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Credit Reform: Case-by-Case Assessment Advisable in Evaluating Coverage and Compliance

AIMD-94-57 Published: Jul 28, 1994. Publicly Released: Jul 28, 1994.
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Highlights

Pursuant to a congressional request, GAO reviewed the implementation of the Federal Credit Reform Act of 1990, focusing on whether: (1) the Government National Mortgage Association's (GNMA) budget proposal conformed to credit reform requirements; (2) credit subsidy reduction costs should be considered in determining total credit subsidy costs; (3) Farmers Home Administration (FmHA) rental assistance program costs should be added to the cost of the FmHA section 515 direct loan program; and (4) it is appropriate to exclude the credit activities of the Resolution Trust Corporation (RTC) and Federal Deposit Insurance Corporation (FDIC) from credit reform requirements.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress may wish to consider amending the Credit Reform Act to include in the cost of credit programs the costs of closely linked cross subsidies.
Closed – Not Implemented
OMB concurred with the GAO recommendation that including the costs of cross-subsidies would provide a better measure of the government's cost of extending credit, but has not yet proposed an amendment to the Credit Reform Act. In addition, given action on credit reform taken in 1997, GAO does not anticipate congressional action on this point.
Congress may wish to consider amending the Credit Reform Act to exclude from credit reform requirements only those FDIC and RTC programs whose sole purpose is the resolution and disposition of the assets of failing and failed financial institutions.
Closed – Not Implemented
RTC operations were absorbed into FDIC in December 1995. Changes in budgetary treatment to the two affordable housing programs are not anticipated.

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Management and Budget To appropriately implement credit reform, the Director, Office of Management and Budget (OMB), should require GNMA to budget for guarantees using the issuance dates of its guarantees to determine whether the cost of the guarantee should be included in the financing account or the liquidating account.
Closed – Implemented
OMB and GNMA continue to discuss changes to the budgetary treatment of GNMA's credit programs. Recent discussions have included the need for cohort budgeting/accounting to enable GNMA to re-estimate the cost of outstanding credit. Current estimates show that GNMA's credit program will be fully in the financing account by the end of 1999. Therefore GAO's recommendation would not be relevant. However, GNMA's budget treatment for credit programs still does not satisfy credit reform requirements.
Office of Management and Budget For cross subsidies that do not meet the criteria for being closely linked to a credit program, the Director, OMB, should include a supplemental table in the Budget Appendix for the associated credit programs showing, for each cross subsidy, the size, cost, and effect on the credit subsidy rate.
Closed – Not Implemented
OMB has considered including in the Budget Appendix supplemental information about the size and effect of cross-subsidies, but GAO believes it does not intend to do so.

Full Report

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Topics

Accounting proceduresBudget administrationCost accountingCreditFinancial management systemsLending institutionsLow income housingRent subsidiesReporting requirementsRural housing programs