Government National Mortgage Association

Greater Staffing Flexibility Needed to Improve Management Gao ID: RCED-93-100 June 30, 1993

In recent years, downturns in the real estate markets and allegations of mismanagement and fraud have prompted increased scrutiny of several federal loan guaranty programs. Some of these programs have run up huge losses, such as the $2.5 billion loss posted by the Federal Housing Administration (FHA) in fiscal year 1991. The federal government ended up having to pay the lenders for losses on the defaulted mortgages insured by FHA. This report focuses on the Government National Mortgage Association's (GNMA) ability to oversee its approved mortgage originators, or issuers, and the $426 billion worth of mortgage-backed securities outstanding as of September 1992. The federal government will have to pick up the tab should the GNMA issuers default. GAO (1) provides information on how GNMA has changed to accomplish its mission, (2) identifies recent management problems experienced by GNMA in overseeing its issuers, and (3) examines GNMA's efforts to solve its management problems.

GAO found that: (1) although the GNMA mission of financing low- and moderate-income housing has essentially remained the same, GNMA activities have significantly changed; (2) declining real estate markets, flawed federal mortgage programs, changes in home loan mortgage guaranty practices, and GNMA issuers' nonpayment have left GNMA vulnerable to financial loss and created management problems; (3) since 1988, GNMA has undertaken several initiatives to improve its oversight of the mortgage-backed security program and dispose of assets acquired from defaulted issuers; (4) GNMA relies on contractors to monitor issuer and default payments, operate management information systems, and manage and dispose of acquired assets because it does not have adequate authority to increase its staffing levels; and (5) increased reliance on contractors and Department of Housing and Urban Development (HUD) staffing constraints have raised concerns over GNMA ability to monitor contractors and to respond to future management challenges.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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