Detailed Information on the
Single Family Housing Loan Guarantees Assessment

Work with the Congress to change this program's authorization to help reduce any redundancy with other Federal home loan guarantee programs

Evaluate the controls that ensure steady funding and access to the program by the lenders to make sure they are adequate to retain lenders in the face of limited funding in any given year.

Measure: Number of homeownership opportunities created measured in terms of the number of new loans made.

Explanation:This is an output measure for the number of home loans to be guaranteed with program funds. This measure is dependent on program levels and housing costs. This is a significant measure because it shows the raw level of assistance the program is providing on an annual basis. This what allows the government to say how many households we are assisting with this program. That has historically what the stakeholders are interested in when they inquire about the annual funding level. A higher loan level results in a higher number of households assisted.

Measure: The number of basis points the program is within the delinquency rate of FHA's loan portfolio's delinquency rate. This measure accounts for loans 30 days or more past due, net of loans in foreclosure. The goal for 2004-2006 was to not exceed the FHA rate by more than 100 basis points by 2006. Performance has been much better than expected, so the targets have been adjusted to be more ambitious for 2007-2110. The rate now has to be below the FHA by the target margin in order to meet the measurement goal.

Explanation:This performance measure is an indicator of the annual success rate for the guaranteed single family home mortgages compared to the other major Federal guaranteed loan program's rate, FHA's rate. The goal is to have a delinquency rate that does not exceed the corresponding FHA rate by the target margin. Number represents how many basis points the program is within FHA's rate. (A positive number means the SFH-Guaranteed delinquency rate is above the FHA rate. A negative number indicates the SFH-Guaranteed delinquency rate is below the FHA rate. N/A means data not yet available.)

Measure: Successful homeownership as measured by the number of basis points the program is within FHA's loan portfolio's foreclosure rate. The goal for 2004-2006 was to not exceed the FHA rate by more than 75 basis points by 2006. Performance has been much better than expected, so the targets have been adjusted to be more ambitious for 2007-2110. The rate now has to be below the FHA by the target margin in order to meet the measurement goal.

Explanation:This Measure compares the % of section 502 guaranteed loan borrowers in the process of foreclosure to the FHA inventory of loans in the process of foreclosure. Number represents how many basis points the program is within FHA's rate. (N/A means data not yet available.) FHA is the other major Federal guaranteed home loan program within the Federal government.

Measure: The increased likelihood of successful home ownership as measured by the percentage of applications submitted through GUS by private sector lenders.

Explanation:This measure compares the success of an automation initiative designed to fulfill several policy goals. The baseline is 2006 when 0.2% of guaranteed loans were obligated using GUS. While several important system enhancements are not yet funded, the 2007 goal is for 5% of all guaranteed loans to be obligated through GUS, increasing successively to 20% in 2008, 40% in 2009, and 60% in 2010.

Measure: The Workout to Real Estate Owned (REO) Ratio, as defined as follows: The sum of Approved loss mitigation workouts (Special Forbearances, Loan Modifications, Pre-foreclosure Sales and Deeds-in-Lieu) divided by the sum of (Approved Workouts + REO) minus Deeds-in-Lieu. *Deeds-in-Lieu are weighted at half (50%) of a fully weighted workout in the numerator of the Workout to REO Ratio since Deed-in-Lieu results in an REO. Even though the Deed-in-Lieu is a favorable loss mitigation result that reduces loan losses, it should not receive equal credit of workout that results in a loan reinstating or a property that is liquidated prior to a foreclosure sale.

Explanation:A new efficiency performance measure is in place, the Workout to REO (Real-Estate Owned) Ratio, with a baseline established for 2006, and targets for 2007-2010. The Workout to REO Ratio measures the level of effectiveness in preventing defaulted loans from going on to foreclosure. Effective loss mitigation will reduce the number of loans that become seriously delinquent thus reducing the amount of loans that could result in foreclosure and subsequent loss claim payment. The higher the Workout to REO Ratio, the more favorable the result. The Workout to REO Ratio is recognized by the mortgage industry as a true measurement of loss mitigation performance.

Measure: Program 30-day plus loan delinquency rate, net of foreclosures

Explanation:This is the raw delinquency rate for the program. This is what we use to benchmark against FHA data to calculate measure number 2. This measure shows how well we are doing without factoring in the state of the economy. By benchmarking this measure with the major,Federal, single family housing guarantee program, FHA, we can remove the effects on this measure by the state of the economy in general.

Measure: Program foreclosure rate. This includes all loans in the process of foreclosure at the time the measurement is made.

Explanation:This is the raw foreclosure rate for the program. This is what we use to benchmark against FHA data to calculate measure number 3. This measure shows how well we are doing without factoring in the state of the economy. By benchmarking this measure with the major, Federal, single family housing guarantee program, FHA, we can remove the effects of the economy on this measure to get a sense of how we are really performing.

Is the program purpose clear?

Explanation: The program purpose as set forth in the Housing Act is to extend financial assistance in the form of loan guarantees to lenders who make loans to eligible low and moderate income borrowers in rural areas to enable them to purchase modest dwellings for their own use.

Evidence: Sections 501 and 502(h), Title V, Housing Act of 1949, as amended. RD Instruction 1980-D, Section 1980.301(b).

Does the program address a specific and existing problem, interest, or need?

Explanation: The problem to be addressed is specified as a lack of decent, safe and sanitary dwellings in rural areas affordable to low or moderate income families and a need for additional sources of affordable mortgage financing for those families. Unlike sub-prime mortgage products that pose high risk to consumers because of their costs and interest rate instability, section 502 guaranteed loans represents a solid option for affordable and safe mortgage credit for low and moderate income families and individuals. Loan terms are fixed for 30-years and interest rates are fixed and at a conventional mortgage market level. Borrower fees and charges associated with the loans must be reasonable and customary. Loan servicers are encouraged to provide home retention loss mitigation options in the event of borrower default. A recent ERS study indicated that, while non-metro homeownership rates are rising overall according to the 2000 census, one of every four non-metro counties experienced a decline, and non-metro minority households and low income households consistently have homeownership rates well below the norm. Many rural families lack the resources to provide for a down-payment to purchase a home. According to the Housing Assistance Council (HAC) affordability is the biggest problem facing low-income rural households. The Millennium Housing Commission also found that housing affordability remains a significant problem in rural areas. Program borrowers could not afford the purchase a home without the assistance the program provides. Over thirty percent of all loans are made to very-low and low income homebuyers, with incomes at 80 percent of median income for the area, or less.

Evidence: Sections 501(a) and 502(h)(10) and (11), Title V, Housing Act of 1949, as amended. Housing Assistance Council - "Housing in Rural America", March 2006. Economic Research Service: "Home Financing: Rural-Urban Differences" Feb. 2006. Economic Research Service: "Rural America at a Glance" Sept. 2005. USDA Economic Research Service, "April 2004 Findings - Rural Homeownership." Housing Assistance Council "Rural Voices, summer 2002. NAHB news release of June 19, 2003. Millennium Housing Commission Report. 5/30/02. Program obligation reports.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: The program enables lenders to offer a no-down payment, 100% loan-to-value ratio, fixed market rate, thirty-year loan product with a one-time guarantee fee. Eligibility is limited income that is 115% of median income or less in rural areas. FHA, VA or State Housing Finance Agency programs are generally higher in cost, predominantly used in urban areas, and generally require at least minimal down payments, and typically serve higher income applicants. While it is true that the FHA and VA home loan programs are not means tested, and households of any income size can qualify for the Federal assistance they offer and that lenders must certify that the loan would not be extended without the RHS guarantee, that is not enough of a distinction to say this program is unique. There can be, and most probably are, examples of borrowers who could qualify of all 3 types of Fed Guarantee lending and there is no agency coordination or MOUs to ensure that no overlap is occurring. However, the overlap is not considered extensive. The Administration has proposed changes to this program's authorization to reduce any potential redundancy with other Federal programs. The proposal requires that lenders ensure that they offer this product only when the VA and FHA programs cannot be or are not offered.

Evidence: USDA Economic Research Service, "Home Financing: Rural-Urban Differences" Feb. 2006. USDA Economic Research Service, "Rural America at a Glance" Sept. 2005. The Millennium Housing Commission report. " Housing Assistance Council "Rural Voices, summer 2002. NAHB news release of June 19, 2003. GAO report GAO-02-305 "Opportunities to Improve Federal Foreclosure and Property Sale Processes". The FY 2007 and FY 2008 Budget. Housing Assistance Council -"Housing in Rural America", March 2006. Economic Research Service: "Home Financing: Rural-Urban Differences" Feb. 2006. Economic Research Service: "Rural America at a Glance" Sept. 2005. USDA Economic Research Service, "April 2004 Findings - Rural Homeownership." Housing Assistance Council "Rural Voices, summer 2002. NAHB news release of June 19, 2003. Millennium Housing Commission Report. 5/30/02. Program obligation reports.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The program has no serious design flaws. Participating lenders originate and service loans, providing access to homeownership for low and moderate income families. Rural Development guarantees the loans in case of default, facilitating the flow of mortgage credit. The program relies on annual appropriations from Congress, and in the past, the program had a design flaw because lenders using the program threatened to not participate if funding ran out prior to the end of the fiscal year. Rural Development has corrected this flaw by designing controls that will better ensure steady funding and access to the program throughout the fiscal year. The controls include limiting funds to first-time homebuyers when demand exceeds available funding, and providing more frequent communications and options to lenders when funds availability may be an issue. An example is the lapse in funds availability at the in the opening months of recent fiscal years due to lack of full-year appropriations. Rural Development has successfully managed the limited funds provided during these time periods in a manner that retains support for the program by participating lenders nationwide. Rural Development has worked with its Office of General Counsel to provide for a means for participating to continue to originate and close program loans even when funds are temporarily exhausted. This is accomplished by Rural Development issuing conditional commitments for loan approvals "subject to the availability of funds" during those periods.

Evidence: Funds Management Study. New regulation 7CFR3555 in clearance. Reservation (GLS) and obligation (205-B) reports. Funds availability communications and letters to lenders. Program instructions to lenders for issuing conditional commitments "subject to the availability of funds".

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: This is the only means tested Federal housing guaranteed program. It is specifically for rural residents earning 115% or less of the median income in communities of 20,000 or less. Also, this program has an implied "credit elsewhere" test that requires the lender to certify that they would not make the loan without the proposed guarantee. The statute, regulations, and the program's funds management system ensures effective targeting by requiring the establishment of standards to target and give priority to areas that have a demonstrated need for additional sources of mortgage financing for low and moderate income families. Program authority is allocated among the States on the basis of the need of eligible borrowers in each State for such loans compared to the need of eligible borrowers for such loans among all States. In times of limited program funding, loans are prioritized for first-time homebuyers. Over thirty percent of all loans are made to very-low and low income homebuyers. We are not aware that there are unintended subsidies.

Evidence: Section 502(h)(10) and (11), Title V, Housing Act of 1949,as amended. RD Instruction 1940-L, "Methodology and Formulas for Allocations of Loan and Grant Program Funds," Section 1940.563, "Attachment 2, Part I, "Housing in Underserved Counties - 100 Eligible Counties," and Part II, Subpart C, Page 20. "Section 502 Guaranteed Purchase Loans (Non-subsidized)," and Page 21, "Section 502 Guaranteed Refinance Loans (Non-subsidized)." RD Instruction 1980-D, §1980.346(b) (credit elsewhere test). Form RD 1980-21 (Lender certification that they would not make the loan without the guarantee). Section 501(c) of the Housing Act of 1949 (credit elsewhere test). Program obligation reports. Fiscal Year 2006 Improper Payments Information Act analysis. Finance Office documentation and audits of Financial Statements.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The section 502 guaranteed program has 2 long-term outcome performance measures. One is the rate of successful homeownership as measured by the program's foreclosure rate (loans in the process of foreclosure) benchmarked against FHA's foreclosure rate at a given period of time. One of the basic purposes of the program is to promote successful homeownership in rural America. Borrowers that have their loans foreclosed upon are deemed to be not successful. The mortgage industry has long measured successful homeownership in terms of foreclosure rates. Foreclosure rates vary over time depending on the economy and market conditions. In an effort to gauge successful homeownership, long-term performance measures have been developed that will require the Agency to stay within certain basis points of the FHA foreclosure rate. The FHA and the 502 guaranteed programs are similar in that they are both high LTV Federal insured/guaranteed programs, but Rural Development's program is the riskier of the two since it provides for 102% LTV loans and applicant eligibility is means tested. While the actual foreclosure rate is tracked, benchmarking to FHA allows us to incorporate uncontrollable economic factors into our measure. The second long-term outcome measure, which is newer, is the likelihood of successful home ownership as measured by the percentage of loans obligated through Guaranteed Underwriting System (GUS). GUS is the new automated underwriting system. Use of GUS began in Fiscal Year 2006 and is an alternative to manual underwriting for private sector lenders. GUS will lead to an increase in successful homeownership because it will help reduce inconsistency and/or subjectivity in the loan making process. Identifying likely successful borrowers will be automated. This will reduce the government's risk of default for this program. Fewer defaulting borrowers equal an increase in successful homeownership. GUS will also increase the efficiency of the loan origination process for lenders, Rural Development, and applicants through reduced paper exchanges and increased reliance technology for faster and more accurate loan approval decisions.

Evidence: Mortgage Bankers Association quarterly delinquency survey (FHA default and delinquency data). Section 502 guaranteed program monthly foreclosure statistics. Program loan obligation data. Guaranteed Underwriting System (GUS) User Guide. GUS lender participation agreement.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: Initially when the successful homeownership measure as represented by the number of basis points USDA was within FHA's foreclosure rate was developed targets were set appropriately below the foreclosure rates to take into account the riskier characteristics (100% loan-to-value loans, means tested income guidelines) of the USDA loans as compared to the FHA loans. As actual data has been tracked, the results show that Rural Development is out-performing FHA on foreclosure rates. The targets going forward have been adjusted accordingly so that Rural Development can still aim for an ambitious goal while incorporating uncontrollable economic factors by benchmarking performance against another federal home loan program. The targets for the new measure of increasing the likelihood of successful homeownership as measured by the percentage of applications originated through GUS are very ambitious given that the system was only newly up and running, on a pilot basis, in Fiscal Year 2006. A baseline has been established based on 2006, when 0.2% of loans were obligated through GUS. Based on lender feedback, GUS requires a series of enhancements which will make it more user-friendly and efficient for lenders. Even though funding to make these enhancements is pending, and keeping in mind that GUS is new and has yet to gain broad acceptance by the mortgage industry, long-term performance targets have been established. For 2007, the target is to increase the percentage of loans obligated through GUS to 5%, increasing to 20% in 2008, 40% in 2009, and 60% in 2010.

Evidence: Mortgage Bankers Association quarterly delinquency survey (FHA default and delinquency data). Section 502 guaranteed program monthly foreclosure statistics. Management Control Review results. Program obligation reports. Guaranteed Underwriting System (GUS) reports.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: In order to promote the long-term program objective of successful homeownership, the Agency must meet annual objectives for providing homeownership opportunities (number of loans guaranteed), and then measure the delinquency performance of those loans. These measures are in direct relationship to the long-term measure of successful homeownership. In the same way that Rural Development controls for economic factors in the long-term measure by benchmarking the foreclosure rate with that of FHA's, it likewise does with the delinquency rate. The stand-alone delinquency rate and foreclosure rate are also naturally measured to track performance and to facilitate the both the annual and long-term benchmarking measures.

Evidence: Rural Development Budget Performance Indicators (BPI). Agency and FHA loan delinquency data as provided by the quarterly Mortgage Bankers Association delinquency survey and Agency delinquency reports. Agency loan obligation reports.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: One annual output measure is the number homeownership opportunities provided. This measure is dependent on the level of program funding and the average loan amount. Additionally, the performance of the portfolio is tracked by benchmarking its 30-day plus delinquency rate against FHA's rate. The homeownership opportunities targets are ambitious given the inability to control home mortgage interest rates and other market conditions and their potential impact on program demand as well as the whims of Congress. These targets are expected to be met even when factor in that uncertainty. The delinquency basis points benchmark target to FHA's was initially low given the programmatic features of the product, which are riskier than FHA's. As actual data has been tracked, the results show that Rural Development is significantly out-performing FHA on delinquency rates. The targets going forward have been adjusted accordingly ensuring that the goals continue to be ambitious even with the uncertainty of the economy factored-in.

Evidence: Rural Development Budget Performance Indicators (BPI). Agency and FHA loan delinquency data as provide by the quarterly Mortgage Bankers Association delinquency survey and Agency delinquency reports. Program loan obligation reports. Agency loan obligation reports.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: State program managers are committed to work toward program goals. Lenders are required under the terms of their participation agreement to be knowledgeable of and comply with all program requirements as defined by regulations. Successful homeownership is the goal of the program, and Rural Development, participating lenders, and borrowers have a vested interest in achieving that goal. Lenders' loan performance is monitored through compliance reviews and loan performance analysis. Rural Development field office performance is tracked based on loan-making and loan performance attributable to their jurisdictions.

Evidence: RD Instruction 1940-L; RD Instruction 1980-D; Form RD 1980-16, Agreement for Participation in SFH Guaranteed/Insured Loan Programs of the US Government. Lender loan-level reporting requirements for loan level. Rural Development lender compliance review schedule and results. Deloitte & Touche Annual Final Report, 2006. Deloitte & Touche Annual Final Report, 2005. Program loan obligation reports. Program loan delinquency reports.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Independent evaluations of lender activity are conducted under the terms of a contract with Deloitte and Touche, LLP using an audit format consistent with industry compliance review standards. Their annual report includes an assessment of program strengths and weaknesses that are taken into consideration for subsequent years' management plans. The Housing Assistance Council also monitors and regularly conducts studies of the program's effectiveness in reaching low and moderate income families. The Mortgage Bankers Association quarterly delinquency survey is used to assess program default performance. Internal controls are in place such as State Internal Reviews and National Management Control Reviews. The program regularly goes under the scrutiny of OIG and GAO audits. Internal controls and payment outlays are assessed through rigorous third-party reviews. Rural Development commissioned a Funds Management Study that was completed in 2006 that included surveys of participating partners.

Evidence: Deloitte & Touche Statement of Work, contract and work program. Deloitte & Touche section 502 guaranteed annual report. GAO (GAO-02-305) audit report. HAC annual reports. Mortgage Bankers Association quarterly delinquency survey. OIG Audit No. 046010015-Ch "Controls Over Single Family Housing Funds Provided for Hurricane Relief Efforts, March 2007. OIG Audit No. 04601-003-AT, "Guaranteed Rural Housing Loan Program Follow-up" Sept. 2006. Fiscal Year 2006 A-123 Risk Control Matrix & Testing Documentation reviewed by contractor PriceWaterhouse Coopers. Fiscal Year 2006 Improper Payments Information Act analysis. Finance Office documentation and audits of Financial Accounting Systems. Rural Development Funds Management Study, June 2006.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Budget requests are based on several factors and are the basis for long term performance goals. Factors affecting budget requests include prior fiscal year accomplishments as well as program costs and performance. Currently, budget requests are submitted with explanatory notes that are related to program performance results but the notes do not give a clear indication of the full cost of achieving the results. Some of the goals are explicitly tied to the program performance, such as the numbers of homes financed, but Rural Development, as a whole is still working toward full budget and performance integration.

Evidence: USDA official Budget documents.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: Strategic planning centers around the ability to enhance opportunities for successful homeownership and improving the efficiency and cost-effectiveness of program delivery. Management of program funding shortfalls, a previous deficiency, has been vastly improved through regulatory changes, improved communications with lenders, and updated processes for loan approvals during these times. Rural Development has a strategic plan in place. Specific and more ambitious goals have been adopted for the annual (delinquency rate) and long-term (foreclosure rate) performance measures related to the overall long-term goal of providing opportunities for successful homeownership. A new efficiency measure, discussed elsewhere in the PART, has been adopted that relates directly to the overall long-term goal as well.

Evidence: Evidence for improved funds management include Funds Management Study recommendations, June 2006. New regulation 7CFR3555 in clearance. Informational communication and process instructions issued to participating lenders from Rural Development. USDA Rural Development Strategic Plan. Evidence for establishment of more ambitious goals and the efficiency measure can be is section 4 of this PART.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The Agency collects real-time data on funds reservations, obligations, loan closings and fee collections. Data on guaranteed loan performance - unpaid principal balance, delinquency and status of mortgage is collected from holding lenders on monthly and quarterly basis via electronic data interchange. Additional data is collected as the loan is liquidated and presented if applicable for a loss claim. Data is verified through manual review, automated system edits and post-review. Data is stored in a data warehouse and is used to generate an array of more than 100 automated or ad hoc management reports through the Guaranteed Loan System (GLS) and/or BRIO that are the basis for lender and program performance monitoring. Standard monthly reports on fund use and loan delinquency are provided to program managers.

Evidence: Guaranteed Loan System (GLS) Rural Housing User Documentation: -Guaranteed Rural Housing Reservation of Funds System, -Guaranteed Loan Servicing Detailed Transactions (Field Office User Guide), -SFH Loss Claim Administration (online guide to automated loss claim system). -Electronic Data Implementation Guide. Guaranteed Loan System monthly default and quarterly portfolio records.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Within their own states, State program managers are held accountable by their respective State Directors for responsible program management including full utilization of funding and appropriate targeting of program funds, in accordance with RD Instruction 1980-D, RD Instruction 1940-L, and established goals and objectives. National office program managers are held accountable for overall program performance on a nationwide basis, including funds utilization, delinquency performance, and foreclosure performance, loan losses, partnership development, and outreach. Participating lenders are likewise held accountable.

Evidence: RD Instruction 1940-L; RD Instruction 1980-D. Budget Performance Indicators (BPIs). Loan making, delinquency, foreclosure, and loan loss reports from the Guaranteed Loan System. Lender performance reviews. Lender participation contract.

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: Obligations of program authority are managed expeditiously through the Guaranteed Loan System (GLS), and tracked for full utilization by the end of each fiscal year. GLS is a real-time system used by Rural Development staff to obligate funds to the accounting system. GLS tracks key data in great detail including geographic, loan, borrower, lender, and program obligations. GLS is used to prepare the Agency's financial statements. Actual expenditures are easily tracked.

Evidence: Erroneous Payments Risk Assessment. Obligation Report (205-B). Guaranteed Loan System (GLS) Reservation of Funds report and National/State Obligation summaries. Fiscal Year 2006 A-123 Risk Control Matrix & Testing Documentation reviewed by contractor PriceWaterhouse Coopers. Fiscal Year 2006 Improper Payments Information Act analysis. Finance Office documentation and audits of Financial Accounting Systems. Internal controls have shown no evidence of erroneous payments or any violations of the Anti-Deficiency Act. Funds are spent as intended.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The workout to REO (Real Estate Owned) ratio has been established as an annual efficiency measure. The workout to REO ratio measures the success in preventing foreclosures on 502 guaranteed loan borrowers through, primarily, home retention loss mitigation actions. Successful loss mitigation prevents foreclosures and thus reduces the number of foreclosure sales and REOs, and number and size of subsequent loss claim payments. Reducing the number of foreclosures ties closely to the program's long-term performance measure of its foreclosure rate as a measure of successful homeownership opportunities. The program regularly invests in IT improvements to increase program efficiency and improve the cost effectiveness of delivery in an effort to increase successful homeownership opportunities. Automation enhancement shave enable more efficient loan origination processes, access to better performance data, improved information for credit risk analysis, and timelier decision-making. In 2005 and 2006, Rural Development has also centralized certain servicing functions, such as loss claim payments, for the program to one location, consolidating the procedures from hundreds of field office locations nationwide.

Evidence: Workout to REO ratio statistics provided from Agency records to measure efficiency of program. The Guaranteed Underwriting System (GUS). The automated Loss Claim System (LCS). Rural Development centralized loss claim process and procedures. Rural Development has also automated its loss claim procedures so that lenders may file their claims and receive their claim payments electronically. A completely manual process involving paper exchanges and paper checks issued for claim payment has been fully automated so that these procedures may be done electronically. Program loss claims and servicing plan approval requests are now all administered by the Agency out of its St. Louis, MO Centralized Servicing Center, increasing the timeliness, consistency, and accuracy of these actions.

Does the program collaborate and coordinate effectively with related programs?

Explanation: Rural Development has two formal agreements with Ginnie Mae that enable the two groups to share loan level performance data that enables more effective portfolio management for each. Rural Development has recently collaborated with FHA to share their Automated Underwriting Scorecard technology and adapt it to the section 502 guaranteed loan program. In 2004, Rural Development has met with FHA officials regularly to examine best practices for lender monitoring, foreclosure timeframes, and to study processes for automated loan loss claim processing. The Rural Development Administrator has recently approved an Interagency Agreement with the Department of Homeland Security that provides for Agency use of the Systematic Alien Verification for Entitlements Program (SAVE). Rural Development collaborates through frequent informal individual and regular meetings and conferences with participating lenders, related associations (Mortgage Bankers Association, National Association of Homebuilders, National Association of Realtors, National Association of Mortgage Brokers, Independent Community Bankers Association, US Foreclosure Network, National Council of State Housing Finance Agencies) , other Federal programs (FHA, VA), Fannie Mae, Freddie Mac, and State Housing Finance Agencies. We have entered an MOU with the Federal Reserve Banks designed to facilitate secondary market operations for section 502 guaranteed loans. Rural Development has a Testing Agreement with Fannie Mae to study the DeskTop Underwriter system.

Evidence: Memorandum of Agreement on Cooperative Monitoring Efforts with Ginnie Mae, 7/13/92. Letter Of Assurance with Ginnie Mae, 2/26/03, Testing Agreement with Fannie Mae, 3/4/03. MOU with the Federal Reserve Banks, 12/4/01. Stakeholder meeting minutes from Mortgage Bankers Association sponsored meeting on the Agency's planned Automated Underwriting System, 6/03. MOU dated April 10, 2007, with the Mortgage Bankers Association MISMO (Mortgage Industry Standards Maintenance Organization) Government Housing Workgroup. Integration Agreement dated Dec. 6, 2005, and with Fannie Mae on using their Credit Interface for GUS. MOU/Letter of Assurance to HUD dated May 24, 2005, on using modified version of TOTAL and keeping data confidential. Interagency Agreement dated April 15, 2005, with the Department of Homeland Security on using SAVE (Systematic Alien Verification for Entitlements) MOU/Letter of Assurance to Ginnie Mae dated Feb. 26, 2003, concerning the validity of data given them each month by tape.

Does the program use strong financial management practices?

Explanation: Financial Statements and Program Audits have been determined to be free of material internal control weaknesses. The program has procedures in place to insure that payments are made properly and for their intended purpose. Program financial information is accurate and timely. The program uses strong financial management practices and is free of material internal control weaknesses reported by auditors. The program has procedures in place to ensure that payments are made properly for the intended purpose to minimize erroneous payments, including procedures under the Improper Payments Information Act (IPIA). The program was not selected for a "Final FY 2006 IPIA Risk Assessment Plan" as the program was determined in FY 2005 to be low risk and have no significant program or internal controls changes that occurred in the past year and there were no new audit reports describing significant improper payments or internal control issues that effect improper payments. Testing procedures under the A-123 Program initiatives indicate financial information is accurate and timely. Financial Statements and Program Audits have been determined to be free of material internal control weaknesses. The program has procedures in place to insure that payments are made properly and for their intended purpose. The program consistently meets the requirements of the Federal Credit Reform Act of 1990, the Debt Collection Improvement Act and applicable guidance under OMB Circular A-129. Financial statements have received a clean audit opinion and have no material internal control weaknesses. Financial management systems meet statutory requirements. Integrated financial and performance systems support day-to-day operations. The program complies with all relevant DCIA standards.

Evidence: Finance Office documentation and audits of Financial Accounting Systems. Fiscal Year 2006 A-123 Risk Control Matrix & Testing Documentation reviewed by contractor PriceWaterhouse Coopers. Fiscal Year 2006 Improper Payments Information Act analysis. Finance Office documentation and audits of Financial Accounting Systems. Program regulations and forms referencing DCIA standards.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The Agency retains a contractor, currently Deloitte & Touche LLC, to review lender's origination and servicing operations for compliance with Agency standards and to identify management deficiencies. Also, a handbook addressing the goal and objectives, structures, roles and responsibilities on conducting reviews, the targeting approach and methodology of the review, planning for and completing the review and the follow-up and reporting system has been developed for national reviews. A handbook to assist States in their obligations to review State approved lender's origination and servicing operations for compliance addressing the same content has been developed. Expanded regulation is presently in clearance to reiterate the necessity to perform such reviews at a national and State level. As another example of how management deficiencies can be tracked and remedied includes an OIG audit report recently released which examined management deficiencies in single family housing program controls for hurricane relief efforts following the hurricanes Katrina and Rita. While there were findings and recommendations for other USDA Rural Development single family housing programs, the guaranteed program was held free of any findings or management deficiencies. The Agency uses the State Internal Reviews (SIR) and Management Control Reviews (MCR) to identify and correct program management deficiencies. SIRs look at individual State's program management. They are a comprehensive evaluation review of the delivery of program and administrative functions in field offices within the State. The State Management Control Officer (MCO) coordinates a team comprised of State Office personnel that are knowledgeable of the area being reviewed. An onsite review is conducted on each field office within the State at least every five years. The Senior Management Team identifies program weaknesses and makes recommendations to correct deficiencies to the individual offices within the States during the SIR process. States are responsible for developing a plan of action to correct weaknesses identified in the SIR report. MCOs track findings in an automated system provided by the Agency and will conduct follow-up and monitoring until all recommendations are resolved, correction actions implements and is designated as closed. MCRs are detailed examinations at the National Office level to determine whether necessary controls are in place and producing the intended outcome, purpose and objective of the program delivery from a broader scope. The methodology is similar to that of the SIR in that MCRs are conducted on a five year plan and team members consist of members who are thoroughly knowledgeable of the program and possess good evaluation skills. A random sampling of States will be selected with full docket review and evaluation of other information. Upon completion of the review, a report of findings is prepared that identifies corrective actions to eliminate or reduce each weaknesses. Time frames for completion and submission of corrective actions are established. Written status updates are required each quarter for all MCRs conducted until each weaknesses identified has been closed. As a result of weaknesses identified in MCRs and SIRs, the Agency has centralized and automated its loss claim process. The centralized environment ensures a consistent uniform evaluation of claims transpires. The automation piece allows the Agency to collect data that will assist in risk management of the program. Additionally data collected will aid in ensuring that loans receiving inadequate servicing are recognized and processed accordingly.

Evidence: Evidence: Deloitte & Touche, LLC Contract for Fiscal Years 2006 & 2007. OIG Audit No. 046010015-Ch National Compliance Review Guide; State Compliance Review Guide; MCR for FY 2003 of the Single Family Housing Guaranteed Program (SFHGLP), Guaranteed Loan System (GLS) screens of the Loss Claim Administration menu and GLS Reports 26 and 27 on data collected. Program regulations, Administrative Notices, and Procedures Notices issued to correct deficiencies. Centralized loss claim and servicing functions.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: Agency staff; State managers; and the Deloitte & Touche contractors track monthly (and on an on-going basis) borrower delinquency, by lender, with particular emphasis on first-year delinquency, early delinquency and new lenders to assure the maintenance of the highest credit quality. This activity is supported with lender monitoring via desk reviews, on-site lender reviews and field visits of underwriting and servicing operations and files on a regularly scheduled basis, or as needed, under RD Instruction 1980-D. Lenders submit data monthly by Electronic Data Interchange (EDI) directly from their own accounting systems and there are automated processes that identify mismatched loans so that the Agency may work loans that are transferred or may not be reported accurately. Loss claim administration is now automated and undergoing further development to assure timely processing and disbursement. A quality control process for loss claim administration for assures proper payment.

Evidence: Evidence: RD Instruction 1980-D and Administrative Notices; Electronic Data Reporting Implementation Guide; Loss Claim Administration Review Guide; National Office Compliance Review Guide; State Compliance Review Guide.

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: Cost-estimates are developed annually using the OMB credit subsidy model. The model accounts for the government's risk primarily by analyzing program loan loss performance for past years. The program is sixteen years old. During the first ten years of the program, credit subsidy rates varied markedly - proxy data was used to a large extent to estimate credit subsidy rates. However as actual portfolio performance history has developed, and proxy data for out years further refined, the credit subsidy rate has stabilized during the past five years and is a consistent reflection of the portfolio's past performance. Loss rates for each year of the program are reviewed and analyzed every year and verified for accuracy by multiple levels of the Agency.

Evidence: Credit Subsidy Model, which is based largely on actual performance data for loan originated through the program. Credit Subsidy Model, which is based largely on actual performance data for loan originated through the program. Ginnie Mae loss data is used as proxy data for years where there is insufficient or no actual program history for the program. Ginnie Mae curve data is used a proxy data because over 50% of the Single Family Housing Guaranteed portfolio is in Ginnie Mae securitized pools and the Ginnie Mae loss rates coincide closely with the actual loss data in the guaranteed loan program.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: For our measure of successful homeownership as measured by the number of basis points the program is within FHA's loan portfolio's foreclosure rate, the goal for 2004-2006 was to at least be within 75 basis points below the FHA rate by 2006. Initially targets were set appropriately below FHA's foreclosure rates to take into account the riskier characteristics (100% loan-to-value loans, means tested income guidelines) of the USDA loans as compared to the FHA loans. As actual data has been tracked, the results show that Rural Development is out-performing FHA on foreclosure rates. Performance has been much better than expected, and the targets have been adjusted accordingly for 2007-2110. In addition, USDA is on track toward achieving its goals for full implementation of the Guaranteed Underwriting System (GUS), which will increase the likelihood of successful homeownership. The system was only newly up and running, on a pilot basis, in Fiscal Year 2006, but has achieved the expected goal of getting 2% of the lenders on board.

Evidence: Rural Development Budget Performance Indicators (BPI). Agency and FHA loan foreclosure data as provide by the quarterly Mortgage Bankers Association delinquency survey and Agency delinquency reports. The application percentages entered through GUS is a new measure that will be tacked moving forward. The 2006 target was met.

Does the program (including program partners) achieve its annual performance goals?

Explanation: The delinquency rate measure tracks the number of basis points the program is within the delinquency rate of FHA's loan portfolio's delinquency rate. This measure accounts for loans 30 days or more past due, net of loans in foreclosure. The delinquency basis points benchmark target to FHA's was initially low given the programmatic features of the product, which are riskier than FHA's. As actual data has been tracked, the results show that Rural Development is significantly out-performing FHA on delinquency rates. The goal for 2004-2006 was to come in below the FHA by 100 basis points by 2006. Performance has been much better than expected, and future targets have been adjusted to be more ambitious for 2007-2110. In addition, we have met our goals for number of loans, as well as the delinquency rate and foreclosure rate.

Evidence: Agency loan obligation reports and records. Agency and quarterly Mortgage Bankers Association delinquency survey.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: A new efficiency performance measure is in place, the workout to REO (Real-Estate Owned) ratio, with a baseline established for 2006, and targets for 2007-2010. The baseline measure indicated efficiency is good as compared to industry standards for workout to REO ratios, but improvements can be made as the program enhances its loss mitigation tools. Not only does this measure efficiency, but there is a direct link of this measure to the long-term performance objective of successful homeownership. Additionally, the Agency has centralized all loss claim and servicing function to on location as of the end of calendar year 2006, resulting in substantial monetary saving due to efficiency gains. Rural Development saved $6.4 million in interest in 2006 compared to 2004 due to faster processing as a result of centralization. Annual aggregate claim payments decreased by $17.9 million in 2006 compared to 2004, even though claim volume increased in 2006.

Evidence: Workout to REO ratio efficiency measure baseline compares favorably to industry standards. The baseline statistic is 38.28%, which is comparable to other industry standards that offer similar loss mitigation options. Letter to loan servicers notifying them that loss mitigation processes will be centralized at CSC. Lender/servicer compliance review audit reports. Loss claim data on efficiency and monetary savings due to centralization of processes. 100 percent of all loss claim and servicing functions have been centralized to one location, providing measurable efficiency gains in timeliness and cost savings. Rural Development has saved over

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: Given that our performance measures benchmark to FHA's measure of delinquency and foreclosure and we are outperforming them, it is evidently clear that this program is performing better. This is true, even though the guaranteed program is a means tested program, has an LTV allowance that exceeds 100% when the guarantee fee is financed, and serves families with significantly less household income than the FHA program.

Evidence: Program Performance measures, which are benchmarked to FHA's measures. Rural Development Program Data Reports (delinquency, average income served). HUD FHA Program Statistics. Quarterly Mortgage Bankers Association loan delinquency survey.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: The program has been deemed to be generally effective by independent evaluations. The weaknesses identified tend to be minimal and there typically are few significant negative findings. A recent OIG audit "Controls Over Single Family Housing Funds Provided for Hurricane Relief Efforts", March 2007, stated, "while Rural Development may not be in a lead role, it can perform important supporting role in providing housing loan and grant funds to disaster victims." A Funds Management Study commissioned by Rural Development and completed in 2006 by a contractor surveyed participating partners. In response to the survey and speaking on behalf of participating lenders, the Mortgage Bankers Association of America said they are a strong supporter of the program and that they believe it serves as an important homeownership financing source for rural homebuyers, especially those with little funds for a down payment. Independent evaluations of lender activity are conducted under the terms of a contract with Deloitte and Touche, LLP, using an audit format consistent with industry compliance review standards, have routinely found no major weakness, indicating the program is being delivered effectively and is achieving intended results. Their annual reports include an assessment of program strengths and weaknesses that are taken into consideration for subsequent years' management plans. A recent letter from Housing Assistance Council to the Washington Post indicated the Rural Development housing programs "have improved the living conditions of thousands of poor rural residents." The Mortgage Bankers Association quarterly delinquency survey is used to assess program default performance, and the results each quarter is that the program consistently performs better than FHA. OIG and GAO audits typically do not have significant negative findings.

Evidence: Deloitte & Touche Statement of Work, contract and work program. Deloitte & Touche section 502 guaranteed annual report. Funds Management Study, June 2006. GAO (GAO-02-305) audit report. HAC annual reports. Mortgage Bankers Association quarterly delinquency survey. OIG Audit No. 046010015-Ch "Controls Over Single Family Housing Funds Provided for Hurricane Relief Efforts, March 2007. OIG Audit No. 04601-003-AT, "Guaranteed Rural Housing Loan Program Followup" Sept. 2006. Fiscal Year 2006 A-123 Risk Control Matrix & Testing Documentation reviewed by contractor PriceWaterhouse Coopers. Fiscal Year 2006 Improper Payments Information Act analysis. Finance Office documentation and audits of Financial Accounting Systems. Deloitte & Touche Statement of Work, contract and work program. Deloitte & Touche section 502 guaranteed annual report. GAO (GAO-02-305) audit report for 2006 and 2005. HAC letter to the Washington Post Editor published April 15, 2007. HAC annual reports. Mortgage Bankers Association quarterly delinquency surveys. OIG Audit No. 046010015-Ch "Controls Over Single Family Housing Funds Provided for Hurricane Relief Efforts, March 2007. OIG Audit No. 04601-003-AT, "Guaranteed Rural Housing Loan Program Follow-up" Sept. 2006. Fiscal Year 2006 A-123 Risk Control Matrix & Testing Documentation reviewed by contractor PriceWaterhouse Coopers. Fiscal Year 2006 Improper Payments Information Act analysis. Finance Office documentation and audits of Financial Accounting Systems.