This report presents the results of our audit of Ginnie Mae’s fiscal year 2019 financial statements, including our report on Ginnie Mae’s internal control and test of compliance with selected provisions of laws, regulations, and contracts applicable to Ginnie Mae.
In fiscal year 2019, we were unable to obtain sufficient, appropriate evidence to express an opinion on the fairness of Ginnie Mae’s financial statements. Specifically, our work noted significant modeling concerns affecting Ginnie Mae’s guaranty asset, guaranty liability, and allowance for loan losses, which prevented us from completing our audit work due to time constraints imposed by the statutory reporting deadlines. These issues concerned the appropriateness and reasonableness of the model methodologies, specifications, and model assumptions, which raised questions about the reliability of the significant accounting estimates produced by these models. Additionally, we were unable to audit the nonpooled loan assets due to (1) documentation challenges to support balances for claims receivable and reimbursable costs and (2) insufficient time to complete necessary audit procedures for mortgage loans held for investment and acquired properties. Given the significance of all of these limitations combined, it is our professional opinion that there may be risks that undetected misstatements that could be material may exist in these statements. Therefore, we deemed our audit scope to be insufficient to express an opinion on Ginnie Mae’s fiscal year 2019 financial statements as a whole. We have 18 new audit recommendations in this year’s report. Based on the results of our work, we identified two material weaknesses, one significant deficiency, and one reportable noncompliance with selected provisions of laws, regulations and contracts.
Recommendations
Government National Mortgage Association
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Status2020-FO-0002-001-AOpenClosedClosed on August 03, 2020
Test whether a cumulative housing price appreciation (HPA) variable should be added to the probability of prepayment, probability of default, foreclosure timeline, buyout time models, and cure rate assumptions. Ginnie Mae should provide an analysis if it believes that adding an HPA variable would not be appropriate to support its position.
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Status2020-FO-0002-001-BOpenClosedClosed on August 03, 2020
Develop and implement policies and procedures to require a sufficiently granular decomposition analysis that can adequately explain the impact of all the model changes made.
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Status2020-FO-0002-001-COpenClosedClosed on August 03, 2020
Develop and implement policies and procedures or enhance or clarify, as appropriate, existing policies and procedures that will require additional analyses whenever thresholds are breached or other analyses indicate potential modeling issues.
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Status2020-FO-0002-001-DOpenClosedClosed on August 03, 2020
Document the economic rationale behind unintuitive model coefficients to support that the unintuitive relationships are appropriate.
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Status2020-FO-0002-001-EOpenClosedClosed on August 03, 2020
Document all model assumptions that are undocumented, providing the basis for any assumptions or decisions made when developing each model assumption.
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Status2020-FO-0002-001-FOpenClosedClosed on August 03, 2020
Develop and implement policies and procedures to ensure compliance with model risk management guidance regarding adequate and well-documented model assumptions.
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Status2020-FO-0002-001-GOpenClosedClosed on August 03, 2020
Develop and implement controls that ensure the updating of model documentation when model changes are made.
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Status2020-FO-0002-001-HOpenClosedClosed on August 03, 2020
Improve model documentation by addressing the model documentation deficiencies cited in this report and narrowing or consolidating them into fewer pieces of documentation, as appropriate.
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Status2020-FO-0002-001-IOpenClosedClosed on August 03, 2020
Formalize and define coding best practices within Ginnie Mae’s model governance framework.
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Status2020-FO-0002-001-JOpenClosedClosed on August 03, 2020
Apply coding best practices during model development processes and add a control for reviewing model code for compliance with best practices.
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Status2020-FO-0002-001-KOpenClosedClosed on August 12, 2020
Ensure that documentation is maintained to support reimbursable cost receivables recorded on Ginnie Mae’s financial statements or write off the reimbursable costs receivables that are not valid or cannot be supported.
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Status2020-FO-0002-001-LOpenClosedClosed on August 12, 2020
Establish audit trails to ensure that supporting documentation can be easily traced and verified to the recorded transactions in the general ledger.
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Status2020-FO-0002-002-AOpenClosedClosed on September 29, 2020
Establish and implement remedial action plans to document the implementation testing of the effectiveness of its internal control over financial reporting in accordance with OMB Circular A-123, appendix A.
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Status2020-FO-0002-002-BOpenClosedClosed on September 29, 2020
Update its internal controls descriptions to reflect controls in place and implement monitoring activities to ensure that it carries out the controls and documents their performance and results.
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Status2020-FO-0002-002-COpenClosedClosed on September 28, 2020
Resolve the issues identified with the mastersubservicers to improve the data quality and timing of the raw data received for SLDB monthly processing and minimize manual adjustments.
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Status2020-FO-0002-002-DOpenClosedClosed on September 28, 2020
Modify the standing operating procedures for the SLDB data quality checks that address mastersubservicer data deficiencies, data quality rules, and severity levels, to include periodic assessments of the appropriateness of the severity levels.
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Status2020-FO-0002-002-EOpenClosedClosed on August 19, 2020
Review VAPE data validation procedures to improve preventive controls to determine the reasonableness of the inbound VAPE data before SLDB processing.
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Status2020-FO-0002-002-FOpenClosedClosed on August 13, 2020
Implement the planned SLDB code fixes and enhancements to reduce future manual adjustments.