contract RD 

awarded for the development of an econometric model for estimating 

credit subsidy costs for future budgets and interviewed RHS and RD 

officials and contractor staff on their plans for and progress on developing 

the model.

Appendix I: Objectives, Scope, and 

Methodology

Credit Subsidy Costs and 

Estimation Process
Appendix I: Objectives, Scope, and 

Methodology

Page 44 GAO-16-193 RHS Mortgage Guarantees

To provide context for recent trends in the program’s credit subsidy costs, 

we analyzed RD data on the number of loans guaranteed annually from 

fiscal year 1992 (the first year RHS made guarantees nationwide) through

fiscal year 2014 and the total dollar amount of outstanding guarantees 

each year in fiscal years 2004 through 2014. We also analyzed RD data 

on loss amounts for the fiscal year 2000 through fiscal year 2013 cohorts 

as of September 30, 2014. Specifically, we calculated cumulative loss 

rates by cohort and year from origination. The cumulative loss rates 

represent the total losses at a given point in time divided by the original 

dollar volume of loans guaranteed. To assess the reliability of these data, 

we reviewed related documentation, including information about their 

source systems and how the data were compiled. We also interviewed 

RD officials knowledgeable about the data and compared them with other 

data sources, where possible. We concluded that the data elements we 

used were sufficiently reliable for the purposes of describing trends in the 

guarantee program’s business activity, portfolio size, and loss experience. 

Additionally, we obtained extracts of RHS loan-level data, including loan 

and borrower characteristics and performance information, for guarantees 

made in fiscal years 2010 through 2014 to confirm that RHS maintained 

the types of data suitable for credit subsidy cost modeling.

To determine the extent to which RHS’s policies and procedures were 

consistent with OMB standards, we reviewed OMB Circular A-129 

(Policies for Federal Credit Programs and Non-Tax Receivables). We 

focused on part III of the guidance, which contains a number of standards 

pertinent to risk management for a loan guarantee program, including 

standards for credit extension (applicant screening, loan documentation, 

and collateral requirements), credit program management (management 

and oversight and data-driven decision making), and management of 

guaranteed loan lenders and servicers (lender and servicer eligibility, 

agreements, reviews, and corrective actions). We reviewed RHS’s 

policies and procedures for these functions contained in regulations, 

handbooks, and other guidance and documentation. These included U.S. 

Department of Agriculture (USDA) and RD policies, Federal Register 

notices, regulations, and RD and RHS organizational charts and position 

descriptions. They also included the guarantee program’s technical 

handbook, lender and servicer compliance review guides, loss mitigation 

and loss claim guides, Guaranteed Underwriting System guidance, 

administrative notices, unnumbered letters (a type of internal guidance), 

annual reports, and portfolio performance reports. We assessed the 

extent to which they were consistent with the OMB A-129 standards. For 

several of the OMB standards, we identified related, sound risk 

Consistency with OMB 

Standards for Managing 

Credit Programs
Appendix I: Objectives, Scope, and 

Methodology

Page 45 GAO-16-193 RHS Mortgage Guarantees

management practices cited in documents from other organizations. 

These included previously issued GAO reports on risk management 

frameworks, federal internal control standards, and attributes of 

successful performance measures and publications from the Committee 

on the Sponsoring Organizations of the Treadway Commission and the 

International Association of Credit Portfolio Managers.1

To supplement our understanding of the OMB guidance and RHS’s 

policies and procedures, we interviewed OMB staff knowledgeable of the 

2013 update of Circular A-129 and various USDA officials. The USDA 

officials included the RHS Administrator, Deputy Administrator, and

Director of the Single Family Housing Guarantee Loan Division, as well 

as staff from that division, RHS’s Centralized Servicing Center, and RD’s 

Office of the Chief Financial Officer (which includes the National Finance 

and Accounting Operations Center). These interviews typically included 

representatives from an RHS contractor with responsibilities for producing 

risk analytics and conducting compliance reviews of national lenders and 

servicers.

To determine what prior audits and evaluations of the guarantee program 

had found, we met with USDA’s Office of Inspector General and reviewed 

pertinent Inspector General audit reports. We also reviewed RD’s 2008 

and 2013 management control reviews for the guarantee program. For 

both the Inspector General reports and the management control reviews, 

we determined the status of recommendations made to address 

deficiencies in program management and implementation.2 We also 

reviewed nationwide summaries of RD state internal reviews, which 

include the guarantee program in their scope, for fiscal years 2012 

through 2014.3 We did not verify RHS’s compliance with its own policies 

and procedures or assess their effectiveness. However, the prior audits 

 1

GAO-06-91 and GAO-03-143, and GAO, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). GAO recently 

revised and reissued Standards for Internal Control in the Federal Government, the new 

revision effective beginning with fiscal year 2016. GAO-14-704G (Washington, D.C.: 

September 2014).

2

As of September 2015, all the Inspector General’s recommendations specific to the 

guarantee program were classified as closed.

3

The national summaries of state internal reviews describe trends in the number of 

observed deficiencies but do not include recommendations.
Appendix I: Objectives, Scope, and 

Methodology

Page 46 GAO-16-193 RHS Mortgage Guarantees

and evaluations we reviewed included compliance testing and reviews of 

information documenting RHS actions to address any recommendations.

We conducted this performance audit from May 2014 to March 2016 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.
Appendix II: GAO Contact and Staff

Acknowledgments

Page 47 GAO-16-193 RHS Mortgage Guarantees

Mathew J. Scirè, (202) 512-8678 or sciremj@gao.gov

In addition to the contact named above, Steve Westley (Assistant 

Director); Alexandra Martin-Arseneau (Analyst-in-Charge); Abiud Amaro 

Diaz; Stephen Brown; Marcia Carlsen; William R. Chatlos; Melissa 

Kornblau; John McGrail; Barbara Roesmann; Jena Sinkfield; and Heneng 

Yu made key contributions to this report.

Appendix II: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250788)
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