oversight

Examination of Financial Statements of the Government National Mortgage Association for Fiscal Year 1970

Published by the Government Accountability Office on 1971-06-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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Department of Housin
  Urban Deweloptmnt
                COMPTROLLER      GENERAL     OF      THE      UNITED    STATES
                               WASHINGTON.    D.C.         20548




B-l   14828




To the    President   of the Senate    and the
Speaker     of the House   of Representatives

          This is our report     on the examination                      of financial   state-
ments      of the Government      National     Mortgage                   Association,    De-
partment       of Housing    and Urban     Development,                    for the fiscal
year     ended June 30, 1970.       Our examination                      was made pur-
suant to the Government          Corporation       Control                 Act (31 U.S.C.
841).

       Copies    of this report     are being      sent to the Director,
Office   of Management        and Budget;     the Secretary        of the Trea-
sury;  the Secretary      of Housing      and Urban       Development;       and
the president,     Government      National      Mortgage       Association.




                                             Comptroller                  General
                                             of the United                States




                       50TH    ANNIVERSARY                   1921-     1971
    * COMPTROLLERG'ElVERAL'S                                 EXAMINATION OF FINANCIAL STATEMENTS OF THE
      REPORTTO THE CONGRESS                                  GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
                                                             FOR FISCAL YEAR 1970
                                                             Department of Housing and Urban Development
                                                             B-114828


       DIGEST
      ------


      WHYTHE EXAikVNA!l'IONWAS/@DE

              The Government   Corporation     Control    Act requires     the General   Accounting
              Office  (GAO) to examine      the financial    statements      of the Government     Na-
I             tional  Mortgage  Association     and of the trusts       for which   it is trustee.


      FINDING!7 AND CONCLUSIONS

             In the opinion         of GAO, the financial        statements        present     fairly     the           fi-
I            nancial       position    of the Government      National       Mortgage      Association         at
             June 30, 1970, and the results              of its operation          and the sources           and         ap-
I
             plication        of its funds for the year then ended,                in conformity         with           gen-
             erally      accepted     accounting  principles       applied      on a basis       consistent
I            with     that    of the preceding   year and with          applicable       Federal      laws.             (See
             p. 20.)

             In the opinion           of GAO, the financial              statements       issued     by the Govern-
             ment National          Mortgage       Association        as trustee       for the Government             Mort-
             gage Liquidation             Trust,     the Small Business           Obligations        Trust,      the Fed-
             eral    Assets      Liquidation        Trust,      and the Federal          Assets    Financing         Trust
             present      fairly      the financial         position       of the respective           trusts      at
             June 30, 1970, and the results                    of their       operations       and the sources           and
             application         of their        funds for the year then ended, in conformity                           with
             generally        accepted       accounting       principles       applied      on a basis        consistent
             with    that     of the preceding          year and with          applicable        Federal      laws.       (See
             p. 20.)


      RECOMtBNDATI'ONSOR SUGGESTIONS

              This    report    contains       no recommendations.


      AGENCYACTIONS AND IrNRESOLVEDISSilES

              None.




     Tear Sheet
The report      contains     no recommendations       or suggestions          requiring       action    I
                                                                                                        t
by the Congress.           In addition      to the opinions       expressed      as to the fi-          I
nancial    statements       examined,     the report    provides      additional        information     I
                                                                                                        I
considered      necessary      to keep the Congress        informed      of the operations              I
and financial       conditions       of the Government       National     Fiortgage       Association   I
and the trusts.                                                                                         I
                                                                                                        I




                                          2
                           Contents
                                                                Page

DIGEST                                                               1

CHAPTER

   1       INTRODUCTION                                              3

   2       SPECIAL ASSISTANCE FUNCTIONS                              5

   3       MANAGEMENTAND LIQUIDATING FUNCTIONS                       8

   4       MORTGAGE-BACKEDSECURITIES GUARANTYPROGRAM             11

   5       TRUSTEE OPERATIONS                                    14
              Government Mortgage Liquidation     Trust          15
               Small Business Obligations   Trust                16
              Federal Assets Liquidation    Trust                16
              Federal Assets Financing Trust                     17

   6       SCOPE OF EXAMINATION                                  18

   7       OPINION OF FINANCIAL STATEMENTS                       20

FINANCIAL STATEMENTS

Schedule

           Government National      Mortgage Association
   1           Combined balance sheet                           23
   2           Combined statement of earnings                   24
   3           Special assistance        functions    balance
                 sheet                                          25
   4           Special assistance        functions    state-
                 ment of earnings                               26
   5           Management and liquidating          functions
                 balance sheet                                  27
   6           Management and liquidating          functions
                 statement of earnings                          28
   7           Statement of source and application
                 of funds, . fiscal     ,vear 1970              29
Schedule                                                          Page

   8       Mortgage-backed       securities     guaranty
             program                                               30
                Balance sheet, June 30, 1970                       30
                Statement of income and expense,
                  fiscal     year 1970                             30
                Analysis     of guaranties      at June 30,
                  1970                                            31
           Government Mortgage Liquidation              Trust     32
                Statement of condition,           June 30, 1970   32
                Statement of income and expense,
                  fiscal     year ended June 30, 1970              32
                Statement of sources and application
                  of funds, fiscal         year ended
                  June 30, 1970                                    32
   9            Schedule of financial          details             32
   9            Summary of obligations           subject to
                  trust     and related     participation
                  certificates                                     33
  10       Small Business Obligations            Trust             34
  10            Statement of condition,           June 30, 1970    34
  10            Statement of income and expense,
                  fiscal     year ended June 30, 1970              34
  10            Statement of sources and application
                  of funds, fiscal         year ended
                  June 30, 1970                                    34
  10            Summary of obligations           subject to
                  trust and related         participation
                  certificates                                    34
  11       Federal Assets Liquidation           Trust             35
  11            Statement of condition,           June 30, 1970   35
  11            Statement of income and expense,
                  fiscal     year ended June 30, 1970              35
  11            Statement of sources and application
                  of funds, fiscal         year ended
                  June 30, 1970                                    35
  11            Schedule of financial          details             36
  11            Summary of obligations           subject to
                  trust     and related     participation
                  certificates                                    37
  12       Federal Assets Financing Trust                         38
  12            Statement of condition,           June 30, 1970   38
  12            Statement of income and expense, fis-
                  cal year ended June 30, 1970                     38
Schedule                                                              Page

  12                  Statement of sources and application
                        of funds, fiscal        year ended
                        June 30, 1970                                  38
  12                  Schedule of financial         details            39
  12                  Summary of obligations          subject to
                        trust     and related    participation
                        certificates                                  40
                 Notes to financial        statements                 41

APPENDIX

   I       Principal     officials  responsible for      the ac-
              tivities    discussed in this report                    47

                             ABBREVIATIONS

DHC           Defense Homes Corporation
FAFT          Federal Assets Financing Trust
FALT          Federal Assets Liquidation      Trust
FHA           Federal Housing Administration
FHDA          Farmers Home Administration,       Department of
                Agriculture
              Federal National    Mortgage Association
new FNMA      Federal National    IMortgage Association     (after
                partitfoning   a Government-sponsored       private
                corporation)
GAO           General Accounting     Office
GIYLT         Government Mortgage Liquidation        Trust
GNMA          Government National     Mortgage Association
GNP&M&L       Government National     Mortgage Association--
                management and liquidating       functions
GNMA-SAF      Government National     Mortgage Association--special
                asskstance functions
HEX           Department of Health, Education,         and Welfare
HUD           Department of Housing and Urban Development
MBS           mortgage-backed    securities                                  I
RFC           Reconstruction   Finance Corporation
SBA           Small Business Administration
SBOT          Small business Obligations      Trust
VA            Veterans Administration
*   COMPTROLLERGENERAL'S                                EXAMINATION        OF FINANCIAL STATEMENTS OF THE
    REPORTTO THE CONGRESS                               GOVERNMENT        NATIONAL MORTGAGE ASSOCIATION
                                                        FOR FISCAL        YEAR 1970
                                                        Department        of Housing  and Urban Development
                                                        8-114828


    DIGEST
    ------

    WHYTHE EXAMlNATION WASMADE

         The Government   Corporation      Control   Act requires     the General   Accounting
         Office  (GAO) to examine      the financial    statements      of the Government      Na-
         tional  Mortgage  Association      and of the trusts      for which   it is trustee.


    FINDINGS AND CONCLUSIONS

         In the    opinion    of GAO, the financial        statements       present     fairly     the              fi-
         nancial    position     of the Government      National      Mortgage      Association        at
         June 30, 1970, and the results            of its operation         and the sources           and           ap-
         plication      of its funds for the year then ended,               in conformity         with             gen-
         erally    accepted     accounting  principles       applied    on a basis        consistent
         with that      of the preceding   year and with applicable               Federal      laws.                (See
         p. 20.)

         In the opinion          of GAO, the financial              statements       issued     by the Govern-
         ment National         Mortgage       Association        as trustee       for the Government             Mort-
         gage Liquidation           Trust,     the Small Business            Obligations        Trust,      the Fed-
         eral    Assets     Liquidation        Trust,      and the Federal          Assets    Financing        Trust
         present     fairly      the financial         position       of the respective           trusts      at
         June 30, 1970, and the results                   of their       ooerations       and the sources            dnd
         application        of their       funds for the year then ended,                   in conformity         with
         generally       accepted       accounting       principles       applied      on a basis        consistent
         with that       of the preceding          year and with          applicable        Federal      laws.       (See
         p. 20.)


    RECOMMENDATIONS
                  OR SUGGESTIONS

         This      report   contains      no recommendations.


    AGENCYACTIONS AND lJNRESOLI/EDISSUES

         None.
/,I
/;I
'?    MATTER5 FOR CONSIDERATIONBY THE CONGRESS

          The report      contains      no recommendations      or suggestions          requiring       action
          by the Congress.           In addition      to the opinions       expressed      as to the fi-
          nancial    statements        examined,    the report    provides      additional        information
          considered      necessary       to keep the Congress       informed      of the operations
          and financial       conditions       of the Government       National     Mortgage        Association
          and the trusts.




                                                    2
                                CHAPTER 1

                              INTRODUCTION

       The Government National      Mortgage Association        (GNMA), a
component of the Department of Housing and Urban Development
(HUD), was created by the Congress in the Housing and Urban
Development Act of 1968 (12 U.S.C. 1717)--the             legislation
which partitioned     the Federal National       Mortgage Association
(FNMA) into two corporate       entities.     GNMA was established          as
a Government-owned corporation          to (1) conduct the predeces-
sor FNMA's special assistance         and management and liquidating
functions,     (2) act as trustee     for a number of trusts         for
which FNMA had been trustee,         and (3) issue mortgage-backed
securities     and guarantee mortgage-backed       securities      issued
by either    the new Federal National       Mortgage Association         (new
FNMA)--the second corporation         created in the partitioning--
or any other issuer approved by GNMA for such an activity.
GNMA became operative      on September 1, 1968, and its activi-
ties are discussed in subsequent chapters.

       The new FNMA was established       by the Congress as a
Government-sponsored      privately    owned corporation     to conduct
the predecessor    FNMA's secondary market operations.           The new
FNMA became operative       on September 1, 1968, and, as a pri-
vately   owned corporation,      is not subject   to audit by us ex-
cept in the event that it incurs obligations            which are guar-
anteed as to principal       or interest   by GNMA. At June 30,
1970, the new FNMA had outstanding         $400 million     of mortgage-
backed bonds which were guaranteed by GNMA. Consequently
under authority    of the Housing and Urban Development Act of
1968 (12 U.S.C. 1716b note),        we examined the records of the
new FNMA relating    to the guaranteed obligations,

       All the powers and duties of GNMA are vested in the Sec-
retary    of HUD. GNMA is administered        under his direction;
and, within    the limitations      of law, he determines   the gen-
eral policies    which govern the operations        of the organiza-
tion.     The Secretary     is empowered to appoint the president,
vice president,     and'all    other executive   officers  of GNMA.

       Under authority   provided by the Housing and Urban Devel-
opment Act of 1968, the new FNMA and GNMA entered into an
Intercorporate    Functional   Agreement under which the new FNMA,

                                       3
in addition    to its operations,       conducts a substantial    por-
tion of the operations      related     to the special assistance      and
management and liquidating        functions    of GNMA, subject to
GNMA's direction.     The new FNMA is reimbursed         for its ser-
vices on the basis of a memorandum agreement between the new
FNMA and GNMA dated March 4, 1970. Under the terms of the
memorandum agreement,     the new FNMA is to receive an agreed-
upon fee in addition    to being reimbursed        for direct   and al-
located expenses.

        GNMA's headquarters     office  is in Washington,  D.C.  Its
mortgage activities      are conducted by the new FNMA through
five regional    offices    located in Atlanta,   Georgia; Chicago,
Illinois;   Dallas,    Texas; ?.?s Angeles, California;    and Phil-
adelphia,   Pennsylvania,      and a fiscal  agent office  in New
York City.
                                 CHAPTER2

                    SPECIAL ASSISTANCE FUNCTIONS

        GNMA conducts its special assistance             functions    under
authority    of sections     301(b) and 305 of the FNMA Charter
Act, as amended (12 U.S.C. 1716, 1719).                These sections      pro-
vide that, upon specific          authorization      by the President      of
the United States or by the Congress, GNMA is to purchase
(1) selected types of home mortgages originated                  under spe-
cial housing programs designed to provide housing of accept-
able standards for segments of the national                population    which
are unable to obtain housing under established                  home-
financing   programs and (2) home mortgages generally                 as a
means of retarding      or stopping a decline in mortgage-lending
and home-building      activities      which threaten materially         the
stability   of a high-level        national     economy.

       At June 30, 1970, the combined statutory               limitation     for
mortgage purchase and commitments,             subject to specific         au-
thorizations     by the President      and by the Congress, amounted
to $7.8 billion.        The statutory     limitation      for the Presiden-
tial authorization        was $5.5 billion      and was for the purpose
of conducting     mortgage purchase programs related               to (1)
below-market-interest-rate          housing,    (2) rent supplement
housing, and (3) miscellaneous           other programs.         The statu-
tory limitation      for the congressional         authorization       was
$2.3 billion     and was for the purpose of conducting                mortgage
purchase programs related         to low-COSL and moderate-cost
housing, cooperative        housing, and armed services housing.

       Funds required   for financing     the special assistance
functions   may be obtained thraugh borrowings        from the Trea-
surys from operations,      and from repayment of mortgages in
G     Is special assistance    portfolio.

        The         Charter Act, as amended, authorized           the spe-
cial assistance         functions   to participate   in the creation        of
trusts     to sell,     for financing   purposes, participation        cer-
tificates     in pooled mortgages conveyed to the trusts             by par-
ticipating      trustors.       The Congress did not authorize       the
trusts     to obtain this type of financing        in fiscal     year 1970.
Financing through the sale of participation             certificates        is
more fully      discussed on pages 14 through 17.
       During   fl.szsb     >EhY    3.970,rwings
                                              -5c.r  from the Treasury
tcitaled $781,6 miBlion and borrowings           repaid to the Treasury
totalt.d  $50 II3 miPlinn.     The interest    rates on funds borrowed
from the Treasury during fs"sca4i year 1970 ranged from 6.625
to 8 percent.       At June 30, 1970, notes payable ts the Trea-
sury totaled     $2.1 billion.

       In fiscal   year 3.970 the special assistance      functions
sustained a loss of $30.8 million        from its own and trust        op-
erations,     Our analysis    of the special assistance      functions
records showed that the loss of $30.8 million          was attribut-
able largely     to the difference   between interest     paid on bor-
rowed funds and interest       earned on below-market-interest-
rate mortgages in GNP&A'sportfolio.

      Significant       data for          the fiscal years      ended June 30,
1970 and 1969,       summarized           from the special      assistance func-
tions mortgage       recor

                             --      I.970                           1969
                                         Unpaid                         Unpaid
                                        principal                      principal
                              Number (millions)               Number (millions)

Mortgages purchased
   under combined
   R-esidential      and
   congressional      au-
   thorization                    2,827       $       759.0    9,303    $     522.0
Mortgages sold                                                      1           0.2
Mortgages repa%d,
   foreclosed,      and
   assigned                         476                37.5      397           24.3
artgages       in the
   portfolio     at
   June 30                   39,594               2,041.7     37,243        1,320.2

        The special assistance    functions purchased 6,476 fewer
mortgages in fiscal      year 1970 than in fiscal   year 1969.     111
fiscal    year J-970, 2,473 small home mortgages were purchased--
a decrease of ijj493 from the preceding fiscal        year--and   354
wn.d.tifamiI~~I project  mortgages were purchased--an     increase of
17 from the preceding fiscal       year.
       Although the total   number of mortgages purchased in
fiscal    year 1970 decreased from the number purchased in the
preceding year, the amount paid for the mortgages increased
mainly because the balances of the multifamily      project mort-
gages acquired in fiscal     year 1970 were larger than the bal-
ances of the multifamily     project mortgages acquired in the
preceding year.

      .At June 30, 1970, the unpaid principal        of 71,114 mort-
gages of the special assistance         functions,  which had been
conveyed to the trusts        in which these functions   partici-
pated, totaled    $1.1 billion     and the outstanding   participa-
tion certificates     related    to these mortgages totaled       $1 bil-
lion,    The amount of the conveyed mortgages is shown as a
deduction from the amount of mortgages on hand on the spe-
cial assistance    functions     balance sheet.

        During fiscal    year 1970, participation            certificates        to-
taling    $62.8 million     matured and were redeemed by the
trusts.      In addition    to the remittance        of principal         and in-
terest    collected    on mortgages conveyed to the trusts,                 the
special assistance       functions,      at the trusteeQs         request,     re-
mitted $11.8 million        to the trustee       during fiscal        year 1970
to cover the difference          between the interest         collected       on
the mortgages conveyed to the trusts               and the interest         paid
on the participation        certificates      collateralized         by the
mortgages.
                                   -CEAwm?
                                     _I.. _--_l 3

               .WAGEMENT AND LT~~DATING              FUNCTIONS

       GNMA conducts its management and liquidating            functions
under authority     of sections    301(c) and 306 of the FNMA
Charter Act, as amended (12 U.S,C. 1716, 1721).              These sec-
tions authorize     GNPfAto manage and liquidate        federally     owned
mortgage portfolios       in an orderly    manner with a minimum ad-
verse effect    on the home mortgage market,         The management
and liquidating     functions   are authorized    to purchase,       ser-
vice, or sell any obligations        offered   by the Secretary       of
I-IUD or any mortgages covering residential         property offered
by any Federal agency.

       The act also provides that GNMA administer        the trusts
formerly   administered    by F'NHA under the management and liq-
uidating   functions    and serve as a fiduciary    with respect to
mortgages or other types of obligations         in which certain
designated    departments of the United States have a financial
interest.

       finds required        for financing        the management and liqui-
dating functions       may be obtained through borrowings from the
Treasury,    from repayment of mortgages in GM's                       management
and liquidating       portfolio,      and from operations.              In addi-
tion, when authorized           by the Congress, funds may be obtained
through the sale of participation                 certificates       in mortgages
conveyed to trusts         in which the management and liquidating
functions    participate.         The Congress did not authorize               this
type of financing        in fiscal     year 1970.           Financing through
the sale of participating            certificates         is more fully     dis-
cussed on pages 14to            17,

        During fiscal    year 1970, borrowings     from the Treasury
totaled     $158,2 million     and borrowings  repaid to the Treasury
totaled     $183.8 million,      The interest  rate on funds bor-
rowed during fiscal        year 1970 ranged from 6.625 to 8 per-
cent.     At June 30, 1970, outstanding       borrowings   totaled
$1 billion,

       In fiscal  year 1970 the management and liquidating
functions    had net earnings of $13.6 million from their                   own
and trust     operations.      Our analysis       of the management and
liquidating      functions    records showed that the earnings of
$13.6 million       were attributable       principally    to (1) the port-
folio    containing     mortgages which were purchased during fis-
cal years 1969 and 1970 and which bore higher interest                rates
than mortgages in the portfolio             that were purchased in pre-
vious fiscal       years and (2) using available         funds to pay for
a substantial       portion   of the mortgages purchased in fiscal
year 1970, thereby decreasing            the need for borrowing and de-
creasing the incurrence          of interest      costs.

      Significant    data for the fiscal    years ended June 30,
1970 and 1969, summarized from the management and liquidat-
ing functions     mortgage records follows.

                                                              1970                          1969
                                                                    Unpaid                        Unpaid
                                                                   principal                     principal
                                                  Number          (millions)      Number        (millions)

Federal Housing Administration            (FHA)
  mortgages    purchased                              5,662        $       58.3    23,582        $     272.6
Mortgages   sold
Mortgages   repaid,    foreclosed,      and
  assigned                                            5,632                66.8    21,467              196.6
FHA and Veterans Administration            (VA)
  mortgages    in portfolio      at June 30       102,568              1,128.3    101,238            1,129.8
HUD mortgages     in portfolio      at
  June 30 (note a)                                    3,939                26.3     5,239                31.5
Defense Homes Corporation          notes in
  portfolio    at June 30 (note b)                            2            15.2             2            16.9

aMortgages   covering   World War II Lanham Act housing formerly     owned by the Pub-
 lic Housing Administration     acquired   by the management and liquidating    func-
 tions during fiscal     year 1960 pursuant   to authority  provided  by Public
 Law 86-372,    approved September 23, 1959.
b
    Defense Homes Corporation       mortgage loans transferred  to the management and
    liquidating    functions   by the Reconstruction   Finance Corporation  on July 1,
    1954, pursuant     to Reorganization    Plan No. 2 of 1954, dated April  29, 1954.



        At June 30, 1970, the unpaid principal         of 127,357 mort-
gages of the management and liquidating          functions,      which had
been conveyed to the trusts        in which these functions          partic-
ipated totaled     $706.2 million,     Outstanding     participation
certificates    totaling  $692,4 million      are collateralized         by
these mortgages and other trust        assets.     The amount of the
conveyed mortgages is shown as a deduction           from the amount


                                                  9
of mortgages on hand on the management and liquidating
functions  balance sheet.

        During fiscal     year 1970, participation           certificates       to-
taling    $127.9 million       matured and were redeemed by the
trusts.      In addition     to the remittance        of principal        and in-
terest    collected    on mortgages conveyed to the trusts,                 the
management and liquidating           functions,      at the request of the
trustee,     remitted    $7.8 million      to the trustee       to cover the
difference      between the amount of interest            collected      on the
mortgages conveyed to the trusts             and the interest         paid on
the participation       certificates      collateralized        by the mort-
gages.




                                       10
                                CHARTER4

          MORTGAGE-BACKEDSECURITIES GUARANTYPROGFLAM

        Section 306(g) of the National         Housing Act (12 U.S,C.
1721) authorizes      GNMA, for a reasonable fee, to guarantee
mortgage-backed      securities     issued to the public by either
the new FNMA or by any other issuer that is approved by GNMA
for such an activity.          Under regulations     promulgated by the
Secretary on May 18, 1970 (24 F.R. 16651, the securities                 at
the option of the issuer may be issued as a pass-through
type or a bond type but must be backed by pools of mortgages
consisting     of (1) FHA-insured mortgages,          (2) VA-guaranteed
mortgages,     or (3) Farmers Home Administration-guaranteed
mortgages,      The issuer is responsible        for administering     the
mortgage pools backing the securities            including   the collec-
tion of the principal         and interest   on the mortgages.       In the
event that the issuer defaults           in making timely payment of
principal     and/or interest     to the owner of the guarantied         se-
curity,    GNMAmay make the payment and take title             to the
mortgages backing the security.

       The regulations     provide that two types of pass-through
securities    may be issued-- straight         pass-through     type or
modified    pass-through     type.     Securities     are designated      as
pass through,      because principal       and interest     are passed
through monthly to the security            owners.     Under a straight
pass-through     security,     the owner is paid a proportionate
share, less a service charge, of the principal                 and interest
collected    by the issuer on the mortgages in the pool no later
than 15 days after the close of the month in which the col-
lections    are made. Under a modified            pass-through     security,
the owner is paid a specified            amount of principal       and inter-
est no later     than 15 days after the close of the month in
which payment of principal          and interest      on the mortgages
backing the securities         is due, whether or not collected             by
the issuer.      In addition,      a proportionate       share of prepay-
ments of interest       and/or mortgage balances are also passed
through to the security          owners,

      The regulaticns    require  issuers of pass-through       securi-
ties to deliver     to custodians   satisfastory    to GNMAo the
mortgage notes and other principal         documents representing
the mortgages in the pool,        for   safekeeping   as collateral    for
the GNMA guarantee.

       At June 30, 1970, 10 issues of pass-through-type            securi-
ties with principal      amounts of $37,6 million        and accrued in-
terest   of $0,2 million    were outstanding,.       Thus GNMA's guar-
anty outstanding     on these pass-through      securities    amounted
to $37.8 million,      According to the GNMA records examined
by us on a test basis, the principal         of mortgages in the
pools held by custodians      and interest     collections    on deposit
in custodial    accounts at June 30, 1970, amounted to
$37,8 million.     At September 30, 1970, 25 issues of pass-
through securities     with principal    balances aggregating
$85,4 million    were outstanding     and guaranteed by GNMA.

        The records we reviewed showed that GNMAwas adminis-
tering    the pass-through     security      program in a manner that
provided assurance that issuers were conducting their               pass-
through securities      operations      in compliance with the regu-
lations     promulgated by the Secretary.           Bond-type mortgage-
backed securities      may be issued in registered          or coupon
form, bearing a fixed interest            rate, payable on specified
dates, and maturing on specified             dates.

        The regulations       require the issuer of a bond-type
mortgage-backed        security    to enter into an agreement with a
corporate      trustee   that is subject to Federal or State regu-
lation.      The agreement must provide for the trustee         to
 (1) hold the pool of mortgages backing the securities,
 (2) hold the collections          of principal  and interest remitted
by the issuer,        and (3) make timely payments of principal        and
interest     to holders of the bonds from the proceeds of the
collections.

        At June 30, 1970, the only outstanding    mortgage-backed
bonds guaranteed by GNMA amounted to $400 million        and had
been issued by the new FNMA. The accrued interest          on the
bonds amounted to $2.8 million.       Thus GNMA's guaranty out-
standing on bond-type securities      amounted to $402.8 million
at June 30, 1970.      Inasmuch as the mortgage-backed    bonds
that the new F'NMAhad issued were guaranteed by GNMA, we,
on a test basis, examined the records of the new FNMA per-
taining    to the guaranteed bonds.    Our examination   of the
records showed that the amount of mortgages backing the

                                   12
outstanding   bonds at June 30, 1970, exceeded the amount of
the outstanding   bonds and accrued interest  at June 30, 1970.

      At September 30, 1970, the mortgage-backed             bonds issued
by the new FNMA and guaranteed by GNMA amounted              to $1 bil-
lion,   A listing showing the issues comprising            the $1 bil-
lion together with the issue and maturity    dates           follows.

    Date of        Amount                   Maturity
     issue         issued            Date              Principal

    6- l-70   $   400,000,000    ( 6- l-71      $ (150,000,000
                                 ( 6- 2-75        (250,000,OOO
    9- 9-70       400,000,000     lo- 2-72         400,000,000
    g-29-70       200,000,000     lo- l-90         200,000,000

              $1,000,000,000                    $1,000,000,000
                                                 -----
      The bonds issued by the new FNMA mature in 1 to 20
years from the issue date, however, the mortgages backing
these bonds mature in about 30 years,   An official      of the
new FNMA advised us that interest  and principal      on the
bonds, when due, would be paid from mortgage collections
and funds obtained from the sale of additional      issues of
mortgage-backed   bonds.

      Our examination  of the new FNMABs records pertaining     to
the GNMA-guaranteed bonds showed that the new FNMA was com-
plying with the regulations   promulgated by the Secretary.
We concluded that the GNMA guaranty was adequately    protected
at June 30, 1970, by the pools of FM-insured     and VA-
guaranteed mortgages  which had been conveyed to the trustee
by the new FNMA,




                                13
                                 CHAPTER 5

                          TRUSTEE OPERATIONS

       The Housing Act of 1964 and the Participation             Sales
Act of 1966 amended the FNMA Charter Act to authorize                the
creation   of trusts,  with FNMA as trustee,         to sell,    for fi-
nancing purposesr participation       certificates       in pooled mort-
gages and other obligations      of FNMA and certain         other agen-
cies,    The other agencies specified        in the acts were (1) the
Farmers Home Administration,      Department of Agriculture;            (2)
the Office of Education,      Department of Health,        Education,
and Welfare;    (3) HUD ( except  for  secondary      market    operations
of FNMA); (4) VA; (5) the Export-Import            Dank; and (6) the
Small Business Administration.

        The Housing and Urban Development Act of 1968 further
amended the FNMA Charter Act.         The changes included the
designation     of GNMA to replace FNMA as trustee          of the trusts,
Consequently GNMA began to function          as trustee     on Septem-
ber 1, 1968, and as of that date assumed responsibility                  for
the assets and liabilities       of the respective       trusts.      As did
its predecessor,     GNMA administered     the fiduciary        acts of a
trustee    under its management and liquidating          functions.        As
of June 30, 1970, four trusts       had been established.            Inas-
much as most of the financial       transactions      were consummated
by FNMA during its tenure as trustee,          reference      is made to
Fm"LAwhere applicable      in the discussion      that follows.

        The agencies participating          in the trusts    conveyed ti-
tle to certain      mortgages and loans to the trusts;           and, in
accordance with the FNMA Charter Act, the agencies retained
custody, control,        and administration        of these mortgages and
loans,     FNMA, acting as trustee,           issued and sold to private
investors    participation     certificates        in these mortgages and
loans.     Thus the 1964 and 1966 acts provided means for sub-
stituting    funds of private       investors      for funds borrowed from
the Treasury.

       GNMA, in its corporate    capacity, has succeeded FM as
the guarantor    of the payment of all participation      certifi-
cates.    In addition,  the participation    certificates   are
considered to be obligations      of the United States on the

                                    14
basis of an opinion rendered by the Attorney                   General     of the
United States on September 30, 1966,

       FNMA and subsequently            GNMA, as trustee,        received from
the participating        trustor      agencies principal         and interest
collected    on the mortgages and loans subject to the trusts
less the charges made by the agencies for administering                          the
mortgages and loans.           These funds are used to pay interest
on the participation          certificates,          to pay trust    expenses,
and to retire      participation         certificates      on maturity.         Pend-
ing disbursement,        the trustee        invested these funds in Govern-
ment securities.         Funds without          fiscal   year limitation        are
available    to the trustors          under provision        of the Independent
Offices Appropriation          Act, 1967 (80 Stat. 663, 6831, to en-
able the trustors        to pay such insufficiency             as may be re-
quired by the trustee          on account of outstanding             participa-
tion certificates,

       Our review of the trust records indicated          that the
trusts   complied with the provisions        of the trust    indentures
which had set limits       on the amount of participation         certifi-
cates that may be issued against the pool of mortgages and
loans held as collateral        for the participation     certificates.
Following    is a. discussion     of the four trusts.

GOVERNMENTMORTGAGELIQUIDATION TRUST

        On October 1, 1964, FNMA and VA established     a trust
known as the Government Mortgage Liquidation      Trust, with
FNMA as trustee,     to sell to private investors   participation
certificates     in mortgages conveyed by the two agencies to
the trust.

        Five issues of participation        certificates,        aggregating
$1,790 million,        have been sold since the trust was estab-
lished,     The last issue was dated June 23, 1966,                As of
June 30, 1970, participation         certif  -fc.ates   totaling     $470 mil-
lion had been redeemed at maturity,             oE which, $110 million
were redeemed in fiscal        year 1970..      i?it June 30, 1970, par-
ticipation     certificates    outstanding      totaled    $1,320 million,
had maturity     dates ranging from July 1970 to June 1981, and
had intcrest     rates ranging from 4,2$ io 5.5 percent.
 SMALL BUSINESS OBLIGATIONS TRUST

        Qn June 1, 1966, FNMA and the Small Business Adminis-
tration    established a trust known as Small Business Obliga-
tions Trust, with FNMA as trustee,      to sell to private  in-
vestors participation    certificates   in loans conveyed to the
trust    by the Small Business Administration.

      One issue of participation      certificates,      aggregating
$350 million,     was sold by the trust      on June 23, 1966. As
of June 30, 1970, participation       certificates     totaling
$280 million     had been redeemed at maturity,       of which,
$70 million     were redeemed in fiscal      year 1970.     The remain-
ing participation      certificates  outstanding    totaling      $70 mil-
lion will mature in June 1971. The participation               certifi-
cates bear interest      at the rate of 5.75 percent.

FEDERAL ASSETS LIQUIDATION TRUST

       FM,    as trustor     and as trustee,       entered into a trust
indenture    as of December 1, 1966, to establish              a trust known
as the Federal Assets Liquidation            Trust, to sell to private
investors    certificates     of participation       in mortgages and
loans conveyed to the trust.           The trust     indenture     provided
for the acceptance by the trustee            of conveyances in trust
of obligations       from the other agencies named in the FNMA
Charter Act., Such conveyances were received from (1) the
Farmers Home Administration,          (2) the Office of Education,
(3) HUD, (4) VA, and (5) the Small Business Administration,

        Four issues of participation        certificates         aggregating
$3,230 million     have been sold since the trust was estab-
lished.     In fiscal    year 1970 participation          certificates
totaling    $450 million    were redeemed at maturity,               At
June 30, 1970, participation        certificates        outstanding       to-
taled $2,330 million,       had maturity     dates ranging from Janu-
ary 1972 to April 1987, and had interest               rates ranging from
5 to 6.45 percent,

        During fiscal    year 1970 the collections      of interest      on
mortgages received from four trustors           were insufficient      to
cover the interest       due on the participation      certificates,
The trustee     requested and obtained $24.6 million           from the
trustors     to cover the insufficiency.        As stated previously,

                                     16
funds were appropriated          to trustors     by the Congress        to pay
insufficiencies.

FEDEF?ALASSETS FINANCING TRUST

       FNMA, as trustor      and as trustee,     entered into a trust
indenture    as of Novemberl,      1967, to establish       a trust known
as the Federal Assets Financing Trust, to sell to private
investors    certificates     of participation      in mortgages and
loans conveyed to the trust.           The trust    indenture    provided
for the acceptance by the trustee            of conveyances in trust
of obligations       from the other agencies named in the FNMA
Charter Act.        Such conveyances were received from (1) the
Farmers Home Administration,          (2) the Office of Education,
 (3) HID, (4) VA, and (5) the Small Business Administration,

        Four issues of participation          certificates        aggregating
$4,250 million      have been sold since the trust was estab-
lished.     In  fiscal    year 1970 participation          certificates       to-
taling    $650 million     were redeemed at maturity,              At June 30,
1970, participation        certificates      outstanding      totaled
$3,600 million,        had maturity     dates ranging from February
1971 to August 1988, and had interest                rates ranging from
6 to 6.45 percent,

        During the fiscal    year the interest     remitted   by the
trustors     on the mortgages backing the participation         certifi-
cates was insufficient       to cover the interest       due on the par-
ticipation     certificates.     The trustee   requested and obtained
$88 million     from the trustors    to cover the insufficiency.




                                        17
                               CHAPTER 6

                        SCOPE OF EXAMINATION

       Cur examination   of GNMA's financial      statements     for fis-
cal year 1970 included an examination          of the balance sheets
as of June 30, 1970, the statements         of earnings,      and the
statements   of sources and application        of funds for the year
then ended.     The statements     are presented in this report on
a combined basis and separately        for the special assistance
functions,   the management and liquidating         functions,    and
the mortgage-backed     securities    guaranty program,

       We also examined financial       statements    of GNMA as
trustee    for the Government Mortgage Liquidation          Trust, the
Federal Assets Liquidation       Trust, the Small Business Obliga-
tions Trust,      and the Federal Assets Financing Trust,           These
 statements    included statements     of condition    as of June 30,
1970, for the four trusts       and statements      of income and ex-
pense and of sources and application          of funds for the fiscal
year ended June 30, 1970. We examined the new FNMA"s rec-
ords pertaining      to the outstanding     mortgage-backed     obliga-
tions guaranteed by GNMA.

      Cur examination     was made in accordance with generally
accepted auditing     standards and included such tests of the
accounting  records and such auditing      procedures as we con-
sidered to be necessary in the circumstances.

       Cur examination   was conducted at the Washington head-
quarters     of GNMA and FNMA and at two of FNMA's five regional
offices--Dallas     and Chicago.   Our work included the examina-
tion of a number of mortgages in the portfolio       in the eus-
tody of the regional     offices.   We also examined the records
of each of the seven trustors     related  to the activities  of
the four trusts.

      We reviewed the audit made by HUD internal       auditors   of
the GNMA accounting    records and the work done by the new
FNMA's internal   auditors   of the accounting   records maintained
by the new FNMA pertaining     to the activities    conducted on
behalf of GNMA. We found that the coverage and quality          of
work of these two groups enabled us to reduce our examination

                                    18
of GINA's mortgage portfolio  and our tests of GNMA's ac-
counting records,  as well as those of the trusts for which
GNMA is trustee.
                               CHAPTER 7

                 OPTNION OF FINANCIAL STATEMENTS

        The financial     statements    presented    in this report   as
schedules 1 through 8 are the statements' of GNMA. In our
opinion,    the accompanying financial          statements   present fairly
the financial      position    of GNMA at June 30, 1970, and the re-
sults of its operations         and the sources and application        of
its funds for the year then ended, in conformity                with gener-
ally accepted accounting         principles     applied on a basis con-
sistent    with that of the preceding year and with applicable
Federal laws.

      The financial  statements  of GNMA as trustee for the
Government Mortgage Liquidation    Trust, the Small Business
Obligations   Trust, the Federal Assets Liquidation  Trust,  and
the Federal Assets Financing Trust are presented as sched-
ules 9 through 12.

       In our opinion,    the accompanying financial       statements
of the trusts--schedules        9 through 12--present    fairly    their
financial   position   at June 30, 1970, and the results          of their
operations   and the sources and application        of their    funds
for the year then ended, in conformity         with generally      ac-
cepted accounting     principles     applied on a basis consistent
with that of the preceding year and with applicable             Federal
laws.




                                    20
                                                               ASSETS                                                                                                 June      30,      ?ciiD


Mortgages and related receivables
    FM-insured  and ?A-guaranteed  mortgages st cast:
     Insured by Federal Housing Admmlstration          ...........................                                                                                5    4.41',419,697             $    3,7bY,;lJ,r&
     Guaranteed by Veterans Admin~stracxon    ...............................                                                                                              5?4;4:4,?95                    b25.:53,4ou
                                                                                                                                                                       L,986,855,095                  4,39S,Bi5,155

      Less unpaid principal        of mortgages subject                   to:
       Government Mortgage Llqudation              Trust .............................                                                                                       7b8,992,093                 e1r,357,117
       Federal Assets Liquidation         Trust ..............................                                                                                               570.522.5na                 h21,214,h??
       Federal Assets      Financing Trust        ............................                                                                                               1?4,03U,b83                 <53,93L.944
       Other parricipetion       equities    .......................................                                                                                            1.991,028
                                                                                                                                                                                                 --___
                                                                                                                                                                  3,121,520,723                      ?,4C2,35E,272
      Equity       in the Government Mortgage Llquidatlon     Trust          .....................                                                                           336,012,173                 3'1,821,960
      Equity       in the Federal Assets Liquidation    Trust ......................                                                                                          ?B,L>b,O?l                   29,108,704
      Equity       in the Federal Assettl Financing Tr”st    .............................                                                                                      l,bi1.541        ---__
                                                                                                                                                                                                                 1445.086)
                                                                                                                                                                       3,4@7,L30,468                 2,752,845,850


      Direct mortgage loans transferred                       from HUD:
       Unpaid principal    .....................................                                                                            $   26,297,05(!
       Less sllowsnce   far losses ................................                                                                              5,?45,052                    20,547,998                     25,728,792
      DHC purchaee money notes transferred                        from RFC:
        Unpaid       principal             ...................................                                                                  15,1t1,946
        Less unrealued                    equity                     ...................................                                        14,410,2?b                            711.720                 2.418.707

         Total       ........................................................                                                                                          3,508,73C,186                  2,781,031,349

      Accrued interest                    receivable                            ..........................................                                                    12,845,87c7                     5,102,433
      Other receivables                     arismg                           from mortgages .............................                                                      4,55O,?ii                      5,089,102

                                                                                                                                                                       3,526.126.?H7                  2.795,424,584


Assets acquired through      foreclosure      and claims xn process.
    Property  held pending transfer       to’
      Federal Housing Administration        . . . .. .                . . .            . ..                                                      .    .       .                 i,1?8,365                     4,l@9,27?
     Veterans Administration                    . ..t........             .. .. ... .. ..                                                       .. ..                                  58.281                       5C.613
    Cleims in process egainse:
      Federal Housing Administration        . . .._..........._._...........                                                                     . .. .                         4,333,177                      3,505,422
     Veteran8 Adminietretion        . .. .. .. .. .. ..          . .. . . . . . .. . .                                                          .. .    . .                         356,564                       482,615
                                                                                                                                                                                8.873,357                     8,527,922
      teas       allowence          far       losses                         . .. ... .. .. .. ... .                  . .. ... .. ... . .. .. ... .                                 326,924                       325,043
                                                                                                                                                                                8,546,463                     8,202,8i9
      Property        held        for      sale                     .            .. . . .. ..       ..I............             ... .. .. ... . ... .. .. ...                          19,533                          26,069
                                                                                                                                                                                8.565,996        ---F-z--G       ,:        .4

Other 8ssete:
    Cash on hand and on deposit with the U. S. Treesury                           ....................                                                                             657,969                    4,931,984
    Deferred charges end miscellaneous      ..................................                                                                                                  2,8L9,252                     3,7Y6,721
     FHA debentures   - prmcipal    snd accrued interest                   ........................                                                                                 208,204
     Accrued gusranty   fees receivable    - hBS ..................................                                                                                                    9,906
     Furniture  and equipment, less accumuleeed deprecietion                               .................                                                                         31,788                           283,893
                                                                                                                                                                                3p737.121                      9,012.59%

                                                                                                                                                                       3,538,429,434                  2,812,b66,430
                                                                                                                                                                                                 --

                                                                   LLBILITIES

Liabilities:
    Accrued interest  payable on notes to the “. S. Treasury                                                   .................                                              84,114,7i5                     58.20?,79?
    Accounts payable and accrued llabllities                                 ..................................                                                               ?5.283.lh@                     24,363,025
    Rust and deposit liabilities                    .........................................                                                                                 EC,Ob2,99?                     73,519,?55
    Deferred  credits  ........................................................                                                                                                         15,418                         26.817
    Employeea’ BCCnwd annual leeve ..................................                                                                                                                   81,111                         81.712

                                                                                                                                                                             193,554,413         15h,19i.)M


Investment    of the United States Government:
    Notes payable ea the U. S. Treasury     . .. ... .. .. .. .. ... .. .. .. ... .                                                                                                                    2,S?6,984,OOC
    Retained earnings
      Reserved for losses and contingencies      .. .. . . .. . .. . .. ..          . . . . . . ..,                                                                ___._
                                                                                                                                                                             21",?63.991                   229,488,129

                                                                                                                                                                      3,344.634.991                    ?,65b,472,:29
                                                                                                                                                                   _____
                                                                                                                                                                      3,538.429,40>                    2,812,hh6,410
                                                                                                                                                                  -                              __~




                                                                                                                                    23
 SCHEDULE2


                                                                                               Government Netlonsi f4vrcpage *ssociacion
                                                                                                   COMBINED STATEMENr “F EARNINGS
                                                                                              -__
                                                                             INCOME                                                                                 F,=ra,    Yrov   Enced

                                                                                                                                                    Jun.2 30,          1970          June    30.   1969

     I”ttTeSt     ...............................................................                                                                   $ 146.541.877                    8 116,786,245
     Commitment and other fees ..............................................                                                                           7,O41.728                        5,282,605
     Acquisftto~           and service                fees .............................................
     Purchase end marketing                         fees ..............................................                                                     5u.966                          1,619,560
     Purchase discounts                   realized           ............................................                                                2,443.602                          2,637,918
     service      tees ..........................................................                                                                                I48                                638
     his fees ..............................................................                                                                                 57,631
     Other ...................................................................                                                                              649,923                          315,671
                                                                                                                                                       157,250,875                      126,642,637

                                                                            EXPENSE

     Interest      on notes to the LT. s. Tree.5ury ...............................                                                                    156,356,172                      109,296,225
      Interest      O" notes - other ............................................
     Administrative            .....................................................                                                                       3,550,673                        3,906,126
     Fees for servicing                   mortgages ............................................                                                           8,240,aoa.                       7,660,192
     Net losses on sales .................................................
     Provision        for losses .................................................                                                                          867,569                         1,026,118
     Allwances          to FWMd - Tandem Plan transfers                              ..............................                                         214,908
     Other ..................................................................                                                                               307,494                          177,704
                                                                                                                                                       169.537.624                      122.066.365
     Earnings     prior    to income from GILT, FALT and FAFT operations............                                                                   (12,286,749)                         4,576,272
     Gain or (loss)        on trust operations:
      Government Mortgage Liquidation            Trust ..................................                                                               14,188,212                       16,072,254
      Federal Assets Liquidation         Trust ...................................                                                                       (7,486,927)                     (9.490.674)
      Federal Assets Financing         Trust ......................................                                                                    (10.694,529)                     (10,706,203)
     Amortization       of deferred  charges and credxts                   on sale of assets-~CC:
      Gwernment       Mortgage Liquidation       Trust participations                         ..................                                             (234,566)                       (256.707)
      Federal Assets Liquidation         Trust partxlpatians                       ........................                                                  (240,192)                       (324.172)
      ieders?     Assets Finencing    Trust participations                    .........................                                                      (469,387)                       (257;129)
     1:ec eerr,ings             (loss1 ....................................................                                                            (17,224,138)                          (386,359)
--       - _--                           -                                                                                                                                                                ~-
                                               CUMUIATWE NET EARNINGS AND ANALYSIS OF DlSP~ITIOA

                                 Cumulative  net earnings                         - June 30, 1969 ....................................                                               $ 496,860,956
                                 Ner 108s for the twelve                          months ended June 30, 1970 .........................                                                  (17,224,138)
                                                                                                                                                                                       479,636,818
                                Dividends    paid ............................................................                                                                         164.401,297
                                Earnings    peld to the United States Treasury                                       ...............................                                    97,633.561
                                Liability    fur accrued annual for employees transferred                                                    rrom RFC ...........                           418,926
                                Adjustments     of reserves             covering            cercificetes                 of claun .....................                                  4,919,043
                                Retained    earnings.
                                 Reserved for losses and c~ntin~cncies                                 .....................................                                           212.263.991 ,
                                                                                                                                                                                       479,636,81a




                                                                                                                          24
                                                                                                                                                                                                                                                                                                                SCHEDULE3




                                                                                                        ASSETS

mrtgeges          end related        receibables
     MA-insured         and     VA-guaranteed              mortgeges                                                                                                8t    cost
       Insured       by Federal        Housing        Admnistration                                                                                                        . . . . . . . . . .                                                     . . .._                       . .   b ?,800,59l,blG
       Cuarenteed       by “eeerans            Administration                                                                                                     . . . . . . . . . . . . . . . . . .                                                  . . . . . . . .                        39S,JZO.‘7~
                                                                                                                                                                                                                                                                                          3,195,312,3E4
         Less    unpaid        prmcipel           of mortgeges              subject                                                                                                to
           Government          Mortgsge         Liquidation             Trust                                                                                     .   .    .   .   . .     .   . . . . . . . . .                       . . . . . . . .                                       648,282,Qtj
           Federal      Assets        Liquidation             Trust        . .                                                                                    .   .    .   .    . .    .    . . . . . . .                          . . .               . . .                              2?6,92?,?17
           Federal      Assets Finencing                  Trust       . . . . . . .                                                                               .   .    .   .   .       .    . . . . . . . . .                      . . . . . . .           . . . . . . . .                232.103,294
           Other    p~rticfp8tlan               equities          . . . . . . . . .                                                                               .   .    .   .   . .     .    . . . . . . . . .                      . . . . . . . . . . . . . . . . . . . .                   1,993,02h
                                                                                                                                                                                                                                                                                          2.0?6,005.730
         Equity              in            the              Government                                    Mortgage         Llquldaclon                                                        Trust                       ......................                                              278,2:4,942
         Equity               in           the              Federal                            Assets            Liauldetlon            Trust                                                       ...........................                                                                     (lb7,398,
         Equity               in           the              Federal                            Assets            Financmg            TrmC                                                  ..............................                                                                           (200.215)

               Total               .................................................................                                                                                                                                                                                      2,313,863.139

         Accrued               interest                                  receivable                              ..............................................                                                                                                                                  7,505,053
         Other             receivables                                     arising                           from            mortgages                                     ..................................                                                                                    7.858.218
                                                                                                                                                                                                                                                                                          2,329.226,380
Assets           acquired         through         foreclosure                                 and               clams                                                                 in           process:
         Property         held      pending          transfer                         to.
           Federal        Housing         Administration                                   ..........................................                                                                                                                                                                SW,129                        iil,,!3d
           Veterans        Administration                   .................................................                                                                                                                                                                                         52,167                           i(i.188
         Clsims        I”   process         ags1nst:
           Federal        Housing         Admnistration                                    ...........................................                                                                                                                                                           1,724.157                     1,0:0,20?
           Veterans        Administration                   .................................................                                                                                                                                                                                        306,495       --             s45,055
                                                                                                                                                                                                                                                                                                 2,07i,348                     2,21r9,838
         Less          sllowance                                 for               losses                    ................................................                                                                                                                                          91,218                       QO,Rll
                                                                                                                                                                                                                                                                                                 2.586,130                     2,1~4,027
                                                                                                                                                                                                                                                                                                                   -
Other         aseets:
         Cash     on hand     end                                        on deposit                                     with       the                     U.         S.           Treasure                               ......................                                                     104.215                   2.793.733
         Deferred      charges                                           .........................................................                                                                                                                                                               1,55b.3:5                     2.169,$3:
         FHA debentures           -                                      principal                                   and accrued                                  interest                               ...........................                                                                 208,ZCb
                                                                                                                                                                                                                                                                                                 1.870.794
                                                                                                                                                                                                                                                                                          2,333.683,304
                                                                                                       LIABILITIES
Liabilities:
       Accrued                     interest                              payable           on notes                 to           the   “.     S. Treasury             . . . . . . . . . . . . . . . .                                                                                          60,844,16?                    14, >rs.o27
       Accounta                      payable                             end       accrued      lv.biliciea                             . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                                     14,529,916                   11,?4Y,?fil
        Trust              end         deposit                             liabilities             ,..,...............................                                                          . .                                                                                             53.943.960                   44,7ol,o?b
        Deferred                     credits                             . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                                                                    !i:416                        25,27*+
                                                                                                                                                                                                                                                                                              129.333.46:                    90.J80.2ls
Investment         of     the     United                                                        States             Government
      Notea     payable         co the                                                     U.       S.          Tressury      . . . . . . . . . . . . . . . . . . . . . ...*..                                                                                 . . . . . . . . . . .      2,130,161.OOn                 1.3%‘.~24,OOfl
      Retained        earnings.
       Reserved         for     losses                                                     and            contingencies                                           ..,.................................                                                                                          74,188,8u?                 104,99Y,3RP
                                                                                                                                                                                                                                                                                          2,?04,349,842                 1,5@3,“21,388

                                                                                                                                                                                                                                                                                          2,333,683,304                 1,59i.30?,600




                                                                                                                                                                                                                                                        25
                                                                                                                                                                                     F~scel     Year Ended                        -i
                                                                                                                                                                     June      30,       1970        June       30,        1949

Interest       ................................................                                                                                                      $      74,419,472               $       48,867,098
Commtment end other fees                                  ...................................                                                                                 7,941,152                        5,281,630
Purchase snd merket~ng                      fees          .........................................                                                                              515,966                      l,h19,560
Purchase discwnts                 resllzed             ......................................                                                                                   149,581                          180,108
Servlres    fees ................................................                                                                                                                   (168)                            (283)
Other ....................................................                                                                                                                      195,665                               41,079'
                                                                                                                                                                            82,321,666                       55,991,192




Interest    on notes to the U. S. Treasury                                    ............................                                                               107,722,438                         62,228,901
AdmlnlstratlVr        ......................................................                                                                                               2,245,939                           1,440,546
Fees for servicing            mortgages              ........................................                                                                                2,656,655                        2,478,976
Net losses an seies              ...................................................
Provision      far losses ..................................................                                                                                                    137,232                           202,784
Allowances       to lTWA - Tandem Plan transfers                                     ............................                                                               214,908
Ocher       ..............................................................                                                                                                      1,464                                   2,014

                                                                                                                                                                         112,978,636                         66,353,223

Earnmgs    prior   to ~ncme from GMLT, FAl.T and FAFT operat~on~                                    ..........                                                           (30,456,968)                    (10,362,031)
Cain or floss)     on trust   operations
 Government Mortgage Liquldatlo”             TY”SC ................................                                                                                         11,200,178                       13,474,867
 Federal Assets Lquldation           Trust      ..................................                                                                                          (5,347,583)                      (6,914,288)
 Federal Assets Financing         Trust    .......................................                                                                                          (5.404.9723                      (5,865,887)
Amartizae~on     of deferred    charges      snd      credits           on sale    of assets-et
 Government bbrtgage       L~quidatlon       Trust pertlclpations                    .................                                                                         1197,636)                         (218,283)
  Federal              Assets                         L~qu~datian              Trust      prtic~pat~ons          ......................                                        (136,252)                         1175,657)
 Federal              Assets                          Financing              Trust     participatlans          .......................                                         1267,313)                         (125,344)

Net earnings                              (loss),.....                       . ... .. .. .. ... ... . .. ... ... .. .. .. .. .. . ... .. .                               (30,810,546)                       (10,186,623)




                                                                                     Cmulat~ve   net earn~nps
                                                                                     Net loss for the twelve
                                                                                                                                   ---June
                                                                                                                                   months
                                                                                                                                             10, 1969 . . . . . . . . . . . . . . .
                                                                                                                                             ended June 30, 1970 .
                                                                                                                                                                                                     $ 107,432,949
                                                                                                                                                                                                       (30,810,546)
                                                                                                                                                                                                        76.8229403
                                                                                                                                                                                                                                  1
                                                                                     Farnings      paid to    the Cnited Stares Treasury   .. ... .. .. .. ... ..                                             2.633,561
                                                                                     Retained      earn~rgs    reserved  for losses and contingencies       .. .                                             74,188,842
                                                                                                                                                                                                             76,822,403




                                                                                                                                             26
Mortgages    and related   receivables:
    FHA-insured    and “A-guaranteed      mortgages                                ar cosr.
     Insured    by Federal Aousing A&unistration                                       .. ... .. .. ... .. .. .. ... ... .. .. ..
     Guaranteed    by Veterans    Ackninistratlon

     Less unpaid principal   of mortgages      sublect         to:
      Government Mortgage Liquldetion      Trust       .. .. .. ... .. .. .. ... .. .. .. .. .. ... ..
      Federal Assets Liquidation    Rust     . . . . . . . . . . . . . . . . . . . . . . . . . ..s...........
      Federal Assets Ffnanclng   Trust    .. .. .. ... .. .. ... .. .. .. ... .. .. .. .. .. .. ..

     Equity     in the Government Mortgage Llquidatlon     Trust     ... .. ... .. .. ... .. . ..
     Equity     in the Federal Assets Llquldatlan    Trust . . . . . . . . . . . . . . . . . . . . . . . . . .
     Equity      in the Federal Assets Financing  Trust   ... .. .. .. ... ... .. .. .. .... . ..

     Direct   mortgage loans transferred             from HUD:
      Unpaid principal        .. .. .. ... .. ... .. .. .. ... .. .. ... .. .. .. ...                      .. .. ... ..        : ?t,?Pi,O%O
      Less allowance      for losses       .. .. ... .. .. ... .. .. ... .. .. .. ...                      .. .. ... ..           ~.7LQ.OCZ             20,547.998
     OX purchase money notes transferred                 from WC:
      Unpaid princxpal        .. .. .. ... .. .. ... .. .. ... .. .. ... .. .. ... ..                      ..   ..   ...   ..      !5,161,4st
      Less unrealized       equity     ... .. .. ... .. .. ... .. .. ... .. .. .. ...                      ..   ..   ...   ..      >4,410,2?b                Yj. 7;O.-
        Total  .. ... . ... .. .. ... ... .. .. ... .. .. ... .. .. ... .. .. .. ...                       ..   ..   ...   .. .. .. ...             1,19:.,ht‘.‘l~i
     Accrued interest       recexvable      . .. .. ... .. ... .. .. ... .. .. .. ...                      ..   ..   ...   .. .. ... ..                   i,WJ,9!7
     Other receivables       erlsng      from mortgages        ................................

Assets acquired     through   foreclosure             and claims               I” process’
    Property   held pending transfer             to:
     Federal   Housing AdministratIon               .........................................
      Veterans Administration       ................................................
    Claims in process against:
     Federal   “ousng    Admlnistratlon             .........................................
      Veterans Adminlstracion       ................................................

     Less allowance           for      losses       ...............................................

     Property       held forsale            ...................................................

Other assets :
    Cash on hand and on deposit     with the U. S. Treasury                       .....................                                                      5<3.!iQ
    Deferred  charges and miscellaneous     ......................................                                                                      1,1?G,Ei7
    Furniture  and equipment,   less accumulated           deprecxatlon                  ..................                                                 21 ,:sr
                                                                                                                                                        1.856.419
                                                                                                                                                ___--
                                                                                                                                                   !.211.605,907
                                                LIABILITIES                                                                                     --
Liabilities:
    Accrued interest                oavable on note6 to the U. S. Treasurv                               . .. .. ... .. .. ... .                        23.270.563
    Accounts  payable               &b accrued liabilities             .. ... .. .. .. ...              .. .. . ... . .. .. ..                          17,5‘f.?99
    Trust and deposit                liabilities       .. .. ... .. .. .. ... .. .. .. ...              .. .. .. ... .. .. ... .                        10,119,027
    Employees’ accrued                 annual leave . . . . . . . ..a..............................                                                           31,lli
    Deferred  credits               .. .. .. .. ... .. .. .. ... . ... .. ... .. .. .. ...              .. .. .. ... .. .. .. ..                -
                                                                                                                                                        7l,0~').0@0
Investment    of the Unlted States Government:
    Notes payable to the U. S. Treasury     .. ... .. .. ... .. .. ... .. .. .. ... .. .. .. ..                                                     !,002,4jO,OOO          1.028.060.000
    Retained earnings:
      Reserved for losses and contingencies     .. .. .. ... .. .. ... .. .. .. ... .. .. .. ..                                                       118,102.9C!             12S.f.RE.7~1
                                                                                                                                                    1,140,5ib,Yii:         1,152,54R,i41
                                                                                                                                                -
                                                                                                                                                    1,211,6:‘.907        - 1.218,3~:,82~
    SCHEDULE 6




                                                                                                                                                                                                                                                                                           $           72,122,401          s       67,919,147
                                                                                                                                                                                                                                                                                                                     576                         971


                                                                                                                                                                                                                                                                                                        2,294,1121                   2.457.810
                                                                                                                                                                                                                                                                                                                   31h                        421
                                                                                                                                                                                                                                                                                                            454.258                     272,592.
                                                                                                                                                                                                                                                                                                                                   70.651,445
                                                                                                                                                                                                                                                                                           -___ 74.871.576




     Interest                        <XII notes                          to    the                      I’.           h.            rrrasurv                       ...........................                                                                                                         48,b31,734                 47,067,124
     InlCrPSt                        ton “OtPS                         --oihrr                                ..........................................
    A3ml”lstratl”e                                          .............................................                                                                                                                                                                                               1.215.345                   2,465,5110
    Fees       for                   servic,ng                              mortgages                                     ........                                 .......................                                                                                                              5,584,153                   5.181,216
    Net     lflsses                      an              sales                    .........................................
    Provision                        for                 losses                        .........................................                                                                                                                                                                            730,337                     823,332
    *the=       .......................................................                                                                                                                                                                                                                                     306,030                     175.690
                                                                                                                                                                                                                                                                                                                           -
                                                                                                                                                                                                                                                                                                       56,469,599                  55,713,142

    Earnllgs       prior      to     llComC         from      WIT.         F4FI       snd     FATaT aperst1ons                                                                                                                                                                                         18,401,977                  14.938,303
    Gain      or (10ssl       on trust           opernt1ans
     ccvernment          Mortgage          Llquldaclon             Trust                         ..,     . . . . . . . . . . . . . . . .                                                                                                                                                                2,988,034                    2,19i,3h7
      Federal      Assets        Liquldstion              Trust               . .,.                    .   . . . . . . . . . . . . .                                                                                                                                                                   (2.139,344)                 (2,17b,386)
      Federal      Assets        Finsncing            Trust                       .                  .                 .   . . . . . . . .                                                                                                                                                             (5,‘89,557)                 (4,R4”,3lb)
    Amortization          Of deferred              charges          and       credits         on sale        of    assets     -“et
     Government          Mortgage          Llouldatlo”             TrL..st        pnrr~Llpnllo”s                   . . . .     .                                                                                                                                                                            (36,930)                     (38,424)
      Federal      Assets        Lxquidstlon              Tour        partlctpsrxws                        . . . . . . . . . . . .,.                                                                                                                                                                      l103.940)                   (148,515
      Federal      Assets        Finsnclnp            TruSt       pert~rlpat~ms                          .                       . . .                                                                                                                                                                    (20?,074)                   fl31,7RS)
                                                                                                                                                                                                                                                                                                                           __-
    vet            earn,ngs                           . . . .              .        . . . .              . . . . . . .                       .        . .   . .         .            . . .             . . . . . . . . . .                      .,....,.,..                                            13.618.166                   9,800,?64

____---

                                                                                                                                                   Clrl,“LAI,\‘L                             NET             EARNTNjsS                        AR;r,           ANALYSIS         OF     DISPOSITION


                                                                                                                                                                                                             -ljy--?une                         30.             1969..      . . . . . . . . . . . . . . . . . . . .        $     389,228,007
                                                                                                                                                                                                                rwelve                       months              erded        June      30,     1970...                            13.618.166
                                                                                                                                                                                                                                                                                                                                 402.846.173

                                                                                                                            !I>aidends                            pald                            ........................................                                                                                       164,401,297
                                                                                                                            Earnxn~s                         ueld                  to            the              Unlted                     States              Treasurv           ................                              95,000,000
                                                                                                                                                                                                                                    1    q4,400,4w                J: 1~R,i&R,62Z      $
                                                                                                                                                                                                                                                                          212,41’?




was;        EAPENDITWES (f,,“~,5                      apu, Ied)
  pu,-sns ,e 0, FHP-iri~lire~                         dlld “P-q’rwantee~,                     morlqdgP5
     /IIFt -if ,l.co”~+)                ............................................................
  FHA-turmirEd mos-tqsyer acquired                                    frcn FHA for C,l~h (r~et of dI.rnur.t:                                       ............
  p,,rr,,n-e        c, ,,rr,,t\,re               ,,“d eq,,,pmen, ...........................................
  ElpCrS-.C:
     ,r,+ari.t       .n nO,CC ............................................................
     Fe-       fir    -F,t,Cli~”            r,..rtg.ye         s .................................................
     A,jm,“,~lrjt          I”~ ................................................................
     A, ,%a”cec           I” F,!hiA - i,,ilrlem w,,n tr,,“~,fP-Y..                                   .................................
     O,~.FT ........................................................................
     L;          #I (qolrl           /I ,ll,ct          nperc,: ,,,e ,:
       r,,,*.,nn,cr+        h’ ,,Pif)F           LII,,IIJ31,            I, I, ,?I .......................................
       Fc.,,ur,l     IriP,           / , 18,I I,?, I -it +-I<.!..                ..............                    ...........................
       iE, til I ir,P,b              FI>,,,r,r,n<j          f/,-1 ..............................................




~otc:           This        staten,ent              does          not     show            the        Association’s               acttvity          as     Trustee           Under         tht?         Government            Mortgage           Liquidation           Trust,    the

                Small          Business             Obllnations                  Trust,            the       Federal        Assets          Liquidation             Trust           and          the      Federal   Assets          Flnanrlng            Trust.

                lnformatlon                  appeat’s             in    separate                schedules.
SCHEDULE 8

                           GOVEKh?1ZNT
                                     NATIOiQALHORTGAGEASSOCIATION

                      FIORTGAGE-BACKED
                                     SECURITIES GUARANTYPROGRAM
                                      BALASCE SIIEET., JUNE 33, 1970


                                                       -.Assets
                                                           --_-.

  Accrued       guaranty         fees     receivable                                     $-- 91-.--*-
                                                                                                907 50-_

                                                 .-Liabilities
                                                      _.__ _ _ . _-... -

  Payable      to GMMA management                and liquidating
     functions     for allocation                of administrative
    expenses                                                                              41,665.44

  Deficit       at    June      30,     1970                                              ?_1,-7-57
                                                                                                  - - D94
                                                                                                        .--

                                                                                            _q,907.50
                                                                                                 . _--



                STATEMENT OF IRCOME AND EXPENSE,                           FISCAL   YEAR 1970

                                                       Income
                                                        - __I_."

  Application           fees:
        Pass       through       securities                                              $35,00@.00
        Bond       securities                                                             10,000.00

  Guaranty         fees:
        Pass through             securities                                                 4,297.31
        "Dond securities                                                                  ->.,-3-33--^ . 33
                                                                                                          -.

        Total        income                                                               .57   630.64
                                                                                            _ .J,.- - ---.

                                                       -E_xpense
                                                           -. --

  Administrative

        Total        expense

        Net     deficit




                                                            30
                                                                                                                                        SCHEDULE 8


                                                                                          CXlVEP.Nl%XTNATIONAL MORTGAGEASSOCIATION

                                                                                      MORTGAGEBACKED SEC'JRITIES GUAP.ANTYPROCRAM

                                                                                              AKALYSIS OF GUARANTIES AT JUNE 30, 1970


    Pass Tnrouah             Securities

      Rinc.pal          of     moregage            poole-------------------------------------------------------------                    $    37,507,432.75
      Principal    end interest     collections               on deposit
         in custodial    BCCoUnts--------------.-----------.----------------------------------------                                             257.168.89

                                           Tote1           =‘B8ou~ceB-----------------------------~---------------~-------                    37,764,601.64

      Principalduesecwieyholders----------------------------------------------------------                                                    37,560,519.32
      Interest due security            holders------------------------------------------------------------                                        153,170.37
      Fun&, due issuers----------------------------------------------------------~------------                                                     47,159.19

                                                                                                                                              37.76O.SLB.88

                                                                                                                                                    3.752.76
                                                                                                                                              37.764.601.66


    Bond Securities


                                                                                                                                             418,747,652.43
                                                                                                                                               3,069.197.31

                                                                                                                                             421,816,849.74

                                                                                                                                             400,000,000.00
                                                                                                                                               2.760.416.67

                                           Total            obligstione---------------------------------------------------                   402,760,416.67




e




                                                                                                                             31
SCHEDULE 9




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                   :    :     . VI
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                             32
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                                                                 .-72 :::...        -.
                                                                   5-i : : ; s
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                                                                 2 p.--01:C y F
                                                                 -E,‘”
                                                                   ..m.to;           “’
                                                                 C”i>-ara           0




                                                            34
                                                                                                                                                                                         Government Natio “a I Mortgage                            Association
                                                       I_--                                                                                                                                 FEDERAL ASSETs L IQUIDAT                          ION - TRUST

                                                                                                             STATEMENT                 OF    CONDITION                                                                                                                                       STATEMENT                  OF INC~E      AND EXPENSE
                                                                                                                          June 30, 1970                                                                                                                                                            Fiscal                Year   Ended    June  30,        197~

                                                                                                                                 ASSETS                                                                                                                                                                                       INCCNiE


Obligatinns                            S”bJK,                     to tr”lt:
    Principal.....................                                                                  . . . . . . . . . . . . . . . . . . $ 2,19;,;;6,163                                                                                   ‘Interest         earned      on obl tgations                              subject                 to   trust
    Accrued                    interest           receivable-net.................                                                                              3 ,           9.990       $ z.22z.wb.153                                   Less      service        fees      retained   by                         trustor                                       $    95.~39.1’30
Receivable                         fran   trusfors..........................                                                                                                                   26,621,'95                                  Income from           investments                                                                                          12,609,811
 Investments                         ef cost          plus                unmatured                          net        earnings...                                                                227,ozb,5z:
Cash       on deposit                     with             the            United                    States              Treasury...                                                                                                                                                                                                                                  10s,449,001
                                                                                                                                                                                         -T7+&!$
                                                                                                                  LIABlLITIES                AND   EQUITIES
                                                                                                                                                                                                                                                                                 EXPENSE
Participation                                    certificates                       outstanding:
 Principal........................................                                                                                                 2,33cp00,000                                                                          Premiums             on   investments            -             amort,red                ~ortro”                                  268,313
  Accrlied                    Interest.................................                                                                                3 ,159,063                              2.!68.7%W                                 Servtce            ckcpes         - Federal                    Reserve               Bank                                         42,619
Tr”stWe                         subordinated                            reverfionary                              interest:                                                                                                              Adm6”istrati;e                   - trustee                                                                                         52,660
  Beginning            balance            at       JUI~                  1, 1969................                                                          133.0?1,476                                                                    Printing             .a*d   publicet       10”                                                                                         290
  Net      reduction             in obligations                             subject       to     trust....                                                (25.254,170)                                                                   Interest             on part       icipst    ion               Cert       if     icste*                                     1j1.710,002
  A,,aca+l””            of      net       lo**...........................                                                                                 ‘;         .;yJy
                                                                                                                                                                                                                                                                                                                                                                     132,074,064
  Deficiency            collections-interest..................                                                                                                  t,            ,   31               108,802,262
  ACCO”“+S           Payable         . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                               (23,625.oq)


NOteSi                   An     indefinite                            appropriation                               without           fiscal       year
                         1imitation                             has    bee”       enacted                         by    the       Unites       States
                         Congress           to                   provide              additional                        funds.           if  necessary,
                         to   meet       the                     interest               and principal                             requirements                 of
                          the   perticipatio”                                   certificates.




                                                                                                                                                                                   STATEMENT         OF    SOVRCES      AND      APPLICATION                  OF     FUNDS

                                                                                                                                                                                            Fiscal          fear     Ended        June       30,       1970
                                                                                SOURCE               OF           FUNDS                                                                                                                                                              APPLICATION                    OF       FUKIS


                                                                                                                                                                                                                             Purchase      of     investments.............................
Liqurdetlon                         of      obligations                          subject                     to       trust-                                                                                                 Net    change      in accrued                        interest              payable              .o...........
    prrncipal                       and       interest                       “et . . . .            . .. .. .. .. .. .. .. ...$                          356.051.011                                                         Retirement        of     particfpotion                            aertlficates............
Receivable                        from        trustors..........................                                                                                                                                             Net    change      in miscelleneous                               assets               and      Liabilities..
                                                                                                                                                                      904,936           $
Liquidation                         of      rnvestments........................                                                                                                                                              Net     1055  fra        operation
Deficiency                        collections                         (interest).................




                                                                                                                                                                             - --I
r




    .. ..    ..      ..          ....
     : :    .* ..   .. ..        ....
                                 ...    .   :. :.   .* :
                                                    ::.




                            36
                         ___~_~ - ~--- --                                                                  ..- ._._--
I                                                                                                                            -r
                                                                                                                             t
                                                                                                                                               FNWA-SAF           GNULI-M&L


                                                                                                                             j

    Ohligatl”“~                              s,,Jh,ert                 +a trYJEt:
      IJnoaid                arincipal                          at      beginning               of         ~erlod..          B       zyj, i’r6.i ?q
      Pdd:l+I”“s................................                                                                                            1jr,jG3
      vJi!~ldrawa15..............................                                                                                            25,73i
      I<epsyments...............................                                                                                        4,)16,GGo
      Other              credits............................                                                                            R,709,493
     (Inpaid                 principal                         of        June       30,       1770 . . . . . . . .                   2766,!327,317

      i)npaid                 princinel                        at       beginning               nf         period..
      Addition5                    . ..--...........................                                                                 “::pi$$
     Withdrawali..............................
     Rpraymcnts...........~,..................                                                                                         1!,42>,055
      Other           credits............................                                                                              ll.274.692
     Ilnpaid              principal                               at    June      30,        1970          . . . . . . . .           276.927.31?


                                                                                                                             I

       Issuet          January      19.     196: e.................                      /                                           lOC,R'@,~OC
      Issued April               5, I'&/ . . . . . . . . . . . . . . . . . . . . . 1                                                 lOO.O’~O,r)OO
      15;,,ed          Jure    29,    1~67 . . . . . . . . . . . . . . . . . . . . . /                                               IOO.~~OO.OOO
      1~‘ued          ApriI      8,   llG6.       . . . . . . .. . . . . . . . . . . . .
      PilId         or rmtlred      . . . . . . . . . . . . .. . . . . . . . . . . . a !                                               ,2,7e’,,dic,
      O\jtstilnilinq           a+   .lunr     ‘il       11771’.......        m. . . . . ,                                            7K7,211,‘Jnr’


    Interest                     payaidet
      lil’i!,3rSing                     at                heqinn~ni,              nf      hleri7d.......                                  4,f5i,‘7
     PirillPd..                      . . . . . . . . . . . . . . . . . . , . . . . . . . i. ._..                             1         ,‘,,,5’)‘l,ri,5
     L:*,lida*PI....                           . . . ...”    . . . . . . . . *.,.*      . . . . . . .                                  15,4~7,7fG?
     O\j*-tnndinl;                         a:     hone 30,         l)/l~.    . . . . . ~. . . . . .                                       ‘1. icr.43~


     Accri’ea..................................                                                                                        ~,n,lk3,bqB
     Liouidofed                           m..........~.....I*........o...                                                             lF,hrirJ,lih~
     Osjtstandiriy                              at          J,,ne         3C,,   177n . . . . . . . . . . . . .              !          i I, /Gp..43S
                                                                                                                             ,----




                                                                                                                             3




                                                                                                                                                          c>--,--             :-     ,,,-.,_       CT-:rs-
                                                                                                                                                          ,-.j    L,                                         ’   :   - : i   -   r;   P p-,   .   r
                                                                                                                                                                              ii,,             !
                                                                                                                                                          -_ <._I      ,
                                                                                                                                                                                                                                                      _-        ..----.       --.-         .-     ..   __   ._   ....   .     _ _.     -.        ....          -      .......
..   .   ..   -   . - .   ..   -   .....   _._              ...   _ __.      ....         ..-    ...     .._._.       .____..m___..___.                                  --                  ..-__._.._m            ...   -     ._------          -




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           m
                                                                                                                                                                                                                                                      Government                       National             Mortgage              Association
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           c-l

                                                                                                                                                                                                                                                                          FEDERAL         ASSETS            FIWJCING                 TRUST
                                     r                                                                                                                 STATEMENT                     OF            CONDITION                                                                                                                                                                        STATEMENT                  OF        INCOME              AND        EXPENSE

                                                                                                                                                          ~.~.
                                                                                                                                                                 .I”“=         30,
                                                                                                                                                                          .--__---
                                                                                                                                                                                                    1970
                                                                                                                                                                              ASSETS


                                             ObI ~gattons         subject             trust:
                                               Principal     . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .                                                                    $       3,588,4je,686
                                               Accrued      sntere5t           receivable                       - “et..............                                                                                    3s.~O4.~69                          $
                                             Receivabl?         from      trustors........................
                                             ,nve*+ments          at    C”51         p,uz                “nmafdred              net earnrngs.
                                             cash      or deposit         with            the            united     States          Treasury.

                                                                                                                                                                                                                                                                     3.734,7V,83~

                                                                                                                                                        LIABILITIES                                 AND        EQUITIES


                                             Participation’certrflcates                                            outstanding:
                                               Prl”Clpal             . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                   ~,600,000,000
                                               Accrued             interest...............................                                                                                                                    73*959*59’                              3.673.9%591
                                             Trustor                 subordinated                          reversionary         interest    :
                                                  Begtnning                         balance      at      Juiy                 1. 1969                                                                                       51,450.565
                                                  Net      reduction                        in obiigations                       subjer;+                         to           trust..                                      (1.973.265)
                                                  Allocation                         of    net   Ios~.........................                                                                                            (76,76%999)
                                                  Deficiency                         coIIPc+lon~                  - interest..............                                                                                    66,034,003                                      60,746,)04
                                                 ACCO”“f5                 payable................................                                                                                                                                                                  19,943
                                                                                                                                                                                                                                                                          3,134.727,+

                    (w                           Notes:             A definite                                annual       appropriation                   has    been
                    00                                              enacted                            by      the   United       Stales           Congress           to
                                                                    prov!de                            additional            funds,         if      necessary,           to
                                                                    meet      the                         interest         and    principal                require-

                                      I
                                                                    merits                      of        the participation                    certificates.
                                                                                                                                                                                                                                                                                                                 -L
                                                                                                                                                                                         ~--.                                                                  Fiscal                Year__-- Ended

                                                                                                                           SWRCE              OF       FUNDS


                                                 L,q”,datio”                          of  obligations                          SUb,eC+                   t0       trust                  -                                                                                                                                  Purchase            of            Investments..............................                                                           $I,a,7,~%,72e
                                                                                                                                                                                                                                                                                                                            Retirement                  of         participation                             cerliticates                      ,............          ~~C.S,W~     ,C’GG
                                                      principal                       and     ,n+ere*+                       - net..................                                                           $          x;‘~$53
                                                 Receivable                         from     trustors........................                                                                                                              95.   vi            $            W3’6h’+~J                                       Net
                                                                                                                                                                                                                                                                                                                            Net
                                                                                                                                                                                                                                                                                                                                    change
                                                                                                                                                                                                                                                                                                                                    change
                                                                                                                                                                                                                                                                                                                                                         I”
                                                                                                                                                                                                                                                                                                                                                        in
                                                                                                                                                                                                                                                                                                                                                                   accrued
                                                                                                                                                                                                                                                                                                                                                                   miscellaneous
                                                                                                                                                                                                                                                                                                                                                                                              Interest
                                                                                                                                                                                                                                                                                                                                                                                                             assets
                                                                                                                                                                                                                                                                                                                                                                                                                     payable...............
                                                                                                                                                                                                                                                                                                                                                                                                                              and           iiabilrties...
                                                                                                                                                                                                                                                                                                                                                                                                                                                                        16,’   -1,768
                                                                                                                                                                                                                                                                                                                                                                                                                                                                             116,508
                                                 Liquidation                          of  I”veatmen+s......................                                                                                                                                               1,323.256,972
                                                 Deficiency                         co1 lections                     - interest...............                                                                                                                                88,0p4,00j                                    Net       ,055      fron               operation..............................                                                             76.752.999
                                                                                                                                                                                                                                                                          1.755,609.623                                                                                                                                                                            1,75~,5c'%62'
                                                                                                                                                 Government         National     Mortgage            Association


                                                                                                                                                      FEDERAL       hSSETS     FINANCING            TRUST




                                                                                                                                                                                                                   Schedule            of    Financial              Details                               DoI     18~   in   thousands


                                                                                                                                                                                                                                      Trus         5




                                                                                                                                                    I
                                                                                                                                GNeVwI-SAF                                                  VA                           SBA                                 FHDA                           HEW
Obligations                        subject                     to        trust:


  Unpaid             principal.................................                                                                $ 232';~                   $ 291,926                $   802,471                                                           $ 456,795                    $ 112.555
  Accrued                interest-net.............................                                                                           2                     1,142                1.297                                                                 20.‘+)8                      2,662
                                                                                                                                 232.917                        293,070            so3.768                                                                                            115.417
                                                                                                                                                                                                                                                             477.233
                                                                                                                                                                                                                                                                              i
Receivable                      frm             trustoys:
  Principal                    collections............................                                                                  399                       2,P3                      2.798                                                               4.383                           228             561               12,711
  Interest                  collections.............................                                                                    926                       1,141                     3*73?                                                                  922                          233       2,160                    9,554
                                                                                                                                     1.327                -       3,449                     6.535                                                               5.305                           461       2,721                   22,265


Participation                      certificates                outstanding:
 Principal                 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       232.778                        joo,7b!                791.724                          to7*971                              472.561              1       113.411     1.581,294              3,boomo
 Accrued                 interest          . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       4,728                          6.167                 16,072                             2,271
                                                                                                                                                                                                                                                         - Kv.145                 ,   -     2,266         32,291                 73.960
                                                                                                                                 237,506                        306,428                807,796                          110,242
                                                                                                                                                                                                                                                         P/P482.706               '       115.697     l&13,585               3t673.960
                                                                                                                                                                                                                                                                                  I
Trustors’                   subordinated                                 reversionary               interest:
  blance           July    1,                        1969.............................                                                (517)                               72               22,8y6                             6,462                           19,682                            668
  Net      reduction          in   obligations                    subJect   to    trust....                                                                                                                                   1,245                             (826)
  Allocation            of    net    loss     . . . . . . . . . . . . . . . . . . . . . . . . . . .                                (5.404)                                                 (6,1%                               (6W                            $@                           (2.761)
  Deficiency            co1 Iections            (interest)................                                                          5.721                                                   7.3 2 3                           1,461                      A                                   3.629
                                                                                                                                      (ZOO)                                                24,111                             g.518                           22,      I 36                  1,536




                                                                                                                                                      -
Distribution              of  inccme     and      expense:
                                                                                                                                    8*m5                         13,366                    42,290                             5372                                                          4.227        56,560
   Net
   Interest
             ~ncane     on obligations
                    accrued      on p.rtlcipation
                                                  subJect                                        to
                                                                                                 certif
                                                                                                        trust.......
                                                                                                                   Icates...      15,072                         20,675                    51,253                             g, 262
                                                                                                                                                                                                                                                              20,ljZ
                                                                                                                                                                                                                                                              39.792                         7.085      105.4g7                 :a262
                                                                                                                                  (6,1a-0                        (7.So9)                   (G9G3)                        (2,410)                             (19.660)                      (2.g58)      (48,927)                (96.614)
  incane             frcm             investment=                  -*.........................                                         797                         2.340                    2,786                             1,766                            10,308                           100        1,874                  19.9x
  Expense              of         trust                operations......................                                                 14                            21                         P2                                    4                             17                                           41                  122
  Net         1055          . . . . . . . . . . . . . . . . ..*.....................                                              (5.404)                        (5,390)                   (6,197)                             (648)                           (9,369)                     (2.76:)      (47.094)                (76.763)
SCHEDULE12




               : : :   :     :    : :. .: .: :.    :    :. :.    .::         ii.
                                                   .                   .
               : : ;   ;     :                .    ‘     ..a.              . .     .
                                  ::::::                 * .      .    .
              i : .    .    :                            D
                                                         o....    .    ~   :. :.   :.
                                   : : : :
             .- : :    :.    :.    . .D .. .0 .e   .0    . .      .    .     . .    .
                   .
               & : .    .     .    :...a.                    :    :    :     : :    .
                                           GOVERNMENT NATIOZUAL NORTGAGE ASSOCIATIOK

                                                        Notes              to    Financial                    Statements

GENERAL
_I--

          The financial                       data        in         the        schedules                   identified                  as the        Combined                 balance

Sheet         and       the        Combined              Statement                  of      Earnings                 are         related           oniy      to         operations

conducted               in      the        special         assistance                       functions,                     the      management               and         liquida-

ting      functions,                   and       the      mortgage-backed                              securities                   guaranty               program.                 Excluded

from      these           schedules                are     financial                      data         pertaining                   to      the     activity                  as trustee

for      the     Government                   Mortgage                Liquidation                      Trust            (GILT),             the      Small          Business

Obligations                  Trust           (SBOT),            the         Federal              Assets              Liquidation                   Trust       (FALT),               and

the      Federal             Assets           Financing                    Trust          (FAFT).                  Information                 applicable                     to    these

trusts          is      provided              in       separate                 schedules.

          As trustee                   for       GNLT,          SROT, FALT,                       and         FAFT,         Gh3A has               legal       title               to all

trust         assets.               Additionally,                          by virtue                  of      a separate                 guaranty             in        its        regular

corporate               capacity,                GNMA is              contingently                          liable          for         the       timely       payment                 of

principal               and        interest              due to             the          trust         beneficiaries.                             The extent                  of    trust

liabilities                   is      reflected                in     the         trust           schedules.                      With        respect              to FALT and

FART,          the      United             States         Congress                  has          authorized                 appropriations                         to meet             trust

obligations,                    as may be necessary.                                      Financial                  data          in    the       trust           schedules                has

been      provided,                   in     substantial                    part,           by        the       trustor             Federal           agencies                  having

custody,              control              and     administration                           of        the       obligations                    subject             to     the       trusts.

CONTINGENT
        41-e---LIABILITY   AS GUARAIQTOR
OF MORTGAGE-BACKED
        ----_I__----     SECURITIES

          GNP&$ is              contingently                    liable              pursuant                  to     its         guaranty            of     timely              pay-

ment      of         principal               and interest                       to holders                    of mortgage-backed                            securities.

These          securities                  are     issued             by financial                          organizations,                        and are           based           upon,

and backed                by,         pools        of     F&J-insured                       and VA-guaranteed                               mortgage               loans.

The extent                of       outstanding                      guaranties                   is        indicrtted              in      schedule           8.
                                                                                             41
                                                                                                                liabil       ities           include           only

tire       portion         of inortgacJe              tax     and ins-tirance                  payment          deposits              that      are       held

directly             by    CNHA.         GKM          is    also        responsible               for        payments            by servicing                  con-

tractors             of    taxes       and      insurance               from         mortgagors'              funds        held        in     escrow           in

banks         insured         by the           Federal           Deposit             Insurance           Corporation:                    $23,455,790                  at

June        30,      1970;       $22,3CJO,129               at     June        30,      1969.

I4ORTGAGE PRINCIPAL
_----"--I-                      AND INTEREST
                * -._ * .I- _ _---.    -_--- _-_
COLLLCTIONS
_ -- __--          AWAITING
              .-- _.-.___e         IWiITTANCC
                                  --me------
TO TRUSTEE FOR
.-----_--a               GKLT FALT".-2------
                  -----eJm--                 AND FAFT
                                                   --._
 (SCIIEDDLES     1
_- --.- -.-- - --L-J-  3    AKD
                             ----   51

            The Salance               identified              as accounts                payable             and accrued               liabilities

includes             principal           and       interest             collections               effected              during         June       on Fort-

gages         admiziistered              for       CMLT,         FALT,         and FAFT.                Such     collections,                  amounting

to      $14,257,582              in    special             assistance                functions           and        $9,506,774               in management

and        liquidating             functions               have     been        paid       over         to    the       trustee          during           July.

 UKPAID PRINCIPAL
_-.---"----                 OF YORTGAGE LOANS
                    ---- ------.---.----
-(SCHEDULES
   _--.-    --_I_. 1. -ND _--_- 3 -

            The unpaid             principal               of mortgage                loans,       including               mortgages              subject

to GXLT,             F,ZLT,      and     FAFT is            reported            at      cost      on the         basis           of    unpaid          prin-

cipal         less        unrealized            purchase            discount,                  The following                are        the     ar;lounts            of

unpaid         principal              that      are        due from         the        mortgage              debtors:

            Combined                                                                EM-insured                           $4,458,542,408
                                                                                    VA-guaranteed                             574,503,522-
                                                                                    Total                                 g33,045,930

            Special     assista;ice                                                 FHA-insured                          $2,804,134,719
              functions                                                             VA-guaranteed                         2m?L&%3                    98
                                                                                    Total                                  3,198,969,6-17

            Iia~lagenieTJC         and                                              FEA-insured                          $1,654,407,689
               liquidating               fumtfons                                   VA-guaranteed                              180 118
                                                                                                                          --....L    -...Le 624
                                                                                    Total                                $1,834,526,313

                                                                               42
O'THER PARTICIPATION
_-_--        --e-e    ---IQITIES
                             -   * --
_(SCHEDULES
  m---e-----  1 AND 31

          The principal                        reduction                   (other           than         GXLT,          FALT,       or FAFT)                 identified

as other             participation                        equities              represents                 a 40 percent                    interest                 in     an

FhA-insured                  mortgage                loan        that         was sold              by GNMA to                  a private                   investor.

GNPiA has administrative                                    responsibility                         for      servicing               the      loan            account,

and      for     paying             to        the        participation                      owner         the       proportionate                     share          of

principal             repayments                     and        interest             earnings              as collections                       are          effected.

ADMINISTMTIVE            EXPENSES                                                                                                                     .,,,,.        ". 1, v--
_----_m.-m--m---           Ie----..                                                                                                I'.                                   L :'3
7(SCHEDULES         2 4 -AKD
   - -..-- )-- ..--d---L     _ _*-* 6)

          The amounts                     reported               for        administrative                        expenses               include             costs          ir

connection              with          the           custody,               control           and         administration                    of      special                assis-

tance          functions              and management                          ano liquidating                           functions            I:iOrtfagk::                 subject

to     GNLT, FALT,                  and FAFT,                   but        do not           include             trusteeship                 expense&-               for          these

trusts          or     for      the           SBOT.

          Administrative                            expense            totals          also            inclul-:?         A1;cuIlts          a7locatec:'                  to GX'lZ

by the          Federal             Rational                Xortga,- rp Association                                in    connection                with            functional

services             furnished                 by FNW                 in    processing                   mortgage            purchase              transactions                      and

in     mortgage              loan         servicing.                       These       allocations                      ar-5 nlaic          on a shared-cost

basis,          and      amounted                   to     $1,634,591                 for        the      first          half        of     the        fiscal             year

(July          through          December),                      and        estin:ated              charges              of   $1,650,000                     for     the          second

half         (January           through                  June).              Second          half         charges            are         subject              to    adjustment

upon       completion                    of    cost         analysis.

.OPERATING
 -- -w- --a--LOSSES
                  -
 (SCHEDULES 2 AND 42
".---I----l

           Operating                losses               reflected              in      the        statements                of      earnings                 are        attributable

to     the      financing                 costs            in     excess             of revenues                   of    Ff;A-insured                  section              221(d)(3)




                                                                                            43
mortgages         bearing           interest           at below          r:ar!:et      rates,          generally         at        3 percent    but



of   excess       interest             is      involved,        of which            $11,291,00@            is      related          to

mortgages         subject          to       participation            sales          trusts        FALT and FAFT and of which

$26,003,000          is        related           to   special      assistance                functions.             The total              of

$37,294,000          compares               to    similar       excess         costs         of   $19,652,000            experienced

in   fiscal       year         1969.

SOT INCLUDED
-------e-v-               IN FINANCIAL_ we_-STATE~~&NTS
                                              _-a---.--

 Commitments
---        ---- --to purchase       mortme
                          ^ a-....I e- _-_                      --_loans I
 at future
------         delivery     dates
                          .--a-

        In     addition           to     the      mortgage        princiljal           presently           included           in     the

accounts,         GPWA has             issued         advance      commitments                or made administrative

reservations              in    connection             with     future         purchase           of    mortgage         principal

aggregating          $1,497,562,000.




                                                                         44
45
                                  PRINCIPAL OFFICIALS

                            RESPONSIBLE FOR THE ACTLViTIES

                               DISCUSSED IN THIS REPORT


                                                        Tenure    of office
                                                        From         -     To
                                                                            -
                    DEPARTMENTOF HOUSING AND URBAN DEVEI@MENT

 SECRETARYOF HOUSING AND URBAN DE-
   VELOPMENT:
     George W. Romney                             Jan,     1969         Present


                        GOVERNMENTN/SCIONAL MORTGAGEASSOCIATION

 PRESIDENT:
     Woodward Kingman                             July     1969         Present

 EXECUTIVE VICE PRESIDEm:
     Richard C. Dyas                              Mar B 1970            Present

 VICE PRESIDENT--FISCAL MAWAGEMENT:
     John L. Burke                  Apr.                   1970         Persent

 SECRETARY-TREASURER:
     Albert J. Fulner, Jr.,                       Dec.     1968         Present




U.S.   GAO.   Wash.. D.C.