The government released a report Thursday criticizing parts of the mortgage guarantee program operated by the Department of Veterans Affairs.

"VA did not have appropriate management and operational controls in place to maintain accountability over its direct loan and loan sale activities," the General Accounting Office said.

The report centered on the VA's 1997 decision to contract for servicing of direct loans, which are nearly-delinquent credits the department acquires from private lenders. GAO charged that the department failed to retain key loan documents, making it impossible to verify the contractor's handling of millions of dollars in payments.

In a letter included in the report, Veterans Affairs Assistant Secretary Dennis Duffy said GAO was too harsh, noting that direct loans make up only a small portion of the VA's guarantee program. Still, he said, the department would adopt several of GAO's recommendations. The VA acquires about 3,000 mortgages a year for the direct loan portfolio, which is valued at $1 billion.

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