Financial Management

The Department of Veterans Affairs' (VA) housing program accrues guaranteed loan losses at loan origination. The Federal Housing Administration's (FHA) Mutual Mortgage Insurance Fund accrues such losses when an insured loan defaults; loans that default generally do so within 10 years after loan origination. The timing differences in accruing loan losses are attributable to variations in the loan programs involved. Revenue from VA guaranteed loan fees and Fund insurance premiums is recognized when the guaranteed or insured loan losses are recognized; thus, both revenue and related costs are recorded in the same accounting period. Both entities value acquired property at the net amount of cash expected to be realized from the property's sale. In addition, in their financial statements, the entities offset the principal amount of direct mortgage loans with an allowance for loan losses, thus valuing loan assets at their net realizable value. In fiscal year 1992, the VA housing assistance program will start including administrative costs as a program operation cost, as the Fund currently does.

GAO found that: (1) the VA housing assistance program accrues guaranteed loan losses at loan origination, but the MMI Fund accrues such losses when an insured loan defaults; (2) timing differences in accruing loan losses are attributable to variations in the nature and purposes of the loan programs involved; (3) revenue from VA guaranteed loan fees and MMI Fund insurance premiums is recognized at the same time as the guaranteed or insured loan losses; (4) both entities value acquired property at the net amount of cash expected from the property's sale; (5) both entities offset the principal amount of direct mortgage loans with an allowance for loan losses, valuing loan assets at their net realizable value; and (6) in fiscal year 1992, the VA housing assistance program will include administrative costs as a program operation cost, as the MMI Fund currently does.