Detailed Information on the
Government National Mortgage Association Assessment

In 2008, Ginnie Mae met both of its targets for demonstrating improved efficiency and cost effectiveness; the ratio of total expenses to total revenues increased from 6.7% to 9.6%. However, Ginnie Mae's other target, total revenues per FTE, increased from 12.2% in 2007 to 16.4% in 2008; this was caused by the effect of stable interest rates and an increase in the remaining principle balance (RPB) that increased guarantee fees collected on Ginnie Mae's total revenues, more than making up for the decrease from 65 to 62 FTEs. Ginnie Mae has increased its Ginnie Mae market share from 4.4 percent in FY 2007 to 18.8 percent in FY 2008 and it is expected to increase substantially in FY 2009.

In fiscal year 2007, total expenses to total revenue decreased from 7.1 percent to 6.7 percent, a .4 percent drop.

Measure: By FY2011, Ginnie Mae will securitize 95% and 87%, respectively, of single-family, fixed-rate FHA and VA loans to maintain market liquidity.

Explanation:This measure is meaningful because it reflects the value to lenders of Ginnie Mae securitization. To the extent that Ginnie Mae, through its actions and policies, reduces lender costs of securitization and increases market prices of Ginnie Mae MBS, lenders will have greater incentives to choose the Ginnie Mae execution, and the securitization percentage will increase.

Measure: Ginnie Mae will securitize an increasing percentage of single family FHA and VA mortgages to maintain liquiduity in the mortgage market.

Explanation:This measure is meaningful because it reflects the value to lenders of Ginnie Mae securitization. To the extent that Ginnie Mae, through its actions and policies, reduces lender costs of securitization and increases market prices of Ginnie Mae MBS, lenders will have greater incentives to choose the Ginnie Mae execution, and the securitization percentage will increase.

Measure: By FY2011, 32% of total Ginnie Mae single family pools will be pools associated with its Targeted Lending Initiative.

Explanation:This measure is meaningful because it reflects the percentage of Ginnie Mae single family pools in which lenders are provided additional incentives to increase loan volumes in traditionally under-served areas. The Targeted Lending Initiative (TLI) program was established to help lower the costs of homeownership in: underserved areas; Urban and Rural Empowerment Zones; Urban and Rural Enterprise Communities; Urban and Rural Renewal Communities; areas that contain Colonias; and areas with greater than 50% Native American population. The TLI program offers discounts on Ginnie Mae's guaranty fee depending on the percentage of eligible loans within the security. Most recently, Ginnie expanded the TLI program to include those census tracts that were declared disaster areas as a result of Hurricane Katrina.

Measure: Ginnie Mae will insure an increasing percentage of Targeted Lender Initiative pools.

Explanation:This measure is meaningful because it reflects the percentage of Ginnie Mae single family pools in which lenders are provided additional incentives to increase loan volumes in traditionally under-served areas. The Targeted Lending Initiative (TLI) program was established to help lower the costs of homeownership in: underserved areas; Urban and Rural Empowerment Zones; Urban and Rural Enterprise Communities; Urban and Rural Renewal Communities; areas that contain Colonias; and areas with greater than 50% Native American population. The TLI program offers discounts on Ginnie Mae's guaranty fee depending on the percentage of eligible loans within the security. Most recently, Ginnie expanded the TLI program to include those census tracts that were declared disaster areas as a result of Hurricane Katrina.

Measure: The ratio of Total expenses to Total Revenues will decrease each year.

Explanation:This ratio measures improvements in lowering expenses.

Measure: The ratio of Total Revenues to Full Time Employees (FTE) will increase.

Explanation:This efficiency measure tracks improvements in the use of staff.

Measure: The ratio of Total expenses to Total Revenues will decrease each year.

Explanation:This ratio measures improvements in lowering expenses.

Is the program purpose clear?

Explanation: Yes, the program purpose is clear. As articulated in Title III of the National Housing Act, Ginnie Mae's purpose is "to establish secondary market facilities for residential mortgages, to provide that the operations thereof shall be financed by private capital to the maximum extent feasible", and to conduct certain other secondary market functions consistent with this purpose. Ginnie Mae was authorized to guarantee securities backed by government guaranteed or insured loans when it was established as a government corporation in 1968. Since 1970, when it pioneered the mortgage-backed pass-through security (MBS), Ginnie Mae has guaranteed over $2.4 trillion in securities, thus helping more than 32 million families achieve their dreams of homeownership. By limiting eligible collateral for its securities to government guaranteed loans, the National Housing Act ensures that Ginnie Mae's activities unambiguously promote homeownership among low- and moderate-income families. This targeted purpose is reflected in Ginnie Mae's mission statement, which is "to expand affordable housing in America by linking the nation's housing markets to global capital markets", and has resulted in a business model that limits risk, minimizes market distortions, and allows for the development of private alternatives and innovations.

Evidence: United States Code (U.S.C.) at Title 12, "Banks and Banking;" Chapter 13, "National Housing;" Subchapter III, "National Mortgage Association." The Code of Federal Regulations (CFR) issued by the Department of Housing and Urban Development (HUD), states that the operations of Ginnie Mae are conducted under its statutory charter contained in title III of the National Housing Act, 12 U.S.C. 1716, et seq." 24 CFR § 300.5 (2003).

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

Explanation: In the 1960s, Congress recognized that there was insufficient and inconsistent financing available in the national lending market to adequately support federal housing programs. In order to address the problem related to ensuring that money for financing affordable housing for low-income families would be available, Ginnie Mae was created as a Government corporation within HUD in order to promote ongoing mortgage market liquidity. In spite of a decrease in the amount of Ginnie Mae securities outstanding since the end of fiscal year 2000, Ginnie Mae continues to address the specific need of promoting liquidity and the flow of investment capital for FHA, VA, RHS and PIH mortgages. This is directly evidenced by the superior price execution of Ginnie Mae MBS versus private label securitizations of FHA and VA collateral; under current market conditions, this advantage is worth approximately 1.25% to 1.5% of the par value of a security. Because Ginnie Mae issuers know they can pool their government mortgages as Ginnie Mae MBS and sell them for a better price, they can make the loans at a lower interest rate. In other words, higher prices for Ginnie Mae securities results in lower costs for homeowners. This is why Ginnie Mae continues to be a key element of the federal government's ongoing commitment to affordable housing. Although the American homeownership rate stands at a record high of nearly 70 percent, significant gaps remain. The rate of homeownership for minority families lags behind the national average; the homeownership rates for both African-Americans and Hispanics are below 50 percent. This is precisely the constituency that benefits most from the government programs for which Ginnie Mae securities provide greater liquidity. For example, 15.7% of the purchase money loans that African-Americans got in 2004 were guaranteed or insured by the FHA or VA; this compares to only 8.4% for whites.

Evidence: Ginnie Mae 2005 Annual Report; HUD 2006 Annual Performance Plan; HUD FY 2005 Performance and Accountability Report; Discussions regarding security pricing with Art Frank, Director of Research, Nomura Securities; March 2004 report by Abt Associates prepared for HUD; 2005 Homeownership Rates from U.S. Census; 2004 HMDA data

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

Explanation: Like Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, Ginnie Mae guarantees mortgage pass-through securities. Ginnie Mae guarantees only securities backed by government-guaranteed loans. So it dominates the securitization of government guaranteed mortgages while the GSEs dominate private conforming mortgage securitization. The GSEs are not restricted from securitizing government guaranteed mortgages and have done so from time to time. If Ginnie Mae did not exist, many of the mortgage pools that are currently guaranteed by Ginnie Mae would probably become Fannie Mae or Freddie Mac securities. However eliminating Ginnie Mae would probably result in higher borrowing costs for Federal Housing Administration, Veterans Affairs, Rural Housing Services, and Public and Indian Housing borrowers. Because it is the only pass-through mortgage security backed by the full faith and credit guarantee of the federal government, the Ginnie Mae guarantee provides the best price execution for lenders, and that price advantage passes through to the borrowers. Moreover Ginnie Mae's activities are much more targeted than the GSEs. It assumes less credit risk, even when the underlying mortgages have higher default rates, because the security collateral already carries a government guarantee, and Ginnie Mae issuers are obligated to fund any payment shortfalls before Ginnie Mae is obligated to make good on its guarantee. Unlike Fannie Mae and Freddie Mac, Ginnie Mae refrains from risky albeit profitable activities that have no benefit for mortgage borrowers. It does not maintain an investment portfolio, does not issue debt, does not take on interest rate risk and does not need to engage in hedging. Without Ginnie Mae, it is unclear whether government-guaranteed loans would be able to assist all of the borrowers, with a higher level of risk than private providers are willing to accommodate, that these programs currently assist.

Evidence: Bloomberg Financial Markets, Historical Yield Spread between current coupon GNMA and FNMA 30 year MBS; Research from Citigroup Global Markets, February 6, 2006. Title III of the National Housing Act, 12 U.S.C. 1716. Fannie Mae's mission.

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

Explanation: Yes, the program design is free of major flaws that would limit the program's effectiveness or efficiency. Ginnie Mae's business model is narrowly focused on insuring mortgage securities backed by government guaranteed mortgage loans. This focus means that Ginnie Mae's risk is small and largely limited to: (1) Upon lender defaults, timing differences on cash flows advanced to pay investors before receiving reimbursement from FHA/VA/RHS; (2) Loans lacking insurance or failing to obtain insurance from FHA, VA, RHS; (3) Servicer fraud or embezzlement; and, (4) Operational risks. Ginnie Mae assumes very little credit risk because the security collateral already carries a government guarantee, and Ginnie Mae issuers are obligated to fund any payment shortfalls before Ginnie Mae is obligated to make good on its guarantee. Moreover, Ginnie Mae does not maintain an investment portfolio, does not issue debt, does not engage in hedging, and does not take on interest rate risk.

Evidence: Ginnie Mae Annual Report, FY 2005: Frank J. Fabozzi, Ph.D., "Ginnie Mae and the Secondary Mortgage Market: an Integral Part of the American Economic Engine", GAO Report.

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

Explanation: Ginnie Mae's authorizing legislation and HUD's implementing regulations specifically limit Ginnie Mae's guaranty to securities backed by government insured loans such as FHA, VA, RHS and PIH mortgages, all of which serve low and moderate-income homebuyers. With this limit on eligible collateral for Ginnie Mae securities, the National Housing Act creates a clear, targeted purpose for Ginnie Mae that is reflected in the simplicity of the Ginnie Mae business model. Ginnie Mae is focused on its core products, which are the Ginnie I and Ginnie II single class securities (MBS). In addition, the Ginnie Mae multiclass program, which features REMIC and Platinum products, was created to support better pricing of Ginnie Mae MBS that is the collateral for REMICs and Platinums. Because these products were tailored to appeal to a class of investors that desires more customized cash flows, they have the effect of broadening the appeal of, and increasing the demand for, Ginnie Mae MBS. Similarly, every major initiative undertaken by Ginnie Mae over the last four years has been designed to improve Ginnie Mae's core MBS products. These include: 1. Changes to the Ginnie II security in January 2003 that resulted in significantly better pricing and increased production of this security; 2. Enhanced disclosures in 2004, 2005 and 2006 that resulted in greater transparency and better pricing for all Ginnie Mae securities; 3. The Business Improvement Initiative, completed in 2004, implementing suggestions for process improvements from Ginnie Mae's business partners; and, 4. The Business Process Improvement initiative, which involves the development of an integrated systems environment that will make it easier and cheaper to do business with Ginnie Mae. Ginnie Mae provides additional incentives for lenders to increase loan volumes in traditionally under-served areas through its Targeted Lending Initiative (TLI). The TLI program was established to help lower the costs of homeownership in: underserved areas; Urban and Rural Empowerment Zones; Urban and Rural Enterprise Communities; Urban and Rural Renewal Communities; areas that contain Colonias; and areas with greater than 50% Native American population. The TLI program offers discounts on Ginnie Mae's guaranty fee depending on the percentage of eligible loans within the security. Most recently, Ginnie expanded the TLI program to include those census tracts that were declared disaster areas as a result of Hurricane Katrina.

Evidence: APMs 03-02 and 03-08 announcing Ginnie II changes; APM 04-16 and APM 05-20 announcing BII; APM 05-16 announcing expansion of TLI to Katrina affected areas.

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: In FY2005, Ginnie Mae developed its first comprehensive strategic plan, including both vision and mission statements, a set of core values, strategic goals, a list of actions for achieving these goals, and short-term and long-term performance measures for evaluating the effectiveness of these actions. This strategic plan contained the following long-term performance measure: 1. By FY2011, Ginnie Mae will securitize 95% and 87%, respectively, of single-family, fixed-rate FHA and VA loans (measures lender costs). This measure is meaningful because it reflects the value to lenders of Ginnie Mae securitization. To the extent that Ginnie Mae, through its actions and policies, reduces lender costs of securitization and increases market prices of Ginnie Mae MBS, lenders will have greater incentives to choose the Ginnie Mae execution, and the securitization percentage will increase. Ginnie Mae will track the following long term performance measure in future GPRA documents: 2. By FY2011, 32% of total Ginnie Mae single family pools will be pools associated with its Targeted Lending Initiative. This measure is meaningful because it reflects the percentage of Ginnie Mae single family pools in which lenders are provided additional incentives to increase loan volumes in traditionally under-served areas. The Targeted Lending Initiative (TLI) program was established to help lower the costs of homeownership in: underserved areas; Urban and Rural Empowerment Zones; Urban and Rural Enterprise Communities; Urban and Rural Renewal Communities; areas that contain Colonias; and areas with greater than 50% Native American population. The TLI program offers discounts on Ginnie Mae's guaranty fee depending on the percentage of eligible loans within the security. Most recently, Ginnie expanded the TLI program to include those census tracts that were declared disaster areas as a result of Hurricane Katrina.

Evidence: Ginnie Mae Strategic Plans for FY 2005 and FY 2006; the HUD FY 2004 Annual Performance Plan; 2005 Ginnie Mae Annual Report.

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

Explanation: Ginnie Mae's long-term single-family market share target focuses on fixed-rate loans because Ginnie Mae's most liquid securities are fixed rate MBS, and is consistent with the use of fixed rate MBS to measure the long-term relative price target. This measure is ambitious because: 1. It is higher than the target of 90% of all single-family loans reflected in the FY 2006 HUD performance plan. 2. It is higher than the highest monthly market share - 92% - that Ginnie Mae has ever experienced. 3. It uses fixed rate loans as the basis for measurement rather than total loans; FHA adjustable rate loans actually have higher percentage rates of securitization than fixed-rate loans. 4. The target applies to both FHA and VA loans; Ginnie Mae's current securitization rate for VA loans is lower than for FHA loans. The Targeted Lending Initiative measurement is also ambitious because its FY2011 goal is higher than actual experience.

Evidence: Ginnie Mae Strategic Plans for FY 2005 and FY 2006; HUD FY 2006 Annual Performance Plan; Ginnie Mae memo dated April 13, 2006, "FY2006 Market Share Analysis", & VA market share calculation

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: The program has a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals. The first annual performance measure, "Ginnie Mae will securitize an increasing percentage of single-family, fixed-rate FHA and VA loans" shows progress towards Ginnie Mae's long-term goal of "By FY2011, Ginnie Mae will securitize 95% and 87%, respectively, of single-family, fixed-rate FHA and VA loans". The second annual performance measure, "Ginnie Mae will insure an increasing percentage of Targeted Lender Initiative pools" shows progress towards Ginnie Mae's long-term goal of "By FY2011, 32% of total Ginnie Mae single family pools will be pools associated with its Targeted Lending Initiative. The continued improvement expressed in these two annual performance measures demonstrates progress toward achieving the long-term goals. While the first annual performance measure is included in current GPRA documents, the second annual performance measure will be included in all future GPRA documents.

Evidence: Ginnie Mae Strategic Plans for FY 2005 and FY 2006; HUD FY 2005 Annual Performance Plan

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

Explanation: Ginnie Mae's annual performance measures represent improvements over previous year's performance. Ginnie Mae's annual targets for FHA and VA loan securitization rates and Targeted Lending Initiative rates represent a higher number than heretofore achieved in any given year. Ginnie Mae's annual target for FHA and VA loan securitization has baseline information for 2003, 2004, and 2005. Ginnie Mae's annual target for its Targeted Lending Initiative has baseline information for 2005. Ginnie Mae will publish its Targeted Lending Initiative's baseline information in future GPRA documents.

Evidence: Ginnie Mae Strategic Plans for FY 2005 and FY 2006; 2005 Ginnie Mae Annual Report; HUD FY 2005 Performance and Accountability Report.

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: Ginnie Mae continually works with its stakeholders to reduce frictions in the mortgage value chain, and to increase the value proposition of issuing its MBS, investing in its MBS, and otherwise doing business with Ginnie Mae. This is done both formally and informally. Issuers: Ginnie Mae's Office of Mortgage-Backed Securities is organized to maximize Ginnie Mae's responsiveness to issuers. Account executives receive substantial feedback from issuers that is often used to improve Ginnie Mae's policies and procedures. Such improvements help Ginnie Mae to achieve its performance goals by increasing the likelihood of issuers delivering FHA, VA, RHS and PIH loans into Ginnie Mae securities. Ginnie Mae receives additional feedback through its close relationship with the Mortgage Bankers Association (MBA). In addition, Ginnie Mae meets both formally and informally with state mortgage bankers associations and individual issuers, document custodians, industry service providers, and other stakeholders. Broker/Dealers and Investors: Ginnie Mae's Office of Capital Markets has developed extensive relationships with the broker/dealers who trade and sell Ginnie Mae MBS and structure Ginnie Mae multiclass securities. This constituency provides Ginnie Mae with a great deal of feedback regarding security performance issues and product development ideas. Ginnie Mae also meets with and receives feedback directly from Ginnie Mae investors. Ginnie Mae receives additional feedback through its close relationship with the Bond Market Association (BMA). In 2005, Ginnie Mae and the BMA created a more formal opportunity for ongoing dialogue by forming a Ginnie Mae Advisory Committee that meets periodically to discuss ways in which Ginnie Mae can continue to improve its program. Contractors: Ginnie Mae's three most important contractors are: 1. The pool processing, central paying, and transfer agent for Ginnie Mae MBS. This contractor performs duties related to the issuance and administration of MBS pools; 2. MBS data collection, analysis and risk management contractor. This contractor collects and distributes loan level and pool level information used by investors to predict security performance and by Ginnie Mae staff to monitor delinquency levels and servicer performance; and, 3. REMIC operational financial advisor. This contractor assists in the review and execution of each REMIC transaction to ensure the structural integrity of the transaction as well as compliance with Ginnie Mae policies and procedures. These three contracts have each been designed to ensure that the contractor provides support to Ginnie Mae so as to ensure that Ginnie Mae can meet its performance objectives while controlling costs.

Evidence: Agendas from sample of MBA conferences (2006 National Mortgage Servicing Conference, 2006 CREF Multifamily Housing Convention, 2005 Annual Convention, 2005 National Secondary Market Conference); Agendas & memos from sample of meetings with issuers; Agenda from monthly meeting of BMA MBS/ABS Operations Committee; BMA Press Release dated February 28, 2005; Agenda from 2003 BMA Annual Meeting; Agenda from Ginnie Mae Investors Symposium, March 25, 2003; Agendas from sample of meetings with broker/dealers; Agendas from meetings with T. Rowe Price; APM 04-16 and APM 05-20 re Business Improvement Initiative

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: Yes, independent evaluations of sufficient scope and quality have been conducted. In 2004, the Honorable Robert W. Ney, Chairman of the Subcommittee on Housing and Community Opportunity in the U.S. House of Representatives, asked the Government Accountability Office (GAO) to conduct a comprehensive review of Ginnie Mae's operations, particularly in light of the recent decline in the volume of Ginnie Mae securities. Ginnie Mae provided GAO with complete access to Ginnie Mae staff, data and internal documents. GAO also interviewed representatives of HUD's Office of the Inspector General, FHA, VA, RHS, the Federal Housing Finance Board, as well as other Ginnie Mae stakeholders and secondary market participants. The report concluded that "Ginnie Mae continues to serve its key public policy goal of providing a strong secondary market outlet for federally insured and guaranteed housing loans", citing "several initiatives that Ginnie Mae has undertaken to respond to stakeholder needs in a changing marketplace." However, the report also pointed to several areas that deserve Ginnie Mae's continued vigilance, including its data systems and the management of critical contracts; these are areas in which Ginnie Mae has taken significant steps to improve its program. During FY 2003, Ginnie Mae contracted with Frank J. Fabozzi, Adjunct Professor of Finance at Yale University, and Andrew Kalotay, President of Andrew Kalotay Associates, Inc., to evaluate Ginnie Mae's role in the secondary mortgage market. This evaluation, which included an analysis of Ginnie Mae's business model, concluded that "Ginnie Mae has become a beacon of dependability and responsibility within the federal government, accomplishing its mission with minimal credit risk to the government - all the while requiring no tax dollars to conduct its operations."

Evidence: GAO Report: "Ginnie Mae is Meeting Its Mission but Faces Challenges in a Changing Marketplace"; Frank J. Fabozzi, Ph.D. and Andrew Kalotay, Ph.D., "Ginnie Mae and the Secondary Mortgage Market: An Integral Part of the American Economic Engine"

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: On an annual basis, Ginnie Mae requests commitment authority based upon FHA and VA estimates of mortgage insurance and guarantee activity. This level of authority ties to Ginnie Mae's performance targets, which are to guarantee securities that contain substantially all new FHA and VA production.

Evidence: FY 2007 Ginnie Mae budget submission to HUD.

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

Explanation: In FY2005, Ginnie Mae developed its first comprehensive strategic plan, including both vision and mission statements, a set of core values, strategic goals, a list of actions for achieving these goals, and short-term and long-term performance measures for evaluating the effectiveness of these actions. This plan was developed with input from Ginnie Mae managers representing each business unit, and the performance evaluations of all senior managers are tied directly to their contributions to achieving Ginnie Mae's performance targets. Through the PART process, Ginnie Mae has developed an additional long term performance measurement and an annual performance measure. These measurements will be included in future GPRA documents.

Evidence: FY2005 and FY2006 Strategic Plans

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: Ginnie Mae collects a significant amount of data from its business partners in order to manage its programs and monitor both program and partner performance. Before an issuer is authorized to issue Ginnie Mae mortgage backed securities, it must provide to Ginnie Mae audited annual financial statements prepared by an external auditor. Thereafter, the issuer is required to submit updated annual financial statements and other supplemental reports (IPA package). This information is maintained on a Ginnie Mae system; a Ginnie Mae contractor, the Financial Statement Review Agent (FSRA), reviews this information and rates each issuer. This provides Ginnie Mae with reasonable assurance of an issuer's audited financial capacity, internal control structure, and compliance with specific Ginnie Mae program requirements, including, for example, whether it meets Ginnie Mae's net worth and insurance requirements. Ginnie Mae also performs "field reviews" of issuers and document custodians to determine if they are in compliance with Ginnie Mae program requirements. When an issuer submits a pool of loans to Ginnie Mae for its guarantee, the issuer submits both pool-level and loan-level information for that pool. This information is used to determine that the underlying collateral of the pool meets Ginnie Mae's pooling requirements. Thereafter, issuers are required to submit updated pool-level and loan-level information on every individual security; this information is used to make payments to investors, and to disclose to investors summary information on the loans backing the securities. Ginnie Mae also uses the monthly information received from issuers to monitor Ginnie Mae's total loan portfolio, and to perform risk analysis at the issuer level. The tool that Ginnie Mae uses for this analysis, Ginnie Mae's Portfolio Analysis Database System (GPADS), is composed of the following eight modules: (1) Portfolio; (2) Compliance; (3) Financials; (4) Insurance; (5) Liquidations; (6) Originations; (7) Reporting; and (8) Economic Analysis. On several of these modules, issuers receive scores and are ranked relative to their peers in order to allocate risk analysis resources effectively. In addition to the information collected from its issuers, Ginnie Mae receives loan-level information from both the FHA and VA on a monthly basis. Ginnie Mae matches the loans in its systems to the FHA and VA information in order to verify that the loans submitted by issuers are insured or guaranteed. Using this loan-level information, Ginnie Mae has also developed a new, more accurate methodology for measuring Ginnie Mae's performance against its FHA market share target, and is in the process of implementing the same methodology for the VA market share target. For measuring its performance against the security performance targets, Ginnie Mae pulls information from Bloomberg Financial Services for inclusion in a monthly management report.

Evidence: HUD Consolidated Audit Guide; Appendix IX of the Ginnie Mae Mortgage-Backed Securities Guide 5500.3, Rev-1.

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: Ginnie Mae managers are held accountable for cost, schedule, and performance through Ginnie Mae's performance appraisal system. This emphasis has resulted in significant savings both for Ginnie Mae and for its business partners. For example, since 2000, Ginnie Mae has also implemented a number of changes that have reduced costs for document custodians by an estimated $35 to $40 million annually. These changes include: --Elimination or relaxation of several requirements related to the recording of loan assignments, endorsements, third-party insurance verifications, and lost notes; --Streamlined certification and recertification requirements; --Use of Representations and Warranties; and, --Elimination of redundancies from Ginnie Mae's Document Custodian Manual. Ginnie Mae also has a major project underway, the Business Process Improvement (BPI) initiative that will ultimately reduce costs for both Ginnie Mae and its business partners. Under the BPI, Ginnie Mae is developing an integrated systems environment, including a web-based platform for the origination of securities and the collection of pool-level and loan-level information that will make it easier and more inexpensive to do business with Ginnie Mae. All major contracts are competitively sourced; in 2004, when Ginnie Mae's largest and most important contract, the pool processing, central paying and transfer agent contract, was re-bid, the per unit price for every major activity under the contract decreased significantly. Ginnie Mae has also shortened the base period of several of its major contracts in order to provide an earlier opportunity to change contractors if there are significant cost, schedule or performance issues. Ginnie Mae has other controls in place to hold its contractors accountable, including: --Creation in 2002 of a Procurement Management Division within the Office of Management Operations that is responsible for developing internal policies and procedures to ensure effective contract oversight, and to provide technical support to Ginnie Mae's "contracting officer representatives." Ginnie Mae also engages accounting firms to conduct a Contract Audit and Review (CAR) of each contract. These CARs involve a review of agreed-upon procedures to ensure that the work performed by Ginnie Mae's contractors is done according to the requirements of each contract, that Ginnie Mae is billed properly, and that there is adequate documentation to support all bills. Ginnie Mae also holds its issuers accountable for performance. Ginnie Mae's Mortgage-Backed Securities Guide specifies eleven events that would constitute a lack of performance and result in an issuer's default. These events include failure to remit payments to security holders, impending insolvency, unauthorized use of funds; or any act of dishonesty related to Ginnie Mae's program. Ginnie Mae also uses the information it receives from its issuers on a monthly basis to monitor their performance, and hold them accountable for any performance problems.

Evidence: Ginnie Mae email dated April 27, 2006. January 2006 presentation re Business Process Improvement Initiative. Analysis of current vs. previous JPMorgan Chase contracts. SAS 70 Overview. Excerpt from Statement of Work for JPMorgan Chase CARS. Chapter 11 of MBS Guide.

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

Explanation: All funds are obligated in a timely manner and spent for the intended purpose, as evidenced by the unqualified audit opinion expressed in the audit report submitted by HUD's OIG for FY2005. The audit includes a review of the reports listed below and a sample review of disbursements to verify that funds are spent for the intended purpose. Ginnie Mae has corporate policies governing its funds control processes. These processes were reviewed by HUD's Office of the Chief Financial Officer in FY2006; no material weaknesses were found. Ginnie Mae prepares the following reports that are sent to OMB and Treasury to balance all cash flows: the SF-133, Report on Budget Execution, a quarterly, high level statement on obligations; the SF-224, Statement of Transactions, a monthly report showing receipts and disbursements; and the SF-1219/1220, Statement of Accountability, a monthly report showing other receipts and disbursements under Ginnie Mae's authority to issue checks. Ginnie Mae also reconciles all cash flows to Treasury on a monthly basis. With respect to payments to contractors, Ginnie Mae conducts Contract Assessment Reviews (CARS) in order to assess whether Ginnie Mae contractors have complied with the requirements of their contracts. These reviews use selective testing to assess adherence to invoicing requirements and to determine whether the contractors have adequate internal controls.

Evidence: 2005 Independent Auditor's Report. FY 2006 Funds Control Plan. 2Q FY2006 SF-133, SF-224 and SF-1219. Documentation of cash reconciliation with Treasury. Excerpt from Statement of Work for JPMorgan Chase CARS.

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: All of Ginnie Mae's major contracts are competitively sourced. This process includes measuring efficiencies and cost effectiveness through a rigorous analysis of contractor responses to Requests for Proposals. Given that contracting expenses constitute a significant percentage of Ginnie Mae's total expenses, Ginnie Mae is implementing a number of additional steps to monitor and improve its efficiency. For example, Ginnie Mae will be enhancing the discussion of expenses in its 2006 Annual Report to increase the transparency related to Ginnie Mae's contract expenses. In addition, as a result of the A123 review just recently completed by Kearney & Co., Ginnie Mae's senior management team will perform a comprehensive review of the expenditures on each of Ginnie Mae's major contracts every quarter. The program has two measures to track efficiencies and cost efficiencies in program execution. Ginnie Mae tracks the ratio of Total expenses to Total Revenues, and includes this efficiency measure in its Annual Report every year. Another measure of efficiency that Ginnie Mae uses is the ratio of Total Revenues to Full Time Employees (FTE). Both efficiency measures set targets higher than past experience.

Evidence: Analysis of current vs. previous JPMorgan Chase contracts; January 2006 presentation re Business Process Improvement Initiative; Ginnie Mae FY 2005 and FY 2006 Strategic Plans

Does the program collaborate and coordinate effectively with related programs?

Explanation: Ginnie Mae's success is closely linked to the success of the FHA, VA RHS and PIH. Ginnie Mae works closely with and meets frequently with these partners. The importance of this coordination is specifically reflected as an activity in Ginnie Mae's strategic plan. For example, Ginnie Mae has been working very closely with the FHA in its recent efforts to improve its program. Ginnie Mae and FHA collaborate as evident in their Memorandum of Understanding (MOU) that was developed to formalize FHA's policy with respect to the insurance status of loans for which Ginnie Mae is the holder of record. Less formally, Ginnie Mae and FHA have recently collaborated on FHA's reverse mortgage program and Adjustable Rate Mortgage proposed rule. The importance of these other programs has been emphasized in Ginnie Mae's strategic plan by creating separate targets for the FHA and the VA. More recently, Ginnie Mae has also begun exchanging loan level data with the RHS, which has allowed Ginnie Mae to measure its RHS market share for the first time; this new capability will allow for a new performance target to be included in the 2007 strategic plan.

Evidence: Ginnie Mae FY 2005 and FY 2006 Strategic Plans; Agenda for MBA National Secondary Market Conference & Expo 2006; RHS Market Share report; Ginnie Mae testimony on FHA's HECM program; and Adjustable Rate Mortgages--Additional Index proposed rule.

Does the program use strong financial management practices?

Explanation: As a Government corporation, Ginnie Mae's annual financial statements are required to be audited by HUD's Office of the Inspector General. These audits have consistently resulted in unqualified opinions with no material weaknesses and no reportable conditions. Given that contractor expenses constitute a significant percentage of Ginnie Mae's total expenses, a review of these contracts is an important part of the audit process. In order to obtain a clean audit opinion, Ginnie Mae engages accounting firms to perform SAS 70 reviews of its two largest contracts. These reviews, governed by procedures outlined by the American Institute of Certified Public Accountants, assess the internal controls of these contractors. Ginnie Mae also engages accounting firms to conduct a Contract Audit and Review (CAR) of each contract. These CARs involve a review of agreed-upon procedures to ensure that the work performed by Ginnie Mae's contractors is done according to the requirements of each contract, that Ginnie Mae is billed properly, and that there is adequate documentation to support all bills. Ginnie Mae developed the Policy and Financial Analysis Model (PFAM) as a key financial management tool. PFAM is a model that employs economic, financial, statistical and policy variables to evaluate Ginnie Mae's cash flows, capital adequacy and budget projections given a set of certain assumptions. This tool provides the basis for Ginnie Mae's reserve for loss and wind down analysis, which are critical components to the annual audit. As a Government corporation, Ginnie Mae is also required to submit an annual management report to Congress no later than 180 days after the end of the fiscal year, and to provide copies to the Director of the Office of Management and Budget and the Comptroller General of the United States. Consistent with OMB circular A-123, Ginnie Mae has contracted with Kearney & Company to conduct an assessment of the effectiveness of internal controls over financial reporting within Ginnie Mae. Ginnie Mae is also in the process of implementing significant improvements in its financial management systems. A new commercial accounting system for maintaining its general ledger and subsidiary ledgers is expected to be in place by July 2006, and Ginnie Mae has targeted having a cost accounting system operational by 2008. Both of these initiatives will enhance the information available for Ginnie Mae's financial management decisions, and are reflected in Ginnie Mae's strategic plan.

Evidence: 2004 2004 and 2005 Independent Auditor's Reports; Excerpt from Statement of Work for JPMorgan Chase CARS; Chapter 1 of PFAM User Guide; 2005 Annual Report to Congress; Excerpt of A-123 Statement of Work.

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

Explanation: Strategic Plan: In FY2005, Ginnie Mae developed its first comprehensive strategic plan, including both vision and mission statements, a set of core values, strategic goals, a list of actions for achieving these goals, and short-term and long-term performance measures for evaluating the effectiveness of these actions. 2003 OIG Findings: HUD's Office of the Inspector General (OIG) issued an audit report on March 5, 2003 that cited several control weaknesses in Ginnie Mae's operations, including: (1) not requiring issuers to accurately report FHA case numbers as its primary management control tool, (2) inadequate controls to ensure the reliability of automated data, (3) inadequate procedures for matching information in Ginnie Mae's systems to information in FHA's systems, and (4) an unreasonable amount of time allowed for issuers to provide the Mortgage Insurance Certificates (MIC) to the document custodian. In response to these audit findings, Ginnie Mae has corrected these weaknesses by (1) requiring better case number reporting from issuers, performing more rigorous and automated checks to ensure compliance, and increasing the resources dedicated to follow-up with issuers; (2) implementing improved procedures for analyzing and matching the Ginnie Mae portfolio against the loans in FHA's database to ensure data is accurately reported and loans are insured; and (3) improving the tracking of timely Mortgage Insurance Certificate submission. Although the OIG was satisfied with these improvements, Ginnie Mae is investing additional resources to make more improvements, particularly to its data systems. Ginnie Mae also has a major project underway, the Business Process Improvement (BPI) initiative that will result in an integrated systems environment that will significantly improve the quality of Ginnie Mae's data, and provide better, easier access to data for monitoring and analysis. Ginnie Mae's strategic plan contains both short-term and long-term actions for this project.

Evidence: Ginnie Mae FY 2005 and FY 2006 Strategic Plans; OIG Audit Reports, No.2003-AT-0001, dated March 5, 2003 and No. 2006-FO-0001, dated November 7, 2005; January 2006 presentation re Business Process Improvement Initiative

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: The credit quality of the loans underlying Ginnie Mae securities remains sound because these loans are required to be government guaranteed. As an added precaution, using both FHA and Ginnie Mae loan level information, Ginnie Mae has put in place a loan-level matching process to ensure that the loans in its pools meet this requirement. Thus, even if an issuer defaults, Ginnie Mae is protected against credit losses. Moreover, the servicing income from defaulted portfolios is generally greater than the expenses associated with managing these portfolios. Ginnie Mae also ensures credit quality by actively monitoring issuers. This monitoring includes analysis of information gathered from the IPA package, the use of GPADS, and compliance reviews of both issuers and document custodians.

Evidence:

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

Explanation: No, the program's credit models do not adequately provide reliable, consistent, accurate, and transparent estimates of costs and the risk to the Government because Ginnie Mae has never re-estimated its portfolio. Currently, Ginnie Mae uses the Policy and Financial Analysis Model (PFAM) to evaluate its financial condition in terms of cash flows and capital resources under different economic and financial scenarios. Ginnie Mae uses these cash flows generated by PFAM, in conjunction with the OMB Credit Subsidy Model, to derive the Ginnie Mae credit subsidy estimate. However, since Ginnie Mae does not re-estimate its portfolio, it is impossible to determine whether the program's credit models adequately provide reliable, consistent and accurate estimates of costs and risk to the Government.

Evidence: Executive Summary of the last major revision of PFAM and PFAM Implementation Guide.

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

Explanation: Ginnie Mae has demonstrated progress in achieving its long-term performance goals to a large extent. For the long-term performance goal of securitization of an increasing percentage of single-family, fixed-rate FHA and VA loans, Ginnie Mae has increased its single family FHA securitization by 1% from 2003 to 2005. For its Targeted Lending Initiative, Ginnie Mae has increased its percentage of targeted lending single family pools from 12.3% in 2003 to 26% in 2005. While Ginnie Mae has a 2005 baseline for the securitization of VA loans, it does not have any additional actual experience for this measure to show performance improvements.

Evidence: Ginnie Mae 2005 Strategic Plan

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

Explanation: Ginnie Mae has demonstrated progress in achieving its annual performance goals to a large extent. For the annual performance goal of securitization of an increasing percentage of single-family, fixed-rate FHA and VA loans, Ginnie Mae has increased its single family FHA securitization by 1% from 2003 to 2005. For its Targeted Lending Initiative, Ginnie Mae has increased its percentage of targeted lending single family pools from 12.3% in 2003 to 26% in 2005. While Ginnie Mae has a 2005 baseline for the securitization of VA loans, it does not have any additional actual experience for this measure to show performance improvements.

Evidence: Ginnie Mae 2005 and 2006 Strategic Plans

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

Explanation: The program did not demonstrate improved efficiencies or cost effectiveness in achieving program goals each year. The ratio of Total expenses to Total Revenues increased from 2001 to 2004, but decreased between 2004 and 2005. The primary reason for the increase in this ratio until 2005 is that Ginnie Mae revenues are partly a function of the total volume of securities outstanding, and this amount was at its all-time high in 2001 ($604.3 billion). Since 2001, Ginnie Mae securities outstanding have decreased by 32%, to $412.3 billion. The ratio of Total Revenues to Full Time Employees (FTE) has decreased by 13% since 2001, again in part due to the significant decrease in securities outstanding.

Evidence: Ginnie Mae Annual Report

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

Explanation: The performance of Ginnie Mae's program compares favorably with that of the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Ginnie Mae securities continue to be highly valued by investors; indeed, Ginnie Mae securities have been trading at historically high prices relative to the GSEs. This is in part due to the preference among foreign investors, particularly foreign central banks, for securities with the full faith and credit backing of the U.S. Government. Ginnie Mae's focused business model also compares favorably with the GSEs. Ginnie Mae assumes very little risk; it does not maintain an investment portfolio, does not issue debt, does not engage in hedging, and does not take on interest rate risk. As a result, Ginnie Mae is focused on its core products, and devotes the resources of the entire organization to the single purpose for which it was created, which is "to expand affordable housing in America by linking the nation's housing markets to global capital markets". Finally, it should be noted that during FY2005, Ginnie Mae generated net earnings of $705.2 million on revenues of $786.5 million. Indeed, Ginnie Mae's revenues have exceeded its expenses for over 20 consecutive years.

Evidence: GAO Report: "Ginnie Mae is Meeting Its Mission but Faces Challenges in a Changing Marketplace" and Ginnie Mae 2005 Annual Report

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

Explanation: In 2004, the Honorable Robert W. Ney, Chairman of the Subcommittee on Housing and Community Opportunity in the U.S. House of Representatives, asked the Government Accountability Office (GAO) to conduct a comprehensive review of Ginnie Mae's operations, particularly in light of the recent decline in the volume of Ginnie Mae securities. The report concluded that "Ginnie Mae continues to serve its key public policy goal of providing a strong secondary market outlet for federally insured and guaranteed housing loans", citing "several initiatives that Ginnie Mae has undertaken to respond to stakeholder needs in a changing marketplace." During FY 2003, Ginnie Mae contracted with Frank J. Fabozzi, Adjunct Professor of Finance at Yale University, and Andrew Kalotay, President of Andrew Kalotay Associates, Inc., to evaluate Ginnie Mae's role in the secondary mortgage market. This evaluation, which included an analysis of Ginnie Mae's business model, concluded that "Ginnie Mae has become a beacon of dependability and responsibility within the federal government, accomplishing its mission with minimal credit risk to the government - all the while requiring no tax dollars to conduct its operations."

Evidence: 2004 and 2005 Independent Auditor's Reports; GAO Report: "Ginnie Mae is Meeting Its Mission but Faces Challenges in a Changing Marketplace"; Frank J. Fabozzi, Ph.D. and Andrew Kalotay, Ph.D., "Ginnie Mae and the Secondary Mortgage Market: An Integral Part of the American Economic Engine".