Resolution Trust Corporation:
Recommendations Addressed to Oversee and Account for Cash Flow Mortgages
GGD-94-179: Published: Jul 26, 1994. Publicly Released: Aug 26, 1994.
- Full Report:
Pursuant to a congressional request, GAO reviewed the Resolution Trust Corporation's (RTC) efforts to implement previous recommendations and oversee the Patriot and Centrust cash flow mortgages to ensure that these mortgages comply with their terms and conditions.
GAO found that: (1) RTC has implemented oversight procedures for cash flow mortgages and determined how it will account for cash flow transactions as recommended in previous GAO reports; (2) RTC has implemented, to the extent possible, the recommendation to make postclosing assessments of the cash flow transactions; (3) RTC completed a postclosing assessment of the Congregate Care cash flow mortgage shortly after the buyer satisfied its obligation to RTC; (4) RTC has not completed postclosing assessments for Centrust and Patriot cash flow mortgages because the transactions cannot be accurately assessed until they are completed; (5) RTC has transferred the Patriot mortgage to a national servicer to help ensure that the terms and conditions of the agreement are followed; (6) RTC oversight of the Centrust mortgage did not ensure that taxpayers' interests were protected; (7) as of July 1993, the Centrust and Patriot cash flow mortgages have been serviced by one firm; (8) the servicer has taken the appropriate steps to determine if the borrowers complied with the terms and conditions of the Patriot mortgage and has developed a monitoring plan for the Centrust cash flow mortgage; (9) the servicer should be able to provide adequate oversight of the Centrust mortgage if it properly implements its oversight plan; and (10) the servicer has developed procedures for the auditor to verify that unrelated charges are not being passed on as expenses to the properties.
Recommendation for Executive Action
Status: Closed - Implemented
Comments: On June 13, 1994, RTC servicing oversight personnel were directed to ensure that RTC's servicer continues to implement audit procedures to effectively monitor and verify the appropriateness of expenses charged against the cash flow mortgages' collateral properties' operating accounts. The servicer has developed additional audit procedures, engaged a third-party accountant for the 1994 audit cycle, and is conducting audits to verify, among other things, that unrelated charges are not being passed on as expenses to the properties for the Patriot and Centrust transactions.
Recommendation: The RTC Deputy and Acting Chief Executive Officer should direct RTC servicing oversight personnel to require the RTC cash flow mortgage servicer to implement procedures requiring that the annual audits of cash flow mortgages include verification of the charges to the properties' operating accounts throughout the life of the mortgages.
Agency Affected: Resolution Trust Corporation