Posted by John SOH Yong Ye, Year 4 undergrad at the School of Economics, Singapore Management University
A government watchdog Friday raised red flags about a top federal loan backer’s financial statements.
A report by the inspector general for the U.S. Department of Housing and Urban Development said that it couldn’t sign off on financial statements made by Ginnie Mae, a government agency that securitizes federally insured mortgages.
The inspector general said that Ginnie made accounting errors in its financial statements for the year ended September 30, 2014. The report also said that Ginnie didn’t provide enough information for the inspector general to evaluate Ginnie’s treatment of $6.6 billion in loan assets.
David Montoya, the inspector general, in a statement attributed the mistakes to Ginnie’s “inadequate monitoring, oversight and governance of its accounting and reporting functions” and to inadequate staffing.
In a letter attached to the report, Ginnie Chief Financial Officer David Fender said that the problems noted by Mr. Montoya weren’t central to Ginnie’s primary business and resulted from pressures put on the agency during the financial crisis.
Ginnie Mae, which is part of HUD, guarantees payments on securities that contain loans backed by the Federal Housing Administration and some other government agencies. Ginnie guarantees around $1.5 trillion worth of mortgage-backed securities.
HUD’s inspector general raised similar red flags on HUD’s overall financial statements made in 2004 and 1999, but this was the first time Ginnie Mae’s financial statements were singled out.
Some of the issues he inspector general raised related to servicing assets seized by Ginnie from one of its largest issuers during the financial crisis. The issuer, Taylor, Bean and Whitaker Mortgage Corp., filed for bankruptcy in 2009 after being raided by federal agents. The company’s majority owner was eventually convicted of fraud.
In a statement, Ginnie President Ted Tozer said that the new servicer that it had hired to manage the Taylor Bean loans wasn’t able to provide the information the inspector general requested and that Ginnie had recently transferred the servicing responsibilities to new companies.
“With additional staffing for the CFO office, enhanced monitoring of counterparty risk and the modernization of Ginnie Mae’s technology that is already underway, we are confident we can address the shortcomings identified by OIG,” Mr. Tozer said.