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 September 2020, 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 September 2020, 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 September 2020, 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 September 2020, 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.
1. 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)
Open
Ginnie Mae (HUD) agreed with this recommendation. As of April 2021, Ginnie Mae took steps to address this recommendation. First, according to its 2021 budget justification, Ginnie Mae continues to believe it would be advantageous to have the authority to administratively adjust its guarantee fee and requested that the permissible guarantee fee be established within a range. Upon receipt of this authority, Ginnie Mae would then establish an administrative process through which an adjustment could be made. Second, Ginnie Mae has developed a stress test framework and solicited public comment. Third, Ginnie Mae made significant progress in developing an economic model to explore the current level of the guaranty fee under different economic scenarios including variations in issuer types and across Ginnie Mae programs. More specifically, in 2020, Ginnie Mae worked with its existing contractor to develop the model and is now transitioning to a new contractor to continue to update the work. According to officials, Ginnie Mae will perform the guaranty fee adequacy analysis on an annual basis until 2023. Beginning in 2023, Ginnie Mae will begin to perform the analysis on a semi-annual basis. We will continue to monitor Ginnie Mae's progress in fully implementing our recommendation by determining how it will periodically conduct this analysis.
Government National Mortgage Association (Ginnie Mae)
Priority Rec.
This is a priority recommendation.
2. 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 January 2021, Ginnie Mae said it procured a contractor to do this analysis on their behalf at the end of fiscal year 2020. Officials expected the cost analysis to commence in early 2021. To fully implement this recommendation, Ginnie Mae should ensure the analysis and plan are completed. 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.
3. 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 January 2021, Ginnie Mae stated it assesses procurement approaches on a per contract basis on whether to administer a contract within HUD or outsource the contract administration. However, GAO recommends Ginnie Mae comprehensively evaluate whether the outsourcing of its contract administration has met its intended purposes and is the most efficient and effective use of funds. In order to implement this recommendation, Ginnie Mae should reevaluate its decision to use an external provider. According to Ginnie Mae, in FY 2021, it plans to have an external vender conduct an evaluation to assess its contract administration options and make recommendations for contract administration going forward. 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.
4. 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 January 2021, Ginnie Mae has taken steps to assess options to revise its compensation structure. More specifically, according to Ginnie Mae, in the development of its fiscal year 2020 budget request, Ginnie requested authority to develop alternative pay options, such as premium pay, pay bands and critical pay. In August 2020, Ginnie Mae was given authority to proceed with implementing critical pay by the Office of Personnel Management. Critical Pay authority permits an agency to set a higher rate of basic pay than would otherwise be payable for a position that requires expertise of an extremely high level in a scientific, technical, professional, or administrative field and is critical to the successful accomplishment of an important mission. As of January 2021, Ginnie Mae is working with HUD on developing an implementation plan to implement critical pay within its Office of Enterprise Risk. In addition, Ginne Mae is working with OMB to ensure program execution and outcomes are aligned between the agencies. We will continue to monitor Ginnie Mae's progress in implementing our recommendation.

Full Report

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