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The U.S. Department of Housing and Urban Development, Office of Inspector General audited Ginnie Mae’s oversight of nonbanks due to the growth of nonbank issuers in the mortgage servicing industry.  Our objective was to determine whether Ginnie Mae responded adequately to changes in its issuer base.

We found that Ginnie Mae did not adequately respond to changes in its issuer base.  Specifically, it did not implement policies and procedures in a timely manner for its account executives to follow in managing issuers, did not develop a written default strategy, and did not assess and address the risks posed by nonbanks in a timely manner.  As a result, Ginnie Mae may not identify problems with issuers in time to prevent default.  Additionally, it may not be able to properly service loans absorbed in a default and may require additional funds from the United States Treasury to pay investors in the event of a large issuer default.

We recommend that Ginnie Mae develop and implement controls to (1) ensure that policies and procedures for account executives are continually reviewed and updated to reflect changes in Ginnie Mae’s operations; (2) determine the total impact of a large or multiple-issuer default, the maximize-size default Ginnie Mae can adequately execute, and individual issuers’ ability to adapt to changing market conditions; (3) continually assess skills required to meet organizational goals; and (4) ensure that employee skill levels are developed to meet changing organizational needs.