Ginnie Mae: Risk Management and Staffing-Related Challenges Need to Be Addressed

GAO-19-191 Published: Apr 03, 2019. Publicly Released: May 03, 2019.
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Fast Facts

Ginnie Mae, a government-owned corporation, is a major player in the housing finance market. It has grown to guarantee over $2 trillion worth of mortgage-backed securities—which encourages investors to provide capital for mortgage loans with a promise that they'll receive payments even if the borrowers default.

Ginnie Mae's growth has raised concerns. We examined how it manages risks; its staffing issues such as heavy reliance on contractors and limited budget for in-house staff; and how its oversight differs from other entities with similar functions.

Our recommendations help address these concerns and improve oversight of Ginnie Mae.

The unpaid principal on the mortgages backing Ginnie Mae's securities, which is a measure of Ginnie Mae's potential fiscal risk

Line chart showing growth from around $500 billion in 2005 to around $2 trillion in 2018

Line chart showing growth from around $500 billion in 2005 to around $2 trillion in 2018

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Highlights

What GAO Found

The amount of mortgage-backed securities (MBS) that the Government National Mortgage Association (Ginnie Mae) guaranteed rose from $500 billion to $2 trillion in fiscal years 2007–2018—exposing it to a greater risk of loss. From 2011 to 2018, the majority of institutions issuing Ginnie Mae-guaranteed MBS (issuers) shifted from banks to nonbanks, such as mortgage lenders. Unlike banks, nonbank issuers generally are not consistently subject to comprehensive federal safety and soundness standards.

Since GAO's 2011 report, Ginnie Mae increased minimum financial requirements for MBS issuers and developed new tools to monitor them. However, it has limited flexibility under law to raise the fee charged to guarantee single-family MBS in response to changes in risks. Ginnie Mae also has not assessed if the current fee would provide it with sufficient capital reserves to withstand losses under various scenarios, which would be consistent with federal internal control and risk-management standards. Such an analysis would provide Ginnie Mae with information necessary to help ensure the fee is set appropriately and inform Congress whether Ginnie Mae needs greater flexibility to adjust the fee.

As GAO reported in 2011, Ginnie Mae still faces contracting and staffing challenges. It continues to rely heavily on contractors (because it has authority to use certain fee revenue to fund contractors but not its own in-house staff). However, it has not routinely analyzed if using its own in-house staff instead of contractors for certain functions would be more efficient. Such analyses could help inform Ginnie Mae and Congress about the optimal mix of contractors and staff and potential need for greater budget flexibility. Ginnie Mae also still faces challenges recruiting and retaining staff, in part due to its lower pay scale relative to some of its competitors. But it has not exhausted all options under its current authority to revise its pay scale to mitigate these challenges or evaluated the costs and benefits of other options. Such actions could help inform Ginnie Mae about how it could use current authorities to address these challenges and provide Congress with the information needed to consider providing Ginnie Mae with additional pay flexibility.

The Department of Housing and Urban Development (HUD) oversees and sets general policies that govern Ginnie Mae's operations. However, GAO previously reported that HUD's management challenges limit the effectiveness of its oversight of Ginne Mae and its other programs. In light of these challenges and Ginnie Mae's increasing risks, GAO reviewed the oversight structures of three similar financial entities and found that certain alternative structures used by these entities, such as boards of directors, offer potential oversight benefits that could be considered as part of any future reform proposals for Ginnie Mae. As GAO previously reported, if Congress considers legislation to reform the federal role in housing finance, such reforms would need to be comprehensive and consider all relevant federal entities, including Ginnie Mae. As part of such reforms, it also would be important to ensure that Ginnie Mae is adequately overseen and its risks effectively managed.

Why GAO Did This Study

Ginnie Mae, a government corporation within HUD, plays a significant role in the secondary mortgage market. Institutions issue MBS (backed by federally insured or guaranteed mortgages). Ginnie Mae guarantees MBS investors timely payments of principal and interest on the MBS if issuers cannot make such payments. In 2011, GAO identified challenges related to Ginnie Mae's issuer oversight, staffing, and contracting.

GAO was asked to re-examine these issues. This report reviews Ginnie Mae's (1) MBS volume, issuers, and risks; (2) oversight of issuers and related risks; (3) staff levels and contractor use; and (4) oversight structure compared to selected entities to identify areas for potential reforms. GAO analyzed data on MBS volume, reviewed Ginnie Mae policies and procedures, reviewed oversight structures of three similar financial entities, and interviewed agency officials.

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Recommendations

GAO makes four recommendations to Ginnie Mae, including that it evaluate its issuer guaranty fee, contractor use, and alternative compensation structures. GAO also makes recommendations to Congress to consider requiring Ginnie Mae to report on its evaluations of (1) the adequacy of its issuer guaranty fee, (2) its reliance on contractors and use of certain fee revenue to hire in-house staff, and (3) use of greater flexibility to set staff compensation; and (4) to consider possible reforms to Ginnie Mae's oversight structure. Ginnie Mae concurred with GAO's recommendations.

Matter for Congressional Consideration

Matter Status Comments
Congress should consider requiring Ginnie Mae to evaluate the adequacy of its current guaranty fee for single-family mortgage-backed securities and report to Congress with recommendations, if any, on revising the fee, such as by adopting standards under which the fee should be determined. (Matter for Consideration 1)
Open
As of May 2022, Congress had not enacted legislation to require Ginnie Mae to evaluate the adequacy of its current guaranty fee for single-family mortgage-backed securities and report to Congress with recommendations.
Congress should consider requiring Ginnie Mae to evaluate its reliance on contractors and report to Congress on how it would use fee revenue available to hire contractors to also hire in-house staff. (Matter for Consideration 2)
Open
As of May 2022, Congress had not enacted legislation to require Ginnie Mae to evaluate its reliance on contractors and report to Congress on its findings.
Congress should consider requiring Ginnie Mae to provide a report on how it would use greater flexibility or broader authority to set the compensation of its in-house staff. (Matter for Consideration 3)
Open
As of May 2022, Congress has not enacted legislation to require Ginnie Mae to report on how it would use greater flexibility or broader authority to set the compensation of its in-house staff.
Congress should consider reforms to Ginnie Mae's oversight structure that can help address its increasing risks. (Matter for Consideration 4)
Open
As of May 2022, Congress has not enacted legislation that considers reforms to Ginnie Mae's oversight structure that can help address its increasing risks.

Recommendations for Executive Action

Agency Affected Recommendation Status
Government National Mortgage Association (Ginnie Mae)
Priority Rec.
This is a priority recommendation.
The Chief Risk Officer of Ginnie Mae should periodically conduct an actuarial or similar analysis that includes a stress test to evaluate the extent to which the current level of the guaranty fee for single-family MBS provides Ginnie Mae with sufficient reserves to cover potential losses under different economic scenarios. (Recommendation 1)
Closed – Implemented
As of March 2022, Ginnie Mae has implemented this recommendation. More specifically, Ginnie Mae has implemented a model to periodically evaluate the extent to which the guaranty fee for single-family MBS provides the agency with sufficient reserves to cover potential losses under different economic scenarios. In 2021, Ginnie Mae developed a model to estimate the necessary guaranty fee to cover losses under different economic scenarios. Ginnie Mae found its reserves were adequate to cover estimated losses under the scenarios and committed to conduct the evaluation at least annually. In early 2022, Ginnie Mae completed its second evaluation of its guaranty fee after updating and recalibrating its model. Ginnie Mae found it was well positioned to withstand foreseeable market stress at the current guaranty fee and capital reserves levels under different economic scenarios. Ginnie Mae officials told us that they plan to continue to further enhance the model and conduct the guaranty fee evaluation semi-annually and eventually quarterly, depending on competing demands. By conducting such an analyses, Ginnie Mae is now better positioned to understand its ability to absorb losses and, in turn, whether its guaranty fee is set at an appropriate level
Government National Mortgage Association (Ginnie Mae)
Priority Rec.
This is a priority recommendation.
The Senior Vice President of Ginnie Mae's Office of Management Operations should analyze the costs of using contractors for its operations and develop a plan to determine the optimal mix of contractor or in-house staff for operations. (Recommendation 2)
Open
Ginnie Mae (HUD) agreed with this recommendation. As of March 2022, Ginnie Mae officials said a contractor analyzed Ginnie Mae's contracts and determined a shift of some staff from contractor to in-house status could reduce agency costs. Ginnie Mae also conducted a preliminary analysis of how the contractor and in-house staff mix would change with its modernization efforts and the forthcoming HUD 2022-2026 strategic plan. To fully implement the recommendation, Ginnie Mae will need to finalize its plan and procedures for determining the optimal mix of contractor and in-house staff for operations. Performing such analyses could help Ginnie Mae communicate to HUD, the Office of Management and Budget (OMB), and Congress the relative costs of its heavy reliance on contractor. We will continue to monitor Ginnie Mae's progress in implementing our recommendation.
Government National Mortgage Association (Ginnie Mae)
Priority Rec.
This is a priority recommendation.
The Senior Vice President of Ginnie Mae's Office of Management Operations should assess its contract administration options to determine the most efficient and effective use of funds. (Recommendation 3)
Open
Ginnie Mae (HUD) agreed with this recommendation. As of March 2022, Ginnie Mae hired a contractor to analyze the benefits and costs of its contract administration options and expects to have the results by summer 2022. Ginnie Mae also has been working with other offices in HUD to assess the value of alternatives to existing arrangements with the General Services Administration. To fully implement this recommendation, Ginnie Mae should ensure completion of the evaluation to determine the most efficient and effective use of funds. Performing such an analysis could help Ginnie Mae better understand its contract administration costs and inform Ginnie Mae's future decisions about contract administration. We will continue to monitor Ginnie Mae's progress in implementing our recommendation.
Government National Mortgage Association (Ginnie Mae)
Priority Rec.
This is a priority recommendation.
The Chief Financial Officer of Ginnie Mae and Senior Vice President of Ginnie Mae's Office of Management Operations should finalize efforts to assess the costs and benefits of options to revise its compensation structure within current authority and submit proposals, if warranted, to HUD for review and consideration. (Recommendation 4)
Open
Ginnie Mae (HUD) agreed with this recommendation. As of April 2022, Ginnie Mae had taken steps to adopt an alternative pay option (known as Critical Position Pay) and was working with HUD on developing an implementation plan within its Office of Enterprise Risk. Ginnie Mae also has been is working with the Office of Management and Budget (OMB) to ensure program execution and outcomes align between the agencies. More specifically, Ginnie Mae has identified a set of information technology IT positions to proceed with advancing the approval granted to Ginnie Mae to use Critical Position Pay on a small number of positions. Ginnie Mae has also been is working to finalize a set of job descriptions to be presented to the U.S. Office of Personnel Management and HUD for approval to proceed with the proposal. To fully implement this recommendation, Ginnie Mae needs to finalize its efforts with HUD and OMB. By following through and completing an assessment of potential reforms to its compensation structure, Ginnie Mae could communicate to HUD, OMB, and Congress the information necessary to justify changes in its authority that would allow it to address recruitment and retention challenges and structure its workforce to meet operational needs We will continue to monitor Ginnie Mae's progress in implementing our recommendation.

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