2016

ANNUAL 

REPORT
CONTENTS

Message from Ginnie Mae President. . . . . . . . . . 1

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . .2

The Business of Ginnie Mae . . . . . . . . . . . . . . . . . .3

Financial Highlights and Management’s 

Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . 6

Audit Report of Ginnie Mae’s FY 2016 

and FY 2015 Financial Statements . . . . . . . . .20

MESSAGE FROM 

GINNIE MAE PRESIDENT

It is an honor to present Ginnie Mae’s Fiscal Year 2016 Annual Report. 

As the report illustrates, our fi nancial performance this year was 

stronger than ever, breaking all previous records for issuance of 

mortgage-backed securities (MBS). Ginnie Mae provided the funding 

for two in fi ve of all mortgage loans funded in America, and continued 

to positively impact housing and the country’s continued economic 

recovery. The unpaid principal balance (UPB) of the MBS guaranteed 

by Ginnie Mae surpassed Freddie Mac MBS UPB to become the second 

largest MBS program in the world, and our single security platform and 

common security served more than 300 Issuers each month.

More than two million households benefi tted from the Ginnie Mae 

securitization program this Fiscal Year. The record-breaking growth 

provided the funding for 99 percent of the loans insured by the Department of Veterans Aff airs (VA), 

the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA) Rural Housing 

Development Service (RHS) and the Offi ce of Public and Indian Housing (PIH). As non-banks continued 

to dominate our program in terms of issuance, the private market competition they facilitated drove the 

average FICO score of loans secured in our program to around 690, almost 30 points lower than Fannie 

and Freddie.

Our MBS guarantees of $490 billion for Fiscal Year 2016 broke all previous records. We fi nished several 

months as the number one program for residential MBS, underscoring the importance of government 

lending to our nation’s housing. Indeed, at year-end, our portfolio of MBS outstanding had grown to $1.7 

trillion. We also continued our unbroken record of returning a profi t to the U.S. Treasury. See Table 1 on 

page 8 for fi nancial highlights.

While the Fiscal Year was defi ned by fi nancial success in the form of astounding growth and continued 

profi tability, we continued to measure our success against our ability and responsibility to protect the 

taxpayers’ investment inherent in our guaranty. The transformation of our Issuer base to predominantly 

non-banks with complex business models presents diff erent and complex counterparty risks. Going 

forward, to support the market and protect the taxpayer, Ginnie Mae must improve our accounting 

principles and internal controls, enhance our risk management, modernize our business operations, 

and improve our in-house capabilities to respond to market changes. 

Theodore W. Tozer

President 
2 2016 | Annual Report 2016 | Annual Report 3

During Fiscal Year 2016 (FY 2016), Ginnie Mae once again delivered strong results in mission, fi nances 

and operations. FY 2016 production provided the capital to fi nance home purchases, refi nances, or rental 

housing for approximately 2.08 million households, compared to 1.94 million U.S. households in FY 2015.

The global demand for Ginnie Mae securities has never been higher. Indeed, in FY 2016 global investors 

purchased $490.4 billion in mortgage-backed securities (MBS) guaranteed by Ginnie Mae, a 12 percent 

increase over FY 2015 and our largest year ever. At year-end, Ginnie Mae MBS outstanding topped $1.7 

trillion. 

Our mission remained focused on supporting mortgages insured or guaranteed by the Federal Housing 

Administration (FHA), the U.S. Department of Veterans Aff airs (VA), U.S. Department of Agriculture Rural 

Development, and the U.S. Department of Housing and Urban Development Offi ce of Public and Indian 

Housing (PIH). Single-family FHA-insured mortgages accounted for 62.1 percent of FY 2016 loan issuances in 

Ginnie Mae pools, while single-family VA-guaranteed loans accounted for 31.9 percent; Rural Development 

and PIH loans contributed the remainder.

Absent the capital raised through Ginnie Mae MBS, the mortgage programs of the FHA and VA could not 

function. By securitizing these loans into MBS explicitly guaranteed by the full faith and credit of the U.S. 

Government, Ginnie Mae drives down the cost of mortgage funding and passes along the savings to support 

aff ordable housing.

This Annual Report is designed to provide background on Ginnie Mae and our current fi nancial situation 

for policymakers and other interested parties, and is prepared to satisfy applicable legal requirements and 

is in accordance with and pursuant to the provisions of the Government Corporation Control Act, 31 U.S.C. 

Section 9106.

EXECUTIVE SUMMARY THE BUSINESS OF GINNIE MAE

Ginnie Mae is a government-owned corporation with an unbroken record of profi tability and returning 

money to the U.S. Government. Our risk model is very diff erent than the Government Sponsored Enterprises 

(GSE) and requires lenders (called “Issuers” in the Ginnie Mae program) to pay investors before the 

government guaranty would ever be called upon.

Our single securitization process creates liquidity for residential mortgages insured by other government 

agencies, such as the FHA and VA. Ginnie Mae creates this liquidity by attracting global investment into a 

common MBS explicitly backed by the full faith and credit of the U.S. Government, the only such MBS to 

feature this guaranty. Securitization is at the core of Ginnie Mae’s business. 

Ginnie Mae’s self-funding business model and unique securitization platform continues to benefi t borrowers, 

investors and the nation’s housing fi nance system in the following ways: 

First, Ginnie Mae securitization makes mortgage money available to fi nance home loans and rental 

housing. Our security is the vehicle through which MBS Issuers access mortgage funds from MBS investors. 

The government guaranty in Ginnie Mae’s MBS ensures that MBS investors receive timely payment of 

principal and interest on the security. MBS investors are also attracted by the credit quality, liquidity and 

standardization that characterizes Ginnie Mae MBS. Ginnie Mae’s presence generally expands during times 

of market crisis when other mortgage participants withdraw from the market. 

Second, we enable homebuyers to lock-in mortgage rates before their loans are closed and securitized.

This is possible because our disciplined securitization process supports what is known as the “TBA,” or 

“to-be-announced,” market to exist for agency MBS. Here, MBS investors commit to purchase securities 

before all the underlying loans are closed, knowing that loans with expected terms will be forthcoming and 

comply with all federal guidelines. In other words, MBS investors have confi dence in Ginnie Mae as the 

MBS program administrator. Being able to lock in mortgage rates prior to closing is essential for consumers 

purchasing a home or refi nancing their mortgage to know the fi nal cost of their monthly payment before 

they sign offi cial papers. 

Third, Ginnie Mae securitization helps ensure broad availability of long term, fi xed-rate mortgages (FRM).

Ginnie Mae’s explicit guarantee and its homogenous MBS ensures a liquid market, allowing investors to buy 

and sell positions quickly. That is because nearly all the mortgages within Ginnie Mae MBS carry evenpaying terms that are amortized up to 30 years, and can be refi nanced at will. Because mortgage costs are 

spread out over a long-time period, FRM enable homeowners to have lower monthly payments. The fi xed 

nature of these payments protects homeowners against rising mortgage rates. And when mortgage rates 

fall, FRM allow homeowners to reduce their monthly payments through refi nancing at no penalty. 
4 2016 | Annual Report 2016 | Annual Report 5

How does Ginnie Mae work? 

We partner with hundreds of mortgage lenders that originate government-insured mortgages and issue Ginnie 

Mae MBS to global investors. Lenders who want to originate and issue MBS in the Ginnie Mae program must 

meet capital and liquidity requirements and be subject to ongoing monitoring. These institutions are referred 

to as “Issuers.” These Issuers assemble pools of mortgages with similar terms, package them into a Ginnie 

Mae MBS, and sell the securities to mortgage investors. In addition to ensuring timely payment of principal and 

interest to MBS investors, our guaranty does so on terms favorable to the Issuers. For this benefi t, Issuers pay 

Ginnie Mae a guaranty fee.

Ginnie Mae performs many roles, including approving Issuers, processing monthly payments to investors, 

supporting the liquidity of Ginnie Mae MBS through enhanced data to investors, providing sophisticated capital 

market capabilities, and representing investor and Issuer interests as participants in housing policy initiatives. 

Ginnie Mae must also insure that Issuers meet their fi nancial obligations to investors, and that any resulting 

risks are well managed. For instance, when an Issuer fails to meet its obligations, we have authority to transfer 

its mortgage servicing rights to another, well-performing Issuer. Ginnie Mae only has the authority to make such 

a transfer if an Issuer fails to meet its obligations and Ginnie Mae removes the Issuer from the program.

Importantly, we are diff erent than Fannie Mae and 

Freddie Mac. Rather than acquiring, holding and 

managing credit risk and interest-rate risk, as the GSEs 

do, in Ginnie Mae’s business model almost all risk is 

borne by private market participants, enabling them to 

reap the corresponding profi t or loss. 

The main risk for which we are accountable: 

protecting the integrity of the government guaranty, 

which enables investors to invest confi dently in Ginnie 

Mae MBS. Since private fi nancial institutions originate 

eligible mortgages, pool them into securities, and 

issue Ginnie Mae MBS to private MBS investors, our 

risk exposure is limited only to the ability and capacity 

of MBS Issuers to fulfi ll their obligations.

Three levels of protection must be exhausted before 

the Ginnie Mae guaranty needs to be utilized: 

borrower equity in a property; government mortgage 

insurance; and the capital base of the fi nancial 

institution designated as the Issuer for the Ginnie 

Mae MBS. Thus, our risk is at the institutional level 

of an Issuer, and not at the loan level of a mortgage. 

This business model places Ginnie Mae in a remote 

position of risk. 

An equally important trend: the primary mortgage market continued to reorganize itself, continuing the shift 

away from traditional banks (depositories) and towards independent mortgage banks (non-depositories, or 

non-banks as they are also called). Unlike traditional banks, non-banks rely on third parties for capital to make 

and support mortgages. By meeting Ginnie Mae’s guidelines and complying with our ongoing monitoring, nonbanks can access global capital markets by issuing Ginnie Mae MBS. 

Market penetration of non-banks has been so successful that they now represent a majority of Ginnie Mae 

MBS issuances annually. (See Figure 1-1.)

The growing prominence of non-banks has been the most signifi cant development in the Ginnie Mae business. 

For homeowners, the impacts have been very positive: as traditional banks have exited the mortgage lending 

sector, non-banks have stepped in, ensuring consumer access to government-insured mortgages. Ginnie Mae 

has benefi ted as well: with business volumes more widely distributed across more Issuers, non-banks have 

reduced our risk exposure to the failure of any one institution. (See Figure 1-2.) 

Figure 1-2

Top 5 Ginnie Mae Issuers of Single-Family MBS

FY 2011*

Top 5 Ginnie Mae Issuers of Single-Family MBS

FY 2016*

Rank Issuer Total Volume Pct. Rank Issuer Total Volume Pct.

1 Wells Fargo Bank, 

N.A.

34% 1 Wells Fargo Bank, N.A. 10%

2 Bank of America, 

N.A.

27% 2 PennyMac Loan Services, 

LLC

8%

3 JP Morgan Chase & 

Co.

8% 3 Freedom Mortgage 

Corporation

7%

4 PHH Mortgage 

Corporation

4% 4 Quicken Loans Inc. 5%

5 US Bank National 

Association

3% 5 Lakeview Loan Servicing 

LLC

5%

Top 5 Issuers 76% Top 5 Issuers 35%

Total Issuance $328.7 billion Total Issuance $448.7 billion

Green = Issuers who have risen into the top 5 since 2011

Red = Issuers who have fallen out of the top 5 since 2011

* September 2010 through August of 2011, September 2015 through August 2016

At the same time, monitoring non-banks has aff ected our staff workload exponentially. There are more 

institutions to monitor, and the majority of these institutions involve more third parties in their transactions, 

making oversight more complicated. In contrast to our traditional bank Issuers, non-banks rely more on credit 

lines, securitization involving multiple players, and more frequent trading of mortgage servicing rights. 

The net impact of the transformation – a wholesale change in our Issuer base, the need to support more of the 

mortgage market, and the resulting new and diff erent risks that have materialized – have combined to redefi ne 

Ginnie Mae’s operational model. The view ahead suggests that Ginnie Mae faces a diff erent future than its 

past.

Figure 1-1
6 2016 | Annual Report 2016 | Annual Report 7

Restatement of Prior Financial Statements, Non-reliance on 

Previous Financial Statements and Remediation Updates

The Offi ce of Inspector General (OIG) has issued disclaimers of opinion on Ginnie Mae’s fi nancial statements 

for fi scal years 2016 and 2015, primarily as a result of the audit fi nding relating to Ginnie Mae’s non-pooled 

asset portfolio. Ginnie Mae continues to expend signifi cant eff orts, which are broad in scope, to develop the 

necessary infrastructure to remediate this fi nding. 

Ginnie Mae’s objective for fi scal year 2016 was to continue remediation eff orts associated with the material 

weaknesses noted by OIG that led to the disclaimer of opinion in the prior year. These eff orts included, but 

were not limited to: (i) engaging necessary advisory counterparts to support the development of Ginnie Mae’s 

infrastructure; (ii) bolstering staff in the Offi ce of the Chief Financial Offi cer (OCFO); (iii) working with third-party 

servicers to develop standardized loan-level reporting detail; (iv) establishing accounting policies compliant 

with accounting principles generally accepted in the United States of America (U.S. GAAP); (v) performing 

gap assessments for every fi nancial statement line item to assess departures from U.S. GAAP; (vi) resolving 

gaps which may entail investing in new technologies in order to track and account for the non-pooled loans 

portfolio; (vii) developing standard operating procedures to comply with new accounting policies within OCFO; 

and (viii) enhancing the internal controls over fi nancial reporting. 

In addition to the material weaknesses identifi ed by the OIG, Ginnie Mae self-identifi ed other errors in fi nancial 

reporting. As a result, Ginnie Mae has restated its previously issued fi nancial statements for the year ended 

September 30, 2015. The previous fi nancial statements and corresponding information should no longer be 

relied upon. 

As noted above, the remediation process continues to require extensive and complex work by both employees 

and external consultants. However, Ginnie Mae is confi dent about its ability to show continued progress 

through fi scal year 2017 in addressing the shortcomings identifi ed by both management and OIG.

The overall impact of Ginnie Mae’s restatements on the fi nancial statements as of and for the year ended 

September 30, 2015, was a total decrease in “Investment of U.S. Government at End of Year” of $190 million. 

This amount included a $188 million adjustment, resulting in a net decrease in the 2015 “Results of Operations” 

and a $2 million adjustment, resulting in a net decrease in the 2015 beginning balance of “Investment of U.S 

Government.”

The restatement of the fi nancial statements for fi scal year 2015 resulted in excess of revenue over expenses 

of $1,987 million for the year, down from previously reported excess of revenue over expense of $2,175 million. 

This decrease was primarily driven by an increase in loss on guaranty asset. Further information on the 

accounting errors and resulting restatement adjustments is provided in “Note 2 (Restatement)” to the Financial 

Statements. 

Ginnie Mae continued to post positive fi nancial results during FY 2016. Revenues increased by 11.15 percent 

to $2,873.9 million, up from $2,585.6 million in FY 2015. Operating expenses decreased to $331.8 million in 

FY 2016, compared to $357.1 million. Total expenses as a percentage of average remaining principal balance 

of Ginnie Mae guaranteed mortgage-backed securities decreased to 0.0199 percent in FY 2016 compared to 

0.0228 percent in FY 2015. 

As shown in Table 1 on the following page, Ginnie Mae achieved results of operations (net profi t) of $305.8 

million, compared with results of operations (net profi t) of $1,987million in FY 2015. The decrease in net profi t 

for FY 2016 was primarily attributed to an increase of loss on guaranty asset. The loss was primarily attributed 

to shorter weighted average life of loans driven by a lower interest rate environment and economic conditions. 

Total assets increased to $28.2 billion in FY 2016 from $27.4 billion in FY 2015. 

The outstanding MBS portfolio guaranteed by Ginnie Mae increased by $119.3 billion in FY 2016, which led to 

increased guaranty fee revenues. In FY 2016, MBS guaranty fees increased to $1,052.5 million, up from $977.7 

million in FY 2015. Interest on mortgage loans held for investment increased to $340.9 million in FY 2016, up 

from $300.1 million in FY 2015. 

The $490.4 billion of MBS issued in FY 2016 represents a 12.48 percent increase from FY 2015. In FY 2016, 

Ginnie Mae issued $430.4 billion in commitment authority, a 14.87 percent decrease from FY 2015. The 

outstanding MBS balance of $1,728.1 billion at the end of FY 2016, compared to $1,608.8 billion at the end 

of FY 2015, resulted from new issuances exceeding repayments. FY 2016 production provided the capital to 

fi nance home purchases, refi nances, or rental housing for approximately 2.08 million compared to 1.94 million 

U.S. households in FY 2015.

FINANCIAL HIGHLIGHTS 

AND MANAGEMENT’S 

DISCUSSION AND ANALYSIS GINNIE MAE 

FINANCIAL HIGHLIGHTS
8 2016 | Annual Report 2016 | Annual Report 9

Table 1 summarizes Ginnie Mae fi nancial highlights over the past three years.

Table 1 – Ginnie Mae Financial Highlights

FYs 2014 to 2016

The following discussion provides information relevant to understanding Ginnie Mae’s operational results and 

fi nancial condition. It should be read in conjunction with the fi nancial statements and notes in Section III of this 

report. Ginnie Mae’s operating results are subject to change each year, depending on fl uctuations in interest 

income from its U.S. Government securities and in MBS program income, expenses, provisions for losses, and 

interest rate environment.

Revenues

Ginnie Mae receives no appropriations from general tax revenue. Instead, its operations are self-fi nanced 

through a variety of fees. In FY 2016, Ginnie Mae generated total revenue of $2,873.9 million up from $2,585.6 

million in FY 2015. 

Figure 1 – Ginnie Mae Total Revenues 

FYs 2012 to 2016

* Fiscal years 2013 and prior not restated 
10 2016 | Annual Report 2016 | Annual Report 11

MBS PROGRAM INCOME

MBS program income consists primarily of guaranty fees, commitment fees, and interest on mortgage loans 

held for investment (HFI). For FY 2016, MBS program income was primarily driven by guaranty fees of $1,052.5 

million, followed by interest on mortgage loans HFI of $340.9 million, and commitment fees of $101.1 million. 

Combined guaranty fees, interest on mortgage loans HFI and commitment fees contributed 97.18 percent of 

total MBS program revenue for FY 2016. Other lesser income sources included multiclass fees, new Issuer fees, 

handling fees, and transfer-of-servicing fees. 

For FY 2015, MBS program income was primarily driven by guaranty fees of $977.7 million, followed by interest 

on mortgage loans HFI of $300.1 million, and commitment fees of $85.9 million. Combined guaranty fees, 

interest on mortgage loans HFI and commitment fees contributed 95.65 percent of total MBS program revenue 

for FY 2015. Other lesser income sources included multiclass fees, new Issuer fees, handling fees, and transferof-servicing fees. 

GUARANTY FEES

Guaranty fees are income streams earned for providing Ginnie Mae’s guaranty, which is backed by the 

full faith and credit of the United States Government to investors. These fees are paid over the life of the 

outstanding securities. Guaranty fees are collected on the aggregate remaining principal balance of the 

guaranteed securities outstanding in the non-defaulted Issuer portfolio. MBS guaranty fees grew 7.65 percent 

to $1,052.5 million in FY 2016, up from $977.7 million in FY 2015. The growth in guaranty fee income refl ects an 

increase in the MBS portfolio. The outstanding MBS portfolio balance at the end of FY 2016 was $1,728.1 billion, 

compared to $1,608.8 billion as of the end of FY 2015, as new issuances exceeded repayments (see Figure 2).

Figure 2 – Unpaid Principal Balance (UPB) Outstanding in the Mortgage-Backed Securities Portfolio 

FYs 2012 to 2016

COMMITMENT FEES

Commitment fees are income that Ginnie Mae earns for providing approved Issuers with the authority to 

pool mortgages into Ginnie Mae MBS. This authority expires on the last day of the month that is 12 months 

after the authority is approved for single-family Issuers and on the last day of the month that is 24 months 

after the authority is approved for multifamily Issuers. Ginnie Mae receives commitment fees as Issuers 

request commitment authority. Ginnie Mae issued $430.4 billion in commitment authority in FY 2016, a 14.87 

percent decrease from FY 2015. Ginnie Mae recognizes the commitment fees as earned as Issuers use their 

commitment authority. The balance is deferred until earned or expired, whichever occurs fi rst. As of September 

30, 2016 and 2015, commitment fees deferred totaled $19.9 million and $33.4 million, respectively. 

MULTICLASS REVENUE

Multiclass revenue is part of MBS program revenue and is composed of Real Estate Mortgage Investment 

Conduits (REMIC or REMICs) and Platinum program fees. Ginnie Mae guaranteed approximately $16.1 billion 

in Platinum products in FY 2016, compared to $5.3 billion in Platinum products in FY 2015. Fees recorded on 

Platinum Certifi cates totaled $7.4 million for the year-ended September 30, 2016 compared to $7.6 million 

for the year-ended September 30, 2015. Fees recorded on REMIC securities for the year ended September 

30, 2016 totaled $25.7 million on $86.4 billion of issuances of REMIC products, compared to $24.7 million on 

$87.8 billion in issuances of REMIC products for the year-ended September 30, 2015. Ginnie Mae recognizes 

a portion of REMIC and Platinum program fees in the period they are received, with balances deferred 

in proportion to the cost incurred and amortized over the remaining life of the fi nancial investment. As of 

September 30, 2016 and 2015, REMIC and Platinum program fees deferred totaled $292.3 million and $272.5 

million, respectively.

In FY 2016, Ginnie Mae guaranteed $102.5 billion of issuance in its multiclass securities program (REMIC and 

Platinum), compared to $93.1 billion in FY 2015. The estimated outstanding balance of multiclass securities 

in the total MBS securities balance on September 30, 2016, was $473.2 billion. This represents a $0.5 billion 

increase from the $472.7 billion outstanding balance as of September 30, 2015.

INTEREST INCOME

Ginnie Mae earns Interest on Un-Invested Funds based on the Federal Credit Reform Act of 1990. Un-Invested 

funds in the fi nancing account consist of the Fund Balance with Treasury and/or off setting collections that have 

not been disbursed. Interest income is calculated using the current version of the Credit Subsidy Calculator 2 

(CSC2) provide by OMB. In FY 2016, Ginnie Mae’s un-invested interest income was $59.3 million compared to 

$127.4 million in FY 2015. 

Ginnie Mae invests the excess of its accumulated revenue over expenses in U.S. Government securities of 

varying terms. Ginnie Mae’s interest income increased in FY 2016 due to an increase of investment in one-day 

overnight certifi cates as compared to FY 2015. In FY 2016 interest income increased to $24.8 million from $0.8 

million in FY 2015. 
12 2016 | Annual Report 2016 | Annual Report 13

Expenses

Operating expenses in FY 2016 decreased by 7.08 percent to $331.8 million, down from $357.1 million in 

FY 2015, while total expenses were 11.55 percent of total revenues in FY 2016, down from 13.81 percent in 

FY 2015. Total expenses as a percentage of average remaining principal balance of Ginnie Mae guaranteed 

mortgage-backed securities decreased to 0.0199 percent in FY 2016 compared to 0.0228 percent in FY 2015.

Ginnie Mae’s lower results of operations (net profi t) of $305.8 million for FY 2016, versus results of operations 

(net profi t) $1,987million for FY 2015 (see Figure 3), were driven by an increase in the loss on the guaranty 

asset. The loss was primarily attributed to shorter weighted average life of loans driven by a lower interest rate 

environment and economic conditions.

Figure 3 – Results of Operations

FYs 2012 to 2016

Table 2 presents the expenses related to Ginnie Mae programs and contractors during the last fi ve years. 

Although issuance volume has increased, related expenses have been well managed over this timeframe.

MBS Issuance and Portfolio Growth

Ginnie Mae MBS issuance increased by 12.48 percent to $490.4 billion in FY 2016, as shown in Figure 4.

Figure 4 – Ginnie Mae Mortgage-Backed Securities Issuance

FYs 2012 to 2016

Fiscal Year

* Fiscal years 2013 and prior not restated 
14 2016 | Annual Report 2016 | Annual Report 15

The current MBS guarantees outstanding amount is $1,728.1 billion, which is a $119.3 billion increase over the 

amount at the end of FY 2015. The eff ect of the increase of the portfolio also has changed its character, as 

evidenced in the average age of the loans. Ginnie Mae has guaranteed approximately $6.1 trillion in MBS since 

its inception. (See Figure 5.) 

Figure 5 – Cumulative Amount of Ginnie Mae Mortgage-Backed Securities Issued

FYs 1971 to 2016

As shown in Figure 6, Ginnie Mae supported approximately 2.08 million units of housing for individuals and 

families in FY 2016, a 6.79 percent increase from FY 2015. The current total outstanding MBS of $1.7 trillion 

represents more than 10 million active loans.

Figure 6 – Ginnie Mae-Supported Units of Housing

FYs 2012 to 2016

SINGLE-FAMILY PROGRAM

The vast majority of the mortgages in Ginnie Mae securities are insured by the Federal Housing Administration 

(FHA) and the Department of Veterans Aff airs (VA). FHA-insured mortgages accounted for 62.1 percent of 

FY 2016 loan issuances in Ginnie Mae pools, while VA-guaranteed loans accounted for 31.9 percent; U.S. 

Department of Agriculture Rural Development loans and Public Indian Housing (PIH) loans contributed the 

remainder. Comparatively, FHA-insured mortgages accounted for 62.1 percent of FY 2015 loan issuances in 

Ginnie Mae pools, while VA-guaranteed loans accounted for 30.8 percent; Rural Development and PIH loans 

contributed the remainder. 

Although other agencies and private Issuers may pool FHA-insured loans for their own MBS or hold them in 

portfolio as whole loans, almost all of these loans are fi nanced through Ginnie Mae securities. In FY 2016, 

97.5 percent of FHA fi xed loans and 98.5 percent of VA fi xed-rate loans were placed into Ginnie Mae pools. 

In FY 2015, 98.6 percent of FHA fi xed loans and 97.3 percent of VA fi xed-rate loans were placed into Ginnie 

Mae pools. In FY 2016, 21.5 percent of single-family Ginnie Mae pools received a discounted guarantee fee for 

the inclusion of a high percentage of loans originated in economically depressed markets compared to 20.9 

percent in FY 2015. 

Although loans underlying its securities may be concentrated in specifi c areas, Ginnie Mae has provided 

homeownership opportunities in every U.S. state and territory. Figure 7 highlights the geographic distribution of 

single-family properties securing Ginnie Mae securities as of September 30, 2016.

Figure 7 – Geographic Distribution of Single-Family Properties Securing 

Ginnie Mae Securities as of September 30, 2016
16 2016 | Annual Report 2016 | Annual Report 17

MULTIFAMILY PROGRAM

At the end of FY 2016, Ginnie Mae guaranteed securities that contained 96.7 percent of eligible multifamily 

FHA loans. The Multifamily Program portfolio increased by $4.7 billion, from $92.5 billion at the end of FY 2015 

to $97.2 billion at the end of FY 2016, marking the 22nd year of consecutive growth.

Figure 8 shows the geographic distribution of multifamily properties securing Ginnie Mae securities as of 

September 30, 2016. Since 1971, Ginnie Mae has guaranteed $258 billion in multifamily MBS, helping to 

fi nance aff ordable and community-stabilizing multifamily housing developments such as apartment buildings, 

hospitals, nursing homes, assisted-living facilities, and other housing options across the nation.

Figure 8 – Geographic Distribution of Multifamily Properties Securing Ginnie Mae Securities as of 

September 30, 2016

In addition, Ginnie Mae’s portfolio of Multifamily Rural Development loans, which are loans guaranteed by 

USDA Rural Development, grew in FY 2016 to an outstanding principal balance of $762.7 million at fi scal yearend compared to $695.8 million at the end of FY 2015. There were Rural Development loans in 48 states in 

Ginnie Mae pools on September 30, 2016.

HMBS PROGRAM

FHA-insured reverse mortgages are the only loan types that qualify for Ginnie Mae’s HMBS (Home Equity 

Conversion Mortgage Backed Securities) program. FHA initiated several changes during 2015 to improve 

the health of its insurance program which also contributed to an increase in year-over-year HMBS issuance 

volume. HMBS Issuance volume in FY 2016 was $9.6 billion which was an increase from $9 billion in FY 2015. 

The outstanding principal balance of HMBS as of September 30, 2016 was $54.9 billion as compared to $52.3 

billion as of September 30, 2015. 

In FY 2016, 31 transactions for REMIC securities backed by Home Equity Conversion Mortgage (HECM) MBS 

totaled $10.7 billion in issuance, an increase from 29 transactions ($7.8 billion) in FY 2015. The structure and 

support that Ginnie Mae has brought to this market has increased its liquidity, which translates into better 

pricing on the securities and ultimately, lower costs for the growing population of senior citizens.

MANUFACTURED HOUSING PROGRAM

The Manufactured Housing program’s remaining principal balance was $268.9 million at the end of FY 2016, a 

decrease from $281.8 million at the end of FY 2015. 

Figure 7 continued Figure 8 continued
18 2016 | Annual Report 2016 | Annual Report 19

Liquidity and Capital Adequacy

Ginnie Mae’s primary sources of cash are MBS and multiclass guaranty fee income, and commitment fee 

income. After accounting for expenses and other factors, on September 30, 2016, Ginnie Mae reported 

approximately $0.83 billion in funds with the U.S. Treasury, compared to $1.7 billion on September 30, 2015. 

During FY 2013, Ginnie Mae received approval from the Offi ce of Management and Budget (OMB) to establish 

a Capital Reserve Fund, which has the ability to invest in overnight U.S. Government Securities. As a result 

of the OMB approval, Ginnie Mae invests the full balance of the Capital Reserve Fund, approximately $15.9 

billion in FY 2016.

Ginnie Mae’s MBS guaranty activities operate at no cost to the U.S. Government. Rather, Ginnie Mae returns 

a profi t, which reduces the U.S. Government’s budget defi cit. Ginnie Mae’s net income continues to build 

its capital base, and management believes that the organization maintains adequate capital reserves to 

withstand downturns in the housing market that could cause Issuer defaults to increase.

As of September 30, 2016, the investment of the U.S. Government (GAAP-based retained earnings) was 

$21.6 billion, compared with $21.3 billion as of September 30, 2015. Figure 9 shows Ginnie Mae’s capital 

reserves at fi scal year-end for each of the past fi ve years.

Figure 9 – Capital Reserves

FYs 2012 to 2016 

Risk Management and Systems of Internal Controls

Ginnie Mae reviews and manages an internal controls framework for the organization, including internal 

controls assessments in accordance with OMB Circular A-123, and other internal control and operational risk 

management activities. The audits, reviews, and monitoring Ginnie Mae conducts of all Issuers and major 

contractors enable Ginnie Mae to strengthen its internal controls and minimize risks that would negatively 

impact fi nancial and operating results.

Finally, Ginnie Mae assesses the eff ectiveness of its internal controls over fi nancial reporting, including the 

reliability of fi nancial reporting and fi nancial management systems, in accordance with the requirements of 

OMB Circular A-123. Safeguarding assets is a subset of all of these objectives. Internal controls are designed 

to enable management to provide reasonable assurance regarding prevention or prompt detection of 

unauthorized acquisition, use, or disposition of assets.

* Fiscal years 2013 and prior not restated 
AUDIT REPORT 

OF GINNIE MAE’S 

FY 2016 AND FY 2015 

FINANCIAL STATEMENTS

 

Government National Mortgage 

Association,Washington, DC 

Audit of Fiscal Years 2016 and 2015 (Restated) 

Financial Statements 

Office of Audit, Financial Audits Division 

Washington, DC 

Audit Report Number: 2017-FO-0001 

November 14, 2016 
Highlights 

What We Audited and Why 

We were engaged to audit the accompanying financial statements and notes of the Government 

National Mortgage Association (Ginnie Mae) as of September 30, 2016 and 2015 (restated). The 

Government Corporation Control Act, as amended, requires the Office of Inspector General to 

audit the financial statements of Ginnie Mae annually. Additionally, we reviewed restatement 

adjustments performed in fiscal year 2016 to restate fiscal year 2015 financial statements. This 

report presents the results of our fiscal years 2016 and 2015 (restated) audits of Ginnie Mae’s 

financial statements, including our report on Ginnie Mae’s internal control and test of 

compliance with selected provisions of laws and regulations that apply to Ginnie Mae. 

What We Found 

In fiscal year 2016, for the third consecutive year, we were unable to obtain sufficient and 

appropriate evidence to express an opinion on the fairness of the $ 4.2 billion (net of allowance) 

in nonpooled loan assets from Ginnie Mae’s defaulted issuers’ portfolio as of September 30, 

2016. Ginnie Mae also continued to improperly account for the Federal Housing Administration 

reimbursable costs as an expense instead of capitalizing them. The combination of these 

unresolved issues for a number of years was both material and pervasive because it impacted 

multiple financial statement line items across all of Ginnie Mae’s basic financial statements. As 

a result of the scope limitation in our audit work and the effects of material weaknesses in 

internal control, we have not been able to obtain sufficient and appropriate evidence to provide a 

basis for an audit opinion on Ginnie Mae’s fiscal years 2016 and 2015 (restated) financial 

statements. A combination of various internal control weaknesses in financial reporting and 

continued financial management governance issues contributed to these deficiencies. We 

identified four material weaknesses, one significant deficiency, and one reportable 

noncompliance with selected provisions of laws and regulations.

What We Recommend 

Our audit recommendations are directed toward improving and strengthening Ginnie Mae’s 

governance of its financial operations. New recommendations are presented after each finding. 

Open recommendations made in previous years are not included on each of the findings in this 

report. 

Audit Report Number: 2017-FO-0001 

Date: November 14, 2016 

Audit of the Government National Mortgage Association’s Financial 

Statements for Fiscal Years 2016 and 2015 (Restated) 
3 

Table of Contents 

Independent Auditor’s Report................................................................................ 4

Material Weakness ................................................................................................. 10

Finding 1: Material Asset Balances Related to Nonpooled Loans Were Not 

Auditable .......................................................................................................................... 10

Finding 2: Ginnie Mae’s Internal Control Over Financial Reporting Continued To 

Have Weaknesses ............................................................................................................ 12

Finding 3: The Allowance for Loan Loss Account Balances Were Unreliable ........ 18

Finding 4: Progress Had Been Made To Address Ginnie Mae’s Financial 

Management Governance Problems ............................................................................. 22

Significant Deficiency ............................................................................................ 28

Finding 5: Ginnie Mae Did Not Provide Adequate Oversight Over the Business 

Process Controls for the Integrated Pool Management System ................................ 28

Compliance with Laws and Regulations .............................................................. 32

Finding 6: Ginnie Mae Did Not Comply With the Debt Collection Improvement Act 

of 1996 .............................................................................................................................. 32

Scope and Methodology ......................................................................................... 34

Followup on Prior Audits ...................................................................................... 35

Appendixes .............................................................................................................. 42

A. Schedule of Funds To Be Put to Better Use ............................................................ 42

B. Auditee Comments and OIG’s Evaluation ............................................................. 43

C. Ginnie Mae’s Fiscal Years 2016 and 2015 (Restated) Financial Statements and 

Notes ........................................................................................................................... 45

4 

Independent Auditor’s Report

President 

Government National Mortgage Association 

Report on the Financial Statements 

We were engaged to audit the accompanying financial statements of the Government National 

Mortgage Association (Ginnie Mae), which comprise the balance sheets as of September 30, 2016 

and 2015 (restated), and the related statements of revenues and expenses and changes in 

investment of the U.S. Government, the cash flows for the years then ended, and the related notes 

to the financial statements. 

Management’s Responsibility for the Financial Statements 

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

financial statements in accordance with U.S. generally accepted accounting principles (GAAP). 

This responsibility includes the design, implementation, and maintenance of internal control 

relevant to the preparation and fair presentation of financial statements that are free from 

material misstatement, whether due to fraud or error. 

Management is also responsible for (1) evaluating the effectiveness of internal control over 

financial reporting; (2) providing a statement of assurance on the overall effectiveness of internal 

control over financial reporting, including providing reasonable assurance that the broad 

objectives of the Federal Managers’ Financial Integrity Act are met; and (3) ensuring compliance 

with other applicable laws and regulations. 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these financial statements based on conducting the 

audit in accordance with U.S. generally accepted government auditing standards. However, we 

were not able to obtain sufficient, appropriate evidence to provide a basis for an audit opinion 

because of the unresolved matters described in the Basis for Disclaimer of Opinion section 

below. 

Basis for Disclaimer of Opinion 

The following unresolved matters are a scope limitation in our audit work that contributed to 

our disclaimer of opinion on the fiscal year 2016 financial statements. There were no other 

satisfactory alternative audit procedures that we could adopt to obtain sufficient and appropriate 

evidence with respect to these unresolved matters. Readers are cautioned that amounts reported 

in the financial statements and related notes may not be reliable because of these unresolved 

matters. 

U.S. DEPARTMENT OF 

HOUSING AND URBAN DEVELOPMENT

OFFICE OF INSPECTOR GENERAL
5 

 Nonpooled loan assets. In fiscal year 2016, for the third consecutive year, Ginnie Mae 

could not bring its material asset balances related to its nonpooled loan assets into an 

auditable state. Therefore, we were unable to audit the $4.2 billion (net of allowance) in 

nonpooled loan assets reported in Ginnie Mae’s financial statements as of September 30, 

2016. These assets relate to (1) claims receivable, net ($709 million); (2) mortgage loans 

held for investment, net ($3.47 billion); (3) accrued interest receivable; net ($19 million); 

and (4) acquired property, net ($41 million). This condition occurred because Ginnie 

Mae lacked financial management systems that were capable of handling its loan level 

transaction accounting requirements. As a result, we were again unable to perform all of 

the audit procedures needed to obtain sufficient and appropriate evidence. As a result, we 

determined that our audit scope was insufficient to express an opinion on Ginnie Mae’s 

$4.2 billion in nonpooled loan assets as of September 30, 2016. 

 Receivable for reimbursable expenses from FHA. In fiscal year 2016, for the third 

consecutive year, Ginnie Mae continued to account for Federal Housing Administration 

(FHA) reimbursable costs as an expense instead of capitalizing the costs as an asset (see 

finding 2). This practice caused Ginnie Mae’s asset and net income line items to be 

misstated. Due to multiple years of incorrect accounting, we believe the cumulative 

effect of the errors identified was material. However, we were unable to determine, with 

sufficient accuracy, a proposed adjustment to correct the errors due to insufficient 

available data. 

 Issue on management representation letter. Ginnie Mae’s general counsel refused to sign 

off on certain matters included in the management representation letter concerning all 

known actual or possible litigation, claims, and assessments related Ginnie Mae. OIG 

believes that Ginnie Mae’s legal counsel is responsible for and knowledgeable about 

those matters which form part in Ginnie Mae management’s preparation and fair 

presentation of the financial statements. Due to the legal counsel’s refusal to sign off on 

these matters, which is a scope limitation, we lacked assurance that all known actual or 

possible litigations, claims and assessments related to Ginnie Mae had been properly 

accounted for or disclosed in the financial statements in accordance with generally 

accepted accounting principles. 

Disclaimer of Opinion 

Because of the significance of the matters described in the Basis for Disclaimer of Opinion 

section, we have not been able to obtain sufficient and appropriate evidence to provide a basis 

for an audit opinion. Accordingly, we do not express an opinion on these financial statements. 

Emphasis of Matter 

As discussed in note 2 to the financial statements, the fiscal year 2015 financial statements have 

been restated to correct a number of misstatements. We audited the material restatement 

adjustments in 2016 and determined that these adjustments were appropriate and had been properly 

applied except for the restatement related to the reclassification of expenses from recapture 

(provision) for mortgage loans held for investment and claims receivable to mortgage-backed 

securities program and other expenses. Ginnie Mae performed restatements in fiscal years 2016 and 

6 

2015. We caution our reader that the scope of the fiscal year 2016 restatement audit was limited to 

the restatement adjustments made in fiscal year 2016 and that restatement adjustments made by 

Ginnie Mae in fiscal year 2015 to correct fiscal year 2014 financial statements had not been fully 

audited by the Office of Inspector General (OIG). Our opinion has not been modified with respect 

to this matter. 

Other Matters 

Ginnie Mae’s Annual Report to Congress contains a wide range of information that is not 

directly related to the financial statements. This information is presented for additional analysis 

and is not a required part of the financial statements. Therefore, it has not been subjected to the 

auditing procedures applied in the audit of the financial statements. As a result, we do not 

express an opinion on the information or provide assurance on it. 

Report on Internal Control Over Financial Reporting and Compliance Based on an Audit 

of Financial Statements Performed in Accordance with Government Auditing Standards 

Report on Internal Control Over Financial Reporting 

In planning and performing our audit of the financial statements, we considered Ginnie Mae’s 

internal control over financial reporting to determine the appropriate audit procedures for 

expressing our opinion on the financial statements. However, we did not plan our audit for the 

purpose of expressing an opinion on the effectiveness of Ginnie Mae’s internal control. As a 

result, we do not express an opinion on the effectiveness of Ginnie Mae’s internal control. 

A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to 

prevent or detect and correct misstatements on a timely basis. Our consideration of internal 

control was for the limited purpose described in the first paragraph of this section and was not 

designed to identify all deficiencies in internal control that might be material weaknesses or 

significant deficiencies. Therefore, material weaknesses or significant deficiencies may exist 

that were not identified. We identified five deficiencies in internal control, which are described 

below. We consider the first four issues to be material weaknesses and the remaining issue to be 

a significant deficiency. 

Material Weaknesses in Financial Reporting 

A material weakness is a deficiency or a combination of deficiencies in internal control, such 

that there is a reasonable possibility that a material misstatement of Ginnie Mae’s financial 

statements will not be prevented or detected and corrected on a timely basis. 

Material Asset Balances Related to Nonpooled Loans Were Not Auditable 

In fiscal year 2016, for the third consecutive year, Ginnie Mae could not bring its material asset 

balances related to its nonpooled loan assets into an auditable state. Therefore, we were unable 

to audit the $4.2 billion (net of allowance) in nonpooled loan assets reported in Ginnie Mae’s 

financial statements as of September 30, 2016. These assets relate to (1) claims receivable, net 

($709 million); (2) mortgage loans held for investment, net ($3.47 billion); (3) accrued interest 
7 

receivable, net ($19 million); and (4) acquired property, net ($41 million). This condition 

occurred because Ginnie Mae lacked financial management systems that were capable of 

handling its loan level transaction accounting requirements. Therefore, we were again unable to 

perform all of the audit procedures needed to obtain sufficient and appropriate evidence. As a 

result, we determined that our audit scope was insufficient to express an opinion on Ginnie 

Mae’s $4.2 billion in nonpooled loan assets as of September 30, 2016. 

Ginnie Mae’s Internal Control Over Financial Reporting Continued To Have Weaknesses 

In fiscal year 2015, we reported that Ginnie Mae’s internal control over financial reporting was 

not effective. This condition continued, and some new issues were identified in fiscal year 2016. 

These material weaknesses in internal controls were issues related to the (1) improper accounting 

for FHA’s reimbursable costs and accrued interest earned on nonpooled loans; (2) accounting for 

cash in transit; (3) revenue accrual accounting, and (4) several other accounting issues, such as 

advances, fixed assets, and financial statement note disclosures. The first three issues were 

repeat findings from prior years, and the last one was new in fiscal year 2016. These conditions 

occurred because of Ginnie Mae’s failure to ensure that (1) adequate monitoring and oversight of 

its accounting and reporting functions were in place and operating effectively and (2) accounting 

policies and procedures were developed, finalized, and appropriately implemented. As a result, 

the risk that material misstatements in Ginnie Mae’s financial statements would not be prevented 

or detected in a timely manner increased. 

The Allowance for Loan Loss Account Balances Were Unreliable 

In fiscal year 2016, we identified accounting issues related to Ginnie Mae’s allowance for loan 

loss accounts. Specifically, we noted that Ginnie Mae improperly (1) accounted for certain 

nonpooled loan accounting transactions in its allowance for loan loss accounts and (2) booked a 

provision for loan loss against a nonexisting asset account. Factors that contributed to these 

issues included (1) the delayed implementation of accounting policies and procedures related to 

the allowance accounts and (2) the lack of financial management systems capable of handling 

loan level transactions. Due to a combination of all of these accounting issues, we determined 

the balance of the allowance for loan loss accounts reported in Ginnie Mae’s financial statements 

to be unreliable. 

Progress Had Been Made To Address Ginnie Mae’s Financial Management Governance 

Problems 

In fiscal year 2016, Ginnie Mae’s executive management began to address the financial 

management governance problems cited in our fiscal years 2015 and 2014 audit reports. While 

progress was made this year, more work is needed to fully address the issues cited in our report. 

Specifically, these problems included issues in (1) keeping the Ginnie Mae Office of the Chief 

Financial Officer’s (OCFO) operations fully functional; (2) ensuring that emerging risks 

affecting its financial management operations were identified, analyzed, and responded to 

appropriately and in a timely manner; (3) establishing adequate and appropriate accounting 

policies and procedures and accounting systems; and (4) implementing an effective entitywide 

governance of the models that are used to generate accounting estimates for financial reporting. 

Some of these conditions continued because the implementation of the corrective action plans 

8 

required more time than anticipated. This issue again contributed to Ginnie Mae’s inability to 

produce auditable financial statements for the third consecutive fiscal year.

Significant Deficiency in Financial Reporting 

A significant deficiency is a deficiency or combination of deficiencies in internal control that is 

less severe than a material weakness yet important enough to merit attention by those charged 

with governance. 

Ginnie Mae Did Not Provide Adequate Oversight To Ensure Compliance With Federal 

Regulations and Guidance 

Ginnie Mae did not provide adequate oversight of its pool processing agent for the Integrated 

Pool Management System (IPMS) to ensure that adequate controls over business processes 

complied with Federal regulations and guidance. Specifically, (1) IPMS does not have adequate 

controls that automatically track overrides in the system; (2) IPMS does not have automated 

controls to prevent a pool processor from making changes to the master data without prior 

approval; and (3) Ginnie Mae lacked adequate policies and procedures for data management. 

These conditions occurred because Ginnie Mae did not have policies for monitoring overrides 

and IPMS does not sufficiently track the use of overrides or generate a report that captures data 

changes. As a result, Ginnie Mae’s data was susceptible to an increased risk of improper use of 

authority, which could cause financial harm to Ginnie Mae by attaching its guarantee to 

mortgage-backed securities. 

Report on Compliance 

We performed tests of Ginnie Mae’s compliance with certain provisions of applicable laws and 

regulations that could have a direct and material effect on the determination of financial 

statement amounts. However, providing an opinion on compliance with those provisions was 

not an objective of our audit. Therefore, we do not express such an opinion. Our tests disclosed 

one instance of noncompliance with laws and regulations, which is required to be reported in 

accordance with Government Auditing Standards, issued by the U.S. Comptroller General. 

In fiscal year 2016, Ginnie Mae’s noncompliance with the Debt Collection Improvement Act 

(DCIA) of 1996 continued. Specifically, as reported in fiscal year 2015, Ginnie Mae had not 

remediated its practice of ensuring that all debt collection tools allowed by law had been 

considered before discharging the uninsured mortgage debts owed to Ginnie Mae. This 

condition occurred because Ginnie Mae’s management continued to take the position that DCIA 

did not apply to Ginnie Mae; therefore, it did not need to comply with DCIA requirements. As a 

result, Ginnie Mae may have missed opportunities to collect millions of dollars in debts related 

to losses on its Mortgage-Backed Securities program. This finding is described in more detail in 

finding 6. 

Management’s Response to Findings and Our Evaluation 

Management’s response to the findings identified in our report and the evaluation of 

management’s comments are presented in appendix A. We did not audit management’s 

response, and, accordingly, we express no opinion on it. 
10 

Material Weakness 

Finding 1: Material Asset Balances Related to Nonpooled Loans 

Were Not Auditable 

In fiscal year 2016, for the third consecutive year, Ginnie Mae could not bring its material asset 

balances related to its nonpooled loan assets into an auditable state. Therefore, we were unable 

to audit the $4.2 billion (net of allowance) in nonpooled loan assets reported in Ginnie Mae’s 

financial statements as of September 30, 2016. These assets relate to (1) claims receivable, net 

($709 million); (2) mortgage loans held for investment, net ($3.47 billion); (3) accrued interest 

receivable, net ($19 million); and (4) acquired property, net ($41 million). This condition 

occurred because Ginnie Mae lacked financial management systems that were capable of 

handling its loan level transaction accounting requirements. Therefore, we were again unable to 

perform all of the audit procedures needed to obtain sufficient and appropriate evidence. As a 

result, we determined that our audit scope was insufficient to express an opinion on Ginnie 

Mae’s $4.2 billion in nonpooled loan assets as of September 30, 2016. 

Continued Concerns Regarding the Auditability of the Accounting Data and Records Used 

To Support Multiple Significant Financial Statement Line Items 

In fiscal years 2014 and 2015, we expressed a disclaimer of opinion on the fairness of Ginnie 

Mae’s financial statements due to the lack of accounting data and records at the loan level to 

validate the amounts reported on its nonpooled loan assets and related accounts. In fiscal year 

2016, despite our effort to audit the nonpooled loan asset balances, we were unable to audit 

them. The progress made by Ginnie Mae to make the nonpooled loan asset balances auditable is 

provided in detail below. 

Ginnie Mae’s Subledger Database Solution Had Been Delayed 

In February 2016, Ginnie Mae, through its contractor, started pursuing the subledger database 

(SLDB) solution to address the material weaknesses related to the nonpooled loan assets. Ginnie 

Mae proposed adding several components to the existing finance platform to capture and 

organize accounting data needed to support the financial statement balances. Ginnie Mae’s 

proposed timeline targeted July 2016 for OIG to start its preliminary audit work. However, 

given the limitations faced with (1) procuring and funding the contract1

 and (2) gaining access to 

available mastersubservicers’ (MSS) data, Ginnie Mae experienced delays in providing OIG with 

the necessary information to begin the audit. 

As of October 2016, Ginnie Mae was continuing its SLDB work. Ginnie Mae has reengaged its 

contractor (after a 2-month break) to continue developing the SLDB solution. Ginnie Mae stated 

that it is approximately 95 percent completed with its data conversion efforts and is now 

 

1

 The contract relates to Ginnie Mae’s financial reporting and audit readiness contractor that assisted in 

developing its loan level accounting system and related infrastructure. 
11 

gathering additional transaction data2

 from the MSSs. Further, the agency has proposed a new 

target date of March 20173

 to provide OIG with relevant information to start the preliminary 

review of its nonpooled loan assets. 

HUD OCFO’s Efforts to Establish Nonpooled Loan Asset Estimation Methodology Failed 

Since the timeline for the SLDB was expected to go beyond the current fiscal year, in April 

2016, Ginnie Mae and HUD OCFO changed course and decided to pursue a statistical estimation 

approach for Ginnie Mae’s nonpooled loan assets. The plan was to award a contract in June to 

develop the methodology and prepare for OIG review by the beginning of August. However, 

HUD OCFO experienced delays in the procurement process, which resulted in awarding the 

contract in late August, two months behind its planned date. This delay created a scope 

limitation, which prevented OIG from conducting an adequate audit during fiscal year 2016. 

HUD OCFO continues to pursue the statistical estimation methodology. This work will continue 

into fiscal year 2017, along with the SLDB. 

In fiscal year 2016, Ginnie Mae made some progress in remediating the deficiencies cited in our 

previous audit reports. For example, it developed and conducted compliance reviews of MSSs 

and augmented the finance office with additional personnel to assist in performing oversight of 

the MSSs. In addition, Ginnie Mae enhanced its allowance for its loan loss4

 model in an effort to 

make it GAAP compliant (finding 3). However, without the critical financial management 

systems, Ginnie Mae continued to face challenges to fully implement all action plans. 

Conclusion 

Although Ginnie Mae had made efforts to address some of our fiscal years 2014 and 2015 audit 

issues related to the $4.2 billion in nonpooled loan assets, we noted slow progress in remediating 

the issues. As a result, we determined that our fiscal year 2016 audit scope was insufficient to 

express an opinion on Ginnie Mae’s financial statements as of September 30, 2016. We will 

continue to work with Ginnie Mae in resolving these matters during our audit in fiscal year 2017. 

Recommendations 

Because we are not making further recommendations on this finding this year, audit 

recommendations made in fiscal year 2014, which are still open, are not repeated in this finding. 

 

 

2 Ginnie Mae is gathering transaction, operational balance and loan state data. 3 This date is dependent on Ginnie Mae’s receipt of the MSS data. 4

 Beginning in fiscal year 2015, Ginnie Mae’s nonpooled loan assets line items were reported net of allowances 

on the balance sheet. 

12 

Material Weakness 

Finding 2: Ginnie Mae’s Internal Control Over Financial Reporting 

Continued To Have Weaknesses 

In fiscal year 2015, we reported that Ginnie Mae’s internal control over financial reporting was 

not effective. This condition continued, and some new issues were identified in fiscal year 2016. 

These material weaknesses in internal controls were issues related to the (1) improper accounting 

for FHA’s reimbursable costs and accrued interest earned on nonpooled loans; (2) accounting for 

cash in transit; (3) revenue accrual accounting; and (4) several other accounting issues, such as 

advances, fixed assets, and financial statement note disclosures. The first three issues were 

repeat findings from prior years, and the last one was new in fiscal year 2016. These conditions 

occurred because of Ginnie Mae’s failure to ensure that (1) adequate monitoring and oversight of 

its accounting and reporting functions were in place and operating effectively and (2) accounting 

policies and procedures were developed, finalized, and appropriately implemented. As a result, 

the risk that material misstatements in Ginnie Mae’s financial statements would not be prevented 

or detected increased. 

Current-Year Status of Prior-Year Audit Matters 

In fiscal year 2016, Ginnie Mae corrected some audit issues identified in our fiscal years 2014 

and 2015 audit reports.5 However, the following material audit issues reported last year and the 

year before were not resolved in fiscal year 2016. New recommendations made on these issues 

are included in this finding; however, unresolved audit recommendations made in fiscal years 

2014 and 2015 are not reported again in this finding. 

FHA’s Reimbursable Costs Incurred and Accrued Interest Earned on Nonpooled Loans Were 

Not Properly Accounted for in Ginnie Mae’s Books in Accordance With GAAP 

In fiscal years 2014 and 2015, we reported that Ginnie Mae’s accounting for FHA reimbursable 

costs was not in accordance with GAAP. Instead of capitalizing the FHA reimbursable costs as 

an asset, Ginnie Mae improperly charged the costs to the mortgage-backed securities (MBS) loss 

liability account. In addition, the accrued interest earned was accounted for only through the 

date of purchase from the MBS pools, rather than accruing interest for all periods allowed by the 

insuring agency, which is from the date of default to the date of filing. In 2016, Ginnie Mae’s 

improper accounting for FHA reimbursable costs and accrued interest continued because 

although Ginnie Mae had updated its accounting policies with respect to these issues, its 

implementation is not expected until fiscal year 2017. 

 

5

 In prior years, we reported an issue related to Ginnie Mae’s failure to present escrow balance on the face of the 

statements. While this issue has not been resolved and we continue to take exception on Ginnie Mae’s escrow 

policy, its significance was diminished in fiscal year 2016 as a result of the mortgage servicing right sale in 

January 2016. 
13 

Issues Related to Ginnie Mae’s Accounting for Cash in Transit Continued 

In fiscal year 2015, we reported that Ginnie Mae failed to report cash retained by the MSSs in 

the custodial accounts at the end of the month because it did not consider any cash received by 

the MSSs as being received until those funds were deposited into Ginnie Mae’s account with the 

U.S. Treasury. In fiscal year 2016,6

 the accounting problem identified in the prior fiscal year 

audit relating to the custodial account month end cash balance continued. This deficiency 

occurred because Ginnie Mae did not have final MSSs’ custodial accounting policies and 

procedures in place in fiscal year 2016. This issue caused inconsistent accounting application of 

the MSSs’ custodial accounts process from month to month. 

In addition, in fiscal year 2016, we determined that Ginnie Mae failed to record cash in transit 

related to real estate mortgage investment conduit (REMIC) and commitment fees7 that were 

paid to Ginnie Mae’s agents. Specifically, Ginnie Mae delayed the booking of the cash 

transactions until the funds were deposited into Ginnie Mae’s account at the U.S. Treasury. 

Similar to the role of the MSSs, the agents are acting for Ginnie Mae, and any funds collected by 

the agents on Ginnie Mae’s behalf should be treated as cash to Ginnie Mae. This issue occurred 

because Ginnie Mae did not have policies and procedures to ensure that the cash-in-transit 

balance was properly accounted for. As a result, Ginnie Mae’s cash balance at the end of the 

reporting period was misstated. 

Ginnie Mae’s Accrual Accounting and Real Estate Mortgage Investment Conduit Accounting 

Adjustments Made in Fiscal Year 2015 Were Not Appropriate and Reliable 

In fiscal year 2015, we determined that Ginnie Mae did not appropriately defer recognition of 

REMIC fees in accordance with GAAP. Specifically, it recognized a majority of the guarantee 

fees collected from REMIC deals as earned revenue during the month in which the deal was 

issued and the remaining fees as unearned, rather than amortizing the revenues using the incurred 

cost method. Ginnie Mae agreed to our finding and updated its revenue recognition 

methodology8 as well as prepared accounting adjustments to correct the understatement of 

deferred revenue. In fiscal year 2016, we reviewed Ginnie Mae’s analysis and support for the 

accounting adjustments made and found some issues. These issues included (1) guarantee fee 

amounts and weighted average maturity reported for certain REMIC deals were not verified, (2) 

some costs that were used to calculate the revenue recognition ratio should have been excluded, 

and (3) improper application of the average incurred cost ratio from the 2014 and 2015 invoice 

 

6

 Ginnie Mae developed a process to capture the cash balance in its MSSs’ custodial accounts at the end of each 

month. We found that Ginnie Mae recorded funds in custodial accounts at the end of each month between 

October 2015 and June 2016 except for April and May. According to the U.S. Government Accountability 

Office’s Green Book, control activities include accurate and timely recording of transactions. Transactions are 

promptly recorded to maintain relevance and value to management in controlling operations and making 

decisions. 7

 Ginnie Mae’s agent sent commitment fees to Ginnie Mae 2 business days after it received the funds from an 

issuer. Ginnie Mae received the fees on July 1, 2016, which indicated that the agent received the fees on June 

29, 2016. The report extracted from the Commitment Management System also indicated that the funds were 

received in June. 

8

 Ginnie Mae did not finalize its revenue recognition accounting policy in fiscal year 2016. 

14 

data9

 to all of the REMIC deals closed from 1994 to 2013. Ginnie Mae’s insufficient review of 

invoice data, unsupported incurred cost ratio assumption, and improper use of unverified 

guarantee fees and weighted average maturity data caused the earned and unearned portions of 

the reported REMIC guarantee fees to be misstated. 

While Ginnie Mae modified its revenue recognition methodology in fiscal year 2016 to comply 

with GAAP, its month end accrual journal entries intended to recognize earned revenue on 

REMIC deals were improper. At the end of each month, Ginnie Mae did not make proper 

accrual entries, such as a debit to an asset account (for example, cash or receivable) and a credit 

to a revenue account, to recognize the REMIC deals that were closed and earned. Instead, 

Ginnie Mae made a deferred credit entry, such as a debit to a revenue account and credit to 

deferred credit account, to recognize the unearned portion of the REMIC deals without making 

the entry to the revenue account on closed REMIC deals. This was Ginnie Mae’s practice 

because REMIC guarantee fees were generally collected the month after the deals were closed. 

We attributed this issue to Ginnie Mae’s lack of oversight. As a result, Ginnie Mae’s revenue 

account was misstated. 

Unsupportable Writeoffs of Balances in Advances Against Defaulted MBS Pools 

Ginnie Mae wrote off the advances against defaulted MBS pools, net accounts (advances) 

totaling $248 million (asset) and $171 million (allowance), respectively, without adequate 

support. In fiscal year 2016, we attempted to review Ginnie Mae’s support for the advances 

writeoff but were unable to validate the accuracy of the information used in its analysis. For 

example, of $248 million, Ginnie Mae stated that it accounted for $180 million of this balance as 

realized losses incurred on liquidated loans from fiscal years 2009 through 2016. Ginnie Mae 

explained that the advances account was incorrectly not charged off against these realized losses. 

However, we could not validate the accuracy of the $180 million realized losses because this 

information was either based on rough estimates ($50 million) or MSS accounting reports that 

we considered unauditable ($130 million). Ginnie Mae could not explain the other $68 million. 

Additionally, for the past 2 fiscal years, we had not audited Ginnie Mae’s advances account due 

to a lack of reliable loan level information. Therefore, the accuracy of the $248 million advances 

account balance is also in question. 

Ginnie Mae had not kept up with the true balance in its advances accounts for years due to the 

absence of loan level accounting, poor accounting, and poor record keeping. For expediency, 

Ginnie Mae senior management decided to writeoff the advances since Ginnie Mae could not 

independently verify settlement amounts for principal and interest advances, escrow, and 

corporate advances due to the absence of a loan level accounting system. As a result, Ginnie 

Mae may have missed its opportunity to recover some of the good advances. 

Inadequate System and Processes for Ginnie Mae’s Accounting of Fixed Assets 

Ginnie Mae did not have an appropriate system, processes, and controls in place for tracking and 

completely and accurately accounting for its system or software development costs in accordance 

with GAAP. We found instances in which Ginnie Mae did not review supporting documentation 

 

9

 Ginnie Mae informed OIG that invoice data were retained for 7 years and, therefore, should have data available 

to reasonably estimate the recognition ratio over a period greater than 2 years. 
15 

to determine the amounts that should be capitalized. In addition, the capitalized amounts for 

several software in Ginnie Mae’s fixed asset register exceeded the capitalized amounts noted in 

supporting documents. Specifically, we noted instances in which (1) Ginnie Mae capitalized all 

invoiced costs even though the statements of work indicated that some services provided by the 

contractors did not meet the capitalization criteria to include training costs and costs incurred 

during the preliminary project stage, (2) Ginnie Mae did not reclassify costs incurred in fiscal 

year 2013 for the capitalized portion until fiscal year 2015, and (3) the capitalized balance or 

book value of an asset from Ginnie Mae’s fixed asset register did not agree with the amortization 

schedule and software project ready-to-use report. 

 

These deficiencies occurred due to Ginnie Mae’s inability to track fixed asset activities on a 

timely basis. Additionally, Ginnie Mae’s insufficient review of supporting documents to 

determine whether costs should be expensed or capitalized contributed to the control deficiency 

in accounting for its fixed assets. Given the control deficiencies as noted above, we have 

concerns regarding the reliability of the fixed asset account balance reported in Ginnie Mae’s 

financial statements. 

Issues Identified Related to Note Disclosures 

Ginnie Mae did not have effective controls over its note disclosures of escrow, outstanding MBS 

commitment, and indemnification or repurchase agreements and mortgage loans held for 

investment. Specifically, we identified the following issues: 

 Our audit of Ginnie Mae’s fiscal year 2016 third quarter financial statements found errors 

in Ginnie Mae’s notes reporting of its escrow balance10 and outstanding MBS 

commitment balance.11 Specifically, we noted that the outstanding MBS commitment 

balance at the end of June 30, 2016, and September 30, 2015, was misreported by $36 

billion and $31 billion, respectively. Additionally, the escrow balance was incorrectly 

reported by $12 million and $15 million as of June 30, 2016, and September 30, 2015, 

respectively. In both cases, Ginnie Mae failed to establish effective controls in ensuring 

the accuracy of the information reported. 

 Ginnie Mae failed to adequately analyze the financial reporting impact of new events 

affecting its business, such as the indemnification and repurchase agreements. In recent 

years, Ginnie Mae has entered into a number of indemnification and repurchase 

agreements in connection with servicing portfolio transfer. For example, when the 

mortgage servicing rights (MSR) was sold in early 2016, an indemnification clause was 

included in the contract as part of the sale agreement. On another prior year MSR sale, 

Ginnie Mae entered into a repurchase agreement related to uninsured loans in the pool. 

As these are considered unusual business arrangements, in both cases, Ginnie Mae failed 

 

10 Ginnie Mae’s escrow balance consists of taxes and insurance as well as funds in the unapplied account. An 

example of unapplied funds is a partial payment received from a borrower. Escrow funds are held in custodial 

accounts by the MSSs on behalf of Ginnie Mae. 11 Outstanding MBS commitments represent the unused commitment authority granted to the issuers by Ginnie 

Mae. 

16 

to adequately analyze and respond to the financial reporting implications of these 

agreements in its financial statements. 

 Ginnie Mae did not have adequate note disclosure for certain required information on its 

mortgage loans held for investment (MHI) and the related allowance for loan loss in its 

notes to the fiscal year 2016 third quarter financial statements. In accordance with 

Accounting Standards Codification 310-10-50, Ginnie Mae is required to disclose 

information, such as (1) changes in the accounting policy or allowance methodology 

from the prior year, (2) activity in the allowance accounts, (3) balance in allowance 

accounts disaggregated by impairment methodology, (4) description of credit quality 

indicators, (5) accounting policy and recorded investment for impaired loans, (6) factors 

considered in determining loan impairment, and (7) the nonaccrual and past due MHI 

policy. According to Ginnie Mae, it lacked the necessary loan level data to generate all 

necessary information to fully comply with accounting standards. Ginnie Mae agreed 

that more work is needed to comply with GAAP in this area as it improves its access to 

loan level information in fiscal year 2017. 

Conclusion 

In fiscal year 2016, Ginnie Mae continued to face significant challenges in addressing material 

weaknesses in its internal control over financial reporting. While Ginnie Mae had taken positive 

steps to address some of these issues, resolving them may take time due to the complexity and 

pervasiveness of the issues. For this reason, we will work with Ginnie Mae in fiscal year 2017 as 

it continues to strengthen its processes and controls with respect to these issues. 

Recommendations 

We recommend that Ginnie Mae’s Chief Financial Officer 

2A. Update Ginnie Mae’s cash and cash equivalents accounting policies and 

procedures to ensure that its cash-in-transit balance is properly accounted for. 

2B. Review the cash and cash equivalents account and determine the appropriate 

adjustments needed to correct the misstatement. 

2C. Revisit the REMIC accounting adjustments made in fiscal year 2015 based on the 

points cited in this finding to determine appropriate accounting adjustments. At a 

minimum, Ginnie Mae should 

 Conduct a review of invoice documents for each REMIC deal to 

determine the appropriate amount of upfront costs that should be included 

in the incurred cost ratio calculation, 

 Review source data to ensure the accuracy of the weighted average 

maturity data used in its analysis, 

 Determine the appropriate incurred cost ratio for REMIC deals from the 

1994 to 2013 cohort years based on reasonable and acceptable 

methodology, and 
17 

 Review source data for deals issued between 1994 and 2013 to ensure the 

accuracy of the guarantee fees data used in its analysis. 

2D. Establish and implement policies and procedures to ensure that proper accrual 

accounting entries are made to record the accounting event related to closed 

REMIC deals at the end of each month. 

2E. Review the revenue account balances based on points cited related to the 

improper accruals of REMIC deals and determine the appropriate adjustments 

needed to correct the misstatement. 

2F. Reverse the accounting writeoff of the advances accounts. In conjunction with 

the subledger data solution, conduct a proper analysis to determine whether any of 

the $248 million balances in the advances accounts are collectible. 

2G. Establish and implement policies and procedures to ensure that a subledger is 

maintained to accurately account for the advances balances at a loan level. 

2H. Enhance existing policies and procedures for its fixed assets, to include systems, 

processes, and controls, to ensure (1) proper review of invoices to determine 

whether costs are capitalized or expensed in accordance with GAAP, (2) 

development costs are capitalized when incurred, and (3) book value is consistent 

across all documents. 

2I. Establish and implement controls to ensure that escrow and outstanding MBS 

commitment balances reported in the financial statements are accurate and 

complete. 

2J. Establish and implement procedures and controls to ensure that indemnification or 

repurchase agreements (guarantees) are properly accounted for and disclosed in 

the financial statements in accordance with GAAP. 

2K. Establish and implement adequate procedures and controls to ensure that 

information related to mortgages held for investment and the associated allowance 

for loan losses are adequately disclosed in the notes to the financial statements in 

accordance with GAAP. 

 

18 

Material Weakness 

Finding 3: The Allowance for Loan Loss Account Balances Were 

Unreliable 

In fiscal year 2016, we identified accounting issues related to Ginnie Mae’s allowance for loan 

loss accounts. Specifically, we noted that Ginnie Mae improperly (1) accounted for certain 

nonpooled loan accounting transactions in its allowance for loan loss accounts and (2) booked a 

provision for loan loss against a nonexisting asset account. Factors that contributed to these 

issues included (1) the delayed implementation of accounting policies and procedures related to 

the allowance accounts and (2) the lack of financial management systems capable of handling 

loan level transactions. Due to a combination of all of these accounting issues, we determined 

the balance of the allowance for loan loss accounts reported in Ginnie Mae’s financial statements 

to be unreliable. 

Current-Year Status of Prior-Year Audit Matters 

For the past 2 fiscal years, we were unable to audit the MBS loss liability account because 

Ginnie Mae could not provide all of the relevant information and data needed to audit this 

account. In July 2015, Ginnie Mae management acknowledged to OIG that the financial model 

used to estimate loss liability was flawed and not in accordance with GAAP. To address this 

problem, Ginnie Mae developed a new financial model in fiscal year 2015 to bring its loan loss 

account into compliance with GAAP. This action resulted in Ginnie Mae’s restating its fiscal 

year 2014 MBS loss liability account by reallocating the entire balance into the allowance for 

loan loss accounts.12 This accounting adjustment brought the loss liability account down to zero, 

which made this account insignificant in the fiscal year 2016 financial statement audit. Given 

the state of the MBS loss liability account, we shifted our focus in auditing the propriety of the 

allowance for loan loss accounts in fiscal year 2016. One recommendation from the previous 

year’s audit related to the MBS loss liability account is still open in fiscal year 2016. We 

summarized below the current-year status of the accounting issues identified in our fiscal year 

2015 audit report. 

Selected Accounting Transactions Related to Nonpooled Loans Were Again Improperly 

Accounted for in Ginnie Mae’s Books 

In fiscal years 2014 and 2015, we reported that Ginnie Mae improperly accounted for certain 

FHA reimbursable costs as chargeoffs against the loss liability account rather than capitalizing 

them as an asset. In fiscal year 2016, Ginnie Mae again engaged in improper accounting, but this 

time instead of charging it against the liability account, the reimbursable costs were charged off 

against the allowance for loan loss accounts. This condition occurred because Ginnie Mae had 

not finalized its accounting policies and procedures that govern these accounting transactions. 

 

12 Ginnie Mae’s allowance for loan losses are included in the “Mortgage loans held for investment, net” and 

“Claims receivable, net” line items.
19 

This issue resulted in the understatement of both the affected asset and allowance accounts, and 

Ginnie Mae’s departure from GAAP in processing these transactions continued. 

Provision for Loan Loss Booked Against Nonexisting Asset Account 

Ginnie Mae improperly booked a $436 million loan impairment, which is associated with other 

indebtedness13 (for example, reimbursable costs). This loan impairment is reported as a contra 

asset to the MHI account. As the majority of MHI’s account balance, as reported in Ginnie 

Mae’s financial statements, is made up of the mortgage loan’s unpaid principal balance and 

excludes other indebtedness, it would not be appropriate for Ginnie Mae to include loan 

impairments for other indebtedness against the MHI account. In short, we believe there is a 

mismatch between the respective allowance and asset accounts because the model output (that is, 

loan loss estimates)14 pertains to Ginnie Mae’s expected losses on the loans’ unpaid principal 

balance and reimbursable costs, while the MHI asset pertains only to the unpaid principal 

balance of the loans. For example, our review of allowance provision for the third quarter of 

2016 found that of $458 million allowance estimates that were reported as contra asset account 

against the MHI, $436 million (95 percent) of this allowance pertained to other indebtedness. 

Therefore, to properly report the correct allowance on MHI, Ginnie Mae needs to report only $22 

million. We attributed this mismatch issue to a lack of coordination between Ginnie Mae’s 

Office of Enterprise Risk, which is responsible for modeling the loan loss, and Office of Finance, 

which is responsible for booking the loan loss in its accounting system, in interpreting the 

modeling output results. 

Concerns Over Ginnie Mae’s Accounting Policies Related to the Allowance for Loans 

In fiscal year 2016, Ginnie Mae made significant efforts in updating all of its accounting policies 

and procedures. While these efforts are steps in the right direction, we have some concerns 

regarding Ginnie Mae’s draft accounting policies related to the allowance for loans. 

Ginnie Mae lacked clarity regarding its accounting policies on the categorization of loans held 

for investment for loan impairment purposes. With the implementation of a new allowance 

model, for the first time in fiscal year 2016, Ginnie Mae categorized its loans held for investment 

into three groups for loan impairment purposes: (1) purchase, noncredit impaired (PNCI),15 (2) 

troubled debt restructuring (TDR),16 and purchase credit impaired (PCI).17 However, Ginnie 

Mae’s criteria for loan categorization are not defined in the accounting policy, but they are found 

in its modeling documentation. Ginnie Mae’s policy should drive the modeling of the allowance 

 

13 The other indebtedness includes other receivables that FHA expects to collect from the insuring agency, such as 

the foreclosure and maintenance costs. As noted in finding 2, Ginnie Mae accounts for these costs as expenses 

rather than an asset. 14 When Ginnie Mae is modeling the loan impairments on MHI account, the total indebtedness is comprised of the 

unpaid principal balance, interest, and other indebtedness. 

15 A loan that is not determined to be individually impaired, for which it is probable that there would be an 

incurred loss as of the reporting period, is considered PNCI. 

16 A loan is considered to be a TDR when the creditor for economic or legal reasons grants a concession to a 

debtor that it would not otherwise consider due to the debtor’s financial difficulty. Modified loans that are 

modified after being acquired by Ginnie Mae are classified as TDR. 

17 A loan is considered a PCI loan when there is evidence of credit deterioration after the loan’s origination and it 

is probable, at acquisition, that Ginnie Mae will be unable to collect all contractually required payments 

receivable. 

20 

for loan losses, and it is where we would expect to see management’s basis for the grouping of 

the loans. 

Additionally, we questioned Ginnie Mae’s categorization of FHA loans as PNCI. In accordance 

with Accounting Standards Codification 310-10-35-16, a loan is impaired when, based on 

current information and events, it is probable that a creditor will be unable to collect all amounts 

due (that is, both principal and interest) according to the contract terms of the loan agreement, 

and insignificant amount of shortfall need not be considered. When a borrower defaults on an 

FHA-insured loan, Ginnie Mae is made whole on the principal, while only partial reimbursement 

is made on the interest. For this reason, we believe that loans that meet the loan impairment 

criteria should be categorized as PCI. Ginnie Mae stated that classifying FHA loans as PNCI 

was a management decision. It also stated that there were insignificant shortfalls on FHA’s 

accrued interest but could not provide an analysis to OIG to support its position. 

Concerns Regarding the Reasonableness of Ginnie Mae’s Loan Loss Allowance Model 

Methodology 

We also had concerns regarding the reasonableness of Ginnie Mae’s loan loss model 

methodology, specifically, (1) the TDR model formula used to calculate the loan loss on 

modified FHA-insured loans, (2) Ginnie Mae’s decision to combine the PCI with the TDR loan 

impairment bucket, and (3) the methodology for estimating the market value of Ginnie Mae’s 

uninsured real estate-owned properties. 

 We had concerns regarding the reasonableness of Ginnie Mae’s TDR model allowance 

formula, specifically FHA-insured modified loans in which Ginnie Mae uses the lower of 

the two variables18 in determining the expected cash flows for purposes of calculating the 

loan impairments. We do not believe that it is reasonable and appropriate for Ginnie Mae 

to use the lower of the two variables because this will result in unnecessary provisioning 

of an allowance for loan impairments, given FHA’s 100 percent loan guarantee on unpaid 

principal balance. For example, assume Ginnie Mae has a modified FHA-insured loan 

with $100,000 unpaid principal balance (indebtedness), its present value of expected 

principal and interest collections on this loan was $80,000, and the recovery amount from 

insurance claims was $100,000. Using Ginnie Mae’s TDR model formula, Ginnie Mae’s 

loan impairment allowance would be $20,000.19 Under this scenario, it does not make 

sense for Ginnie Mae to establish a $20,000 loan impairment because under FHA’s loan 

guarantee program, Ginnie Mae is insured for the full amount of the unpaid principal 

balance of the loan. Therefore, provisioning the $20,000 allowance on a fully insured 

loan is not reasonable and appropriate. 

As noted earlier, Ginnie Mae categorized its loans into three groups for purposes of 

calculating loan impairments. However, in Ginnie Mae’s loan loss allowance model, the 

loan impairments for the PCI and TDR loans are combined, and the loan impairments on 

 

18 The two variables are (1) the present value of expected principal and interest collections and (2) the recovery 

from insurance claims from the indebtedness. 

19 To calculate the $20,000 allowance, the expected cash flows (which is the lesser of $80,000 present value of 

principal and interest and $100,000 insurance recovery) is subtracted from the $100,000 indebtedness.
21 

both are calculated the same way even though the severity of the loan impairments on 

PCI and TDR loans are different according to Ginnie Mae accounting policies. 

According to Ginnie Mae, the PCI loans are combined with TDR loans because of a lack 

of historical data from which to base the PCI loan impairments. However, no analysis 

has been provided to OIG to support Ginnie Mae’s position. 

 Ginnie Mae’s approach in estimating the market value of the uninsured real estate-owned 

properties needs improvement. In accordance with ASC 310-10-35-22, if a loan is 

collateral dependent,20 loan impairments should be measured based on the loan’s 

observable market price or the fair value of the collateral. In estimating the fair value of 

the collateral, Ginnie Mae estimates the appraised value of the property at origination 

based on the loan-to-value ratio and then applies house price changes to the derived 

appraised value at origination. We had concerns with Ginnie Mae’s approach of applying 

a global house price index on all of its properties as it does not take into account locationspecific variability. We believe using the most recent appraisal (or broker price opinion) 

would provide a more reasonable estimation of the value of the uninsured real estateowned properties. 

Conclusion 

The allowance for loan loss account represents Ginnie Mae management’s best estimates of 

receivables that are expected to be uncollectible. However, we do not believe that Ginnie Mae’s 

allowance for loan loss accounts reported in its financial statements fairly represents the amount 

of receivables that are expected to be uncollectible. This condition is due to a combination of 

accounting issues as cited in this report. Therefore, Ginnie Mae needs to take actions to 

remediate this problem. 

Recommendations 

We recommend that Ginnie Mae’s Chief Financial Officer 

3A. Adjust the reimbursable costs out of the allowance accounts as appropriate. 

3B. Exclude the loan impairment allowance on other indebtedness appropriately 

instead of reporting it as part of loan impairment allowance on MHI account. 

3C. Document Ginnie Mae’s analysis and support for the categorization of its loans 

for loan impairment purposes and update accounting policies and procedures 

based on this analysis. 

3D. Modify, as appropriate, the TDR allowance model to ensure production of 

reasonable and appropriate loss estimates, including allowance estimates on FHAinsured loans. 

 

 

 

20 A loan for which the repayment is expected to be provided solely by the underlying collateral. 

22 

Material Weakness 

Finding 4: Progress Had Been Made To Address Ginnie Mae’s 

Financial Management Governance Problems 

In fiscal year 2016, Ginnie Mae’s executive management began to address the financial 

management governance problems cited in our fiscal years 2015 and 2014 audit reports. While 

progress was made this year, more work is needed to fully address the issues cited in our report.21 

Specifically, these problems included issues in (1) keeping Ginnie Mae OCFO’s operations fully 

functional; (2) ensuring that emerging risks affecting its financial management operations were 

identified, analyzed, and responded to appropriately and in a timely manner; (3) establishing 

adequate and appropriate accounting policies and procedures and accounting systems; and (4) 

implementing an effective entitywide governance of the models that are used to generate 

accounting estimates for financial reporting. These conditions continued because the 

implementation of the corrective action plans required more time than anticipated. These issues 

again contributed to Ginnie Mae’s inability to produce auditable financial statements for the third 

consecutive fiscal year. 

Ginnie Mae’s Executive Management Began to Address Governance Problems 

In fiscal year 2015, we reported how Ginnie Mae’s executive management’s failures in 

governance adversely impacted its ability to produce auditable financial statements. In fiscal 

year 2016, we noted that Ginnie Mae had made significant efforts to address some of these 

issues, but more work is needed for Ginnie Mae to produce auditable financial statements. For 

example, for the third consecutive year, Ginnie Mae’s nonpooled loans assets (NPA) were not 

yet ready for audit. Ginnie Mae acknowledged that the NPA balances would not be supportable 

or in accordance with GAAP until the completion of one of the following two remediation 

efforts; the loan level transaction data or the HUD and Ginnie Mae estimation process. The 

development of an accounting system to track nonpooled loan assets at the loan level transaction 

is a multiyear effort. In February, Ginnie Mae was pursuing the subledger database (SLDB) 

solution to capture loan level events and record related accounting entries to address the material 

weaknesses related to NPA.22 Thereafter, Ginnie Mae faced delays in the development of the 

SLDB due to a lapse in the contract from May through June 2016. Since the timeline for the 

SLDB was expected to go beyond fiscal year 2016, in April 2016, Ginnie Mae and HUD OCFO 

changed course and decided to pursue a statistical estimation approach attempting to have the 

NPA balances ready for audit in fiscal year 2016. Specifically, HUD OCFO indicated that the 

contract would be awarded in June, the contractor would develop and validate the estimation 

methodology in July, and the information would be submitted for our review in August. 

 

21 In fiscal year 2016, Ginnie Mae took actions to (1) fill key positions in Ginnie Mae OCFO, but some employees 

were hired too late in the fiscal year to make a significant impact; (2) develop accounting policies, but most 

were not finalized; and (3) finalize and implement a model risk management policy, but a key component of the 

policy will not become effective until 2017. 22 Ginnie Mae engaged a contractor to develop this loan accounting system.
23 

However, HUD OCFO experienced delays in the procurement process, which resulted in the 

awarding of the contract in late August, 2 months late. HUD OCFO was not transparent in 

communicating the delays in the procurement process or providing information related to the 

estimation methodology. There were occasions when HUD OCFO did not provide any updates, 

despite multiple inquiries having been sent. HUD’s failure to carry out its estimation work on 

time was a factor in the NPA balances not being ready for audit this fiscal year. Recently, 

Ginnie Mae informed OIG that it had reengaged its financial reporting and audit readiness 

contractor to assist in developing its loan level accounting system and related infrastructure 

concurrent with the development of the statistical estimation approach (finding 1). 

In July 2016, Ginnie Mae backfilled its executive vice president position, which had been vacant 

since January 2016. The new executive vice president has more than 25 years of financial 

services and mortgage industry experience, to include holding executive positions at various 

financial advisory and mortgage corporations. We believe that placing a person with extensive 

mortgage industry knowledge and experience in this key position will enable Ginnie Mae to 

better address governance problems cited in our report. 

Ginnie Mae’s Office of the Chief Financial Officer Not Fully Functional and Still at Risk of 

Not Effectively Managing Its Financial Management Operations 

Although Ginnie Mae backfilled many of its vacant key positions in fiscal year 2016, it needs 

time for some of these actions to materialize and to assess their impact on its financial 

management operations. In fiscal year 2015, we reported that Ginnie Mae failed to hire 

sufficient personnel to permanently backfill key positions and other vacancies. At the end of 

fiscal year 2015, there were 12 vacant positions within Ginnie Mae’s OCFO. Ginnie Mae had 

made significant improvements in filling its vacant positions. Specifically, of 12 vacant 

positions at the beginning of fiscal year 2016, 10 were filled on a rolling basis, 1 was canceled, 

and 1 remained unfilled in fiscal year 2016. Also, during the fiscal year, Ginnie Mae 

reorganized its OCFO, which expanded the number of employees from 23 to 28. Of those 28 

positions, 4 were vacant23 at the end of fiscal year 2016, and 1 of the 4 vacancies was the 

supervisory accountant for financial reporting position. 

Although Ginnie Mae was able to fill many of its vacancies, some of the positions were filled too 

late to make a significant impact in fiscal year 2016. These were the (1) vice president of 

accounting policy and financial reporting, (2) supervisory accountant for accounting system, (3) 

supervisory accountant for financial reporting, and (4) internal control accountants. For 

example, the vice president of accounting policy and financial reporting started in April 2016, 

and the supervisory accountants started in August 2016; however, these individuals were not 

fully engaged in their roles as there were other competing priorities, such as the time it took to 

gain access to Ginnie Mae’s systems and get acclimated to Ginnie Mae’s complex financial 

management challenges. In addition, the internal control accountants were hired in March and 

April 2016 to perform OMB Circular A-123 review among other duties. However, Ginnie Mae 

decided to outsource the review to a contractor as these individuals did not come onboard early 

 

23 Of those 4 vacancies, 1 vacancy is the carryover from fiscal year 2015, and 3 vacancies are attributable to 

Ginnie Mae’s reorganization in fiscal year 2016. 

24 

enough to conduct the review in-house. Due to procurement issues, Ginnie Mae encountered 

significant delays in the initiation and timely completion of the A-123 review. 

Additionally, while progress was made related to the increase in the number of employees in the 

OCFO, Ginnie Mae’s current staffing level is still significantly lower than its corresponding 

industry counterparts.24 Based on the staffing study conducted in fiscal year 2016, Ginnie Mae’s 

staffing level for OCFO should be 118 employees, 86 Federal employees and 32 contractors. To 

fill the gap in staffing capabilities, Ginnie Mae once again relied on its contractors to perform 

many core functions, which typically should be performed by Federal employees, to include 

financial reporting, loan reporting, A-123 review, accounting for fixed assets, economic 

modeling, and issuer oversight and compliance. 

Ginnie Mae Still Vulnerable to the Risk of Changes in Its Business Environment 

In fiscal year 2015, we reported that Ginnie Mae was vulnerable to the risk of changes in its 

business environment. In fiscal year 2016, the vulnerability remained as Ginnie Mae was not 

able to respond appropriately to several unusual events or mitigate new risks, to include 

accounting for repurchase agreements, potential issuer defaults, and the writeoff of advances 

against defaulted MBS pools. This condition was caused by the lack of dedicated and 

experienced Ginnie Mae OCFO staff to manage these responsibilities. Even though Ginnie Mae 

hired a vice president for accounting policy and financial reporting, there was no permanent staff 

dedicated to assist this individual.25 Without adequate support staff, Ginnie Mae will not be able 

to research and apply appropriate accounting policies to produce accurate and timely financial 

statements. 

In addition, Ginnie Mae lacked the formal process and protocol to identify, monitor, analyze and 

evaluate, and respond to issuer defaults. This process gap can lead to Ginnie Mae’s failing to 

properly capture the loss contingencies measured under the MBS program guaranty (reserve for 

loss) financial statements line item. According to GAAP, Ginnie Mae is required to book a 

reserve for loss related to potential issuer defaults that are probable and estimable. 

Appropriate Accounting Policies and Procedures and Accounting Systems Not in Place To 

Manage and Control Loan Accounting and Processing of Activities Related to Defaulted 

Issuers’ Portfolio 

In fiscal year 2015, we reported that Ginnie Mae did not have appropriate accounting policies 

and procedures in place even though it hired an audit readiness contractor to review and update 

all of its accounting policies to ensure that they complied with GAAP. In fiscal year 2016, 

Ginnie Mae made some progress in updating its accounting policies; however, only 5 of 20 

accounting policies were finalized at the end of September 2016. The remaining 15 were in 

various stages of development: Ginnie Mae management review, audit readiness contractor 

review, and HUD OCFO final review. Additionally, we take exception to some of Ginnie Mae’s 

accounting policies. Specifically, the following accounting policies were not GAAP compliant: 

 

24 In fiscal year 2016, Ginnie Mae hired a contractor to conduct an analysis of its staffing level. 

25 An audit readiness contractor was hired to assist the vice president in drafting and finalizing key accounting 

policies. 
25 

 Escrow and other custodial funds: Although Ginnie Mae had updated its escrow 

accounting policies, we continue to disagree on this issue. It is Ginnie Mae’s position 

that escrow amounts should only be disclosed in the notes to the financial statements. In 

contrast, GAAP requires the presentation of escrow on the face of the financial 

statements. 

 Investment: Ginnie Mae classifies U.S. Government securities as held-to-maturity 

securities. Currently, Ginnie Mae only invests in overnight U.S. Government Securities. 

GAAP requires that short-term, highly liquid investments be classified as cash and cash 

equivalents. As a result, Ginnie Mae’s accounting policy is not in accordance with 

GAAP. 

In addition, while some accounting policies were consistent with GAAP guidance, Ginnie Mae 

failed to implement them accordingly. Specifically, we identified the following issues: 

 Allowance for loan losses: While it is a requirement for Ginnie Mae to capitalize FHA 

reimbursable costs, it is Ginnie Mae’s practice to expense all FHA reimbursable costs 

instead of booking them as receivables. 

 Loan held for investment: Ginnie Mae made an accounting policy election to place all 

PNCI loans on nonaccrual status when either interest or principal is delinquent for 90 

days or more.26 In addition, Ginnie Mae does not restore a loan from nonaccrual to 

accrual status. This policy had not been implemented as Ginnie Mae continues to accrue 

interest on PNCI loans that are more than 90 days delinquent. 

 Foreclosures: Ginnie Mae applies the practical expedient27 in determining the value of its 

real estate owned properties, while its policy requires it to use the most recent home 

appraisal performed within the last 6 months. 

 Purchased credit impaired loans: Despite having an accounting policy for PCI loans, 

Ginnie Mae does not follow the requirements. This deficiency is due to the lack of 

infrastructure and historical data. 

The above issues are attributable to (1) delays in filling the vice president for accounting policy 

and financial reporting and (2) Ginnie Mae’s inability to develop standard operating procedures 

(SOP) to go along with the updated accounting policies. The vice president for accounting 

policy and financial reporting position was not filled until April 2016, which was too late to 

make a significant impact in fiscal year 2016. In addition, SOP documents are critical as they 

provide guidance and instructions for performing specific accounting processes and procedures. 

However, in fiscal year 2016, Ginnie Mae was able to develop only one SOP, which was not 

finalized until August 2016, despite receiving assistance from an audit readiness contractor. 

 

26 FHA insured loans are considered PNCI loans. 

27 Ginnie Mae estimates the value of its real estate owned properties using the following data elements: (1) unpaid 

principal balance, (2) original loan-to-value ratio, (3) home price index at origination, and (4) home price index 

at recovery. 

26 

In fiscal year 2015, we reported that Ginnie Mae did not have an accounting system to track, at a 

loan level, all of the accounting transactions and events related to its defaulted issuers’ portfolio. 

This system is essential to validate the proper accounting and servicing of all the loans, which 

includes payments, modifications, foreclosures, and insurance claims with the Federal insuring 

agencies. In fiscal year 2016, Ginnie Mae began to take actions to address this problem. 

Specifically, in February 2016, it engaged a contractor to develop a SLDB to capture loan level 

events and record related accounting entries. Progress was made until the contract expired in 

April 2016. In July 2016, Ginnie Mae reengaged its financial reporting and audit readiness 

contractor to assist in developing its loan level accounting system and related infrastructure. No 

progress was made during the lapse of the contract. Although efforts were made in fiscal year 

2016, Ginnie Mae was unable to develop and implement an accounting system that could 

perform loan level accounting. 

Effective Monitoring of the Service Organization Engaged to Perform Operational 

Processes and Accounting for Ginnie Mae Not in Place 

In fiscal year 2015, we reported that Ginnie Mae was not able to complete the majority of its 

corrective action plans to address the deficiency related to the ineffective monitoring and 

oversight of its MSSs as a service organization. Ginnie Mae’s plans included actions to (1) 

develop a policy for the appropriate oversight of the MSSs, (2) perform periodic compliance 

reviews, (3) customize the scope and timing of the Statements on Standards for Attestation 

Engagement number 16 to better align with Ginnie Mae’s processes, (4) develop analytics 

around the review of the accounting reports, and (5) augment OCFO to assist in performing 

oversight of the MSSs. In fiscal year 2016, Ginnie Mae continued to face challenges to fully 

implement all of its action plans. In addition, although Ginnie Mae performed compliance 

reviews, the review procedures were determined to be inadequate. Specifically, the procedures 

lacked testing steps to evaluate the following areas: (1) reconciliation of mortgage collateral to 

securities outstanding, (2) fixed installment control, (3) custodial accounts, (4) collection 

clearing accounts, (5) escrow disbursement, and (6) loan buyouts. We consider this finding to be 

an open issue because it was still under remediation at the end of fiscal year 2016. 

Ginnie Mae’s Entitywide Governance of the Models Not Fully Implemented 

In fiscal year 2015, we reported that Ginnie Mae’s executive management failed to establish 

robust processes and controls to ensure that the models produced reasonably accurate accounting 

estimates for use in its financial statements. In fiscal year 2016, Ginnie Mae established a model 

risk management policy, which included a framework for model risk governance in response to 

our recommendation.28 Ginnie Mae’s model risk governance has three components: (1) model 

owners, (2) independent control, and (3) a model risk management framework. While Ginnie 

Mae had made significant progress in developing its model risk management framework, two 

key areas under the third component of this framework have not been implemented. These are 

(1) developer testing and (2) independent validation. Their full implementation is not expected 

until September 2016 and July 2017, respectively. In the absence of full implementation of these 

two key components, Ginnie Mae cannot verify the accuracy, robustness, and stability of its 

 

28 Ginnie Mae’s model risk management policy was developed in accordance with industry leading practices and 

regulatory guidance from the Board of Governors of the Federal Reserve System, U.S. Department of the 

Treasury, Office of the Comptroller of the Currency, and Federal Housing Finance Agency. 
27 

model before its deployment. Recently, Ginnie Mae detected an assumption error in its issuer 

buyout model used in the calculation of the guaranty asset and guaranty obligation. This model 

error resulted in Ginnie Mae restating its 2015 financial statements in its 2016 third quarter 

financial statements. The restatement included a decrease in the guaranty asset of $274 million, 

a decrease in the guaranty liability of $90 million, and a net decrease in the investment of the 

U.S. Government of $184 million. 

These deficiencies occurred because Ginnie Mae had not implemented the developer testing and 

independent validation components. At its current stage, Ginnie Mae’s model risk management 

process cannot verify whether a model is performing as intended. Developer test results must be 

made available to entities responsible for the model validation process and include relevant 

internal testing conducted as part of the model development process. Ginnie Mae is in the 

process of procuring an independent model validation contractor. 

Conclusion 

Ginnie Mae had made progress in addressing many of the financial management problems that 

we identified in fiscal years 2015 and 2014; however, more work is needed to produce auditable 

financial statements. Many conditions we cited in the report continued in fiscal year 2016 

because more time will be needed to fully implement the corrective action plans. Ginnie Mae 

acknowledged that it would require a significant investment in technology, infrastructure, and 

people spanning multiple years to make its financial statements auditable. As a result, we will 

continue to monitor Ginnie Mae’s progress in resolving these financial management governance 

deficiencies in fiscal year 2017. 

Recommendations 

We recommend that Ginnie Mae’s Office of Issuer and Portfolio Management, Office of 

Enterprise Risk, and Office of Chief Financial Officer 

4A. Develop and document an issuer default governance framework that includes the 

identification, monitoring, analysis, evaluation, and response to potential issuer 

defaults. This process includes an assessment to maximize defaulted issuer assets 

and minimize losses to Ginnie Mae. 

 

28 

Significant Deficiency 

Finding 5: Ginnie Mae Did Not Provide Adequate Oversight Over 

the Business Process Controls for the Integrated Pool Management 

System 

Ginnie Mae did not provide adequate oversight of its pool processing agent for IPMS to ensure 

that adequate controls over business processes complied with Federal regulations and guidance. 

Specifically, IPMS does not have (1) adequate logging controls that automatically track and log 

the use of overrides in the system and (2) automated controls to prevent a pool processor from 

making changes to the master29 data without prior approval. Additionally, the manual 

reconciliation procedures do not detect changes to master data, and Ginnie Mae lacked adequate 

policies and procedures for data management. These conditions occurred because Ginnie Mae 

did not have (1) a policy for the logging, tracking, and monitoring of overrides and IPMS does 

not sufficiently track the use of overrides or generate an override log or (2) a policy for ongoing 

monitoring of change activity and IPMS does not generate a change report that captures data 

changes. Also, management believes that its manual controls are adequate, and ownership of the 

data in Ginnie Mae’s system is unclear and not well defined. Further, there were inadequate 

oversight and delineation of responsibility for developing policies and procedures to ensure that 

controls over Ginnie Mae’s data existed and were properly documented. As a result, Ginnie 

Mae’s data were susceptible to an increased risk of improper use of authority, which could cause 

financial harm to Ginnie Mae by attaching the Ginnie Mae guarantee to mortgage-backed 

securities. The absence of mitigating controls increases the risk of tampering with data when 

preventive measures are lacking or do not exist to deter changes. Additionally, undocumented 

policies and procedures threaten the internal controls of an organization and lead to 

inconsistencies and uncertainty that can hinder Ginnie Mae’s ability to identify gaps in its control 

systems. 

Additionally, Ginnie Mae had a contractor to assess the financial management systems to 

determine whether they complied with section 803(a) of the Federal Financial Management 

Improvement Act (FFMIA) and OMB Circular A-123, appendix A. The assessment was based 

on guidance issued by OMB. It stated that six domains30 were included in the assessment of 

information technology general controls across Ginnie Mae’s financially significant and mixed 

 

29 Master data are considered critical data that are used consistently throughout the organization, which would 

include but is not limited to names, addresses, Social Security numbers, account numbers, loan balances, issuer 

IDs, custodian IDs, etc. 

30 These internal control areas are as follows: entitywide security program and management, access control, 

application software development and change control, system software, service continuity, and information 

technology segregation of duties. 
29 

use systems.31 Ginnie Mae noted two material weaknesses, one in the access controls area and 

the other in the application software development and change control area. 

No Adequate System Tracking and Monitoring of Override Use 

IPMS does not have adequate logging controls to automatically track and log the use of 

overrides. The manual process and IPMS’ limitations make it difficult to properly and 

adequately monitor the use of overrides. Specifically, when the failed pool submissions32 are 

overridden, the pool processor personnel manually notate the override on the failed edit report 

and then file the report with the rest of the daily reports. Additionally, logging controls to 

automatically track and log the use of overrides and show who made the override, what was 

overridden, and why the override was made do not exist in IPMS. Also, a system-generated 

override report is not one of the daily reports printed for review because pertinent override 

information is not captured and tracked in IPMS. The Federal Information System Controls 

Audit Manual (FISCAM) states that an organization’s procedures should provide for the 

automatic logging of all edit overrides or bypasses and include subsequent routine analysis of 

these logs to assess their appropriateness and correctness by entity management.33 

The condition existed because Ginnie Mae did not have a policy covering the logging, tracking, 

and monitoring of overrides and IPMS does not sufficiently track the use of overrides or generate 

an override log. As a result, the failure to adequately track and monitor the use of overrides may 

present opportunities for improper use of authority that can cause financial harm to Ginnie Mae, 

such as obligating Ginnie Mae for potentially bad or faulty mortgage-backed securities. The 

potential risk to MBS pool information also increases when mitigating controls are lacking or do 

not exist. 

No Ongoing Monitoring of Master Data Changes 

IPMS does not have automated controls to prevent a pool processor from making changes to the 

master data without prior approval. Additionally, the manual reconciliation procedures do not 

detect changes to master data. The new pool processing procedures outline the process for 

making changes to errors that are identified and emphasize the requirement to obtain prior 

approval before changing the master data. However, this process is a manual one that a 

processor can potentially bypass. Processing reports are printed and reviewed daily, and manual 

reconciliations are made by comparing the source system (GinnieNet) with physical copies of 

source data used for manual inputs and the processing system (IPMS). However, the focus of 

these reports is on verifying total pools submitted, processed, or released and reviewing 

exceptions or failure reports. The manual reconciliations do not include the review of a change 

report that accounts for changes to master data. Specifically, the process does not include a 

detailed review of the information submitted to ensure that the data input is reconciled with the 

 

31 GSS, GNET, GMEP, RFS, UFS, and IPMS. 

32 New pools that fail to process correctly in IPMS appear on the failed edits report. The report is reviewed, the 

failure is researched, and action to either delete or override the pool is taken. The New Pool Processing 

department’s manager may perform a forced release or override either because of a waiver of a Ginnie Mae 

requirement or a loan modification. 

33 FISCAM – Critical Element BP-4 Master Data Setup and Maintenance is Adequately Controlled 

30 

data processed as well as the data output that is released to the Federal Reserve Bank of New 

York. National Institute of Standards and Technology Special Publication 800-53 states that 

organizations should regularly analyze audit records for indications of inappropriate or unusual 

activity.34 

 

These conditions exist because there is no policy for the ongoing monitoring of change activity. 

Additionally, IPMS does not generate a change report that captures data changes because 

management believes that current manual controls are adequate. This control deficiency 

increases the risk of tampering with data when preventive measures are lacking or do not exist to 

deter certain behaviors, especially when perpetrators may be aware of the control gaps. 

Unauthorized changes, such as loan amount, interest rate, or maturity date of an issuer’s 

information, could cause delay or harm to issuers or Ginnie Mae by obligating them for 

potentially faulty mortgage-backed securities. 

Adequate Policies and Procedures Over Data Management Lacking 

Ginnie Mae did not have internal policies and or procedures to address (1) data management 

specifically related to data strategy, design, definition, quality standard, ownership, and 

monitoring; (2) reporting strategies that include content and availability consistent with end 

user’s needs, sensitivity and confidentiality of data, and adherence to laws and regulation; (3) the 

collection of issuers’ data and the replication and reporting of issuers’ data published for public 

viewing and outlines the process for reporting the information to the public; (4) master data 

configuration, to include required and related fields that are excluded from changes; (5) making 

changes to the master data design, configuration, and those responsible for authorizing and 

making the changes; and (6) periodic review and scrubbing of stale master data, including how 

duplicated master data entry is resolved and how unused master records in IPMS are handled. 

FISCAM requires that policies and procedures for master data be established to ensure that they 

are appropriately controlled and valid. 

These conditions existed because ownership of the data in Ginnie Mae’s system is not well 

defined. In addition, oversight and delineation of responsibility for developing policies and 

procedures to ensure that controls over Ginnie Mae’s data existed and were properly documented 

was inadequate. The lack of documented controls over operations and processes could hinder 

Ginnie Mae’s ability to identify gaps. An absence of documented policies and procedures 

threatens the internal controls of an organization and leads to inconsistencies and uncertainty.

Conclusion 

Ginnie Mae needs to ensure that its supporting contractor for IPMS has (1) adequate logging 

controls that automatically track and log the use of overrides in the system, (2) effective controls 

to prevent a pool processor from making changes to the master data without prior approval, and 

(3) documented policies and procedures that govern data management. These measures will 

ensure that proper business process controls are in place and a compliant level of internal 

controls that govern financial reporting has been implemented. 

 

34 National Institute of Standards and Technology Special Publication 800-53, REV-4, Security and Privacy 

Controls for Federal Information Systems and Organizations, Section AU-6 Audit Review, Analysis, and 

Reporting 
31 

Recommendations 

We recommend that Ginnie Mae’s Chief Financial Officer, in conjunction with the Senior Vice 

President of the Office of Securities Operations, direct its servicing contractor for IPMS to 

5A. Develop an audit tracking tool in IPMS that automatically tracks and logs (1) the 

type of override used, (2) who performed the override, and (3) the reason for the 

override. In addition, Ginnie Mae should establish policies and procedures to 

govern and monitor the use of overrides, which include the timely submission of 

override reports to Ginnie Mae for review and verification. 

5B. Establish policies and procedures for monitoring changes to master data, to 

include creating and reviewing a change report and establishing controls within 

IPMS to inform managers of changes to master data. In addition, Ginnie Mae 

should automate the reconciliation process between IPMS and other interfacing 

applications or systems to ensure that all pool-level details are compared and that 

changes are captured and reported in a timely manner. 

5C. Develop written policies and procedures for master data and ensure that those 

policies and procedures are available to all staff. In addition, Ginnie Mae should 

revise policies and procedures, as needed, to reflect the changes in business 

processes to ensure that policies and procedures are accurate, complete, and 

current at all times. This should include when new systems are developed and 

implemented or other organizational changes occur. Ginnie Mae should also 

ensure that significant changes to the policies and procedures are properly 

communicated to all individuals responsible for handling Ginnie Mae’s data. 

 

32 

Compliance with Laws and Regulations 

Finding 6: Ginnie Mae Did Not Comply with the Debt Collection 

Improvement Act of 1996 

In fiscal year 2016, Ginnie Mae’s noncompliance with the Debt Collection Improvement Act 

(DCIA) of 1996 continued. Specifically, as reported in fiscal year 2015, Ginnie Mae had not 

remediated its practice of ensuring that all debt collection tools allowed by law had been 

considered before deciding to discharge certain uninsured mortgage debts owed to Ginnie Mae. 

This condition occurred because Ginnie Mae’s management continued to take the position that 

DCIA did not apply to Ginnie Mae; therefore, it did not need to comply with DCIA 

requirements.35 As a result, Ginnie Mae may have missed opportunities to collect millions of 

dollars in debts related to losses in its MBS program. 

Continued Noncompliance With DCIA 

In fiscal year 2015, we determined that Ginnie Mae did not properly analyze the collectability of 

uninsured mortgage debts owed to it from the MBS program activities. Specifically, Ginnie Mae 

failed to use debt collection tools allowed by law before deciding to writeoff these debts.36 

Under Ginnie Mae’s MBS program, a claim of the U.S. Government for money against the 

borrower is established when there is a deficiency between the price obtained by Ginnie Mae on 

the sale of the property and the amount owed on the uninsured mortgage. However, it had been 

Ginnie Mae’s practice to automatically writeoff its claim for the mortgage debt deficiency37

without proper consideration of whether it was appropriate to do so. 

In fiscal year 2016, Ginnie Mae again took the same position that the DCIA requirements did not 

apply to it. For this reason, Ginnie Mae also did not take any action on OIG’s audit 

recommendation to obtain a legal opinion from the implementing agency, the U.S. Treasury, for 

a determination of whether Ginnie Mae is required to comply with DCIA. Due to an impasse, 

this matter was elevated to the next level for a resolution.38 While it continued to challenge 

DCIA’s applicability to Ginnie Mae, it appeared Ginnie Mae was receptive to OIG’s idea of 

ensuring that the collectability of mortgage debt deficiency is properly analyzed before writing it 

off. According to Ginnie Mae, it developed a debt collections and writeoffs operational policy 

 

35 HUD is subject to DCIA. As a component entity, Ginnie Mae reports to HUD. 

36 According to 31 U.S.C. (United States Code) 3701(b)(1)(A), the term claim or debt is defined as any amount of 

funds or property that has been determined by an appropriate official of the Federal Government to be owed to 

the United States by a person, organization, or entity other than another Federal agency. A claim includes, 

without limitation, funds owed on account of loans made, insured, or guaranteed by the government, including 

any deficiency or any difference between the price obtained by the government in the sale of a property and the 

amount owed to the government on a mortgage on the property. 

37 A mortgage deficiency occurs when a mortgage foreclosure sale is less than the price Ginnie Mae paid to 

purchase the loan out of the pool. 

38 OIG submitted its referral memorandum to Ginnie Mae’s President on April 21, 2016. As of October 31, 2016, 

our referral is still under review, and we are awaiting a response. 
33 

and submitted it to HUD OCFO in October 2015 for review. This policy is intended to provide 

guidance to its MSSs in performing loss mitigation and debt collections owed to Ginnie Mae 

from the borrowers to the extent possible, which is the spirit of what OIG is requesting Ginnie 

Mae to do. Ginnie Mae explained that HUD OCFO made substantial changes to include DCIA 

requirements in the policy. As this draft policy was still under review as of October 2016, 

Ginnie Mae was not able to share this draft policy with OIG for review. 

Conclusion 

Since we reported this issue in 2015, Ginnie Mae has not established controls to ensure that the 

collectability of mortgage debt deficiency is properly analyzed before writing it off, which is not 

only a DCIA requirement, but also a good business practice. For this reason, Ginnie Mae may 

have forgone the opportunity to recover its claims on many of these debts for at least 2 years. 

While drafting a debt collections policy is a step in right direction, Ginnie Mae needs to do a 

better job next year in ensuring that its debt collections and writeoffs operational policy is 

finalized and properly implemented starting in fiscal year 2017 to mitigate any further foregoing 

of its claims on these debts. 

Recommendation 

Because we are not making further recommendations on this finding this year, the audit 

recommendation made in fiscal year 2015, which was still open, is not repeated in this report. 

34 

Scope and Methodology 

In accordance with the Government Corporation Control Act, as amended, OIG is responsible 

for conducting the annual financial statements audit of Ginnie Mae. The scope of this work 

includes the audit of Ginnie Mae’s balance sheets as of September 30, 2016 and 2015 (restated), 

and the related statements of revenues and expenses and changes in the investment of the U.S. 

Government and cash flows for the years then ended and the related notes of the financial 

statements. We conducted the audit in accordance with generally accepted government auditing 

standards and OMB Bulletin 15-02, as amended, Audit Requirements for Federal Financial 

Statements. 

In fiscal years 2016 and 2015, we were unable to express an opinion on the accompanying 

financial statements as a result of the limitation in the scope of our audit work. The limitation in 

our audit scope was due to a number of unresolved audit matters, which are described in detail in 

the body of this audit report. As reported in fiscal year 2015, these ongoing unresolved matters 

continued to restrict our ability to obtain sufficient, appropriate audit evidence to form an 

opinion. Accordingly, we do not express an opinion on the financial statements and notes. 
35 

Followup on Prior Audits 

Listed below are 30 open recommendations made in previous years’ audits and their current 

status at the end of fiscal year 2016. 

Government National Mortgage Association Fiscal Year 2015 and 2014 Financial 

Statements Audit, 2016-FO-0001

Of 11 audit recommendations in OIG audit report 2016-FO-0001, we concurred on the action 

plans for eight (two closed and six under remediation) audit recommendations. We referred the 

remaining three audit recommendations to the departmental audit resolution official because we 

were not in agreement with Ginnie Mae’s management on the actions necessary to correct the 

deficiencies identified in our report. Our assessment of the current status of the recommendations 

is presented below.   

Government National Mortgage Association Fiscal Year 2014 and 2013 Financial 

Statements Audit, 2015-FO-0003 

Of 19 audit recommendations in OIG audit report 2015-FO-0003, we concurred on the action 

plans for 13 (seven closed and six under remediation) audit recommendations. We referred the 

remaining six audit recommendations to the departmental audit resolution official because of a 

disagreement with Ginnie Mae’s management on the actions necessary to correct the deficiencies 

identified in our report. Our assessment of the current status of the recommendations is presented 

below.

Fiscal year 2015 

recommendations Classification Fiscal year 2016 status 

2A. Prepare an analysis of all 

outstanding REMIC deals to 

determine the cumulative effect of 

misstatements and make the 

appropriate adjustments to the 

financial statements. 

Material 

weakness 2015 

Finding 2 

Under remediation – Full 

implementation of the 

corrective action remains 

unknown. See material 

weakness 2016 – finding 2.

2B. Update the accounting policies 

and procedures related to revenue 

recognition to reasonably ensure 

compliance with GAAP. 

Material 

weakness 2015 

Finding 2 

Under remediation. See 

material weakness 2016 – 

finding 2. 

2C. Establish and implement 

policies and procedures to ensure 

that asset balances in Ginnie Mae’s 

books are appropriately adjusted to 

account for the timing differences in 

the collection and remittance of 

cash from its mastersubservicers. 

Material 

weakness 2015 

Finding 2 

Under remediation – Full 

implementation of the 

corrective action remains 

unknown. See material 

weakness 2016 – finding 2. 

36 

Fiscal year 2015 

recommendations Classification Fiscal year 2016 status 

2D. Appropriately disclose 

restricted cash in its financial 

statements. 

Material 

weakness 2015 

Finding 2 

Closed. 

2E. Provide additional justification 

to support the reasonableness of the 

delinquency and foreclosure rates 

assumptions or create projections 

for this assumption that are better 

supported by best practices. 

Material 

weakness 2015 

Finding 2 

Closed. 

We recommend that Ginnie Mae’s 

President 

 

4A. Ensure that the systems and 

processes for servicing and financial 

reporting on Ginnie Mae’s defaulted 

issuers’ portfolio are ready and 

capable of handling loan level 

accounting. 

Material 

weakness 2015 

Finding 4 

Under remediation – Full 

implementation of the 

corrective action plan was not 

expected until fiscal year 2017. 

See material weakness 2016 – 

finding 4. 

We recommend that the Acting 

Chief Financial Officer, in 

coordination with the Chief Risk 

Officer 

 

4B. Establish and implement 

entitywide policies and procedures 

for an effective model risk 

management. At a minimum, it 

should include the following 

elements: 

 Controls over model 

development, 

implementation and use; 

 Controls over model 

validation; 

 Controls over model 

documentation; 

 Controls over evaluation for 

fitness, selection and 

validation of third party 

models; and 

 Establish adequate structure 

of responsibilities for model 

oversight, including 

evaluation of model data 

Material 

weakness 2015 

Finding 4 

Under remediation – Full 

implementation of the 

corrective action plan was not 

expected until fiscal year 2017. 

See material weakness 2016 – 

finding 4. 
37 

Fiscal year 2015 

recommendations Classification Fiscal year 2016 status 

inputs, assumptions and 

methodology.

5A. Segregate duties between 

individuals collecting, recording, 

depositing, and reconciling cash, 

and periodically review the controls 

over the cash process to ensure 

proper implementation of 

compatible functions in its cash 

operations department. 

Significant 

Deficiency 

2015 

Finding 5 

We did not reach a management 

decision. Referred to 

departmental audit resolution 

official. See significant 

deficiency 2016 – finding 5. 

5B. Conduct ongoing monitoring of 

change reports to ensure that 

unauthorized changes are not made 

to Ginnie Mae's data, and establish a 

policy regarding ongoing 

monitoring of change activity that 

requires performing periodic 

reviews of change reports. 

Significant 

Deficiency 

2015 

Finding 5 

Under remediation – 

implementation date remains 

unknown as we await an update 

from Ginnie Mae. See 

significant deficiency 2016 – 

finding 5. 

5C. Automate the approval process 

to include restricting the capability 

to make unauthorized changes 

unless evidence of approval is 

present or increase the scope of the 

“Admin Adjustments Report” to 

include all exceptions and 

adjustments. 

Additionally, the contractor review 

the report for changes, verify that 

the changes identified in the report 

coincide with evidence of proper 

authorization, and ensure changes 

that are not properly supported are 

investigated and resolved 

accordingly. 

Significant 

Deficiency 

2015 

Finding 5 

We did not reach a management 

decision. Referred to 

departmental audit resolution 

official. See significant 

deficiency 2016 – finding 5. 

We recommend that Ginnie Mae’s 

Acting Chief Financial Officer 

 

6.A Request a legal opinion from 

the implementing agency, the U.S. 

Treasury, for a determination of 

whether Ginnie Mae is required to 

comply with DCIA. 

Compliance 

with Laws and 

Regulations 

2015 

Finding 6 

We did not reach a management 

decision. Referred to 

departmental audit resolution 

official. See compliance with 

laws and regulations 2016 – 

finding 6. 

38 

Fiscal year 2014 recommendations Classification Fiscal year 2016 status 

1A. Establish and implement policies 

and procedures to demonstrate how 

Ginnie Mae provides appropriate 

accounting and financial reporting 

oversight of the mastersubservicers 

to ensure that the mastersubservicers 

are capable of producing accurate 

and reliable accounting records and 

reports. 

Material 

Weakness 

2014 

Finding 1 

Under remediation – Full 

implementation of the corrective 

action plan was not expected 

until fiscal year 2017. See 

material weakness 2016 – 

finding 1. 

1B. Establish and implement policies 

and procedures to properly account 

for and track at a loan level all of the 

accounting transactions and events in 

the life cycle of the loans. This 

measure is intended to compensate 

for the servicing system’s inability to 

perform loan level transaction 

accounting. 

Material 

Weakness 

2014 

Finding 1 

Under remediation –Full 

implementation of the corrective 

action plan was not expected 

until fiscal year 2017. See 

material weakness 2016 – 

finding 1. 

2A. Establish and implement policies 

and procedures to ensure that 

reimbursable costs are tracked and 

accounted for at the loan level. 

Material 

Weakness 

2014 

Finding 2 

Under remediation – Full 

implementation of the corrective 

action plan was not expected 

until fiscal year 2017. See 

material weakness 2016 – 

finding 2. 

2B. Determine the amount of 

reimbursable costs incurred by 

Ginnie Mae per loan, report the 

reimbursable costs incurred as 

receivables rather than expensing 

them, and adjust them out of the 

mortgage-backed securities loss 

liability account as appropriate. 

Material 

Weakness 

2014 

Finding 2 

Under remediation – Full 

implementation of the corrective 

action plan was not expected 

until fiscal year 2017. See 

material weakness 2016 – 

finding 2. 

2C. Restate fiscal year 2013 financial 

statements to correct the impact of 

the accounting errors determined in 

recommendation 2B. 

Material 

Weakness 

2014 

Finding 2 

We did not reach a 

management decision. 

Referred to departmental audit 

resolution official. See 

material weakness 2016 – 

finding 2. 

2D. Review and recalculate the 

appropriate amount of interest 

accrued on the loans and adjust the 

accrued interest receivable balances 

reported as appropriate. 

Material 

Weakness 

2014 

Finding 2 

Under remediation – Full 

implementation of the corrective 

action plan was not expected 

until fiscal year 2017. See 
39 

Fiscal year 2014 recommendations Classification Fiscal year 2016 status 

material weakness 2016 – 

finding 2. 

2E. Report the escrow fund balances 

on the face of the financial 

statements, including additional 

disclosure information in the notes, 

in accordance with generally 

accepted accounting principles. 

Material 

Weakness 

2014 

Finding 2 

We did not reach a 

management decision. 

Referred to departmental audit 

resolution official. See 

material weakness 2016 – 

finding 2. 

2F. Restate fiscal year 2013 financial 

statements to show escrow fund 

balances omitted on the face of the 

financial statements. 

Material 

Weakness 

2014 

Finding 2 

We did not reach a 

management decision. 

Referred to departmental audit 

resolution official. See 

material weakness 2016 – 

finding 2. 

2H. Comply with generally accepted 

accounting principles by (1) 

presenting investing cash inflows 

separately from investing cash 

outflows and (2) reclassifying the 

presentation of the nonpooled loan 

assets from cash flow from operating 

activity section to the cash flow from 

investing activity section. 

Material 

Weakness 

2014 

Finding 2 

Closed. 

3A. Establish and implement policies 

and procedures for the 

documentation and validation of 

Ginnie Mae management 

assumptions, including foreclosure 

costs and re-default rates, used in the 

loss reserve model going forward. 

Material 

Weakness 

2014 

Finding 3 

Under remediation – Full 

implementation of the corrective 

action plan was not expected 

until fiscal year 2017. See 

material weakness 2016 – 

finding 3. 

3B. Reevaluate the reasonableness of 

foreclosure costs and re-default rate 

management assumptions used in 

fiscal year 2014, considering the 

audit points cited in this report; 

document the results of the 

reevaluation for OIG’s review; and 

determine the accounting 

adjustments needed, if any, to the 

fiscal year 2014 mortgage-backed 

securities loss liability account as a 

result of the changes in the 

management assumptions. 

Material 

Weakness 

2014 

Finding 3 

Closed. 

40 

Fiscal year 2014 recommendations Classification Fiscal year 2016 status 

3C. Determine Ginnie Mae’s 

foreclosure cost reimbursement rate 

and take this information into 

account when developing its 

foreclosure cost management 

assumptions. 

Material 

Weakness 

2014 

Finding 3 

Closed. 

3D. Perform a validation of the FHA 

foreclosure cost assumption amount 

used in fiscal year 2014, document 

the results of the validation, and 

determine whether an adjustment to 

the fiscal year 2014 financial 

statements is warranted based on the 

updated foreclosure cost 

management assumption. 

Material 

Weakness 

2014 

Finding 3 

Closed. 

3E. Perform a separate reserve for 

loss estimate analysis on 

reperforming nonpooled loans and, 

based on the results of this analysis, 

establish separate loss reserve 

estimates on reperforming nonpooled 

loans. 

Material 

Weakness 

2014 

Finding 3 

Closed. 

We recommend that Ginnie Mae’s 

President 

Material 

Weakness 

2014 

4A. Work with HUD’s Chief 

Financial Officer to ensure that 

Ginnie Mae has a sufficient number 

of appropriately skilled and 

experienced staff in place to perform 

the required financial management 

duties by filling the vacancies of key 

personnel that oversee the work in 

OCFO. 

Material 

Weakness 

2014 

Finding 4 

Closed. 

4B. Work with HUD’s Chief 

Financial Officer to design and 

implement a compliant financial 

management governance structure. 

Material 

Weakness 

2014 

Finding 4 

We did not reach a 

management decision. 

Referred to departmental audit 

resolution official. See 

material weakness 2016 – 

finding 4. 

4C. Review and update Ginnie Mae’s 

bylaws and delegations of authority 

to correspond to the current 

Material 

Weakness 

2014 

Finding 4 

Closed. 
41 

Fiscal year 2014 recommendations Classification Fiscal year 2016 status 

organizational structure and agency 

mission requirements. 

We recommend that the HUD Chief 

Financial Officer, in accordance with 

provisions of the Chief Financial 

Officers Act of 1990, assist Ginnie 

Mae to implement a compliant 

financial management governance 

structure by 

4D. Overseeing a comprehensive risk 

assessment of Ginnie Mae’s financial 

management governance. 

Material 

Weakness 

2014 

Finding 4 

We did not reach a 

management decision. 

Referred to departmental audit 

resolution official. See 

material weakness 2016 – 

finding 4. 

4E. Preparing and implementing a 

plan, based on the results of the risk 

assessment in recommendation 4D, 

that 

Material 

Weakness 

2014 

Finding 4 

We did not reach a management 

decision. Referred to 

departmental audit resolution 

official. See material weakness 

4E.i) Demonstrates HUD OCFO 2016 – finding 4. 

oversight of Ginnie Mae’s, as a HUD 

component, financial management 

activities; 

4E.ii) Ensures that Ginnie Mae 

updates its financial management 

polices to reflect conclusions reached 

in the financial management risk 

assessment; 

4E.iii) Provides complete, reliable, 

consistent and timely information for 

defaulted issuers’ pooled and nonpooled loans, prepared on a uniform 

basis for preparation of Ginnie Mae 

financial statements, management 

reporting, and cost reporting; and 

4E.iv) Ensures all of Ginnie Mae’s 

financial management systems, both 

owned and outsourced, provide the 

financial information necessary to 

prepare and support financial 

statements that comply with 

generally accepted accounting 

principles. 

 

42 

Appendixes 

Appendix A 

Schedule of Funds To Be Put to Better Use 

Recommendation 

number 

Funds to be put to 

better use 1/ 

2F $248,016,624 

Totals $248,016,624 

1/ Recommendations that funds be put to better use are estimates of amounts that could be 

used more efficiently if an Office of Inspector General (OIG) recommendation is 

implemented. These amounts include reductions in outlays, deobligation of funds, 

withdrawal of interest, costs not incurred by implementing recommended improvements, 

avoidance of unnecessary expenditures noted in preaward reviews, and any other savings 

that are specifically identified. 
43 

Appendix B 

Auditee Comments and OIG’s Evaluation 

Ref to OIG Auditee Comments 

Evaluation 

Comment 1 

Comment 2 

Comment 3 

44 

OIG Evaluation of Auditee Comments 

Comments 1 and 2 Ginnie Mae agreed with the OIG audit findings. In addition, Ginnie Mae 

acknowledged its commitment to remediate all OIG audit issues. We recognized 

Ginnie Mae’s efforts toward its multi-year effort to remediate audit issues in a 

challenging environment. We will continue to work with Ginnie Mae in 

resolving these matters in fiscal year 2017. We would like to thank Ginnie Mae 

for the cooperation and assistance extended to us during the audit. 

Comment 3 OIG believes that Ginnie Mae’s legal counsel is responsible for and 

knowledgeable about all known actual or possible litigation, claims, and 

assessments related to Ginnie Mae. Therefore, without Ginnie Mae’s legal 

counsel acknowledgement on the correctness of the matters included in the legal 

representations provided to OIG in the management representation letter raises 

significant concerns and constitutes a scope limitation in our audit work. 
45 

Appendix C 

Ginnie Mae’s Fiscal Years 2016 and 2015 (Restated) Financial Statements and Notes 

 September 30, 2016 September 30, 2015

As Restated*

Assets:

Cash and cash equivalents 16,846,100 $ $ 14,680,600

Restricted cash and cash equivalents 546,600 432,800

Accrued fees and other receivables 87,000 92,100

Claims receivable, net* 709,400 814,200

Advances, net 20,900 118,800

Mortgage loans held for investment, net* 3,470,000 4,352,600

Accrued interest receivable, net* 18,600 47,700

Acquired property, net* 41,200 30,300

Fixed assets, net 82,900 62,300

Mortgage servicing rights - 29,600

Guaranty asset 6,397,600 6,742,200

Other assets 200 400

Total Assets $ 28,220,500 $ 27,403,600

Liabilities and Investment of U.S. Government:

Liabilities:

Accounts payable and accrued liabilities $ 114,800 $ 135,800

Deferred liabilities and deposits 300 300

Deferred revenue 312,200 319,700

Liability for loss on mortgage-backed securities program guaranty 1,000 -

Liability for representations and warranties 1,500 -

Guaranty liability 6,198,400 5,661,300

Total Liabilities $ 6,628,200 $ 6,117,100

Commitments and Contingencies $ - $ -

Investment of U.S. Government $ 21,592,300 $ 21,286,500

Total Liabilities and Investment of U.S. Government $ 28,220,500 $ 27,403,600

* See Note 2 (Restatement) discussion

The accompanying notes are an integral part of these financial statements.

Balance Sheets

(Dollars in thousands)

46
For the year ended, 

September 30, 2016

For the year ended, 

September 30, 2015

As Restated*

Revenues:

Interest Income

Interest income on mortgage loans held for investment* $ 340,900 $ 300,100

Other interest income 84,100 128,200

Income on guaranty obligation 1,252,000 1,031,700

Mortgage-backed securities guaranty fees 1,052,500 977,700

Commitment fees 101,100 85,900

Multiclass fees 33,200 32,300

Mortgage-backed securities program and other income 10,100 29,700

Total Revenues $ 2,873,900 $ 2,585,600

Expenses:

Administrative expenses $ (27,000) $ (21,500)

Fixed asset amortization (15,700) (13,900)

Mortgage-backed securities program and other expenses (289,100) (321,700)

Total Expenses $ (331,800) $ (357,100)

Recapture (provision):

Recapture (provision) for mortgage loans held for investment* $ 99,500 $ 690,200

Recapture (provision) for mortgage-backed program guaranty (1,000) -

Recapture (provision) for claims receivable* (75,500) (27,500)

Recapture (provision) for loss on uncollectible advances (88,500) (45,300)

Recapture (provision) for acquired property* (32,200) (28,500)

Total Recapture (Provision) $ (97,700) $ 588,900

Gain (Loss):

Gain (Loss) on guaranty asset $ (2,133,600) $ (814,500)

Gain (Loss) on mortgage servicing rights (4,100) (15,000)

Gain (Loss) other (900) (1,100)

Total Other Gains / (Losses) $ (2,138,600) $ (830,600)

Results of Operations $ 305,800 $ 1,986,800

Investment of U.S. Government at Beginning of Year 21,286,500 19,301,800

Adjustment to Investment of U.S. Government - (2,100)

Investment of U.S. Government at Beginning of Year, Restated* 21,286,500 19,299,700

Investment of U.S. Government at End of Year $ 21,592,300 $ 21,286,500

* See Note 2 (Restatement) discussion

The accompanying notes are an integral part of these financial statements.

(Dollars in thousands)

Statements of Revenues and Expenses and Changes in Investment of U.S. Government

47

For the year ended, 

September 30, 2016

For the year ended, 

September 30, 2015

As Restated*

Cash Flow from Operating Activities

Results of Operations $ 305,800 $ 1,986,800

Adjustments to reconcile Results of Operations to Net Cash (used for) provided by Operating Activities:

Amortization expense 15,700 13,900

Recapture (provision) for mortgage loans held for investment* (99,500) (690,200)

Recapture (provision) for mortgage-backed program guaranty 1,000 -

Recapture (provision) for claims receivable* 75,500 27,500

Recapture (provision) for loss on uncollectible advances 88,500 45,300

Recapture (provision) for acquired property* 32,200 28,500

Other expenses 3,500 -

Changes in operating assets and liabilities:

Restricted cash and cash equivalents (113,800) (137,400)

Accrued fees and other receivables (4,700) (4,200)

Claims receivable, net* 687,500 (30,800)

Advances, net 213,200 345,100

Accrued interest receivable, net* (148,900) (128,700)

Bank of America settlement receivable - 200,000

Mortgage servicing rights 29,600 15,000

Guaranty asset 344,500 (779,100)

Other assets 200 (300)

Accounts payable and accrued liabilities (20,700) 26,600

Deferred revenue (7,500) 17,500

Ocala Funding settlement liability - (14,900)

Liability for representations and warranties 1,500 -

Guaranty liability 537,000 568,900

Net cash (used for) provided by operating activities $ 1,940,600 $ 1,489,500

Cash Flow from Investing Activities

Proceeds from repayments and sales of loans acquired as held for investment* $ 281,100 $ 223,100

Proceeds from the dispositions of acquired property and preforeclosure sales* 47,800 46,500

Purchases of loans held for investment (67,700) (418,100)

Purchases of fixed assets (36,300) (26,100)

Net cash (used for) provided by investing activities $ 224,900 $ (174,600)

Cash Flow from Financing Activities

Net cash (used for) provided by financing activities $ - $ -

Net change in Cash and cash equivalents 2,165,500 1,314,900

Cash and cash equivalents, beginning of the year 14,680,600 13,365,700

Cash and cash equivalents, end of the year $ 16,846,100 $ 14,680,600

Supplemental Disclosure of Non-Cash Activities

Transfers from mortgage loans held for investment to claims receivable, net; accrued 

interest, net; and advances, net 689,700 542,800

Transfers from mortgage loans held for investments to acquired properties 90,200 102,300

Disposal of acquired properties 9,800 (9,800)

* See Note 2 (Restatement) discussion

The accompanying notes are an integral part of these financial statements.

(Dollars in thousands)

Statements of Cash Flows

48
Note 1: Entity and Mission 

The Government National Mortgage Association (Ginnie Mae) was created in 1968, through an 

amendment of Title III of the National Housing Act as a wholly owned government corporation 

within the United States (U.S.) Department of Housing and Urban Development (HUD). The 

Mortgage-Backed Securities (MBS) program is Ginnie Mae’s primary ongoing activity. Its purpose is 

to increase liquidity in the secondary mortgage market and attract new sources of capital for residential 

mortgage loans from worldwide investors. By providing mortgage capital for the MBS program, 

Ginnie Mae supports the growing demographic of citizens who most need Ginnie Mae’s help: lowerincome households who rent due to economic need; young professionals with unestablished credit 

histories; hardworking families who struggle to come up with a down payment; and senior citizens 

who need a wide range of housing and support services. Although loans underlying securities may be 

concentrated in specific areas, Ginnie Mae has provided home ownership opportunities in every U.S. 

state and territory. 

Through the program, Ginnie Mae guarantees the timely payment of principal and interest on 

securities backed by pools of mortgages issued by private institutions. This guaranty is backed by the 

full faith and credit of the U.S. Government. Ginnie Mae requires that the mortgages, used as 

collateral, are insured or guaranteed by the U.S. Federal Housing Administration (FHA), another 

government entity within HUD, the U.S. Department of Agriculture (USDA), the Department of 

Veterans Affairs (VA), or the Office of Public and Indian Housing (PIH). These mortgage loans are 

not assets of Ginnie Mae, nor are the related outstanding securities liabilities. Accordingly, neither is 

reflected on the accompanying Balance Sheets. 

To ensure that adequate capital continues to flow to the mortgage markets, Ginnie Mae offers reliable 

solutions that meet the needs of a broad constituent base and provide sufficient flexibility to respond 

to market changes. At the core of its business model and its product offering menu is the simple passthrough security, which comes in the form of two product structures - Ginnie Mae I MBS and Ginnie 

Mae II MBS. Each Ginnie Mae product structure has specific characteristics regarding pool types, 

note rates, collateral and payment dates. 

Ginnie Mae I MBS are modified pass-through mortgage-backed securities on which registered holders 

receive separate principal and interest payments on each of their certificates. Ginnie Mae I MBS are 

based on single-family pools and are Ginnie Mae’s most heavily-traded MBS product. The underlying 

mortgages generally have the same or similar maturities and the same interest rate on the mortgages. 

Ginnie Mae II MBS are modified pass-through mortgage-backed securities for which registered 

holders receive an aggregate principal and interest payment from a central paying agent. Ginnie Mae 

II MBS provide more liquidity and greater flexibility with respect to loan characteristics. Multipleissuer as well as single-issuer pools are permitted under the program. The Ginnie Mae II MBS allows 

small issuers who do not meet the dollar requirements of the Ginnie Mae I MBS program to participate 

in the secondary mortgage market. In addition, the Ginnie Mae II MBS permits the securitization of 

adjustable rate mortgages (ARMs). 

49

The underlying source of loans for the Ginnie Mae I MBS and Ginnie Mae II MBS comes from Ginnie 

Mae’s following four main programs, which serve a variety of loan financing needs and different issuer 

origination capabilities: 

 Single Family Program – The majority of Ginnie Mae securities are backed by single family 

mortgages used to purchase, construct, or renovate single family homes predominantly 

originated through FHA and VA loan insurance programs. 

 Multifamily Program – Ginnie Mae insures securities backed by FHA and USDA insured 

loans for the purchase, construction, and renovation of apartment buildings, hospitals, nursing 

homes, and assisted living facilities. 

 Home Equity Conversion Mortgage (HECM) MBS (HMBS) Program – Ginnie Mae’s 

HECM securities program provides a MBS platform available for lenders to raise capital and 

liquidity for FHA-insured reverse mortgages. HECM loans are securitized separately from 

regular single family mortgages due to their unique cash flow and fee structure. HECM loans 

can be pooled into HMBS within the Ginnie Mae II MBS program. 

 Manufactured Housing Program – Ginnie Mae’s Manufactured Housing program allows 

the issuance of pools of loans insured by FHA’s Title I Manufactured Home Loan Program.

Note 2: Restatement 

Restatement of Prior Financial Statements: Ginnie Mae has revised its previously issued financial 

statements for the year ended September 30, 2015 (referred to as “the restatement”). The financial 

information contained in the 2016 financial statements supersedes the previously issued financial 

statements for 2015. The previous financial statements and corresponding information should no 

longer be relied upon. 

Following Ginnie Mae’s issuance of the 2015 annual report, the Office of the Inspector General (OIG) 

issued Management Letters and Notifications of Finding and Recommendation recommending 

adjustments of certain financial statement line items and citing internal control weaknesses over Fixed 

Assets, the Guaranty Asset and Guaranty Liability model, Multiclass Fees, as well as amounts disclosed 

for Escrow funds balances and MBS commitment outstanding. As a result, Ginnie Mae performed an 

internal accounting assessment, reviewing the current accounting practices and subsequently identified 

additional areas where U.S. Generally Accepted Accounting Principles (U.S. GAAP) were misapplied 

as noted below. 

The overall impact of Ginnie Mae’s restatements on the financial statements as of and for the year 

ended September 30, 2015, was a total decrease in “Investment of U.S. Government at End of Year” 

of $190 million. This amount includes the following: 

 $188 million prior period adjustment, resulting in a net decrease in the 2015 “Results of 

Operations”; and 

50
 $2 million prior period adjustment, resulting in a net decrease in the 2015 beginning balance 

of “Investment of U.S. Government”. 

Ginnie Mae has classified the restatement adjustments into nine primary categories. The effects of 

these adjustments on the previously issued financial statements for the year ended September 30, 2015, 

are listed in the “Impact of Restatement on Financial Statements” section of this note. Three out of 

the nine restatement categories have an impact on the Investment of U.S. Government in 2015. 

Restatements that impact “Investment of U.S. Government”: 

Guaranty Asset and Guaranty Liability: Ginnie Mae identified accounting errors associated 

with a modeling input (“issuer buyout”) used to measure the guaranty asset and guaranty 

liability. Issuer buyout constitutes the removal of a loan out of the pool due to loan 

delinquency, foreclosure with claim payment, or loss mitigation. Ginnie Mae incorrectly 

used an issuer buyout timeline that was not reflective of actual issuer buyout behavior. The 

guaranty asset and guaranty liability were restated to reflect enhancements to the issuer 

buyout assumption. The impact of correcting this error resulted in: 

 A decrease in “Guaranty assets” of $274.3 million as of September 30, 2015; 

 A decrease in “Guaranty obligation” of $90.3 million as of September 30, 2015; and 

 A net decrease in “Results of Operations” of $184.0 million for the year ended 

September 30, 2015. 

Multiclass Fees and Deferred Revenue: Ginnie Mae identified accounting errors associated 

with the recognition of multiclass fees and related accruals. Ginnie Mae incorrectly included 

expenses not associated with the specific Real Estate Mortgage Investment Conduits (REMICs) 

issuances to determine certain up-front costs, which resulted in Ginnie Mae overstating multiclass 

fee earned and understating deferred fees upon issuance. In addition, Deposits in Transit for 

multiclass fees paid to Ginnie Mae’s agents but not yet deposited to Ginnie Mae’s account at the 

U.S. Treasury, were not recognized as of September 30, 2015. The impact of correcting these 

errors resulted in: 

 An increase in “Cash and cash equivalents” of $3.9 million as of September 30, 2015; 

 A decrease in “Accrued fees and other receivables” of $0.8 million as of September 30, 

2015; 

 An increase of “Deferred Revenue” of $13.8 million as of September 30, 2015; 

 A net decrease in “Results of Operations” of $1.0 million for the year ended September 30, 

2015; and 

 A net decrease in the 2015 “Investment in U.S. Government at Beginning of Year” of 

$9.7 million. 

Fixed Assets, net: Ginnie Mae identified accounting errors associated with its accounting 

treatment of internally developed software, hardware/software purchases, leases, software 

51

licenses, and decommissioned assets. For internally developed software and hardware/software 

purchases, certain expenditures that did not meet the capitalization criteria per Ginnie Mae’s 

accounting policy were capitalized in error. For leases, a lease agreement was improperly treated 

as an operating lease instead of a capital lease. For software licenses, the cost of a licensing 

arrangement was incorrectly applied as an expense instead of a fixed asset. For decommissioned 

assets, the carrying value of the assets was not removed from the “Fixed Assets, net” balance. 

Given that fixed assets are shown net of depreciation, the effect of this last error has no impact 

on the financial statements. The cumulative impact of correcting these errors resulted in: 

 An increase in “Fixed assets” of $5.8 million; and an increase in “Accumulated 

amortization” of $1.1 million; resulting in an increase to “Fixed Assets, net” of $4.7 million 

as of September 30, 2015; 

 A net decrease in “Results of Operations” of $2.9 million for the year ended September 30, 

2015; and 

 A net increase in the 2015 “Investment in U.S. Government at Beginning of Year” of 

$7.6 million.

Restatements that do not impact “Investment of U.S. Government”: 

Outstanding MBS Commitments: Ginnie Mae identified an error in the off-balance sheet 

disclosure of outstanding MBS commitments. Ginnie Mae used an incorrect report to determine 

the cumulative outstanding MBS commitment balance. As a result, the disclosure for outstanding 

MBS commitments balance at September 30, 2015 was understated by $31 billion. 

This error has no impact on the “Investment of U.S Government” ending balance as of 

September 30, 2015.

Cash and Cash Equivalents: Ginnie Mae implemented OIG’s recommendation to merge 

“Funds with U.S. Treasury” and “Cash and other monetary assets” and change the financial 

statement captions to “Cash and cash equivalents.” 

Additionally, Ginnie Mae implemented the OIG’s recommendation regarding the presentation of 

its overnight securities as “Cash and cash equivalents” instead of “U.S. Government 

securities.” Accordingly, Ginnie Mae has elected to change its accounting policy to present its 

investments in overnight certificates as cash equivalents. Ginnie Mae believes the presentation of 

cash equivalents is preferable given the highly liquid nature of these securities. The impact of this 

change resulted in: 

 An increase in “Cash and cash equivalents” of $12.9 billion as of September 30, 2015; 

 A decrease in “U.S. Government securities” of $12.9 billion as of September 30, 2015. 

The cumulative effect of these changes has no impact on the “Investment of U.S. Government” 

ending balance as of September 30, 2015. 

52
Recapture (provision) for mortgage loans held for investment and Recapture (provision) 

for claims receivable: Ginnie Mae identified accounting errors associated with the classification 

of certain expenses, which were improperly included in the recapture (provision) accounts for 

mortgage loans held for investment and claims receivable. The impact of correcting this error 

resulted in:

 A decrease in “Provision for mortgage loans held for investment” of $140.9 million for 

the year ended September 30, 2015; 

 A decrease in “Provision for claims receivable” of $4.3 million for the year ended 

September 30, 2015; and 

 An increase in “Mortgage-backed securities program and other expenses” of $145.2 

million for the year ended September 30, 2015. 

This error has no impact on the “Investment of U.S Government” ending balance as of 

September 30, 2015.

Restricted Cash and Cash Equivalents: Ginnie Mae enhanced its presentation of principal and 

interest payments that were not received or cashed by security holders (unclaimed funds) as 

“Restricted cash and cash equivalents” instead of “Cash and cash equivalents”. The impact of this 

change resulted in: 

 A decrease in “Cash and cash equivalents” of $23.4 million as of September 30, 2015; and 

 An increase in “Restricted cash and cash equivalents” of $23.4 million as of September 30, 

2015. 

This change has no impact on the “Investment of U.S Government” ending balance as of 

September 30, 2015. 

Escrow Funds (Held in Trust for Investors or Mortgagors): Ginnie Mae identified an error 

in the disclosure of off-balance sheet escrow funds. Certain funds held in trust for the borrower 

were improperly omitted. As a result, escrow funds disclosed as of September 30, 2015 was 

understated by $14.9 million. 

This error has no impact on the “Investment of U.S Government” ending balance as of 

September 30, 2015. 

Commitment Fees: Ginnie Mae identified accounting errors associated with the recognition of 

funds returned to the General Fund of the U.S. Treasury as a result of canceled spending authority. 

Ginnie Mae incorrectly recorded the cancelation of these funds against commitment fee revenue 

instead of other gain (loss) in the 2015 Statement of Revenues and Expenses and Changes in 

Investment of U.S. Government. The impact of correcting this error resulted in: 

 An increase in “Commitment Fees” of $1.1 million for the year ended September 30, 2015; 

and 

53

 An increase in “Gain (Loss) other” of $1.1 million for the year ended September 30, 2015. 

This error has no impact on the “Investment of U.S Government” ending balance as of 

September 30, 2015. 

Impact of Restatement on Financial Statements: The following tables show the impact of the 

restatement on each individual line item presented in the Balance Sheets and the Statements of 

Revenues and Expenses and Changes in Investment of U.S. Government for 2015. Restatement 

adjustment amounts in the following table may differ from above slightly due to rounding. 

 

54
IMPACT OF RESTATEMENT ON FINANCIAL STATEMENTS: 

* See Note 2: Restatement–Non-pooled loans discussion 

 

2015 Adjustment

2015 

As Restated

Assets:

Cash and cash equivalents $ 1,777,100 $ 12,903,500 $ 14,680,600

Restricted cash and cash equivalents 409,400 23,400 432,800

U.S. Government securities 12,922,900 (12,922,900) -

Accrued fees and other receivables 92,900 (800) 92,100

Claims receivable, net* 814,200 - 814,200

Advances, net 118,800 - 118,800

Mortgage loans held for investment, net* 4,352,600 - 4,352,600

Accrued interest receivable, net* 47,700 - 47,700

Acquired property, net* 30,300 - 30,300

Fixed assets, net 57,600 4,700 62,300

Mortgage servicing rights 29,600 - 29,600

Guaranty asset 7,016,500 (274,300) 6,742,200

Other assets 600 (200) 400

Total Assets $ 27,670,200 $ (266,600) $ 27,403,600

Liabilities and Investment of U.S. Government:

Liabilities:

Accounts payable and accrued liabilities $ 135,700 $ 100 $ 135,800

Deferred liabilities and deposits 300 - 300

Deferred revenue 305,900 13,800 319,700

Guaranty Liability 5,751,600 (90,300) 5,661,300

Total Liabilities $ 6,193,500 $ (76,400) $ 6,117,100

Commitments and Contingencies $ - $ - $ -

Investment of U.S. Government $ 21,476,700 $ (190,200) $ 21,286,500

Total Liabilities and Investment of U.S. 

Government $ 27,670,200 $ (266,600) $ 27,403,600

Balance Sheet

For the Year Ended 

September 30,

55

 

* See Note 2: Restatement–Non-pooled loans discussion 

2015 Adjustment

2015 

As Restated

Revenues:

Interest Income

Interest income on mortgage loans held for investment* $ 300,100 $ - $ 300,100

Other interest income 128,200 - 128,200

Income on guaranty obligation 1,031,700 - 1,031,700

Mortgage-backed securities guaranty fees 977,700 - 977,700

Commitment fees 84,900 1,000 85,900

Multiclass fees 33,300 (1,000) 32,300

Mortgage-backed securities program and other income 29,700 - 29,700

Total Revenues $ 2,585,600 $ - $ 2,585,600

Expenses:

Administrative expenses $ (21,600) $ 100 $ (21,500)

Fixed asset amortization (11,700) (2,200) (13,900)

Mortgage-backed securities program and other expenses (175,700) (146,000) (321,700)

Total Expenses $ (209,000) $ (148,100) $ (357,100)

Recapture (provision):

Recapture (provision) for mortgage loans held for investment* $ 549,300 $ 140,900 $ 690,200

Recapture (provision) for mortgage-backed program guaranty - - -

Recapture (provision) for claims receivable* (31,800) 4,300 (27,500)

Recapture (provision) for loss on uncollectible advances (45,300) - (45,300)

Recapture (provision) on acquired property* (28,500) - (28,500)

Total Recapture (Provision) $ 443,700 $ 145,200 $ 588,900

Gain (Loss):

Gain (Loss) on guaranty asset $ (630,400) $ (184,100) $ (814,500)

Gain (Loss) on mortgage servicing rights (15,000) - (15,000)

Gain (Loss) other - (1,100) (1,100)

Total Other Gains / (Losses) $ (645,400) $ (185,200) $ (830,600)

Results of Operations $ 2,174,900 $ (188,100) $ 1,986,800

Investment of U.S. Government at Beginning of Year 19,301,800 - 19,301,800

Adjustment to Investment of U.S. Government - (2,100) (2,100)

 Investment of U.S. Government at Beginning of Year, Restated* 19,301,800 (2,100) 19,299,700

Investment of U.S. Government at End of Year $ 21,476,700 $ (190,200) $ 21,286,500

Statement of Revenues and Expenses and Changes in Investment of U.S. Government

For the Year Ended

September 30,

56
Non-pooled Loans: In 2015, the OIG issued a disclaimer of opinion on Ginnie Mae’s financial 

statements. The OIG’s audit results focused primarily on Ginnie Mae’s non-pooled loans portfolio 

that were acquired from defaulted Issuers, which totaled $4.2 billion and $5.2 billion, net, as of 

September 30, 2016 and 2015, respectively. As mortgage servicing is not a core activity for Ginnie 

Mae, Ginnie Mae contracts with master sub-servicers (MSS) to provide the servicing of defaulted 

Issuers’ mortgage loans. Ginnie Mae informed the OIG that these non-pooled loan portfolio balances 

were un-auditable for the 2015 Financial Statements and that it would require a significant investment 

in technology, infrastructure, and people spanning multiple years. 

Ginnie Mae is continuing its remediation activities to refine loan-level transaction reporting to comply 

with U.S. GAAP for the non-pooled loan portfolio to be auditable. These efforts include, but are not 

limited to: (i) engaging necessary advisory counterparts to support the development of Ginnie Mae’s 

infrastructure; (ii) bolstering staff in the Office of the Chief Financial Officer (OCFO); (iii) working 

with third-party servicers to develop standardized loan-level reporting detail; (iv) establishing 

accounting policies compliant with U.S. GAAP; (v) performing assessments for every financial 

statement line item to assess departures from U.S. GAAP; (vi) resolving exceptions, which may entail 

investing in new technologies in order to track and account for the non-pooled loans portfolio; (vii) 

developing standard operating procedures to comply with Ginnie Mae’s new accounting policies 

within OCFO; and (viii) enhancing the internal controls over financial reporting. Refer to Note 3: 

Summary of Significant Accounting Policies for U.S. GAAP requirements. 

As noted above, the remediation process continues to require extensive and complex work, including 

both employees and external consultants. However, Ginnie Mae is confident in its ability to show 

continued progress through fiscal year 2017 in addressing the shortcomings identified by both 

management and OIG.

The non-pooled loan portfolio balances, however, remain un-auditable for the 2016 Financial 

Statements. As a result of data limitations and non-compliance with certain U.S. GAAP guidance, 

Ginnie Mae was not able to comply with certain disclosure requirements. Refer to the respective 

notes for the non-pooled loans (and related financial statement line items) listed below for departures 

from U.S. GAAP and omitted disclosures. Management will assess these financial statement line items 

and related disclosures in fiscal year 2017 for restatement:

Balance Sheets: 

 Claims receivable, net 

 Mortgage loans held for investment, net 

 Accrued interest receivable, net 

 Acquired property, net 

Statements of Revenues and Expenses and Changes in Investment of U.S. Government: 

 Interest income on mortgage loans held for investment 

57

 Recapture (provision) for mortgage loans held for investment 

 Recapture (provision) for claims receivable 

 Recapture (provision) for acquired property 

Statements of Cash Flows: 

 Provision (recapture) for mortgage loans held for investment 

 Provision (recapture) for claims receivable 

 Provision (recapture) for acquired property 

 Change in claims receivable, net 

 Change in accrued interest receivable, net 

 Proceeds from repayments and sales of loans acquired as held for investment 

 Proceeds from the dispositions of acquired property and pre-foreclosure sales 

 Purchases of loans held for investment 

 Transfers from mortgage loans held for investment to claims receivable, net; accrued interest, 

net; and advances against defaulted mortgage-backed security pools, net 

 Transfers from mortgage loans held for investment to acquired properties

 Disposal of acquired properties

Other 

 Reimbursable costs receivable, net 

Note 3: Summary of Significant Accounting Policies 

The following disclosures pertain to current practices followed by Ginnie Mae in accordance with its 

accounting policies, except as otherwise indicated. 

Basis of Presentation: The accompanying financial statements have been prepared in accordance 

with U.S. GAAP established by the Financial Accounting Standards Board (FASB), except as 

otherwise disclosed. 

Reclassification: Certain reclassifications have been made to the 2015 financial statements to 

conform to the 2016 presentation. 

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires 

management to make estimates and assumptions that affect: (a) the reported amounts of assets and 

liabilities at the date of the financial statements, (b) the reported amounts of revenues and expenses 

during the reporting periods, and (c) the related disclosures in the accompanying notes. Ginnie Mae 

has made significant estimates in a variety of areas including, but not limited to, valuation of certain 

financial instruments, assets (such as mortgage servicing rights (MSR), acquired property, allowance 

for mortgage loans held for investment (HFI), and guaranty assets), and liabilities (such as guaranty 

58
obligations and the liability for loss on mortgage-backed securities program guaranty). Actual results 

could differ from those estimates. 

Fair Value Measurement: Ginnie Mae uses fair value measurements for the initial recording of 

certain assets and liabilities, periodic re-measurement of certain assets on a recurring and non-recurring 

basis, and certain disclosures. Fair value is defined as the price that would be received to sell an asset 

or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the 

measurement date. Ginnie Mae bases its fair value measurements on an exit price that maximizes the 

use of observable inputs and minimizes the use of unobservable inputs. 

In determining fair value, Ginnie Mae uses various valuation techniques. The inputs to the valuation 

technique are categorized into a three-level hierarchy, as described below: 

Level 1 Quoted prices in active markets for identical assets or liabilities that are accessible

at the measurement date. 

Level 2 

 

Observable inputs other than Level 1 prices, such as quoted prices for similar

assets or liabilities, quoted prices in markets that are not active, or other inputs

that are observable or can be corroborated by observable market data for

substantially the full term of the assets or liabilities. 

Level 3 

 

Unobservable inputs that are supported by little or no market activity and that are

significant to the fair value of the assets or liabilities. 

Cash and Cash Equivalents: Ginnie Mae’s cash and cash equivalents consists of cash held by the 

U.S. Treasury Department (Funds with U.S. Treasury), cash that is held by the MSS, and Trustee and 

Administrator of securities on Ginnie Mae’s behalf but has not yet been transferred to Ginnie Mae 

(Deposits in Transit), as well as U.S. Treasury short-term investments (securities issued with an original 

maturity date of three months or less). Cash receipts, disbursements, and investment activities are 

processed by Treasury. All cash not classified as restricted cash is accessible in the event of an Issuer 

default (defined as any failure or inability of the issuer to perform its responsibilities under the Ginnie 

Mae MBS programs). 

Funds with U.S. Treasury represent the available budget spending authority of Ginnie Mae according 

to the U.S Treasury Department and is the aggregate amount of Ginnie Mae’s accounts with the U.S. 

Treasury Department. 

Deposits in Transit include principal, interest, and other payments held by the MSS and Trustee and 

Administrator of securities, in custodial accounts that have not yet been received by Ginnie Mae at 

the end of the reporting period. 

Ginnie Mae’s investments consist of one-day overnight certificates that are issued with a stated rate 

of interest to be applied to their par value with a maturity date of the next business day. These 

59

overnight certificates are measured at cost, which approximates fair value. Interest income on such 

securities is presented within Other interest income in the Statements of Revenues and Expenses and 

Changes in Investment of U.S. Government. 

Restricted Cash and Cash Equivalents: Cash and cash equivalents that are restricted as to 

withdrawal or use under the terms of certain contractual agreement, regulatory requirement, or unless 

approved by Congress are recorded as restricted cash and cash equivalents. Ginnie Mae received 

approval from The Office of Management and Budget (OMB) to invest restricted cash in U.S. 

Treasury securities and Ginnie Mae is entitled to the interest income earned on these investments. 

Restricted cash also includes principal and interest payments that were not cashed by security holders 

and unclassified funds.

Escrow Funds (Held in Trust for Investors or Mortgagors): Escrow funds are held in trust for 

underpayments and overpayments of principal and interest, and payments of mortgagors’ taxes, 

insurance and related items, or other fiduciary funds. These amounts were estimated to be $49.3 

million and $103.4 million as of September 30, 2016 and 2015, respectively. Escrow funds are not 

owned by Ginnie Mae and are therefore not included in total assets or total liabilities on Ginnie Mae’s 

Balance Sheet. 

Reimbursable Costs Receivable: As detailed above, escrow funds are held in trust for payments of 

mortgagors’ taxes and insurance for pooled loans and non-pooled loans. Where insufficient funds are 

available to make scheduled tax and insurance payments, Ginnie Mae is required to advance funds to 

cover the shortfall to preserve a first lien position in the property. In addition, Ginnie Mae may 

advance funds to cover foreclosure costs and other expenses in order to preserve the value of the 

underlying asset during the foreclosure process. For costs incurred on both pooled and non-pooled 

loans that are expected to be reimbursed, a receivable should be recorded. The receivable for 

reimbursable costs is reported net of an allowance to the extent that management believes that they 

will not be collected. The allowance is estimated based on historical loss experience of future 

collections from the borrowers, proceeds from the sale of the property, or recoveries from third-party 

insurers such as FHA, USDA, VA, and PIH. 

Due to lack of data availability as of September 30, 2016, Ginnie Mae was unable to reclassify such 

costs as a receivable. These costs have been previously expensed. Management will assess for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Accrued Fees and Other Receivables: Ginnie Mae’s accrued fees and other receivables include 

accrued guaranty fees, accrued interest on uninvested funds, and miscellaneous program receivables. 

The accrued guarantee fees are discussed in the Financial Guarantees section. 

Claims Receivable, net: Claims receivable represents receivables from conveyed properties and 

payments owed to Ginnie Mae from insuring agencies (FHA, VA, USDA and PIH). These receivables 

consist of three components: 

60
Short Sales Claims Receivable: As an alternative to foreclosure, a property may be sold for its 

appraised value even if the sale results in what is referred to as a short sale where the proceeds are not 

sufficient to fully pay off the mortgage. Ginnie Mae’s MSS analyze mortgage loans (HFI) for factors 

such as delinquency, appraised value of the property collateralizing the loan and market locale of the 

underlying property to identify loans that may be short sale eligible. For uninsured loans, these 

transactions are analyzed and approved by the Office of Issuer and Portfolio Management (OIPM) at 

Ginnie Mae. For FHA insured loans, for which the underlying property was sold in a short sale, the 

FHA, which is the largest insurer for Ginnie Mae, typically pays Ginnie Mae the difference between 

the proceeds received from the sale and the total contractual amount of the mortgage loan and 

delinquent interest payments at the debenture rate (less the first two months of delinquent month’s 

interest). Ginnie Mae records a short sale claims receivable while it awaits repayment of this amount 

from the insurer. For short sales claims receivable for which Ginnie Mae believes that full collection 

is not probable, Ginnie Mae records an allowance for short sales claims receivable. This allowance 

represents the incurred loss within the portfolio and incorporates expected recovery based on the 

underlying insuring agency guidelines and historical loss experience. The short sales receivable less the 

allowance for short sales receivable is the amount that Ginnie Mae determines to be collectible. Once 

the submitted claim is processed by the insuring agency, U.S. GAAP requires Ginnie Mae to record a 

charge-off to the allowance for claims receivable for any shortfall between the claim receivable and 

recovered amounts from the insurer. 

Ginnie Mae is unable to fully comply with U.S. GAAP requirements outlined above. Due to lack of 

data availability as of September 30, 2016, Ginnie Mae was unable to obtain updated claims receivable 

balances from the MSS as of period end. Refer to Note 10: Claims Receivable for details on Ginnie 

Mae’s current practice. 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Foreclosed Property: Ginnie Mae records foreclosed property when the MSS receives title to a 

property that has completed the foreclosure process in its respective legal jurisdiction, or the borrower 

conveys all interest in the residential real estate property to the MSS to satisfy the loan through 

completion of a deed in lieu of foreclosure process or similar legal agreement. These properties differ 

from Acquired Properties as Ginnie Mae intends to convey the property to an insuring agency, instead 

of marketing and selling the properties through the MSS. At conveyance, the asset is measured based 

on the amount of the loan outstanding (principal and interest) expected to be recovered from the 

guarantor. Once the claims receivable is established, Ginnie Mae periodically assesses its collectability 

by utilizing statistical models and Ginnie Mae’s most recent historical loss experience. Ginnie Mae 

records an allowance for foreclosed property that represents the incurred losses within the portfolio. 

The aggregate of the foreclosed property and the allowance for foreclosed property is the amount that 

Ginnie Mae determines to be collectible. 

61

Once the submitted claim is processed by the insuring agency, U.S. GAAP requires Ginnie Mae to 

record a charge-off to the allowance for claims receivable for any shortfall between the claim 

receivable and recovered amounts from the insurer. 

Ginnie Mae is unable to fully comply with U.S. GAAP requirements outlined above. Due to lack of 

data availability as of September 30, 2016, Ginnie Mae was unable to obtain updated foreclosed 

properties balances from the MSS as of period end. Refer to Note 10: Claims Receivable for details 

on Ginnie Mae’s current practice. 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Insurance Claims Receivable: Ginnie Mae records a receivable for insurance claims that have been 

submitted to an insuring agency for claim, but have not been paid as of the end of the reporting period. 

Because it is a receivable backed by the full faith of the U.S. government, which represents settled 

claims and approved future collection of cash from the insuring agency, Ginnie Mae expects full 

reimbursement. As a result, no allowance is calculated on this receivable. 

Advances, net: Advances represent loan pass-through payments made to fulfill Ginnie Mae’s 

guaranty of timely principal and interest payments to MBS security holders. Per U.S. GAAP, Ginnie 

Mae is required to report advances net of an allowance to the extent that management believes that 

they will not be collected. The allowance is estimated based on historical loss experience of future 

collections from the borrowers, proceeds from the sale of the property, or recoveries from third-party 

insurers such as FHA, USDA, VA, and PIH. 

Once Ginnie Mae purchases the loans from the pools, the associated advances are reclassified to the 

appropriate asset class. 

Mortgage Loans Held for Investment, net: When a Ginnie Mae Issuer defaults, Ginnie Mae is 

required to step into the role of the Issuer and make the timely pass-through payments to investors, 

and subsequently, assumes the servicing rights and obligations of the Issuer’s entire Ginnie Mae 

guaranteed, pooled loan portfolio. Ginnie Mae utilizes MSS to service these portfolios. There are 

currently two MSS for Single Family defaulted Issuers that service of the defaulted Issuer portfolio (of 

pooled and non-pooled loans). For the years ended September 30, 2016 and 2015, there were no 

Manufactured Housing or Multifamily loans being serviced by the MSS. 

In its role as servicer, Ginnie Mae assesses individual loans within its pooled portfolio to determine 

whether the loan must be purchased out of the pool. Ginnie Mae must purchase mortgage loans out 

of the MBS pool when the mortgage loans are ineligible for insurance by the FHA, USDA, VA, or 

PIH. Ginnie Mae has the option to purchase mortgage loans out of the MBS pool when the mortgage 

loans are insured but are delinquent for more than 90 days for manufactured housing and single family 

62
loans. Ginnie Mae has historically elected to buy loans out at 120 days delinquent for operational 

purposes. 

Ginnie Mae has the ability and the intent to hold these acquired loans for the foreseeable future or 

until maturity. Therefore, the mortgage loans are classified as HFI and reported on the balance sheets 

at their unpaid principal balance (UPB), net of charge-offs, and net of allowance for loan losses, as 

required by U.S. GAAP. Ginnie Mae is developing the capability to potentially sell certain loans 

currently recognized on Ginnie Mae’s Balance Sheets. Once the loans are clearly identified for sale, 

Ginnie Mae will reclassify the applicable loans from HFI to held for sale (HFS). For loans which 

Ginnie Mae initially classifies as HFI and subsequently transfers to HFS, those loans would be 

recognized at the lower of cost or fair value until sold, with any related cash flows classified as 

operating activities. As of September 30, 2016 and 2015, Ginnie Mae has no loans classified as HFS. 

Ginnie Mae is unable to fully comply with U.S. GAAP requirements outlined above. Due to lack of 

data availability as of September 30, 2016, Ginnie Mae was unable to obtain updated HFI loans 

balances from the MSS as of period end. Refer to Note 9: Mortgage Loans for details on Ginnie Mae’s 

current practice. 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Purchased Credit-Impaired (PCI) Loans: Ginnie Mae evaluates the collectability of all purchased 

loans and assesses whether there is evidence of credit deterioration subsequent to the loan’s 

origination and if it is probable, at acquisition, that Ginnie Mae will be unable to collect all contractually 

required payments receivable. Ginnie Mae considers guarantees and insurance from FHA, USDA, 

VA, and PIH in determining whether it is probable that Ginnie Mae will collect all amounts due 

according to the contractual terms. Per U.S. GAAP, Ginnie Mae is required to record realized losses 

on loans purchased when, upon purchase, the fair value is less than the acquisition cost of the loan. 

Additionally, U.S. GAAP requires Ginnie Mae to accrue and recognize the difference between the 

initial investment of the loan and the undiscounted expected cash flows (accretable yield) as interest 

income on a level-yield basis over the expected life of the loan. 

For the loans insured by FHA, which is Ginnie Mae’s largest insurer, Ginnie Mae expects to collect 

the full amount of the UPB and debenture rate interest (only for months allowed in the insuring 

agency’s timeline), when the insurer reimburses Ginnie Mae subsequent to filing a claim. As a result, 

these loans are accounted for under Accounting Standards Codification (ASC) 310-20, Receivables – 

Nonrefundable Fees and Other Costs. In accordance with ASC 310-20-30-5, these loans are recorded 

at the UPB plus accrued interest, which is the amount Ginnie Mae pays to repurchase these loans. 

Accordingly, Ginnie Mae recognizes interest income on these loans on an accrual basis less an 

allowance to arrive at the debenture rate for the number of months allowed under the insuring agency’s 

timeline. 

63

Ginnie Mae is unable to comply the U.S. GAAP requirements for PCI loans as it has not historically 

applied PCI guidance due to the lack of fair value measurements of PCI loans upon acquisition. 

Additionally, due to the lack of data availability as of September 30, 2016, Ginnie Mae was unable to 

obtain updated HFI loans balances from the MSS as of period end. Refer to Note 9: Mortgage Loans 

for details on Ginnie Mae’s current practice. 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Allowance for Loan Losses: Ginnie Mae performs periodic and systematic reviews of its loan 

portfolios to identify credit risks and assess the overall collectability of the portfolios to determine the 

estimated uncollectible portion of the recorded investment on the loans when (1) available 

information as of each balance sheet date indicates that it is probable a loss has occurred and (2) the 

amount of the loss can be reasonably estimated. 

For large groups of homogeneous loans that are collectively evaluated (ASC 450-20), Ginnie Mae 

establishes the allowance for loan losses on the HFI loan portfolio for both principal and interest 

payments similar to loss contingencies. When Ginnie Mae determines that it is probable a credit loss 

will occur and that loss can be reasonably estimated, Ginnie Mae recognizes the estimable amount of 

the incurred loss in the allowance for loan losses. Ginnie Mae aggregates its mortgage loans based on 

common risk characteristics, primarily by the type of insurance (FHA, VA, USDA, and uninsured) 

backing the loan, as each has a different recovery rate. The allowance for loan losses estimate is 

calculated using statistical models that are based on historical charge offs and insurance recoveries and 

includes qualitative and environmental factors, where applicable. 

This allowance for loss on mortgage loans HFI represents management’s estimate of probable credit 

losses inherent in Ginnie Mae’s mortgage loan portfolio. The allowance is netted against the recorded 

investment on mortgage loans HFI. 

Ginnie Mae considers a loan to be impaired when, based on current information, it is probable that 

amounts due, including interest, will not be received in accordance with the contractual terms of the 

loan agreement. Ginnie Mae measures impairment based on the present value of expected future cash 

flows. 

Per U.S. GAAP, Ginnie Mae is required to measure impairment based on the fair value of the 

underlying collateral less cost to sell when Ginnie Mae determines that foreclosure is probable or if 

the repayment of the loan is expected to be provided solely by the sale of underlying collateral 

(e.g.uninsured loans). 

Ginnie Mae is unable to fully comply with U.S. GAAP requirements outlined above. Due to lack of 

data availability as of September 30, 2016, Ginnie Mae was unable to obtain updated HFI loans 

balances from the MSS as of period end.  Refer to Note 9: Mortgage Loans for further details. 

64
Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Charge-Off: U.S. GAAP requires Ginnie Mae to have a policy that determines when a charge-off is 

recorded for the losses that are confirmed through the receipt of assets in full satisfaction of a loan, 

such as the receipt of claims proceeds from an insuring agency or underlying collateral upon 

foreclosure, or other liquidation (such as deed-in-lieu of foreclosure). 

Due to lack of data availability, Ginnie Mae was unable to fully comply with the U.S. GAAP 

requirements outlined above. Refer to Note 9: Mortgage Loans for details on Ginnie Mae’s current 

practice. 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Troubled Debt Restructuring (TDR): To avoid foreclosure, the MSS on behalf of Ginnie Mae, 

may modify loans to help borrowers who have fallen into financial difficulties with their mortgages. 

Methods of modifying loans may include offering concessions and restructuring the terms of the loan 

to alleviate the burden of the borrower. Various concessions may be provided including: 

 A trial period where the expected permanent modification will change amounts due at the 

original contract rate; 

 A delay in payment that is more than insignificant; 

 A reduction in the contractual interest rate; 

 Interest forbearance for a period of time for uncollected interest amounts, that is more than 

insignificant; 

 Principal forbearance that is more than insignificant; and 

 Discharge of the borrower’s obligation due to filing of Chapter 7 bankruptcy. 

Ginnie Mae considers these modifications a concession to borrowers experiencing financial difficulties 

and therefore classifies these loans as TDRs consistent with ASC 310-40, Troubled Debt Restructuring by 

Creditors. Ginnie Mae measures the impairment on these loans restructured in a TDR based on the 

excess of the recorded investment in the loan over the present value of the expected future cash flows 

discounted at the loan’s original effective interest rate. Per U.S. GAAP, if foreclosure is probable, 

Ginnie Mae is required to measure the impairment as the difference between the loan’s recorded 

investment and the fair value of the underlying property, less cost to sell, and adjust for estimated 

insurance or other proceeds that Ginnie Mae would expect to receive, consistent with the 

measurement of impairment on impaired loans per ASC 310-10 as noted above. 

65

Due to lack of data availability as of September 30, 2016, Ginnie Mae is unable to fully comply with 

U.S. GAAP requirements outlined above. Refer to the Note 9: Mortgage Loans for further details on 

Ginnie Mae’s current practice. 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Accrued Interest Receivable, net: U.S. GAAP requires Ginnie Mae to have a policy that establishes 

when a loan is placed on nonaccrual status, the method of recording payments received while a loan 

is on nonaccrual and criteria for resuming accrual of interest. 

Ginnie Mae is unable to fully comply with U.S. GAAP requirements outlined above. Due to lack of 

data availability, Ginnie Mae is unable to fully comply with the U.S. GAAP requirements outlined 

above. Refer to Note 9: Mortgage Loans for details on Ginnie Mae’s current practice. 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Acquired Property, net: Ginnie Mae recognizes acquired property when Ginnie Mae obtains 

marketable title to the underlying property that has completed the foreclosure process or the borrower 

conveys all interest in the residential real estate property to Ginnie Mae to satisfy the loan through a 

completion of a deed in lieu of foreclosure or through similar legal agreement. These assets differ 

from “foreclosed property” as they are not conveyed to the insuring agencies and Ginnie Mae will 

hold the title while the properties are being marketed for sale by the MSS. 

U.S. GAAP requires acquired property to be initially measured at its fair value, net of estimated costs 

to sell. At acquisition, a loss is required to be charged-off against the Allowance for loan loss when 

the recorded investment in the loan exceeds the fair value, net of estimated costs to sell, of the acquired 

property. Conversely, any excess recovery of the fair value less estimated costs to sell over the recorded 

investments in the loan is required to be recognized first to recover any forgone, contractually due 

principal and interest, then to Recapture Income (Expense) on Acquired Property in the Statements 

of Revenue and Expenses and Changes in Investment of the U.S. Government. 

U.S. GAAP requires acquired property to be subsequently measured at the lower of its carrying value 

or fair value, net of estimated costs to sell. Any subsequent write-downs to fair value, net of estimated 

costs to sell, from its carrying value, i.e., holding period write-downs, should be recognized through a 

valuation allowance with an offsetting charge to Income (expense) on Acquired Property. Any 

subsequent increase in fair value, net of estimated costs to sell, above the carrying value, i.e., holding 

period gains, are required to be recognized in Income (expense) on Acquired Property in the 

Statements of Revenue and Expenses and Changes in Investment of the U.S. Government up to the 

cumulative loss previously recognized through the valuation allowance. 

66
U.S. GAAP requires Ginnie Mae to record gains and losses on sales of acquired property as the 

difference between the net sales proceeds of the sale of the property and the carrying value of the 

property and to recognize those through Gain (Loss) other on the Statements of Revenues and 

Expenses and Changes in Investment of the U.S. Government. 

U.S. GAAP requires material development and improvement costs for acquired property to be 

capitalized into the balance. Other post-foreclosure costs are required to be expensed as incurred to 

Other Expenses on the Statements of Revenues and Expenses and Changes in Investment of the U.S. 

Government. 

Ginnie Mae is unable to fully comply with U.S. GAAP requirements outlined above. Due to lack of 

data availability as of September 30, 2016, Ginnie Mae was unable to obtain updated acquired property 

balances from the MSS as of period end. Refer to the Note 11: Acquired Property for details on Ginnie 

Mae’s current practices. 

Management will assess the information presented within this footnote for restatement in fiscal year 

2017. Please refer to Note 2: Restatement-Non-pooled Loans. 

Fixed Assets, net: Ginnie Mae’s fixed assets consist of leases and computer systems hardware and 

software that are used to accomplish its mission. Ginnie Mae capitalizes costs based on guidance in 

ASC 840 Leases, ASC 350-40 Intangibles—Goodwill and Other—Internal-Use Software, and ASC 360 Property, 

Plant and Equipment. Ginnie Mae amortizes the capitalized costs over a three to five-year period 

beginning from the project’s completion on a straight-line basis. Expenditures for improvements that 

significantly enhance the life of an asset are capitalized. Expenditures for ordinary repairs and 

maintenance are charged to expense as incurred. 

Fair Value Option: The fair value option allows certain financial assets, such as acquired loans, to be 

reported at fair value (with unrealized gains and losses reported in the Statements of Revenues and 

Expenses and Changes in Investment of U.S. Government and related cash flows classified as 

operating activities). The fair value option was elected by Ginnie Mae for the Guaranty Asset, please 

refer to “Guaranty Asset and Guaranty Liability” above. The fair value option was not elected by 

Ginnie Mae for any recognized loans on its Balance Sheets for 2016 and 2015. Ginnie Mae reserves 

the right to elect the fair value option for newly acquired loans in future periods. 

Mortgage Servicing Rights: Mortgage Servicing Rights represent Ginnie Mae’s rights and 

obligations to service mortgage loans underlying a defaulted Issuer’s entire Ginnie Mae guaranteed 

pooled-loan portfolio. Ginnie Mae contracts with multiple MSS to provide the servicing of its pooled 

mortgage loans. The servicing functions typically performed by Ginnie Mae’s MSS include: collecting 

and remitting loan payments, responding to borrower inquiries, accounting for principal and interest, 

holding custodial funds for payment of property taxes and insurance premiums, counseling delinquent 

mortgagors, supervising foreclosures and property dispositions, and generally administering the loans. 

Ginnie Mae receives a monthly servicing fee based on the remaining outstanding principal balances 

67

of the loans. These servicing fees are included in and collected from payments made by the borrowers. 

Ginnie Mae pays a sub-servicing expense to the MSS in consideration for servicing the loans. 

Ginnie Mae records a servicing asset (or liability) each time it takes over a defaulted Issuer’s Ginnie 

Mae guaranteed pooled-loan portfolio. The balance of the MSR represents the benefits of servicing 

that are expected to be more (or less) than adequate compensation to a sub-servicer for performing 

the servicing. The determination of adequate compensation is a market notion and is made 

independent to Ginnie Mae’s cost of servicing. Accordingly, Ginnie Mae’s determination of adequate 

compensation is based on compensation demanded in the marketplace. Typically, the benefits of 

servicing are expected to be more than adequate compensation for performing the servicing, and the 

contract results in a servicing asset. However, if the benefits of servicing are not expected to adequately 

compensate for performing the servicing, the contract results in a servicing liability. 

Ginnie Mae reports MSR at fair value to better reflect the potential net realizable or market value that 

could be ultimately realized from the disposition of the MSR asset or the settlement of a future MSR 

liability as Ginnie Mae does not intend to hold its MSR assets long term. To determine the fair value 

of the MSR, Ginnie Mae uses a valuation model that calculates the present value of estimated future 

net servicing income. The model factors in key economic assumptions and inputs including 

prepayment rates, cost to service a loan, contractual servicing fee income, ancillary income, escrow 

account earnings, and the discount rate. In addition, the MSR also takes into account future expected 

cash flows for loans underlying the defaulted Issuers’ portfolio including credit losses. The discount 

rate is used to estimate the present value of the projected cash flows in order to estimate the fair value 

of the MSR. The discount rate assumptions reflect the market’s required rate of return adjusted for 

the relative risk of the asset type. This approach consists of projecting servicing cash flows and 

estimating the present value of these cash flows using discount rates. Upon acquisition, Ginnie Mae 

measures its MSR at fair value and subsequently re-measures the MSR assets or liabilities with changes 

in the fair value recorded in the Statements of Revenues and Expenses and Changes in Investment of 

U.S. Government. During 2016, Ginnie Mae implemented a strategy to sell agency MSR asset with 

the intent of reducing exposure to interest rate movements and credit losses. 

Ginnie Mae may enter into business transactions and agreements, which provide certain 

representations and warranties associated with the underlying loan portfolios. If there is a breach of 

these contractual obligations, Ginnie Mae may be required to repurchase certain loans. For those 

instances, Ginnie Mae will assess the risk of loss for such claims and record a liability if the loss is 

probable and estimable.

Compensated Absences: Under the Accrued Unfunded Leave and Federal Employees 

Compensation Act (FECA), annual leave and compensatory time are accrued as earned and the liability 

is reduced as leave is taken. The liability at year-end reflects cumulative leave earned but not taken, 

priced at current wage rates. Earned leave deferred to future periods is to be funded by future 

appropriations. To the extent that current or prior year appropriations are not available to fund annual 

leave earned but not taken, funding will be obtained from future financing sources. Sick leave and 

68
other types of leave are expensed as taken. Compensated absences are included with accounts payable 

and accrued liabilities. 

Financial Guarantees: Ginnie Mae’s guarantee obligates Ginnie Mae to stand ready, over the term 

of the guarantee, to advance funds to cover any shortfall of principal and interest to the MBS holders 

in the event of an Issuer default. 

Ginnie Mae, as guarantor, follows the guidance in ASC 460, Guarantees, for its accounting and 

disclosure of its guarantees. At inception of the guaranty, Ginnie Mae recognizes a liability, the 

“guarantee obligation” at fair value. Ginnie Mae applies the practical expedient in ASC 460, which 

allows for the guaranty obligation to be recognized at inception based on the premium received or 

receivable by the guarantor, provided the guaranty is issued in a standalone arm’s length transaction 

with an unrelated party. The fair value of the guarantee obligation is calculated as the discounted cash 

flows of the expected future premiums from guarantee fees over the expected life of the mortgage 

pools. The estimated fair value included certain assumptions such as future UPB, prepayment speeds 

and default rates. 

Additionally, as the guaranty is issued in a standalone transaction for a premium, Ginnie Mae records 

a guaranty asset as the offsetting entry for the guaranty liability. Thus, there is no net impact from the 

initial recording of the guaranty obligation and asset on the net financial position of Ginnie Mae. 

Ginnie Mae subsequently amortizes the guarantee obligations using a systematic and rational 

amortization method. Ginnie Mae’s amortization is adjusted on a quarterly basis as the UPB of the 

guaranteed MBSs outstanding in the non-defaulted issuer portfolio declines. In addition, the guarantee 

assets are recorded at fair value subsequent to initial measurement with changes in fair value recorded 

through the Statement of Revenues and Expenses and Changes in Investment of U.S. Government. 

Liability for Loss on Mortgage-Backed Securities Program Guaranty: Liability for loss on 

mortgage-backed securities program guaranty is a loss contingency that arises from the guaranty 

obligation that Ginnie Mae has to the MBS holders as a result of a probable Issuer default. The Issuers 

have the obligation to make timely principal and interest payments to investors, however, in the event 

whereby the Issuer defaults, Ginnie Mae steps in and continues to make the contractual payments to 

investors. The contingent aspect of the guarantee obligation is measured initially and in subsequent 

periods under ASC 450-20, Contingencies – Loss Contingencies. 

Ginnie Mae’s Office of Enterprise Risk (OER) utilizes the Issuer Risk Grade model to assist in the 

analysis of potential defaults. The Issuer Risk Grade model assigns each Issuer an internal risk grade 

using an internally developed proprietary risk-rating methodology. The objective of the methodology 

is to identify those Ginnie Mae Issuers that display an elevated likelihood of default relative to their 

peers. To this end, the methodology assigns each active Issuer a risk grade ranging from 1-8, with 1 

representing a low probability of default and 8 representing an elevated probability of default. As the 

risk grade rating approaches an elevated probability of default, Ginnie Mae further evaluates the 

financial condition of the Issuer and considers whether an accrual of the loss contingency is required. 

69

Recognition of Revenues and Expenses: Ginnie Mae recognizes revenue from the following 

sources: 

 Interest income on mortgage loans HFI – Ginnie Mae accrues interest income for performing 

loans at the note rate of the underlying mortgage. Interest income on mortgage loans HFI 

includes the effect of the allowance for interest income that is deemed uncollectible. 

 Other interest income – Ginnie Mae earns interest income on U.S. Government Securities 

related to U.S. Treasury overnight certificates. In addition Ginnie Mae earns interest on the 

uninvested funds, held in the Financing Fund, which is based on the 20-year Consumer Price 

Index rate for the year. 

 Income on guaranty obligation – Ginnie Mae amortizes its guarantee obligation into revenues 

based on the change in the UPB of loans relative to their original liability. 

 Mortgage-backed securities guaranty fees – Ginnie Mae receives monthly guaranty fees for 

each MBS mortgage pool, based on a percentage of the pool’s outstanding balance. Fees 

received for Ginnie Mae’s guaranty of MBS are recognized as earned. 

 Commitment fees – Ginnie Mae receives commitment fees as Issuers request commitment 

authority to issue Ginnie Mae MBS. Commitment fees related to approved commitment 

authority are recognized in income as Issuers use their commitment authority, with the 

remaining balance deferred until earned or expired, whichever occurs first. Fees from expired 

commitment authority are recognized as income and are not returned to Issuers. 

 Multiclass fees – Ginnie Mae receives one-time upfront fees related to the issuance of 

multiclass products. Multiclass products include REMICs and Platinum Certificates. A portion 

of the fees associated with REMICs are recognized as revenue at inception based on the 

proportion of upfront costs incurred in relation to the total cost expected to be incurred over 

the contractual life of the security. Remaining fees associated with REMICs are deferred and 

amortized into income evenly over the contractual life of the security, in conjunction with the 

recognition of servicing fees paid to the third-party administrator. Fees associated with 

Platinum securities are recognized as revenue over the service period on a straight line basis 

as Ginnie Mae does not incur upfront cost for restructuring these securities. 

 MBS program and other income – Ginnie Mae recognizes income through fees related to New 

Issuer Applications, Transfers of Issuer Responsibilities and Mortgage Servicing Fees. 

Ginnie Mae’s expenses are classified into three groups: MBS program and other expenses, 

administrative expenses, and fixed asset amortization. The main components of the MBS program 

and other expense line item are multiclass expenses, MBS information systems and compliance 

expenses, sub-servicing expenses, asset management expenses, and pool processing and central paying 

agent expenses. 

Securitization and Guarantee Activities: Ginnie Mae’s primary business activity is to guarantee the 

timely payment of principal and interest on securities backed by pools of mortgages issued by private 

institutions. Unlike substantially all of the securitization market, the issuance of Ginnie Mae MBS is 

70
not completed through a trust vehicle. Also, Ginnie Mae is not the legal issuer. Rather Ginnie Mae 

approves issuers to pool loans, assign rights to the loans to Ginnie Mae through a pool custodian, and 

issue Ginnie Mae MBS. Federal charters grant Ginnie Mae the ability to isolate pools of mortgage 

loans without the use of a trust or legal entity. Additionally, for federal income tax purposes, the 

Ginnie Mae pool is considered to be a grantor trust. As such each of these “virtual trusts” are 

considered individual legal entities for consolidation purposes and are considered VIEs. 

Variable Interest Entities (VIE) Model 

For entities in which Ginnie Mae has a variable interest, Ginnie Mae determines whether, if by design, 

(i) the entity has equity investors who, as a group, lack the characteristics of a controlling financial 

interest, (ii) the entity does not have sufficient equity at risk to finance its expected activities without 

additional subordinated financial support from other parties or (iii) the entity is structured with nonsubstantive voting rights. If an entity has at least one of these characteristics, it is considered a VIE, 

and is consolidated by its primary beneficiary. The primary beneficiary is the party that (i) has the 

power to direct the activities of the entity that most significantly impact the entity’s economic 

performance; and (ii) has the obligation to absorb losses or the right to receive benefits from the entity 

that could potentially be significant to the entity. Only one reporting entity, if any, is expected to be 

identified as the primary beneficiary of a VIE. Ginnie Mae reassesses its initial evaluation of whether 

an entity is a VIE upon occurrence of certain reconsideration events. 

Ginnie Mae’s involvement with legal entities that are VIEs is limited to providing a guarantee on 

principal and interest returns to MBS holders of the Ginnie Mae virtual trusts. Ginnie Mae is not the 

primary beneficiary of the Ginnie Mae virtual trusts as it does not have the power to control the 

significant activities of the trusts. Other than its guarantee, Ginnie Mae does not provide, nor is it 

required to provide, any type of financial or other support to these entities. The guaranty fee receivable 

represents compensation for taking on the risk of providing the guaranty to MBS investors for the 

timely payment of principal and interest in the event of Issuers’ default. 

The following table represents the amounts of the assets and liabilities that relate to Ginnie Mae’s 

interest in VIEs as of September 30, 2016, and 2015: 

(Dollars in thousands) 2016 2015

Guaranty Asset $ 6,397,600 $ 6,742,200 

Guaranty Fee Receivable $ 87,000 $ 81,000 

Total $ 6,484,600 $ 6,823,200 

Guaranty Liability $ 6,198,400 $ 5,661,300 

Total $ 6,198,400 $ 5,661,300 

Maximum exposure to loss $ 1,609,000,000 1,728,000,000 $ 

September 30,

71

Refer to Note 6: Financial Guarantees and Financial Instruments with Off-Balance Sheet Risk for 

further details. 

Recently Adopted Accounting Guidance: The following provides a brief description of recently 

adopted accounting pronouncements and their effect on Ginnie Mae’s financial statements: 

Standard Description 

Effective Date 

and/or Date of 

Adoption 

Effect on the 

financial 

statements 

Accounting 

Standards 

Update (ASU) 

2014-04, 

Reclassification 

of Residential 

Real Estate 

Collateralized 

Consumer 

Mortgage Loans 

upon 

Foreclosure 

(Topic 310) 

The FASB issued guidance to clarify that 

a creditor should reclassify a mortgage 

loan to acquired property when it 

obtains legal title or completes a deed in 

lieu of foreclosure or similar legal 

agreement. Additionally, creditors will be 

required to disclose the amount of 

foreclosed residential real estate property 

they hold and the recorded investment 

in loans collateralized by residential 

property that is in the process of 

foreclosure. 

Effective for 

annual periods 

beginning after 

December 15, 

2014 and interim 

periods within 

annual periods 

beginning after 

December 15, 

2015. 

Date of 

Adoption: 

Ginnie Mae is 

undergoing 

remediation 

related to its 

accounting for 

loans. Date of 

adoption will be 

determined 

based on the 

results. 

U.S. GAAP 

requires an entity 

to reclassify a 

mortgage loan to 

acquired property 

when it obtains 

legal title or 

completes a deed 

in lieu of 

foreclosure or 

similar legal 

agreement. The 

property should 

be recorded based 

on its fair value 

less costs to sell. 

Current Ginnie 

Mae’s approach is 

not in compliance 

with U.S. GAAP 

(refer to Note 11: 

Acquired 

Property). 

Ginnie Mae is 

evaluating the 

impact of the 

adoption of this 

amendment on its 

financial 

statements. 

72
Recent Accounting Guidance: The following provides a brief description of recent accounting 

pronouncements that could affect Ginnie Mae’s financial statements: 

Standard Description 

Effective Date 

and/or Date of 

Adoption 

Effect on the 

financial 

statements 

ASU 2014-09, 

Revenue from 

Contracts with 

Customers 

(Topic 606) 

ASU 2015-14, 

ASU 2016-08, 

ASU 2016-10, , 

and ASU 2016-

12 

The amendment requires entities to 

recognize revenue to depict the transfer 

of promised goods or services to 

customers in amounts that reflect the 

consideration to which the entity expects 

to be entitled in exchange for those 

goods or services. ASU 2015-14 defers 

the effective date of ASU 2014-09 for all 

entities by one-year. ASU 2016-08 

discusses principal versus agent 

considerations (reporting revenue gross 

versus net). ASU 2016-10 discusses 

identification of performance obligations 

and licensing. ASU 2016-11 discusses 

the rescission of Securities and 

Exchange Commission (SEC) guidance. 

ASU 2016-12 discusses narrow scope 

improvements and practical expedients. 

Effective for 

annual periods 

beginning after 

December 15, 

2018 and interim 

periods 

beginning after 

December 15, 

2018. 

Ginnie Mae is 

evaluating the 

impact that the 

adoption of this 

amendment will 

have on its 

financial 

statements. 

ASU 2015-02, 

Amendments to 

the 

Consolidation 

Analysis (Topic 

810) 

The amendment removes the specialized 

consolidation model relating to limited 

partnerships and similar entities. The 

amendment also eliminates certain of the 

conditions for evaluating whether fees 

paid to a decision maker or service 

provider represent a variable interest. 

Effective for 

annual periods 

ending after 

December 15, 

2016 and interim 

periods 

beginning after 

December 15, 

2016. 

Ginnie Mae is 

evaluating the 

impact that the 

adoption of this 

standard will have 

on its financial 

statements. 

ASU 2016-01, 

Recognition and 

Measurement of 

Financial Assets 

and Financial 

Liabilities (Topic 

825-10) 

The FASB issued guidance which makes 

certain amendments to the recognition, 

measurement, and presentation of 

financial assets and financial liabilities, as 

well as amendments to certain disclosure 

requirements relating to the fair value of 

financial instruments. 

Effective for 

annual periods 

beginning after 

December 15, 

2018 and interim 

periods 

beginning after 

December 15, 

2018. 

Ginnie Mae is 

evaluating the 

impact that the 

adoption of this 

amendment will 

have on its 

financial 

statements. 

73

Standard Description 

Effective Date 

and/or Date of 

Adoption 

Effect on the 

financial 

statements 

ASU 2016-02, 

Leases (Topic 

842) 

The FASB issued clarified guidance 

surrounding the definition of a lease and 

recognition of lease assets and lease 

liabilities by lessees for those leases 

classified as operating leases. 

Effective for 

annual periods 

beginning after 

December 15, 

2018 and interim 

periods 

beginning after 

December 15, 

2018. 

Ginnie Mae is 

evaluating the 

impact that the 

adoption of this 

standard will have 

on its financial 

statements. 

ASU 2016-13, 

Measurement of 

Credit Losses on 

Financial 

Instruments 

(Topic 326) 

The FASB issued a new credit loss 

standard that changes the impairment 

model for most financial assets and 

certain other instruments. The standard 

adds an impairment model (known as 

the current expected credit loss (CECL) 

model) that is based on expected losses 

rather than incurred losses. The standard 

requires an entity to estimate its lifetime 

“expected credit loss” and record an 

allowance that, when deducted from the 

amortized cost basis of the financial 

asset, presents the net amount expected 

to be collected on the financial asset. 

The allowance represents the portion of 

the amortized cost basis the entity 

doesn’t expect to collect. The standard 

also eliminates the current accounting 

model for purchased credit impaired 

loans and debt securities. Instead, 

entities will gross up the initial amortized 

cost for purchased financial assets with 

credit deterioration based on the 

purchase price and estimated credit 

losses. 

Effective for 

annual periods 

beginning after 

December 15, 

2020 and interim 

periods within 

annual periods 

beginning after 

December 15, 

2021. 

Ginnie Mae is 

evaluating the 

impact that the 

adoption of this 

standard will have 

on its financial 

statements. 

Other recent accounting pronouncements have been deemed not applicable or not material to the 

financial statements as presented.

Note 4: Cash and cash equivalents 

Cash and cash equivalents consist of funds held by Treasury, funds held by the MSS, funds held by 

Trustee and Administrator of securities, and U.S. Treasury short-term investments. Cash and cash 

equivalents – unrestricted and restricted – include the following at September 30, 2016 and 2015: 

74
(1) This amount represents Ginnie Mae’s account balance with the U.S. Treasury. It includes cash and cash equivalents that are restricted by 

Congress, which Ginnie Mae cannot spend without approval from Congress, as well as cash and cash equivalents that are restricted temporarily, 

until Ginnie Mae determines the appropriate allocation for cash received. 

(2) This amount represents cash collected by the MSS for Ginnie Mae but not yet received by Ginnie Mae (Deposits in transit). 

(3) This amount represents cash collected by Trustee for Ginnie Mae but not yet received by Ginnie Mae (Deposits in transit). 

(4) This amount represents investments in overnight certificates. It includes restricted cash and cash equivalents owed to MBS certificate holders 

that cannot be located by the administrator of the securities. There is no statute of limitations stating when the investor can claim this cash. 

Cash held by Treasury: Ginnie Mae’s cash receipts and disbursements are processed by Treasury. 

Cash held by Treasury represents the available budget spending authority of Ginnie Mae (obligated 

and unobligated balances available to finance allowable expenditures). The restricted balances 

represent amounts restricted for use by Ginnie Mae to certain activities. 

Cash held by the MSS: There may be a time lag between when the MSS receives cash collections on 

behalf of Ginnie Mae such as principal, interest, and insurance claims proceeds, and when cash 

collections are transferred to Ginnie Mae. Ginnie Mae records an increase in cash and cash equivalents 

for receipts collected by the MSS, but not yet received by Ginnie Mae at the end of the reporting 

period. 

 

(Dollars in thousands) Unrestricted Restricted Total

Cash and cash equivalents held by Treasury

(1) $ 856,300 $ 523,000 $ 1,379,300

Cash and cash equivalents held by MSS(2) 51,500 - 51,500

Cash and cash equivalents held by Trustee 

and administrator of securities(3) 8,200 - 8,200

U.S. Treasury short-term investments(4) 15,930,100 23,600 $ 15,953,700

Total $ 16,846,100 $ 546,600 $ 17,392,700

As of September 30, 2016

(Dollars in thousands) Unrestricted Restricted Total

Cash and cash equivalents held by Treasury

(1) $ 1,732,600 $ 409,400 $ 2,142,000

Cash and cash equivalents held by MSS(2) 44,500 - 44,500

Cash and cash equivalents held by Trustee 

and administrator of securities(3) 3,900 - 3,900

U.S. Treasury short-term investments(4) 12,899,600 23,400 12,923,000

Total $ 14,680,600 $ 432,800 $ 15,113,400

As of September 30, 2015

75

Cash held by Trustee and Administrator of securities: There may be a time lag between when the 

Trustee and Administrator of securities receives cash collections for commitment fees and multiclass 

fees, respectively, on behalf of Ginnie Mae, and when cash collections are transferred to Ginnie Mae. 

Ginnie Mae records an increase in cash and cash equivalents for receipts collected by the Trustee, but 

not yet received by Ginnie Mae at the end of the reporting period. 

U.S. Treasury short term investments: The U.S. Treasury Securities are bought and sold at 

composite prices received from the Federal Reserve Bank of New York. These securities are 

maintained in book-entry form at the Bureau of Public Debt and include U.S. Treasury overnight 

certificates, U.S. Treasury notes, and U.S. Treasury inflation-indexed securities (reflecting inflation 

compensation). Ginnie Mae has approval from the OMB to establish a Capital Reserve Fund, which 

has the ability to invest in overnight U.S. Government Securities. As a result of the OMB approval, 

Ginnie Mae invested the full balance of the Capital Reserve Fund approximately $15.8 billion and 

$12.8 billion, and the Liquidating fund approximately, $151.2 million and $150.7 million, as of 

September 30, 2016 and 2015, respectively, in overnight U.S. Government securities. As of September 

30, 2016 and 2015, Ginnie Mae only holds overnight certificates. The U.S. Treasury short-term 

investments balance includes $23.6 million and $23.4 million of restricted cash related to unclaimed 

MBS security holder payments, as of September 30, 2016 and 2015, respectively. The U.S. Treasury 

Securities are carried at cost, which approximates its fair value. 

Note 5: Restricted Cash and cash equivalents 

Restricted cash and cash equivalents represents monies that are restricted to the withdrawal or usage 

of certain activities. The restricted cash balance consists of the following: 

 Unclaimed security holder payments: Money owed to MBS certificate holders that cannot be 

located by the administrator of the Ginnie Mae MBS securities. 

 Unapplied deposits-non-government: Cash received by Ginnie Mae held in a suspense account 

until the appropriate application is determined. These amounts while in the suspense account 

are not a part of Ginnie Mae’s available cash balance. 

 Collections precluded from obligation: Unobligated money within the Programs Fund balance 

that is restricted by Congress and cannot be utilized unless there is approval by Congress. 

The balance of restricted cash and cash equivalents as of September 30, 2016 and 2015 were as 

follows:

(Dollars in thousands) 2016 2015

Unclaimed security holder payments 23,600 $ $ 23,400

Unapplied deposits-non-government 300 300

Collections precluded from obligation 522,700 409,100

Total $ 546,600 $ 432,800

September 30,

76
Note 6: Financial Guarantees and Financial Instruments with Off-Balance Sheet 

Risk (As Restated) 

Ginnie Mae receives a guaranty fee from Issuers, which is calculated based on the UPB of outstanding 

MBS in the defaulted and non-defaulted Issuers’ pooled portfolio. This guaranty fee represents 

compensation for taking on the risk of providing the guaranty to MBS investors for the timely payment 

of principal and interest in the event of Issuers’ default. Ginnie Mae only guarantees securities created 

by approved Issuers and backed by mortgages insured by other federal programs. The underlying 

source of loans for the Ginnie Mae I MBS and Ginnie Mae II MBS comes from Ginnie Mae’s four 

main MBS programs, the Single Family, Multifamily, HMBS and Manufactured Housing Programs, 

which serve a variety of loan financing needs and different issuer origination capabilities. Please see 

Note 1: Entity and Mission for more information on each program. 

Ginnie Mae recognizes a guaranty asset upon issuance of a guaranty for the expected present value of 

these guaranty fees. The guaranty asset recognized on the Balance Sheets is $6.4 billion and $6.7 billion 

as of September 30, 2016 and 2015, respectively. The guaranty obligation represents the 

non-contingent guaranty obligation for Ginnie Mae’s obligation to stand ready to perform on the 

guaranty. The guaranty obligation recognized on the Balance Sheets is $6.2 billion and $5.7 billion as 

of September 30, 2016 and 2015, respectively. After the initial measurement, the guaranty asset is 

recorded at fair value and the guarantee obligation is amortized based on the remaining UPB of the 

MBS pools. The difference in accounting for the guaranty asset and guaranty obligation subsequent 

to initial recognition may cause volatility in reported earnings due to different measurement attributes 

in reporting related financial asset (using projected economic exposures such as interest rate and 

prepayment speeds) and financial liability (using actual payoffs and paydowns). Refer to Note 12: Fair 

Value Measurement for discussion surrounding the volatility reflected in the Statements of Revenues 

and Expenses and Changes in Investment of U.S. Government as a result of changes in assumptions 

used in estimating the fair value of the guaranty asset. 

For the guaranty asset and guaranty obligation recognized on the Balance Sheets, Ginnie Mae’s 

maximum potential exposure under these guarantees is primarily comprised of the amount of MBS 

securities outstanding. At September 30, 2016 and 2015, the amount of securities outstanding, which 

is guaranteed by Ginnie Mae, was $1.7 trillion and $1.6 trillion, respectively. However, Ginnie Mae’s 

potential loss is considerably less due to the financial strength of its Issuers. Additionally, in the event 

of default of an Issuer, the underlying mortgages serve as primary collateral, and FHA, USDA, VA, 

and PIH insurance or guaranty indemnifies Ginnie Mae for most losses. 

The Ginnie Mae guaranteed security is a pass-through security whereby mortgage principal and 

interest payments, except for servicing and guaranty fees, are passed through to the security holders 

monthly. Mortgage curtailments are also passed through to security holders. As a result of the 

security’s structure, Ginnie Mae bears no interest rate risk. Ginnie Mae’s exposure to credit loss is 

contingent on the nonperformance of Ginnie Mae Issuers. Other than those Issuers considered in the 

Liability for loss on mortgage-backed securities program guaranty on the Balance Sheet, Ginnie Mae 

77

does not anticipate nonperformance by its other counterparties. Generally, terms of the guarantee 

range from 15 to 30 years, with a maximum term capped at 40 years. 

Ginnie Mae is also subject to credit risk for its outstanding commitments to guarantee MBS, which 

are not reflected on its Balance Sheets. These commitments are an unrecognized MBS commitment 

for financial statement purposes. During the mortgage closing period and prior to granting its 

guaranty, Ginnie Mae enters into commitments to guarantee future MBS. The commitment ends when 

the securities are issued or the commitment period expires, which is 12 months from its receipt for 

single family Issuers and 24 months from its receipt for multifamily Issuers. Ginnie Mae’s risk related 

to outstanding commitments is much less than for the outstanding balance of MBS commitments due 

in part to Ginnie Mae’s ability to limit commitment authority granted to individual MBS Issuers. 

Outstanding MBS and commitments were as follows: 

 

If all outstanding MBS commitments were utilized, Ginnie Mae’s corresponding guaranty liability at 

fair value, its obligation to stand ready to perform on these securities, would not exceed $352.8 million 

and $630.7 million as of September 30, 2016 and 2015, respectively. 

The Ginnie Mae MBS serves as the underlying collateral for multiclass products, such as REMICs, 

Callable Trusts, Platinum Certificates, and Stripped MBS (SMBS), for which Ginnie Mae also 

guarantees the timely payment of principal and interest. These structured transactions allow the private 

sector to combine and restructure cash flows from Ginnie Mae MBS into securities that meet unique 

investor requirements for yield, maturity, and call-option features. 

For fiscal years ended September 30, 2016 and 2015, multiclass security program issuances totaled 

$102.5 billion and $93.1 billion, respectively. The estimated outstanding balance of multiclass securities 

included in the outstanding MBS balance was $473.2 billion and $472.7 billion as of September 30, 

2016 and 2015, respectively. These guaranteed securities do not subject Ginnie Mae to additional 

credit risk beyond that assumed under the MBS program. 

(Dollars in billions) 2016 2015

Outstanding MBS $ 1,728 $ 1,609

Outstanding MBS Commitments 96 160

Total $ 1,824 $ 1,769

September 30,

78
Note 7: Mortgage Servicing Rights 

The following table presents activity for MSR for the years ended September 30, 2016 and 2015:

During 2016, Ginnie Mae entered into agreements to sell all of its MSR to their MSS. Under the 

purchase and sale agreement, Ginnie Mae sold, transferred, conveyed, and assigned to the purchasers 

all servicing rights, advances, custodial funds and escrow funds. The purchasers assumed all 

contractual duties, obligations and liabilities of Ginnie Mae. Ginnie Mae provided representations and 

warranties under the MSR purchase and sale agreements that may require Ginnie Mae to repurchase 

uninsured FHA, VA, USDA and PIH mortgage loans identified by the purchaser as of and after the 

sale date. As of September 30, 2016, there was no liability for representations and warranties related 

to the MSR sale. 

The transaction was accounted for as a sale of non-financial assets as substantially all risks and rewards 

of ownership have irrevocably passed to the purchaser. Total cash proceeds of the sale amounted to 

$25.5 million, which resulted in a loss of $0.3 million. As of September 30, 2016 and 2015, the UPB 

of the MSR for the total portfolio was $15.2 million and $4.3 billion, respectively. 

Subsequent to the sale of all the MSRs during the fiscal year, another Issuer of Ginnie Mae securities 

defaulted. This resulted in Ginnie Mae assuming the servicing rights and obligations of the defaulted 

Issuer and recorded an MSR asset valued at approximately $35 thousand as of September 30, 2016. 

The following table presents the components of servicing income for the years ended September 30, 

2016 and 2015: 

  

(Dollars in thousands) 2016 2015

Balance, October 1, 2015 $ 29,600 $ 44,600

Additions - -

Dispositions (25,500) -

Loss on Disposition of MSR (300) -

Changes in fair value due to:

 (3,800)

 (15,000)

Other changes in fair value -

Balance, September 30, 2016(1) $ 29,600 - $ 

(1) The September 30, 2016 balance of $35 thousand is not shown due to rounding

Changes in valuation inputs or assumptions 

used in valuation model

September 30,

(Dollars in thousands) 2016 2015

Servicing fee income $ 3,700 $ 23,600

Sub-servicing expenses (30,600) (39,400)

Net servicing loss $ (26,900) $ (15,800)

September 30,

79

Note 8: Advances, net 

When a Ginnie Mae Issuer defaults, Ginnie Mae is contractually required to step into the role of Issuer. 

In this role, Ginnie Mae assumes the rights and obligations of the defaulted Issuer’s entire Ginnie Mae 

guaranteed pooled-loan portfolio and is responsible for making timely principal and interest payments 

to the MBS holders. 

To facilitate servicing of the pooled-loan portfolio, Ginnie Mae utilizes two MSS to service the loans 

associated with the defaulted portfolios and has provided advances to these MSS to ensure that the 

portfolio can cover investor payments on the appropriate dates. When the full amount of principal 

and interest due to MBS security holders is not paid by the borrowers by the required payment date, 

Ginnie Mae will advance the funds to the MSS to cover the shortfall or for loan purchases if mortgages 

need to be purchased out of the pool. These advances are reported net of an allowance based on 

management’s expectations of future collections of the advances from the borrowers, proceeds from 

the sale of the property, or recoveries from third-party insurers such as FHA, USDA, VA, and PIH. 

Effective January 1, 2016, Ginnie Mae sold the MSR of its defaulted issuer pooled portfolios for 

approximately $4 billion in UPB, to its currently approved MSS. As part of the MSR sale, Ginnie Mae 

received a cash payment from the MSS in March 2016 as a settlement of outstanding advance balances. 

The rights and responsibilities of future collections of principal and interest and other expenses for 

these pooled loans transferred to the MSS upon the completion of the sale. As such, all remaining 

balances in the Advance, including allowances, were removed. Refer to Note 7: MSR for further 

discussion on MSR sale. 

Subsequent to the MSR sale, another Ginnie Mae Issuer defaulted and Ginnie Mae assumed the 

servicing rights and obligations of the Issuer’s entire Ginnie Mae portfolio. Concurrently, Ginnie Mae 

executed a Purchase and Sales Agreement (PSA) with an approved Issuer to sell the assumed MSR. 

Concurrent to the sale of MSR, the defaulted Issuer had a custodial fund balance of $20.9 million that 

was designated to fund the pass-through payment to the MBS holders which, due to pending 

bankruptcy proceedings, has not been released. To ensure timely pass-through payments due to the 

MBS security holders, Ginnie Mae made an advance payment to the new Issuer in the amount of the 

unreleased custodial fund balance. Ginnie Mae is currently working with the Bankruptcy Trustee to 

obtain release of the custodial funds. Once bankruptcy proceedings have concluded, Ginnie Mae 

expects to collect the full amount of the advance payment and therefore, no allowance was deemed 

necessary as of September 30, 2016. The net carrying value of advances balance is $20.9 million as of 

September 30, 2016, and $118.8 million as of September 30, 2015, as follows: 

(Dollars in thousands) 2016 2015

Advances $ 20,900 $ 272,500

Allowance for Uncollectible Advances - (153,700)

Advances, net $ 20,900 $ 118,800

September 30,

80
The following table displays changes in Ginnie Mae’s allowance for advances for the year ended 

September 30, 2016 and 2015: 

Note 9: Mortgage Loans 

Upon Ginnie Mae Issuers default, Ginnie Mae steps into the role of the Issuer and makes payments 

of Principle and Interest (P&I) to its investors, and subsequently, assumes the servicing rights and 

obligations of the defaulted Issuer’s entire, guaranteed, pooled loan portfolio. If a borrower is 

delinquent for more than 90 days, Ginnie Mae may purchase the delinquent loan out of the pool. 

Ginnie Mae’s historical business practice is to purchase loans out of the pool after they are delinquent 

for 120 days or more. Additionally, Ginnie Mae must purchase loans out of the pool if they are 

uninsured by the FHA, USDA, VA, or PIH1. 

Upon acquisition, Ginnie Mae classifies a loan as either HFS or HFI. As of September 30, 2016 and 

2015, Ginnie Mae’s loan portfolio did not include any loans HFS. The HFI portfolio consists of loans 

purchased from defaulted Issuers pools, reported at their outstanding UPB, net of allowance. 

Historically, Ginnie Mae’s HFI portfolio contained single family, multifamily, manufactured housing 

and HECM loans. However, as of September 30, 2016 and 2015, the HFI portfolio included only 

single family loans. 

Ginnie Mae measures HFI loans using amortized cost. The loans are periodically evaluated for 

impairment in accordance with guidance in ASC 450-20, or ASC 310-10-35. Ginnie Mae’s credit risk 

on the mortgage loans HFI is limited by the underlying insurance on loans, which may include FHA, 

USDA, VA and PIH. 

                                                            

1 Ginnie Mae did not have any mortgage loans insured by PIH as of September 30, 2016 and 2015. However, PIHinsured mortgage loans may exist within MBS pools.

(Dollars in thousands) 2016 2015

Beginning balance $ (153,700) $ (110,700)

Provision (recapture) for credit losses (88,500) (45,300)

Charge-offs 243,100 3,000

Recoveries (900) (700)

 Ending balance $ - $ (153,700)

September 30,

81

The tables below present the recorded investment2 in mortgage loans and related allowance for loan 

losses balance broken down by underlying insurance agencies as of September 30, 2016 and 2015: 

For the years ended September 30, 2016 and 2015, Ginnie Mae purchased $67.7 million and $418.1 

million, respectively, of mortgage loans in MBS pools from defaulted Issuers that were classified as 

HFI. 

Additionally, during fiscal year 2016, Ginnie Mae repurchased 77 uninsured loans for approximately 

$10.9 million, with an aggregate UPB of approximately $10.7 million, as a part of an indemnification 

agreement. The repurchased loans were recorded in Mortgages HFI, net of related allowance. 

Due to the data limitation, Ginnie Mae is unable to identify the correct HFI loan population, and thus 

is not compliant with U.S. GAAP. Refer to Note 3: Summary of Significant Accounting Policies for 

U.S. GAAP requirements. 

Accrued Interest Receivable 

Ginnie Mae’s current practice is to recognize interest income at the contractual rate and to record an 

allowance to the extent that it is probable that interest will not be received, regardless of the 

delinquency status of a loan. Ginnie Mae does not comply with U.S. GAAP requirements for interest 

income recognition. Refer to Note 3: Summary of Significant Accounting Policies for U.S. GAAP 

requirements. 

The following table displays accrued interest and related allowance as of September 30, 2016 and 2015: 

                                                            

2 Recorded investment is a dollar amount of a loan recorded on Ginnie Mae’s consolidated balance sheets, excluding any 

allowance, such as the allowance for loan losses. Recorded investment excludes accrued interest.

Conventional FHA VA USDA Total

Total unpaid principal balance $ 220,900 $ 3,356,100 $ 222,500 $ 83,700 $ 3,883,200

Allowance for loan losses on mortgage loans held for investment (48,400) (299,400) (37,100) (28,300) (413,200)

Total Mortgage Loans, net $ 172,500 $ 3,056,700 $ 185,400 $ 55,400 $ 3,470,000

(Dollars in thousands)

As of September 30, 2016

Conventional FHA VA USDA Total

Total unpaid principal balance $ 261,200 $ 4,199,300 $ 301,000 $ 102,000 $ 4,863,500

Allowance for loan losses on mortgage loans held for investment (54,600) (394,100) (35,900) (26,300) (510,900)

Total Mortgage Loans, net $ 206,600 $ 3,805,200 $ 265,100 $ 75,700 $ 4,352,600

(Dollars in thousands)

As of September 30, 2015

(Dollars in thousands) 2016 2015

Accrued interest on mortgage loans $ 207,200 $ 370,300

Allowance for accrued interest on mortgage 

loans held for investment (188,500) (322,600)

Accrued interest receivable, net $ 18,600 $ 47,700

September 30,

82
The following table displays changes in Ginnie Mae’s allowance for accrued interest for the year ended 

September 30, 2016 and 2015: 

Credit Quality Indicators 

When estimating defaults, prepayments and recovery, Ginnie Mae looks at a number of credit quality 

indicators. This includes an estimated current loan-to-value (LTV) ratio in the models using a Home 

Price Index (HPI) based methodology. Every loan in the allowance population has its original loanto-value ratio, its UPB and its original principal balance (OPB). HPI information is collected regionally 

from the Federal Housing Finance Agency (FHFA) HPI quarterly data which is published in March, 

June, September and December of each year. This information is then used to generate an estimated 

original home value. The current home value is estimated based on the estimated original home value 

and HPI. The current loan-to-value ratio is estimated based on the UPB and the estimated current 

home value in each quarter. In addition to LTV ratios, Ginnie Mae considers other loan 

characteristics, such as the current delinquency status and recent payment history over the past twelve 

months. 

The following tables display recorded investment in mortgage loans by estimated current LTV3 ratio 

as of September 30, 2016 and 2015, respectively: 

                                                            

3 LTV ratio is based on the UPB of the loans as of September 30, 2016 and 2015 divided by the estimated current value 

of the property

(Dollars in thousands) 2016 2015

Beginning balance $ (322,600) $ (360,200)

Recapture (Provision) for credit losses 134,300 37,600

Charge-offs 3,200 2,000

Recoveries (3,400) (2,000)

Ending balance $ (188,500) $ (322,600)

September 30,

(Dollars in thousands) Less than 80% 80-100% greater than 100% Total

 Conventional $ 154,600 $ 56,300 $ 10,000 $ 220,900

 FHA 1,790,300 1,248,300 317,500 3,356,100

 VA 110,700 83,900 27,900 222,500

 USDA 37,300 38,500 7,900 83,700

Total recorded investment in loans HFI $ 2,092,900 $ 1,427,000 $ 363,300 $ 3,883,200

Estimated Current LTV Ratio

As of September 30, 2016

83

Impaired Loans 

Ginnie Mae considers a loan to be impaired when, based on current information, it is probable that 

amounts due, including interest, will not be received in accordance with the contractual terms of the 

loan agreement. Ginnie Mae assesses its portfolios based on the delinquency status of the mortgage 

loans held in each portfolio. Ginnie Mae’s impaired loans include the following categories: 

 Loans modified in troubled debt restructure (TDR) 

 PCI Loans 

For the impaired loans, Ginnie Mae measures impairment based on the present value of expected 

future cash flows. Due to data limitation, Ginnie Mae is unable to identify the correct TDR loan 

population, and thus is not compliant with U.S. GAAP. For PCI loans, impairment measurement 

methodology followed by Ginnie Mae is not in compliance with U.S. GAAP. Refer to Note 3: 

Summary of Significant Accounting Policies for U.S. GAAP requirements. 

The table below displays the recorded investment and the UPB of impaired mortgage loans as of 

September 30, 2016 and 2015: 

Due to the data limitations, Ginnie Mae is unable to disclose the average carrying value, interest 

income and interest income recognized using a cash-basis method of accounting for impaired 

mortgage loans, as required by U.S. GAAP.

(Dollars in thousands) Less than 80% 80-100% greater than 100% Total

 Conventional $ 167,300 $ 83,300 $ 10,600 $ 261,200

 FHA 2,066,800 1,865,000 267,500 4,199,300

 VA 136,600 135,500 28,900 301,000

 USDA 32,700 62,100 7,200 102,000

Total recorded investment in loans HFI $ 2,403,400 $ 2,145,900 $ 314,200 $ 4,863,500

As of September 30, 2015

Estimated Current LTV Ratio

(Dollars in thousands) Number of Loans Recorded 

Investment Related Allowance Unpaid Principal Balance

Conventional 785 $ 115,200 $ 44,900 $ 115,200

FHA 17,070 2,347,900 247,500 2,347,900

VA 1,305 222,500 37,100 222,500

USDA 757 83,700 28,300 83,700

Total 19,917 $ 2,769,300 $ 357,800 $ 2,769,300

As of September 30, 2016

(Dollars in thousands) Number of Loans Recorded 

Investment Related Allowance Unpaid Principal Balance

Conventional 782 $ 115,200 $ 37,700 $ 115,200

FHA 18,016 2,566,400 285,500 2,566,400

VA 1,752 302,000 35,900 302,000

USDA 949 102,000 26,300 102,000

Total 21,499 $ 3,085,600 $ 385,400 $ 3,085,600

As of September 30, 2015

84
Troubled Debt Restructuring (TDR) 

A restructuring of a debt constitutes a TDR if Ginnie Mae for economic or legal reasons related to 

the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. 

The substantial majority of the loan modifications that Ginnie Mae completes result in term 

extensions, interest rate reductions (lower than what the borrower would receive in the market at the 

time of the modification) or a combination of both. Ginnie Mae considers these modifications a 

concession to borrowers experiencing financial difficulties and therefore classifies these loans as 

TDRs. 

Currently, Ginnie Mae classifies loans as TDRs (based on the definition above) when the borrower 

enters into a permanent modification. For these loans, Ginnie Mae measures impairment based on 

the present value of expected future cash flows.

Due to data limitation, Ginnie Mae is unable to identify the correct TDR loan population, and thus is 

not compliant with U.S. GAAP. Refer to Note 3: Summary of Significant Accounting Policies for U.S. 

GAAP requirements. 

The following table displays recorded investment in loans restructured in a TDR for the years ended 

September 30, 2016 and 2015: 

Due to the data limitations, Ginnie Mae is unable to disclose quantitative information about 

modifications (i.e. pre-modification vs. post-modification recorded investment) for the loans modified 

in a TDR, as required by U.S.GAAP. 

(Dollars in thousands)

Number of Loans Recorded 

Investment Related Allowance Unpaid Principal Balance

 Conventional 383 $ 59,800 $ 22,400 $ 59,800

 FHA 17,070 2,347,900 247,500 2,347,900

 VA 627 113,100 16,100 113,100

 USDA 258 32,200 9,200 32,200

Total TDR's 18,338 $ 2,553,000 $ 295,200 $ 2,553,000

As of September 30, 2016

(Dollars in thousands)

Number of Loans Recorded 

Investment 

Related Allowance Unpaid Principal 

Balance

 Conventional 475 $ 71,600 $ 21,500 $ 71,600

 FHA 18,016 2,566,400 285,500 2,566,400

 VA 733 138,900 13,800 138,900

 USDA 130 16,100 3,700 16,100

Total TDR's 19,354 $ 2,793,000 $ 324,500 $ 2,793,000

As of September 30, 2015

85

The table below shows the total recorded investment and the UPB as of September 30, 2016 and 2015 

for the loans that entered a TDR in the preceding 12 months: 

The table below shows the total recorded investment and the UPB as of September 30, 2016 and 2015 

for the loans that entered a TDR in the preceding 12 months and subsequently defaulted: 

Purchased Credit-Impaired Loans

When a mortgage loan is purchased out of the pool, it is considered credit impaired at acquisition, if 

there is evidence of credit deterioration subsequent to the loan’s purchase and it is probable that 

Ginnie Mae will be unable to collect all contractually required payments receivable (ignoring 

insignificant delays in contractual payments). 

Upon acquisition, if the purchased loan is delinquent and uninsured or insured by VA or USDA, 

Ginnie Mae determines that it is probable that they will be unable to collect all contractually required 

payments receivable. Accordingly, these loans are considered to be PCI mortgage loans. Historically, 

Ginnie Mae has not applied the PCI guidance to its non-FHA loans purchased with evidence of credit 

deterioration. Ginnie Mae measures these loans based on the present value of expected future cash 

flows, which is a departure from U.S. GAAP. Refer to Note 3: Summary of Significant Accounting 

Policies for U.S. GAAP requirements. 

Ginnie Mae does not consider delinquent FHA insured acquired loans as PCI because the UPB and a 

portion of the delinquent, accrued interest are deemed collectible due to the FHA insurance 

reimbursement guidelines. The FHA insurance is inseparable from the underlying loan and travels 

with the loan. 

Since Ginnie Mae has historically never fully applied the PCI guidance to its non-FHA mortgage loans 

purchased with evidence of credit deterioration, limited data was available for disclosures required by 

(Dollars in thousands) Number of Loans Recorded 

Investment Number of Loans Recorded Investment

Conventional 86 $ 15,700 90 $ 14,300

FHA 2,911 424,200 1,635 233,600

VA 121 24,200 96 20,000

USDA 71 9,700 15 2,200

Total 3,189 $ 473,800 1,836 $ 270,100

As of September 30, 2016 As of September 30, 2015

(Dollars in thousands) Number of Loans Recorded Investment Number of Loans Recorded Investment

Conventional 14 $ 3,000 17 $ 3,100

FHA 452 $ 68,000 247 36,200

VA 23 $ 4,900 21 4,500

USDA 11 $ 1,600 2 200

Total 500 $ 77,500 287 $ 44,000

As of September 30, 2016 As of September 30, 2015

86
U.S. GAAP. Thus Ginnie Mae is not fully compliant with U.S. GAAP disclosure requirements for 

PCI disclosures. 

The table below displays the recorded investment and the UPB of PCI mortgage loans as of 

September 30, 2016 and 2015: 

The following table presents the recorded investment and the UPB of PCI loans acquired during 12 

month ended September 30, 2016 and 2015: 

Due to its current approach, Ginnie Mae does not have the data to disclose the accretable yield for 

PCI mortgage loans. Additionally, Ginnie Mae does not have the data to disclose the contractually 

required payments receivable, cash flows expected to be collected, and fair value at the acquisition 

date for the loans acquired during the period. 

 

Number of Loans Recorded 

Investment Related Allowance Unpaid Principal Balance

Conventional 402 $ 55,400 $ 22,500 $ 55,400

VA 678 109,400 21,000 109,400

USDA 499 51,500 19,000 51,500

Total 1,579 $ 216,300 62,500 $ 216,300

(Dollars in Thousands)

As of September 30, 2016

Number of Loans Recorded 

Investment Related Allowance Unpaid Principal Balance

Conventional 307 $ 43,500 $ 16,200 $ 43,500

VA 1,019 163,100 22,200 163,100

USDA 819 86,000 22,600 86,000

Total 2,145 $ 292,600 $ 61,000 $ 292,600

(Dollars in Thousands)

As of September 30, 2015

Number of Loans Recorded 

Investment Related Allowance Unpaid Principal Balance

 Conventional 3 $ 200 $ 100 $ 200

 VA 16 1,700 300 1,700

 USDA - - - -

Total PCI 19 $ 1,900 $ 400 $ 1,900

(Dollars in thousands)

As of September 30, 2016

Number of Loans Recorded 

Investment Related Allowance Unpaid Principal 

Balance

 Conventional 12 $ 1,500 $ 500 $ 1,500

 VA 183 25,700 2,500 25,700

 USDA 157 14,500 4,600 14,500

Total PCI 352 $ 41,700 $ 7,600 $ 41,700

(Dollars in thousands)

As of September 30, 2015

87

Non-accrual Loans 

Ginnie Mae’s current practice is to recognize interest income at the full contractual rate on all mortgage 

loans regardless of delinquency status. Ginnie Mae records an allowance if it is probable that the 

interest will not be fully collectible. Therefore, a process for placing loans on non-accrual does not 

currently exist. 

Ginnie Mae does not comply with U.S. GAAP requirements for placing loans on non-accrual. Refer 

to Note 3: Summary of Significant Accounting Policies for U.S. GAAP requirements. 

The following tables display an aging analysis of the total recorded investment in Ginnie Mae’s HFI 

mortgage loans: 

Foreclosures in Process 

In January 2014, the FASB issued ASU 2014-04, Receivables- Troubled Debt Restructurings by Creditors 

(Subtopic 310-40). The objective of the amendments in this update was to reduce diversity in practice 

by clarifying when an in substance repossession or foreclosure occurs. Under ASU 2014-04, physical 

possession of residential real estate property is achieved when either the creditor obtains legal title to 

the residential real estate property upon completion of a foreclosure or the borrower conveys all 

interest in the residential real estate property through completion of a deed in lieu of foreclosure in 

order to satisfy that loan. 

The guidance set forth in ASU 2014-04 is consistent with the Ginnie Mae’s current practice for 

reclassifying residential mortgage loans from “Foreclosure in Process” to a receivable. ASU 2014-04 

requires additional disclosure for the recorded investment in mortgage loans collateralized by 

residential real estate that are in the process of foreclosure. 

Ginnie Mae accounts for the mortgage loans as Foreclosure in Process if the foreclosure has been 

filed but not completed (typically, loans are foreclosed subsequent to Ginnie Mae purchasing the loans 

out of the pool). Although foreclosure has been filed, the foreclosure process has not been completed 

and Ginnie Mae has not received physical possession of the underlying property, and accordingly, 

One Month 

 Delinquent

Two Months 

Delinquent

Three Months 

Delinquent

Four Months or More 

Delinquent

Total 

Delinquent Current Total

Loans Over 90 

Days Delinquent 

and Accruing 

Interest

 Conventional $ 19,000 $ 5,600 $ 3,300 $ 38,300 66,200 $ $ 154,700 $ 220,900 $ 41,600 

 FHA 415,100 113,800 57,600 980,500 1,567,000 1,789,100 3,356,100 1,038,100

 VA 21,900 8,400 4,000 101,600 135,900 86,600 222,500 105,600

 USDA 10,800 2,800 2,900 34,000 50,500 33,200 83,700 36,900

Total $ 466,800 $ 130,600 $ 67,800 $ 1,154,400 $ 1,819,600 $ 2,063,600 $ 3,883,200 $ 1,222,200

(Dollars in thousands)

As of September 30, 2016

One Month 

 Delinquent

Two Months 

Delinquent

Three Months 

Delinquent

Four Months or More 

Delinquent

Total 

Delinquent Current Total

Loans Over 90 

Days Delinquent 

and Accruing 

Interest

 Conventional $ 21,400 $ 7,900 $ 2,600 $ 63,200 $ 95,100 $ 166,100 $ 261,200 $ 65,800

 FHA 354,400 164,000 81,200 1,925,400 2,525,000 1,674,300 4,199,300 2,006,600

 VA 17,400 10,600 5,600 183,400 217,000 84,000 301,000 189,000

 USDA 5,900 3,700 2,000 69,600 81,200 20,800 102,000 71,600

Total $ 399,100 $ 186,200 $ 91,400 $ 2,241,600 $ 2,918,300 $ 1,945,200 $ 4,863,500 $ 2,333,000

(Dollars in thousands)

As of September 30, 2015

88
Foreclosure in Process Loans are accounted for similar to mortgage loans HFI and are reported as a 

part of the HFI portfolio. 

Ginnie Mae does not record impairment based on the fair value of the underlying collateral less cost 

to sell when determined that foreclosure is probable for uninsured loans and thus, does not comply 

with U.S. GAAP requirements. Refer to Note 3: Summary of Significant Accounting Policies for U.S. 

GAAP requirements. 

The table below displays the recorded investment of mortgage loans secured by real estate for which 

formal foreclosure proceedings are in process as of September 30, 2016 and 2015: 

Allowance for Loan Loss

Ginnie Mae maintains an allowance for probable losses incurred related to mortgage loans classified 

as HFI. 

The collective allowance for loan losses is established on mortgage loans HFI portfolio for both 

interest and principal payments. Ginnie Mae relies on reports received from its MSS to obtain 

information about borrowers’ ability to pay. Ginnie Mae considers that information as well as current 

economic environment and potential recovery amounts including credit enhancements related to 

insurance guarantees from different government agencies when determining the amount of loss that 

can be reasonably estimated. The calculation uses statistical models that evaluate a variety of factors 

affecting collectability. The homogeneous pools of single-family loans are determined based on 

common loan characteristics such as LTV ratios, loan product type, insurance type, and geographic 

region. 

The projections are built based on actual loan performance data, current business practices, and 

management judgment. Ginnie Mae monitors their projections of claim recoveries regularly to validate 

reasonableness. Ginnie Mae validate and update their models and assumptions to capture changes in 

our servicing experience and changes in government policies and programs. In determining Ginnie 

Mae’s loan loss reserves, they also consider macroeconomic and other factors that affect the quality 

of the loans in their portfolio, including regional housing trends, applicable home price indices, and 

unemployment trends. 

In fiscal year 2015, Ginnie Mae developed new methodology to estimate losses net of insurance 

coverage for the non-pooled assets, enhancing loan performance modeling for Ginnie Mae loans. The 

probability of default and probability of prepayment models employ logistic regressions to calculate 

dynamic default and prepayment probabilities based on actual loan performance data for the Ginnie 

Mae loan population and macroeconomic conditions.

One Month 

 Delinquent

Two Months 

Delinquent

Three Months 

Delinquent

Four Months or More 

Delinquent

Total 

Delinquent Current Total

Loans Over 90 

Days Delinquent 

and Accruing 

Interest

 Conventional $ 21,400 $ 7,900 $ 2,600 $ 63,200 $ 95,100 $ 166,100 $ 261,200 $ 65,800

 FHA 354,400 164,000 81,200 1,925,400 2,525,000 1,674,300 4,199,300 2,006,600

 VA 17,400 10,600 5,600 183,400 217,000 84,000 301,000 189,000

 USDA 5,900 3,700 2,000 69,600 81,200 20,800 102,000 71,600

Total $ 399,100 $ 186,200 $ 91,400 $ 2,241,600 $ 2,918,300 $ 1,945,200 $ 4,863,500 $ 2,333,000

(Dollars in thousands)

As of September 30, 2015

89

The allowance for loan loss involves significant management judgment and estimates of credit losses 

inherent in the mortgage loan portfolio. The allowance for loan losses is intended to adjust the carrying 

value of Ginnie Mae’s mortgage loan assets to reflect probable credit losses embedded in the loan 

portfolio as of the balance sheet date. 

For impaired loans (TDR and PCI loans), Ginnie Mae measures impairment based on the present 

value of expected future cash flows. Ginnie Mae’s expectation of future cash flows incorporates, 

among other items, estimated probabilities of default and prepayment based on a number of economic 

factors as well as the characteristics of a loan. Additionally, Ginnie Mae considers the value of the 

collateral, as reduced by estimated disposition costs, and estimated proceeds from insurance and 

similar sources, if applicable. 

The following table displays the allowance for loan losses and recorded investment in the HFI 

mortgage loan portfolio by impairment or reserve methodology, as of September 30, 2016 and 2015. 

The following table displays changes in Ginnie Mae’s allowance for loan losses during the year 

ended September 30, 2016 and 2015:

Ginnie Mae’s charge offs may include write downs recorded when the receivables are transferred to a 

different asset class. Ginnie Mae’s recoveries may include miscellaneous adjustments and charge offs 

reversals. Ginnie Mae does not have a consistent methodology for recording charge offs and 

recoveries. As such, Ginnie Mae’s current practice is not in compliance with U.S. GAAP. Refer to 

Note 3: Summary of Significant Accounting Policies for U.S. GAAP requirements. 

2016 2015

Recorded investment:

Collectively evaluated $ 1,113,900 $ 1,777,900

Individually evaluated 2,553,000 2,793,000

Purchase credit impaired 216,300 292,600

Total recorded investment in loans $ 3,883,200 $ 4,863,500

Ending balance of the allowance for loan losses

Collectively evaluated $ 55,500 $ 125,400

Individually evaluated 295,200 324,500

Purchase credit impaired 62,500 61,000

Total allowance for loan losses $ 413,200 $ 510,900

Net Investment in mortgage loans HFI $ 3,470,000 $ 4,352,600

(Dollars in Thousands)

September 30,

(Dollars in thousands) 2016 2015

Beginning balance $ 510,900 $ 1,204,500

Provision (recapture) for credit losses (99,500) (690,200)

Charge-offs (6,400) (4,100)

Recoveries 8,200 700

Ending balance $ 413,200 $ 510,900

September 30,

90
Ginnie Mae is in the process of refining its loan-level transaction reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans for the nonpooled assets list of out of scope line items. 

Note 10: Claims Receivable 

The detail of Ginnie Mae’s claims receivable balance from insuring agencies is shown in the table 

below: 

(1) Foreclosed property claims receivable represents reimbursements owed to Ginnie Mae by insuring agencies (which may include FHA, VA, 

USDA, and PIH). Properties have been conveyed, except for USDA insured loans, as the USDA requires that the properties are sold

before filing a claim for the shortfall. 

(2) Short sale claims receivable consists of repayments owed to Ginnie Mae by insuring agencies (which may include FHA, VA, USDA, and 

PIH). 

(3) Insurance claims are approved claims from the FHA. 

(1) Foreclosed property claims receivable represents reimbursements owed to Ginnie Mae by insuring agencies (which may include FHA, VA, 

USDA, and PIH). Properties have been conveyed, except for USDA insured loans, as the USDA requires that the properties are sold

before filing a claim for the shortfall. 

(2) Short sale claims receivable consists of repayments owed to Ginnie Mae by insuring agencies (which may include FHA, VA, USDA, and 

PIH). 

(3) Insurance claims are approved claims from the FHA. 

On a monthly basis, Ginnie Mae obtains claims receivable balances from the MSSs that service the 

loans. The foreclosed property claims and short sale claims allowance balances are estimated based on 

expected recoveries from insuring agencies. For the years ended September 30, 2016 and 2015, the 

outstanding foreclosed property and short sale claims receivable balances include claims on single 

family loan properties only. There is no allowance on insurance claims receivable because it represents 

settled claims and approved future collections of cash from FHA. 

(Dollars in thousands)

Foreclosed Property 

Claims(1)

Short Sale 

Claims(2)

Insurance 

Claims(3) Total

Claims Receivable $ 679,100 $ 129,500 $ 6,900 $ 815,500

Allowance for Claims Receivable (83,400) (22,700) (106,100) - 

Claims Receivable, net $ 595,700 $ 106,800 $ 6,900 $ 709,400

As of September 30, 2016

(Dollars in thousands)

Foreclosed Property 

Claims(1)

Short Sale 

Claims(2)

Insurance 

Claims(3) Total

Claims Receivable $ 836,400 $ 80,500 $ 200 $ 917,100

Allowance for Claims Receivable (67,100) (35,800) - (102,900)

Claims Receivable, net $ 769,300 $ 44,700 $ 200 $ 814,200

As of September 30, 2015

91

Ginnie Mae’s charge offs may include write downs recorded when the receivables are transferred to a 

different asset class. Ginnie Mae’s recoveries may include miscellaneous adjustments and charge offs 

reversals. Ginnie Mae does not have a consistent methodology for recording charge offs and 

recoveries. As such, Ginnie Mae’s current practice for reporting claims receivable is not in compliance 

with U.S. GAAP. Refer to Note 3: Summary of Significant Accounting Policies for U.S. GAAP 

requirements. 

The following table displays changes in Ginnie Mae’s allowance for claims receivable for the year 

ended September 30, 2016 and 2015: 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans for the nonpooled assets list of out of scope line items. 

Note 11: Acquired Property

Ginnie Mae records acquired property when the MSS obtains marketable title to the underlying 

property that has completed the foreclosure process in the respective state. The acquired properties 

are typically either USDA insured or uninsured conventional loans. FHA and VA insured loans are 

usually classified as foreclosed property and are conveyed to the insuring agency. Upon acquisition of 

the acquired property through foreclosure, the acquired properties are classified as held for sale (HFS) 

as Ginnie Mae intends to sell those properties and is actively marketing those properties for sale shortly 

thereafter through the MSS. 

Ginnie Mae does not obtain fair values for acquired properties or calculate the estimated cost to sell 

or expected recoveries from credit enhancements upon initial recognition or in subsequent periods. 

Ginnie Mae initially recognizes acquired property at UPB plus accrued interest and is presented net of 

a valuation allowance on the Balance Sheet. The valuation allowance is adjusted through the Provision 

(Recapture) of Acquired Property in the Statements of Revenue and Expenses and Changes in 

Investment of the U.S. Government. The valuation allowance is designed to approximate the expected 

cash flows that Ginnie Mae will not receive upon sale of the property. 

Foreclosed Property 

Claims

Short Sale 

Claims Total

Foreclosed 

Property 

Claims

Short Sale 

Claims Total

Beginning balance $ (67,100) $ (35,800) $ (102,900) $ (38,500) $ (27,700) $ (66,200)

Provision (recapture) for credit losse (71,200) (4,300) (75,500) (6,500) (21,000) (27,500)

Charge-offs 62,900 20,600 83,500 (22,100) 17,900 (4,200)

Recoveries (8,000) (3,200) (11,200) - (5,000) (5,000)

Ending balance $ (83,400) $ (22,700) $ (106,100) $ (67,100) $ (35,800) $ (102,900)

(Dollars in thousands)

 As of September 30, 2016 As of September 30, 2015

92
The net acquired property balance is adjusted via changes in the valuation allowance as of the end of 

each reporting period. 

Ginnie Mae expenses all post-foreclosure expenses in the period incurred in Other Expenses in the 

Statements of Revenue and Expenses and Changes in Investment of the U.S. Government.

Upon disposition of an acquired property, Ginnie Mae charges off against the acquired property 

valuation allowance the difference between the property sales proceeds and the carrying value of the 

acquired property. 

Balances and activity for acquired properties are presented in the table below: 

Ginnie Mae’s current practice for reporting property values is a departure from U.S. GAAP. Refer to 

Note 3: Summary of Significant Accounting Policies for U.S. GAAP requirements. 

Ginnie Mae is refining its loan-level transaction data collection and reporting with the MSS to comply 

with U.S. GAAP. Management will assess the information presented within this footnote for 

restatement in fiscal year 2017. Please refer to Note 2: Restatement-Non-pooled Loans for the 

non-pooled assets list of out of scope line items. 

Note 12: Fair Value Measurement 

The accounting guidance for the fair value measurements and disclosures defines fair value, establishes 

a framework for measuring fair value, and sets forth disclosure requirements regarding fair value 

measurements. This guidance applies whenever other accounting guidance requires or permits assets 

or liabilities to be measured at fair value. Fair value measurement assumes that the transaction to sell 

the asset or transfer the liability takes place either in the principal market for the asset or liability, or, 

in the absence of a principal market, in the most advantageous market for the asset or liability. 

We use fair value measurements for the initial recognition of assets and liabilities and periodic remeasurement of certain assets and liabilities on a recurring or non-recurring basis. 

(Dollars in thousands) 2016 2015

Acquired Properties, beginning balance $ 52,600 $ 16,000

 Additions 98,700 86,300

 Dispositions (66,800) (49,700)

Acquired Properties, ending balance 84,500 52,600

Valuation allowance, beginning balance (22,300) (3,200)

Change in valuation allowance (21,000) (19,100)

Valuation allowance, ending balance (43,300) (22,300)

Acquired Properties, ending balance, net $ 41,200 $ 30,300

September 30,

93

Assets Measured at Fair Value on a Recurring Basis: The following tables present the fair value 

measurement hierarchy level for Ginnie Mae’s assets that are measured at fair value on a recurring 

basis subsequent to initial recognition: 

Mortgage Servicing Rights – Ginnie Mae measures the fair value of MSR based on the present 

value of expected cash flows of the underlying mortgage assets using management’s best estimates of 

certain key assumptions, which include prepayment speeds, forward yield curves, adequate 

compensation, and discount rates commensurate with the risks involved. Changes in anticipated 

prepayment speeds, in particular, result in fluctuations in the estimated fair values of the servicing 

rights. If actual prepayment experience differs from the anticipated rates used in the model, this may 

result in a material change in the fair value. Note 3: Summary of Significant Accounting Policies 

contains additional details with regards to specific fair value assumptions of MSR. 

The significant unobservable inputs used in estimating the fair value measurement of our Level 3 MSR 

assets and financing liabilities include assumptions for underlying loan constant prepayment rates and 

delinquency rates, as well as discount rates. We review the various inputs used to determine the fair 

value of our MSR and perform procedures to validate their reasonableness. In reviewing the estimated 

fair values of our Level 3 MSR, we use internal models and our own estimates of prepayment and 

delinquency rates on the loans underlying our MSR. 

(Dollars in thousands) Level 1 Level 2 Level 3 Total

Mortgage Servicing Rights(1) $ - $ - $ - $ - 

Guaranty Asset 6,397,600 6,397,600

Total Assets at Fair Value $ - $ - $ 6,397,600 $ 6,397,600 

(1) The September 30, 2016 balance of $35 thousand is not shown due to rounding

September 30, 2016

(Dollars in thousands) Level 1 Level 2 Level 3 Total

Mortgage Servicing Rights $ - $ - $ 29,600 $ 29,600

Guaranty Asset* - 6,742,200 - 6,742,200

Total Assets at Fair Value $ - $ 6,771,800 - $ $ 6,771,800

* See Note 2 (Restatement) 

September 30, 2015

94
The table below provides valuation techniques, the range and weighted average of significant 

unobservable inputs and impacts of key economic assumptions used in determining the fair value of 

Ginnie Mae’s Mortgage Servicing Right assets valued on a recurring basis: 

These sensitivities are hypothetical and should be considered with caution. Changes in fair value based 

on a 10% or 20% variation in assumptions generally cannot be extrapolated because the relationship 

of the change in assumptions to the change in fair value may not be linear. Also, the effect of a 

variation in a particular assumption on the fair value is calculated without changing any other 

assumption. In reality, changes in one factor may result in changes in another (e.g., increased market 

interest rates may result in lower prepayments and increased credit losses) that could magnify or 

counteract the sensitivities. 

Guaranty asset (as Restated) – The fair value option provides Ginnie Mae an option to elect fair 

value as an alternative measurement for selected financial assets and financial liabilities not otherwise 

reported at fair value. Ginnie Mae has elected the fair value option for the guaranty asset and its value 

is determined based on the present value of the expected future cash flows from the guaranty fees 

based on the UPB of the outstanding MBS in the defaulted and non-defaulted pooled Issuer portfolio, 

which results from new issuances of MBS, scheduled run-offs of MBS, prepayments and defaults. 

Ginnie Mae provides the guarantee of principal and interest payments to MBS holders in the event of 

Issuer default and, in exchange, receives monthly guaranty fees from the Issuers on the UPB of the 

outstanding MBS in the defaulted and non-defaulted Issuer pooled portfolio. Accordingly, the fair 

value of the guarantee asset is based on the expected present value of these fees, taking into account 

anticipated defaults and prepayments. 

(Dollars in thousands) 2016 2015

Valuation at period end:

Fair value(1) $ - $ 29,600

Weighted- average life (years) 3.96 3.62

Prepayment rates assumptions:

Weighted Average Rate assumption 20.72% 21.94%

Weighted Average Minimum 14.28% 10.20%

Weighted Average Maximum 30.78% 23.40%

Impact on fair value of a 10% adverse change - (2,400)

Impact on fair value of a 20% adverse change - (4,600)

Discount rate assumptions:

Weighted Average Rate assumption 10.54% 10.68%

Weighted Average Minimum 10.54% 10.60%

Weighted Average Maximum 10.54% 13.20%

Impact on fair value of a 10% adverse change - (800)

Impact on fair value of a 20% adverse change - (1,600)

(1) The September 30, 2016 balance of $35 thousand is not shown due to rounding

September 30,

95

The table below provides valuation techniques and assumptions used in determining fair values of 

Guaranty Assets: 

 

These significant unobservable inputs change according to macroeconomic market conditions. 

Significant increases (decreases) in discount rate, constant prepayment rate, or constant default rate in 

isolation would result in a lower (higher) fair value measurement. The constant prepayment rate 

represents the percentage of the mortgage pool’s outstanding principal balances assumed to be paid 

off prematurely in each period and is based on historical prepayment rates and future market 

expectations. The constant default rate is the annualized rate of default on a pool of mortgages and 

represents the percentage of the pool’s outstanding principal balances that are in default. 

The following table presents a reconciliation measured at fair value on a recurring basis using 

significant unobservable inputs for the years ended September 30, 2016 and 2015: 

(1) Includes loss of $(3,800) from change in fair value prior to the sale of the MSR. 

(2) Includes realized gains (losses) due to payoffs and paydowns and unrealized gains (losses) of $976 million from change in fair 

value on remaining guarantees at the end of the reporting period. 

(3) The September 30, 2016 balance of $35 thousand is not shown due to rounding 

(Dollars in thousands) 2016 2015*

Valuation at period end:

Fair value $ 6,397,600 $ 6,742,200

Prepayment rate assumptions:

Weighted Average Rate assumption 41.96% 33.37%

Weighted Average Minimum 0.02% 0.00%

Weighted Average Maximum 98.51% 99.67%

Default rate assumptions:

Weighted Average Rate assumption 26.40% 27.60%

Weighted Average Minimum 0.00% 0.00%

Weighted Average Maximum 99.97% 99.63%

Discount rate assumptions:

Weighted Average Rate assumption 1.25% 1.50%

Weighted Average Minimum 0.26% 0.05%

Weighted Average Maximum 2.04% 2.49%

* See Note 2 (Restatement) 

September 30,

(Dollars in thousands)

Mortgage 

Servicing Rights Guaranty Asset

Balance, October 1, 2015 $ 29,600 $ 6,742,200 

Total realized and unrealized 

gains/(losses) included in net 

income:

 (4,100) (1) (2,133,600) (2)

Proceeds from Sale of MSRs (25,500) -

Issuances - 1,789,000

Balance, September 30, 2016(3) $ - $ 6,397,600 

September 30, 2016

96
Ginnie Mae records transfers between Level 1, Level 2 and Level 3, if any, at the beginning of the 

period. There were no transfers between Level 1, Level 2 and Level 3 during the years ended 

September 30, 2016 and 2015. Gains and losses on Mortgage Servicing Rights and Guarantee Assets 

are recorded in the Gain (loss) on mortgage servicing rights and Gain (loss) on guaranty asset line 

items, respectively, in the Statement of Revenue and Expenses and Changes in Investment of U.S. 

Government. 

Assets Measured at Fair Value on a Nonrecurring Basis: The following tables display assets 

measured on the Balance Sheets at fair value on a nonrecurring basis for the years ended September 30, 

2016 and 2015: 

As noted in Note 11: Acquired Property, Ginnie Mae’s current practice for reporting acquired property 

is a departure from U.S. GAAP and the amounts presented in the table above do not reflect the 

properties’ fair value, as Ginnie Mae does not obtain fair values for acquired properties or calculate 

the estimated cost to sell upon initial recognition or in subsequent periods. Instead, Ginnie Mae 

initially recognizes acquired property at UPB plus accrued interest and is presented net of a valuation 

allowance on the Balance Sheet. The valuation allowance calculated by Ginnie Mae is designed to 

approximate the expected cash flows that Ginnie Mae will not receive upon sale of the property. Refer 

to Note 3: Summary of Significant Accounting Policies for requirements under U.S. GAAP. 

 

(Dollars in thousands)

Mortgage 

Servicing Rights

Guaranty 

Asset

Balance, October 1, 2014 $ 44,600 $ 5,963,100 

Total realized and unrealized 

gains/(losses) included in net 

 (15,000) (814,500)

Proceeds from Sale of MSRs - - 

Issuances 1,593,600 -

Balance, September 30, 2015 $ 29,600 $ 6,742,200 

* See Note 2 (Restatement) 

September 30, 2015*

(Dollars in thousands) Level 1 Level 2 Level 3 Total

Acquired Property, net $ - $ - $ 41,200 $ 41,200 

Total Assets at Fair Value $ - $ - $ 41,200 $ 41,200 

September 30, 2016

(Dollars in thousands) Level 1 Level 2 Level 3 Total

Acquired Property, net $ - $ - $ 30,300 $ 30,300 

Total Assets at Fair Value $ - $ 30,300 - $ $ 30,300

September 30, 2015

97

As a result, Ginnie Mae is not able to disclose the valuation technique and significant unobservable 

inputs used in the fair value measurements for acquired property. Acquired property is classified within 

Level 3 of the valuation hierarchy because significant inputs are unobservable. Refer to Note 11: 

Acquired Property for further details on Ginnie Mae’s current practice. 

Note 13: Fixed Assets (As Restated) 

The tables below show the total balance of hardware and software as of September 30, 2016 and 2015, 

net of the accumulated amortization: 

*See Note 2: Restatement

Assets recorded under capital leases (hardware) as of September 30, 2016 and 2015 were $0.1 million 

and $0.4 million, respectively. These assets are recorded net of accumulated amortization of $1.1 

million and $0.8 million as of September 30, 2016 and 2015, respectively. The charge to income 

resulting from amortization of assets recorded under capital leases is included in Fixed Assets 

Amortization on the Statements of Revenues and Expenses and Changes in Investment of U.S. 

Government. 

There are no remaining future lease payments for either operating leases or capital leases. 

(Dollars in thousands) Hardware Software Total

Cost, beginning balance $ 5,000 $ 145,300 $ 150,300 

Additions - 36,300 36,300 

Disposals - - - 

Cost, ending balance $ 5,000 $ 181,600 $ 186,600 

Accumulated amortization, beginning balance $ (1,700) $ (86,300) $ (88,000)

Amortization (700) (15,000) (15,700)

Disposals - - - 

Accumulated amortization, ending balance $ (2,400) $(101,300) $(103,700)

Fixed Assets, net $ 80,300$ 82,900$ 2,600

 As of September 30, 2016

(Dollars in thousands) Hardware Software Total

Cost, beginning balance $ 123,900 4,900 $ 128,800 $ 

Additions 26,000 100 26,100 

Disposals (4,600) (4,600) -

Cost, ending balance $ 145,300 5,000 $ 150,300 $ 

Accumulated amortization, beginning balance (900) $ (77,800)$ (78,700) $ 

Amortization (13,100) (13,900) (800) 

Disposals 4,600 4,600 -

Accumulated amortization, ending balance (1,700) $ (86,300) $ (88,000) $ 

Fixed Assets, net* $ 59,000 3,300 $ 62,300$ 

 As of September 30, 2015

98
Note 14: Accounts Payable and Accrued Liabilities 

Accounts payable and accrued liabilities include the following as of September 30, 2016 and 2015: 

 

Note 15: Reserve for Loss 

As Ginnie Mae guarantees investors the timely payment of principal and interest on MBS backed by 

federally insured or guaranteed loans (mainly loans insured by FHA, VA, USDA and PIH), Ginnie 

Mae is susceptible to credit losses. Due to multiple U.S. GAAP requirements related to accounting 

for credit losses, Ginnie Mae’s financial statements recognize credit losses associated with its guaranty 

in multiple line items (as further outlined below): 

 Liability for non-defaulted Issuers’ pooled loans: Upon issuance of a guaranty, Ginnie Mae recognizes 

a liability based on the premium received or receivable (i.e. present value of guarantee fee 

expected to be collected under the guaranty) within the financial statement line item “Guaranty 

liability.” The issuance of a guaranty under the MBS program obligates Ginnie Mae to stand 

ready to perform over the term of the guaranty in the event that specified triggering events or 

conditions occur. 

 Liability for probable Issuer defaults pooled loans: The loss contingency arises from the guaranty 

obligation that Ginnie Mae has to the MBS holders as a result of a probable Issuer default. 

The Issuers have the obligation to make timely principal and interest payments to investors, 

however, in the event whereby the Issuer defaults, Ginnie Mae steps in and continues to make 

the contractual payments to investors. Ginnie Mae performs a qualitative and quantitative risk 

grade analysis to determine if a liability (and a loss) should be recognized. Ginnie Mae 

recognizes this liability if it is probable that a liability had been incurred at the date of the 

financial statements and the amount of loss can be reasonably estimated. As of September 

30, 2016 and 2015, liability for loss contingencies presented within Liability for loss on 

mortgage-backed securities program guaranty was $1 million and zero, respectively. Since 

Ginnie Mae does not have a process in place to assess for Issuer Default that is reasonably 

possible, Ginnie Mae is not able to disclose those contingencies for which there is a reasonable 

possibility that a loss due to Issuer default may have been incurred at the date of the financial 

statements. 

 Liability for currently defaulted Issuers’ pooled loans: Ginnie Mae records a servicing asset (or liability) 

each time it takes over a defaulted Issuer’s Ginnie Mae guaranteed portfolio (see “Mortgage 

servicing rights” financial statement line item). Ginnie Mae’s servicing asset is recorded at fair 

(Dollars in thousands) 2016 2015

Accounts Payable-trade $ 89,000 111,800 $ 

Salaries and benefits payable 800 600

Unclaimed Securities Holder Payments 23,600 23,400

Accrued unfunded leave 1,400 -

Accounts payable and accrued liabilities $ 114,800 $ 135,800

September 30,

99

value based upon the present value of the expected future net cash flows related to servicing 

these loans. Ginnie Mae’s cash flow model incorporates a number of factors (see MSR section 

in Note 3: Summary of Significant Accounting Policies, for further analysis) including 

delinquencies and expectation of credit losses that management believes are consistent with 

the assumptions other similar market participants use in valuing the mortgage servicing right. 

Thus, estimated credit losses for defaulted Issuers’ pooled loans are incorporated within the 

servicing asset (or liability value). 

 Allowance for defaulted Issuers’ non-pooled loans: When Ginnie Mae purchases loans out of a pool, 

it recognizes the loan on its balance sheets along with the corresponding incurred loss (i.e., 

“Allowance for loan loss” within the financial statement as “Mortgage loans held for 

investment, net” and “Accrued interest receivable, net” and “Claims receivable, net”).

 Liability for representations and warranties: Ginnie Mae performs an assessment of any 

representations and warranties associated with the purchase and sale agreement. These 

representations and warranties may require Ginnie Mae to buy back previously sold loans 

from the third-party or reimburse the buyer for losses per the contractual terms of the 

purchase and sale agreement. As of September 30, 2016, Ginnie Mae recorded $1.5 million to 

account for representations and warranties under an existing loan purchase and sale agreement 

that may require Ginnie Mae to repurchase mortgage loans that are modified or that are not 

insured or guaranteed by the FHA, VA, USDA, or PIH identified by the purchaser as of and 

after the sale date. This amount is presented in Liability for representations and warranties on 

the Balance Sheet.

Note 16: Concentrations of Credit Risk 

Credit risk is the risk of loss arising from the failure or inability of Issuers to meet their obligations. 

Concentrations of credit risk exist when a significant number of Issuers are susceptible to similar 

changes in economic conditions that could affect their ability to meet contractual obligations. 

Generally, Ginnie Mae’s MBS pools are diversified among Issuers. No significant geographic 

concentrations of credit risk exist; however, to a limited extent, securities are concentrated among 

Issuers. 

The table below summarizes concentrations of credit risk by Issuers and loan type as of September 30, 

2016: 

(Dollars in billions)

Number 

of Issuers

Remaining 

Principal 

Balance

Number 

of Issuers

Remaining 

Principal 

Balance

Number 

of Issuers

Remaining 

Principal 

Balance

Number 

of Issuers

Remaining 

Principal 

Balance

Largest performing issuers 25 $ 1,226.2 23 $ 86.7 1 $ 0.3 16 $ 54.9 

Other performing issuers 283 $ 351.7 31 $ 10.7 1 $ 0.0 0 $ - 

Defaulted issuers 1 $ 0.0 0 $ - 0 $ - 0 $ - 

Single Family Multifamily Manufactured 

Housing

Home Equity 

Conversion 

(HECM/HMBS)

100
The table below summarizes concentrations of credit risk by Issuer and loan type as of September 

30, 2015: 

Issuers are only permitted to pool insured or guaranteed loans (from FHA, USDA, VA or PIH). 

Ginnie Mae incorporates the probable recovery amount from mortgage insurance based on 

established insurance rates and Ginnie Mae historical recovery experience. The insuring and 

guarantying entities have strict underwriting standards and criteria for quality of collateral. Mortgage 

loans insured by FHA get full recovery of the UPB, including all delinquent interest at the HUD 

debenture rate with exception of the first two months since default. USDA, VA and PIH insured 

loans are not fully recoverable. In addition, Ginnie Mae guarantees a small number of conventional 

loans which are uninsured. The loan balance and related allowance for loan losses balance broken 

down by portfolio segment and underlying insurance agencies as of September 30, 2016 and 2015 are 

presented in the table in Note 9: Mortgage Loans. 

In the event of an Issuer default, Ginnie Mae assumes the rights and obligations of the Issuer and 

becomes the owner of the MSR asset, which typically is a salable asset. When Ginnie Mae assumes 

the role of the defaulted issuer, it has the option to purchase loans out of the pool when it is 90 days 

delinquent. However, Ginnie Mae has historically elected to buy Single Family and Manufacturing 

Housing loans out at 120 days delinquent. Upon repurchasing the loan out of the pool, Ginnie Mae 

obtains access to the underlying collateral or insurance claim by pursuing loss mitigation activities.

Note 17: Contingencies and Commitments 

From time to time, Ginnie Mae can be a party to pending or threatened legal actions and proceedings 

which arise in the ordinary course of business. Ginnie Mae reviews relevant information about all 

pending legal actions and proceedings for the purpose of evaluating and revising contingencies, 

accruals, and disclosures. 

Legal actions and proceedings resolution are subject to many uncertainties and cannot be predicted 

with absolute accuracy. Ginnie Mae establishes accruals for matters when a loss is probable and the 

amount of the loss can be reasonably estimated. For legal actions or proceedings where it is not 

reasonably possible that a loss may be incurred, or where Ginnie Mae is not currently able to estimate 

the reasonably possible loss or range of loss, Ginnie Mae does not establish an accrual. 

As of September 30, 2016 and 2015, and as of the date of this report, Ginnie Mae’s Office of General 

Counsel has identified one pending or threatened action. In the opinion of Ginnie Mae’s management 

(Dollars in billions)

Number 

of Issuers

Remaining 

Principal 

Balance

Number 

of Issuers

Remaining 

Principal 

Balance

Number 

of Issuers

Remaining 

Principal 

Balance

Number 

of Issuers

Remaining 

Principal 

Balance

Largest performing issuers 25 1,167.3$ 22 82.2$ 1 0.3$ 14 52.3$ 

Other performing issuers 261 294.4 $ 30 10.4$ 1 -$ - $ -

Defaulted issuers 16 4.2 $ - -$ - -$ - $ -

Single Family Multifamily Manufactured 

Housing

Home Equity 

Conversion 

(HECM/HMBS)

101

and Office of General Counsel the likelihood of an unfavorable outcome is remote and therefore no 

accrual has been established. It is the opinion of Ginnie Mae’s management that the disposition or 

ultimate resolution of the case will not have a material adverse effect on the financial position of 

Ginnie Mae. No other asserted or unasserted claims or assessments in which Ginnie Mae’s exposure 

is $1.0 million or greater, individually, or in the aggregate for similar matters have been identified. 

Additionally, Ginnie Mae’s Office of General Counsel has determined that there are no pending or 

threatened actions or unasserted claims or assessments in which Ginnie Mae’s potential loss exceeds 

$2.0 million in the aggregate for cases not listed individually or as part of similar cases that could be 

material to the financial statements. 

Ginnie Mae has commitments to guaranty MBS, which are off-balance sheet financial instruments. 

Additional information is provided in Note 6: Financial Guarantees and Financial Instruments with 

Off-Balance Sheet Risk. 

Ginnie Mae’s management recognizes the uncertainties that could occur in regard to potential 

defaulted Issuers and other indirect guarantees, such as large Issuer portfolio default, lack of proper 

insurance coverage of defaulted loans, etc. Additional information is discussed in Note 15: Reserve 

for Loss.

Note 18: Related Parties 

Ginnie Mae is a self-financing, wholly owned U.S. Government corporation within HUD. Ginnie 

Mae is subject to controls established by government corporation control laws (31 U.S.C. Chapter 91) 

and management controls by the Secretary of HUD and the Director of the OMB. These controls 

could affect Ginnie Mae’s financial position or operating results in a manner that differs from those 

that might have been obtained if Ginnie Mae were autonomous. Accordingly, the accompanying 

financial statements may not necessarily be indicative of the conditions that would have existed if 

Ginnie Mae had been operated as an independent organization. 

Ginnie Mae was authorized to use $33.2 million and $23.0 million during the year ended September 30, 

2016 and 2015, respectively, for personnel (payroll) and non-personnel (travel and training) costs only. 

During the year ended September 30, 2016 and 2015, Ginnie Mae incurred $25.5 million and $21.6 

million, respectively, for these costs, which are included in Administrative expenses. Ginnie Mae has 

authority to borrow from Treasury to finance operations in lieu of appropriations, if necessary. Ginnie 

Mae did not borrow funds for the years ended September 30, 2016 and 2015. 

Additionally, Ginnie Mae has an intra-entity relationship with the FHA, which is part of HUD. All 

transactions between Ginnie Mae and FHA have occurred in the normal course of business. Of the 

total mortgage loans HFI, approximately $3.4 billion and $4.2 billion of loans were insured by FHA 

as of September 30, 2016 and 2015, respectively. In addition, Ginnie Mae submits and receives claim 

proceeds for FHA-insured loans that have been through the foreclosure and short sale process. The 

breakdown of FHA claims pending payment or pre-submission to FHA is below: 

102
 

Pension Benefits and Savings Plan: Eligible Ginnie Mae employees are covered by the federal 

government retirement plans, either the Civil Service Retirement System (CSRS) or the Federal 

Employees Retirement System (FERS). Although Ginnie Mae contributes a portion of pension 

benefits for eligible employees, it does not account for the assets of either retirement system. Ginnie 

Mae also does not have actuarial data for accumulated plan benefits or the unfunded liability relative 

to eligible employees. These amounts are reported by the Office of Personnel Management (OPM) 

and are allocated to HUD. 

Under the Federal Thrift Savings Plan (TSP), Ginnie Mae provides FERS employees with an 

automatic contribution of 1 percent of pay and an additional matching contribution up to 4 percent 

of pay. CSRS employees also can contribute to the TSP, but they do not receive matching 

contributions. During the year ended September 30, 2016 and 2015, Ginnie Mae contributed 

$2.8 million and $2.4 million, respectively, in pension and savings benefits for eligible employees. 

Post-Retirement Benefits Other Than Pensions: Ginnie Mae has no postretirement health 

insurance liability since all eligible employees are covered by the Federal Employees Health Benefits 

(FEHB) program. The FEHB is administered and accounted for by the OPM. In addition, OPM pays 

the employer share of the retiree’s health insurance premium. 

Note 19: Credit Reform 

The Federal Credit Reform Act of 1990, which became effective on October 1, 1991, was enacted to 

more accurately account and budget for the cost of federal credit programs and to place the cost of 

these credit programs on a basis equivalent with other federal spending. Credit reform focuses on 

credit programs that operate at a loss by providing for appropriated funding, within budgetary 

limitations, to subsidize the loss element of the credit program. 

Credit programs that operate at a profit result in negative subsidies. Ginnie Mae’s credit activities 

have historically operated at a profit. Ginnie Mae has not incurred borrowings or received 

appropriations to finance its credit operations. As of September 30, 2016 and 2015, the U.S. 

Government has an investment in Ginnie Mae of $21.6 billion and $21.3 billion, respectively. 

Pursuant to the statutory provisions under which Ginnie Mae operates, its net earnings are used to 

build sound reserves. In the opinion of management and HUD’s general counsel, Ginnie Mae is not 

subject to the Federal Credit Reform Act. 

(Dollars in thousands) 2016 2015

Foreclosed Property Claims Receivable $ 652,900 840,000 $ 

Short Sales Claims Receivable 114,000 71,000 

Insurance Claims Receivable 6,900 200

Total FHA Claims, gross $ 773,800 $ 911,200

September 30,

103

Note 20: Subsequent Events 

Ginnie Mae’s management has evaluated events and transactions occurring after September 30, 2016, 

the balance sheet date, through November 10, 2016, the date which the financial statements were 

made available to be issued. Ginnie Mae concluded that no events or transactions have occurred that 

would require disclosure in the financial statements for the year ended September 30, 2016. 

104