Credit Reform

This report evaluates several highly technical issues related to implementation of the Federal Credit Reform Act of 1990. GAO discusses (1) whether the budgetary treatment of the Government National Mortgage Association conformed to credit reform requirements; (2) whether the cost of programs that reduce the credit subsidy rate should be considered in determining total credit subsidy costs and, if so, whether the cost of the rental assistance provided to participants in the Farmers Home Administration's section 515 direct loan program should be added to the cost of the credit program; and (3) whether the 1990 act's exclusion of the credit activities of the Resolution Trust Corporation and the Federal Deposit Insurance Corporation from its requirements was appropriate.

GAO found that: (1) the GNMA budgetary treatment did not conform to all credit reform requirements in fiscal years 1992 through 1994 because GNMA did not use the guarantee date when it recorded transactions in credit financing; (2) it is appropriate for a credit program to capture the costs of a closely linked cross-subsidy program; (3) cross subsidies decrease borrower default by either increasing their income or decreasing their costs; (4) credit program subsidy costs may be understated if cross subsidies are not closely linked to these programs; (5) the FmHA section 515 program would not be affected if closely linked cross-subsidy program costs were included in the costs of related credit programs; (6) no cross-subsidy program in the 1994 budget meets the criteria to be considered closely linked to the 515 program; (7) a supplemental table showing the size and cost of cross-subsidy programs and their effect on the credit subsidy rate would provide decisionmakers with more complete data on programs that do not meet the closely linked criteria; (8) it is appropriate to exclude FDIC and RTC credit activities from credit reform requirements when their only purpose is to resolve and dispose of the assets of failed financial institutions; and (9) it would be appropriate to impose credit reform requirements on RTC and FDIC credit programs, since they fulfill other key objectives which do not always require RTC and FDIC to seek maximum returns in disposing of assets.

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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