oversight

Examination of Financial Statements Pertaining to Insurance Operations of the Federal Housing Administration, Fiscal Year 1970

Published by the Government Accountability Office on 1971-05-07.

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

Department of f-lousing and
  Urban Development




                        OLLER GENERAL
                        STATES
               COMPTROLLER      GENERAL        OF      THE       UNITED    STATES

                              WASHINGTON.       D.C.         20548




B- 114860




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

        This is out report        on examination     of financial’state-
ments pertaining        to insurance    operations     of the Federal
Housing     Administration,      Department      of Housing     and Urban
Development,       for the fiscal    year ended June 30, 1970. Cur
examination      was made pursuant        to the Government          Corpo-
ration   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
Treasury:     the Secretary     of Housing    and Urban Development;
and the Assistant     Secretary-Commissioner,          Federal    Housing
Admini stration,




                                            Comptroller                   General
                                            of the United                 States




                             ~~5i&3/70057~
                        50 -fH ANNIVERSARY                     1921- 1971
    COMPTROLLERGENERAL'3                         EXAMINATION OF FINANCIAL STATEMENTS
    REPORT TO THE CONCFlESS                      PERTAINING TO INSURANCE OPERATIONS OF
                                                 THE FEDERAL HOUSING ADMINISTRATION
                                                 FISCAL YEAR 1970
                                                 Department of Housing and Urban
                                                 Development B-114860


    DIGEST
    -_----


    WHY THE EXAMINATION WRS M4DE

           The Government Corporation          Control    Act requires  the General Accounting
           Office    (GAO) to examine the financial          statements   pertaining      to the
           insurance     operations     of the Federal Housing Administration            (FHA) and tc
           report    the results     of its examination      to the Congress.        This year's   ex-
           amination,      as heretofore,     was made in accordance with generally            accepted
           auditing     standards    and included     tests of the accounting        records   and
           other procedures        considered   necessary.


    FINDINGS AND CONCLUSIONS
I
            In the opinion    of GAO, the financial          statements    of FHA pertaining     to its
            insurance  operations    present    fairly     its financial     position     at June 30,
            1970, and the results      of its operations          and source and application       of
            its funds for the fiscal       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.


    RECOMMENDATIONSOR SUGGESTIONS

           GAO is making      no recommendations      or suggestions.


    AGENCY ACTIONS AND UNRESOLVEDISSUES

           None.


    MATTERS FOR CONSIDERATION BY THE CONGRESS

           The report    contains   no recommendations       or suggestions      requiring   action
           by the Congress.       It is submitted      to the Congress,     as required     by the
           Government Corporation      Control    Act, to show the results          of GAO's annual
           examination    of FHA's financial      statements    pertaining     to its insurance
           operations    and to make known to the Congress other information                deemed
           necessary   to keep it informed      of the operations        and financial     condition
           of FHA.

    Tear Sheet
                         Contents
                                                                 Page

DIGEST                                                             1

CHAPTER

  1       INTRODUCTION                                             2

  2       COMMENTS  ON FINANCIAL STATEMENTS                        5
                                                                   P
             Reserves
                  Total reserves                                   ;
                  Reserve requirements                             6
                  Mutual Mortgage Insurance Fund                   9
                  General Insurance Fund                          11
                  Cooperative Management Housing
                     Insurance Fund                               12
                  Special Risk Insurance Fund                     14
             Significant       changes in balances from
               the prior year                                     16
                  Assets                                          16
                        Accounts receivable                       16
                        Accrued assets                            16
                         Investments     in U,S. Government
                            securities                            15
                        Acquired property--at        cost plus
                            net expenses  tcJ   date              17
                         De&halted mortgage notes--at
                            cost plus net expenses to date        17
                         Allowances for estimated future
                            losses                                18
                  Liabilities                                     20
                         &counts      payable                     20
                         Debenture obligations--deben-
                            tures issued and outstanding          20
                   Income                                         20
                         Total income                             20
                   Expense                                        21
                         Loss on acquired     security            21

   3      SCOPEOF EXAMINATION                                     23

   4      OPINION OF FINANCIAL STATEMENTS                         24
                                                                  Page
FINANCIAL STATEMENTS

Schedule

    1      Combined comparative balance       sheet   as of
             June 30, 1970 and 1969                                27

    2      Combined comparative statement of income and
             expense and changes in insurance reserves
             and borrowings for the fiscal   years ended
             June 30, 1970 and 1969                                29

    3      Combined balance sheet,      analysis   by fund,
             as of June 30, 1970                                   31

    4      Combined statement of income and expense
             and changes in insurance reserves and bor-
             rowings, analysis  by fund, for the fiscal
             year ended June 30, 1970                              32

    5      Combined statement of source and application
             of funds for the fiscal  year ended
             June 30, 1970                                         33

           Notes to combined balance      sheets   June 30,
             1970 and 1969                                         35

APPENDIX

    I      Principal     officials     of the Department of
              Housing and Urban Development and Federal
              Housing Administration         concerned with the
              activities      discussed in this report             39
                               ABBREVIATIONS

CMHIF   Cooperative         Management        Mousing    Insurance      Fund

        Federal      Housing     Administration

GAO     General    Accounting         Qffjce

GIF     General      Insurance      Fund

HUD     Department          of Housing     and Urban      Development

MHIF    Mutual    Mortgage        Insurance       Fund

SRIF    Special      Risk     Insurance        Fund
COMPTROLLERGENZR&'S                           EXAMINATION OF FINANCIAL STATEMENTS
hEPOf?!iYTc: !lX?i CONGK?%'                   PERTAINING TO INSURANCE OPERATIONS OF
                                              THE FEDERAL HOUSING ADMINISTRATION
                                              FISCAL YEA.9 1970
                                              Department of Housing and Urban
                                              Development B-114860


-DIGEST
   - -_ -- - -


WHY THE EXAMINATION WAS MADE

         The Government Corporation          Control    Act requires  the General Accounting
         Office    (GAO) to examine the financial          statements   pertaining      to the
         insurance     operations     of the Federal Housing Administration            (FHA) and to
         report    the results     of its examination      to the Congress.       This year's     ex-
         amination,      as heretofore,     was made in accordance with generally            accepted
         auditing     standards    and included     tests of the accounting        records and
         other procedures       considered    necessary.


FINDINGS AND CONCLUSIONS

         In the opinion    of GAO, the financial          statements    of FHA pertaining     to its
         insurance  operations    present    fairly     its financial     position     at June 30,
         1970, and the results      of its operations          and source and application       of
         its funds for the fiscal       year then ended, in ccnformity             with generally
         accepted accounting     principles      applied     on a basis consistent       with that
         of the preceding    year and with applicable            Federal laws.


RECOMMENDATIONSOR SUGGESTIONS

         GAO is making     no recommendations       or suggestions.


AGENCY ACTIONS iUi7 UNRESOLVEDISSUES




' ~%?S       FOR CONSIDZRATION
                        -      BY THE CONGRESS

         The report    contains   no recommendations       or suggestions      requiring   action
         by the Congress.       It is submitted     to the Congress,      as required     by the
         Government Corporation      Control    Act, to show the results          of GAO's annual
         examination    of FHA's financial      statements    pertaining     to its insurance
         operations    and to make known to the Congress other information                deemed
         necessary   to keep it informed      of the operations        and financial     condition
         of FHA.
                                 CHAPTER1

                              INTRODUCTION

       ET-IA, created by the President on June 30, 1934, under
authority     of the National. Housing Act 12 U.S,C, 1701 et seq.,
is a noncorporate        business-type     agency made subject to the
Government Corporation         Control Act by the Housing Act of
1948. The principal          purposes of FHA are to improve home-
financing     practices,     to act as a stabilizing       influence   in
the mortgage field,        to encourage improvements in housing
standards and conditions,          to facilitate      home ownership, to
aid in the elimination         of slums and blighted       conditions,    and
to prevent the deterioration           of residential     properties.

      F'HA is headed by the Assistant     Secretary-Commissioner,
Department of Housing and Urban Development (HUD), F'HA; who
is appointed by the Secretary of Housing and Urban Develop-
ment D At June 30, 1970, F'HA had 7,995 full--time       employees
of which 1,550 were in the central office        and 6,445 were
employed in F'HA field offices     throughout   the United States
and Puerto Rico.

       Prior to July 1, 1970, F'HA's 121 field offices,                 in-
cluding 76 insuring         offices,     were located in six F'HA regions
throughout      the United States.         Effective   July 1, 1970, the
regional    structure      was realigned     by HUD and the F'HA regions
were abolished.         In the realignment,        10 HUD regions were
established       and the F'HA field and insuring         offices     were in-
corporated      into the HUD regions.          The insuring     offices    are
responsible       for writing     all forms of F'HA insurance required
in their respective         jurisdictions,      except the New York State
insuring    offices     where the writing       of insurance on multi-
family property       is centralized       in one office.

       FHA administers   mortgage insurance programs under which
lending institutions     (mortgagees) are insured against loss
in financing    first  mortgages on various types of housing
and on loans which finance property        alterations,      repairs,
and/or improvements,       The Housing and Urban Development Act
of 1968 amended and liberalized       the existing      insurance pro-
grams and authorized     additional.  programs which permitted
FHA to insure:


                                       2
        1, Loans to homeowners to finance the purchase of fee
           simple title  to the property  on which their homes
           were located in those cases where the homeowners
           had onl.y a Peas&old  interest  in the land,

        2. Supplementa% loans to finance 90 percent of the
           estimated value of improvements and additions    to
           multifamily  properties and nursing homes carrying
           N-IA-insured mortgages,

        3. Supplementary loans to housing cooperatives        to fi-
           nance the cost of rehabilitating      or modernizing
           wartime housing purchased from the Federal Govern-
           ment and the properties    are partly   covered by unin-
           sured mortgages which are more than 20 years old.

      Most of the insurance written     by F'HA covers mortgages
on small homes (one to four families)       and on multifamily
housing properties.     From inception    in 1934 to June 30,
1970, FRA had written    about $142 billion    of insurance,     of
which about $69 billion    was in force at the latter      date.

      The mortgage insurance function     gives rise to insurance
claims by mortgagees who, because of mortgage defaults,
have acquired the properties     pledged to secure the F'HA-
insured mortgages.    In  the  settlement  of claims, title   to
the properties   is conveyed to FHA. This action gives rise
to other ERA functions,     the maintenance and sale of acquired
properties.    A summary of FH.A"s property    activity for fis-
cal years 1970 and 1949 follows.
                                                Fiscal   year
                                    1970      -                    1969
                           Small      Multifamily         Small      Multifamily
                           homes      properties-         homes      properties

Number on hand at begin-
  ning of fiscal. year     23,318          --588          26,515          530

Sales                      25,200            64           33,230             47
Acquisitions               26,693            47
                                             -            30,033            -45
Increase or reduction(-)
   in the number on hand    1,493          32             -3,197            -
                                                                            -2
Number on hand at end of
  fiscal year              24,811          571                            588
                           -.-             I_             -
                                                          23,318          ==


                                     3
        IIZHA also administers          a number of programs         that do not
involve      mortgage     insurance,       and therefore      lFE?Adoes not corn-
mingle     the financial        results     of these operations          with the
results      of its mortgage        insurance     activities,        Separate
financial       statements      covering     the nonmortgage       insurance     pro-
grams are presented           by IS-IA but are not included            in this re-
port because it is limited               to l?B.A."s insurance     operations,




                                        4
                                CHAPTER2

                   co   NTS ON FINANCIAL STATEMENTS

RESERVES

Total   reserves

      FHA insurance programs are conducted under four insur-
ance funds authorized   by the National Housing Act. The
funds are the Mutual Mortgage Insurance Fund (MMIF), the
General Insurance Fund (GIF), the Cooperative Management
Housing Insurance Fund (CMHIF), and the Special Risk Insur-
ance Fund (SRIF).
        The insurance funds are credited      with fees, premiums,
and investment income and are charged with debenture inter-
est o administrative     expenses, and insurance losses.        Pro-
vision is made for estimated future losses on acquired prop-
erties,    mortgage notes, and notes for property        improvement
loans.     The accumulated differences      between the income of
the funds and expenses, losses, and provision          for estimated
future losses are considered to be the insurance reserves
available     to cover future insurance losses and administra-
tive expenses.       The financial position     of each fund at
June 30, 1970, is shown on the combined balance sheet
 (sch. 3).

      At June 30, 1970, the total insurance reserves amounted
to $1,571.3 million.   An analysis  of the respective insur-
ance reserve balances and the sources of these balances
follows.
              Total                                           Property
           insurance         Small            Multifamily    improvement
           reserves          homes
                             --                 properties       loans
                                -----(millions)
MMIF       $1,340.2        $1,340.2              $ -           $ -
GIF            208.5            35.7              59.4          113.4
CMHIF           25.7                              25.7
SRIF            -3.1        _-.--a?2               0.2
           $1,571.3
            --__-          $1272.6
                            ----                 $85,3
                                                  __-_         $113.4
                                                                -_-
Reserve     requirements

      FHA estimated     the reserves   required      to settle     insur-
ance claims     that might be presented       by insured     mortgagees
and lenders     under the $69 billion      insurance      in force on
June 30, 1970, on the basis of actuarial             studies     of the
risks  underwritten.       An estimate   of the reserve        require-
ments is made annually.

       Estimated     reserve     requirements       are affected      princi-
pally    by the volume of new mortgage              loans that are insured
and by decreases        in the amount of insurance              in force.       An
increase     in the volume of new mortgage               loan insurance       in-
creases    the estimated       reserve      requirements       because the in-
sured mortgage       loan balances         are at their      highest    level     for
new loans,       As the mortgage         loans age and balances           are re-
duced, the reserve         requirements        decrease.       Thus the longer
the insurance      is in force,        the lower the requirements             be-
come.

        FHA considers      that a noteworthy         difference        exists     in
the bases on which life            insurance     and other      insurance       com-
panies establish        their    insurance     reserve      requirements        and on
which FHA establishes          its insurance       funds'      estimated      reserve
requirements,        Insurance       companies    generally       consider      re-
serve requirements         for the purpose of determining                 not only
their    solvency    but also the amount of surplus                 funds that may
be available      for distribution         to policyholders           or stock-
holders.

       In the      case of life      insurance    companies9     mortality       ex-
perience     has     been well established        and the expected         mortal-
ity- -one of       the major elements        in the valuation      of reserve
requirements       --can be predicted        reasonably   well,      Conse-
quent ly 9 the       reserve  requirements       of life   insurance       compa-
nies can be        determined    with a fair      degree of accuracy.                    -

        FHA considers     that its estimated       regerves   are to pro-
vide for future       losses    and related   expenses which will        be,
in large part,      contingent      upon adverse     economic conditions
which are not readily         predictable.      Therefore    FHA has es-
tablished    its reserve      requirements    on what it considers        to
be the most conservative          basis--that    is, that range of



                                           6
probability     of future losses and related expenses that might
be incurred     if an economic reversal wers to-develop  immedi-
ately.

      Thus the FHA insurance funds' estimated reserve require-
ments are designed as a measure of the losses and expenses
that may result from such a contingency    and not as a measure
of solvency of the funds according to its accepted meaning
in the underwriting   of conventional insurance risks,

      FJIIAconsiders    that f9a balance status'" for .a fund exists
when its insurance reserves --accumulated        retained  earnings--
are equal to, or greater than, the estimated reserve require-
ments and that, when a balance status is attained,          the fund
has sufficient     resources to meet such future insurance losses
and related     expenses as might be expected within the range
of probability.

       At June 30, 1970, R-IA's estimated insurance funds' re-
serve requirements   amounted to $2,275.5 million.     At the
same date, FIG's total insurance reserves,      as shown on the
combined balance sheets (schs. 1 and 31, amounted to
$1,571.3 million,   which resulted   in a total estimated de-
ficiency   of $704.2 million  in the insurance reserves for
meeting estimated reserve requirements.
       The following    tabulation shows the estimated reserve
requirements,     the insurance reserves,   and the estimated re-
serve deficiencies      at June 30 for each of the past 5 years.

                    Estimated                                      Estimated
Fiscal               reserve                Insurance                reserve
                  requirements              reserves             deficiencies


 1966               $1,709.5                $1,139.6a               $569.9
 1967                bs750.0                 1,176.6                 573.4
 1968                1,875.4                 1,260.3                 615.1
 1969                2eO41.2                 19394.3                 646.9
 1970                29275.5                 lp571.3                 704.2

 "Includes  $10 million   borrowed from the U.S. Treasury.   At June 30, 1970,
   the amount borrowed--$10 million--was   available  for payment of insurance
   clafms but is not shown as part of the insurance reserves in the combined
   balance sheets (schs. 1 and 3) and is not included in the insurance re-
   serve amount of $1,571 million.
deficiencies    to a combination of factors,  such as Cl> the
increased estimated reserve requirements     because of new in-
surance written    and the large proportion  of mortgages hav-
ing long maturities    and high Loan-value ratios   (higher risk
mortgages) and (2) actuarially    estimated increases in in-
surance losses,

       The adequacy of the insurance reserves of $1,571 mil-
lion is directly   affected  by economic conditions,    and the
question of whether these reserves will.1 be adequate during
periods of severe adverse economic conditions       is currently
not determinable.     Comments on the insurance reserves of
the four funds follow.




                                8
klutual   bbrtgage   Insurance   Fund

      MMIF was established    under authority   of section 202 of
the National Housing Act.       Under this fund only mortgages
which finance the purchase of small homes are insured.         At
June 30, 1970, the total reserve of MMIF, as shown on the
combined balance sheet (sch. 31, amounted to $1,340 million
and consisted  of a statutory     reserve of $116 million   and an
insurance reserve of $1,224 million,        The MMIF reserve of
$1,340 million   is insluded in the total reserves of
$1,571 million   shown on the combined balance sheets.       The
FHA records showed that there were no insurance claims by
mortgagees applicable     to the MblIF reserve pending at June 30,
1970.
        Section 205 of the act authorized       the establishment     of
a General Surplus Ascount and a Participating           Reserve Ac-
count1 in MMIF and authorized        the Assistant    Sesretary-
Commissioner, to allocate      the income or loss from operations
in any semiannual period to either or both accounts.              The
act also authorizes      the Assistant    Secretary-Commissioner      to
distribute     a share of the Participating      Reserve Account to
mortgagors after the mortgage loans insured by MMIF have
been paid; however9 the mortgagors do not have any vested
rights     in the ascount.

      The act also requires   that the allocation      of the income
or loss and the distributions     from the Participating     Reserve
Account be made in such manner and amount as to be in accord
with sound actuarial    and accounting  practices.
      Both the General Surplus Account and the Participating
Reserve Account are available    to meet Sasses arising     from
the MMIF insurance in force.    The need to build up the Gen-
eral Surplus Account evidenced primarily     by the excess of
the estimated reserve requirement    over the insurance reserves
prompted the Assistant  Secretary-Commissioner     to allocate
all net income for the semiannual period ended June 30, 1970,


1Shown in the MMIF section of the combined balance sheet--
 schedule 3, page 31 --as insurance reserve and statutory  re-
 serves respectively.
to the General Surplus Account.            Low levels of net income
from MMIF operations      in the preceding 16 semiannual periods
led to the allocation       of all net income to the General Sur-
plus Account,    Distributions       to mortgagors from the Partici-
pating Reserve Account in fiscal           year 1970 were $3.7 million
compared with $4,5 million        distributed     during fiscal year
1969.

       For each year since 1959, the MYIF estimated reserve re-
quirement has exceeded the total NMIF reserves for the fund.
The estimated reserve deficiency     of $73,9 million    at June30,
1970, is part of the $704,2 million     estimated reserve de-
ficiency   discussed in the preceding section of this report.
The following    tabulation shows the available    reserves% the
estimated reserve requirement,    and the estimated reserve de-
ficiency   at June 30 for each of the past 5 years,
                     Partici-                   Estimated
          General     pating                     reserve     Estimated
Fiscal    surplus     reserve       Total       sequire-      reserve
 year     account     account    reserves         men%      deficiency

                                 (millions)

 1966    $   736.6    $132.7     $      869.3   SlJ70.5       $301.2
 1967        81003     128.4            938.7    1~211.9       273.2
 1968        918.6     12401         1,042.7     lo297.1       254.4
 1969     19057.0      119.6         1,176,6     1,368,2       191.6
 1970     1,224.2      116.0         1,340.2     1,414.1        73,9
General   Insurance     Fund

      GIF was established      on Augus% 10, 1965, under autharity
of section 519 of the National Mousing Act.         Under this fund
mortgages and notes are insured Twhich finance the purchase,
construction,      and/or improvement of small homes, multifamily
prw=tY,       nonresidential   property,   and commercial or farm
s%ru.ctures (I The insurance reserv-e of GIF, totaling
$208.5 million      (sch. 3) is included in the total reserves
of $1,571 million       shown on the June 30, 1970, Fsmbined bal-
ance sheets o The FHA records showed that claims pending
against the $208,5 million        GIF reserve but not accepted by
FHA at June 30, 1970, amounted %Q $21.4 million.            Therefore
the GIF reserve at June 30, 1970, was sufficient          to meet
insurance claims pending accep%ance.

        The estimated reserve requirement       has exceeded the in-
suranze reserve since inception         of the fund in August 1965,
'The estimated reserve deficiency        of $490.8 million    at
June 30, 1970, is part of the total $704.2 million            estimated
reserve deficiency      discussed in a preceding section of this
report.     The following    tabulation   shows the esltimated reserve
requirement,     the insurance reserve,      and the estimated reserve
deficiency    at June 30 for each of the past 5 years,
                       Estimated                       Estimated
    Fiscal               reserve         Insurance      reserve
     year             requirement -       reserve     deficiency

                                      -+millions)

      1966              $526.3            $262.0a        $264.3
      1967               515.5             223.3          292.2
      1968               556.0             204,B          351,9
      1969               631.3             195.5          435.8
      1970               699.3             202.5          490.8

"Includes   $10 million borrcwed from the U.S. Treasury.   At
  June 30, 1970, the amount borrowed--$10   million--was avail-
  able for payment of insurance claims but is not shown as
  part of the insurance reserves in the combined balance
  sheets (s&s.   1 ad 3) and is no% included in the insurance
  reserve amount of $208.5 million.
Cooperative    Management Housingsurance           Fund

        CMHIF was established     on August 10, 1965, under author-
ity   of section  213 of the National      Housfng    Act.  Under
CMHIF mortgages are insured which finance the purchase,
construction,    and/or rehabilitation       of multifamily    coopera-
tive housing property,        Also insured are supplementary
loans which finance improvements and/or repairs of multi-=
family cooperative     housing property or provide funds for
necessary community facilities.         Tne insurance reserves of
CH!tIIF, which total $25.7 million,       are included in the total
reserves of $1,571 million        shown on the combined balance
sheets (schs. 1 and 3),        The F'HA records showed that there
were no insurance claims       by mortgagees applicable      to CMHIF
reserve pending at June 30, 1970.

        Section 223(l) of the act authorized        the establishment
of a General Surplus Account and a Participating            Reserve
Account1 in CMHIF and authorized        the Assistant    Secretary-
Commissioner to allocate     the income or loss from operations
in any semiannual period to either or both accounts,              The
act also authorizes     the Assistant     Secretary-Commissioner      to
distribute     a share of the Participating      Reserve Account to
mortgagors after the mortgages insured by CMHIF have been
paid; however, the mortgagors do not have any vested rights
in the account.

      The act also requires   that the allocation      of the income
or loss and the distribution     from the Participating     Reserve
Account be made in such manner and amount as to be in ac-
cord with sound actuarial    and accounting practices.

      Both the General Surplus         Account and the Participating
Reserve Account are available          to meet losses arising     from
the CMHIF insurance     in force,       CKHIF realized     income of
$6.1 million   from operations       in fiscal   year 1970, of which       j
$2.6 million   was allocated    to     the General Surplus Account
and $3,5 million   was allocated        to the Participating     Reserve
Account.

1Shown in the CMHIF section of the combined balance sheet--
 schedule 3, page 31-- as insurance reserve and statutory
 reserve, respectively.
      documentation authorizing     the allocation  states that
it is contemplated  to continue     the buildup of the General
Surplus Account to approximate      the reserve requirement    and,
at the same time, make some of     the reserve in the Participat-
ing Reserve Account available     for distribution    to mortgagors.

      At June 30, 1970, the CHHIF insurance reserves exceeded
the estimated reserve requirement      by $6.6 million.     The fol-
lowing tabulation    shows the available   reserves,    the estimated
reserve requirement,    and the estimated reserve deficiency
or excess at June 30 for each of the past 5 years.

           Partici-                           Estimated      Estimated
            pating     General   Total         reserve        reserve
  Fiscal    reserve    surplus    re-          require-     deficiency
   year     account    account   serves           ment    ,,(excess(-)>

                                 (millions)

   1966       $ -       $ 8.2    $ 8.2          $12.7          $4.5
   1967         -        14.6     14,Q           22.6            8.0
   1968                  13.5     13.5           22.3            8,8
   1969        2.5       20.4     22,9           21,l          -1.8
   1970        4.1       21.6     25.7           19.1          -6.6




                                 13
Special    Risk
            ----     Insurance    Fund

        SRIF was established       by FHA on August 1, 1968, under
authority    of section     238(b)   of the National      Housing Act, as
amended.     This section     provided     that SRIF be funded with a
$5 million    advance from GIF and that the advance be repaid
at such times and at such rates of interest               as the Secretary,
HUD, deems appropriate.           The Housing and Urban Development
Act of 1969 (Pub. L. 91-152)           authorized    the Secretary   to
fund SRIF with advances         from GIF in amounts that the Secre-
tary may determine       necessary     up to a total    sum of $20 mil-
lion.     At June 30, 1970, $15 million           had been advanced by
GIF.

        SRLF is used to pay the claims                of insured       mortgagees
and lenders      that resulted       from defaulted         mortgages        which
financed    (1.3 homes purchased        by low-income         families       that had
been assisted        with their     mortgage       payments by FHA, (2) homes
purchased     by low- and moderate-income families                   that,     because
of credit     histories     or irregular         income patterns,           could not
qualify    for mortgage      insurance       under other        F'HA insurance
programsg     and (3) repair,        rehabilitation,          construction,          or
purchase     of property     located     in older,       declining        urban areas
in which conditions        were such that the ?%.A eligibility                     re-
quirements     for mortgage       insurance        could not be satisfied.

        At June 30, 1970, the SRIF reserve               had a deficit       of
$3.1 million.      Appropriations       to cover losses        sustained      by
the fund 'were authorized         by section       238(b) of the act; how-
ever,    the Congress had not appropriated               funds for this pur-
pose.      Consequently,     the operations       of SRIF had been fi-
nanced principally       by advances       from GIF.        The following
tabulation      shows the estimated        reserve     requirement,       the             \
deficit     in the insurance      reserve,     and the estimated          reserve
deficiency     at June 30, 1970, and at June 30, 1969, the close
of the fiscal      year in which SRPF was established,
                                Estimated                      Estimated
                                 reserve           Insurance      reserve
          Fiscuear --
          .._--              -rsuirement             reserve   deficiency
                                                               --
                             --.----"---(millions)
              1969               $ 20.6             s-0.7         $ 21.3
              1970                143.0              -3,l          146.1
The FHA records showed that there were no insurance claims
by mortgagees applicable  to the SREF reserve pending at
June 30, 1970.
 SIGNIFICANT CHANGESIN BALANCES
 FROMPRIOR YEAR

Assets

       Accounts       receivable

        The total    accounts     receivable,     as shown in the combined
balance     sheets    (schs.    1 and 31, amounted to $68.5 million
at June 30, 1970, an increase              of $41.5 million    from the
total    accounts    receivable      of $27 million    at June 30, 1969.
The increase       of $41.5 million       was comprised     of (1)
$26.3 million       due from purchasers        of mortgages    and assigned
mortgage     notes which FHA sold in June 1970, (2) an increase
of $10 million       in the amount advanced by GIF to SRIF, and
(3) a net increase         of $5.2 million      in other receivable      ac-
counts,

       Accrued    assets

       The total accrued  assets,  as shown in the combined
balance   sheets (schs.  1 and 31, amounted to $156.6 million
at June 30, 1970, an increase     of $18.7 million from the
amount of $137.9 million    at June 30, 1969.

       The increase      of $18.7 million              was comprised    principally
of (1) an increase         of $11 million            in accrued premiums which
occurred     as a result     of FHA having             220,533 more small home
mortgages     insured    at June 30, 1970, than it had at June 30,
1969, and (2) an increase             of $7 million          in accrued    interest
on U.S. Government         securities        attributable       to the increase
in securities       held by FHA at June 30, 1970, from that held
at the close of the prior             fiscal       year.

        Investments
       ---.--            in U.S. - Government      securities

        The investments     in U.S. Government       securities       at amor-
tizedcost,as        shown in the combined balance           sheets    (schs.
1 and 31, amounted to $1,047 million            at June 30, 1970, an
increase     of $124 million     from the prior      year's     investment
of $923 million,        The increase    was attributable          mainly   to
the increase      in holdings    by MMIF which was authorized,             by
section     206 of the National      Housing Act, to invest           moneys
not needed for current operations      in U.S. Government secu-
rities D   The  moneys  came from revenue-producing-fund   activ-
ities.    The increase ininvestmentsin      U.S. Government secu-
rities  in fiscal   year 1969 amounted to $163.7 million    and
also resulted mainly from the increased holdings by MMIF.

      Acquired property--at  cost
      D~US  net exnenses to date

      The amount of $600,8 million  for acquired property,    as
shown in the combined balance sheets (schs. 1 and 3), was
$22.4 million  more than at the close of the prior year.      A
comparison of changes in the acquired property    inventories
during fiscal  years 1970 and 1969 follows,

                                                         Fiscal    year
                                                       1970          1969

                                                           (millions)

Acquired property  inventory          at
  beginning of fiscal   year                           $578.4           $605.8

Sales                                                  437.0             530.6
Acquisitions                                           459.4             503.2

Increase       or decrease(-)    in inventory            22.4            -27.4

Acquired       property   inventory   at end of
  fiscal       year                                    %!3??.8          %7S&

      Defaulted mortgage notes--at
                               -.--             cost
      plus net expenses to date

       The amount of $407.9 million  for defaulted mortgage
notes, as shown in the combined balance sheets (schs. 1 and
31, was $43.7 million   less than the amount at the close of
the prior year.    A comparison of the changes in the amount
of mortgage notes on hand during fiscal    years 1970 and 1969
follows.




                                       17
     Defaulted mortgage notes--at cost
       plus net expenses--on hand at
       beginning of fiscal  year                 $451.6       $451,,,2

    Sales                                           54.2          51,6
    ACqLEisitions                                 _ :0.5*        49$0
                                                               .--__1

    Reduction in mortgage      notes
      on hand                                          43.7       2@$

     Defaulted mortgage notes--at cost
       plus net expenses--on hand at end
       of fiscal year                    5gu                  $451*
                                                                _-___6
      Allowaqces    for estimated    future
                                    --I___    losses

       The valuation   reserves-- allowan~ces  for estimated fu-
ture losses --provided     by F"HAat June 30, 1970, for mortgage
notes and contracts     for deed and for acquired security    or
collateral    amounted to $348.9 million,     an increase of
$12,2 millionfromthe       amount at June 30, 1969, of $336,8 mil-
lion (see schs, P and 3).

        The increase of $l2,1 million       in the valuation      re-
serves --shown in schedules 2 and 4 under the caption "In-
crease(-)     or decrease in valuation     allowances"'--consisted
of the adjustments       necessary to value the acquired proper-
ties and mortgage notes held by the four funds at June 30,
1978, at market prices and at amounts considered to be
collectible.      The valuation    allowances for BMIF and SREF          4
were increased by $10,4 million         and $4.3 million,      respec-
tively.      The valuation   allowances for @IF and CMHF were
each reduced by $1.3 million.

       The valuation    allowances were based on consideration
of (1) actual losses experienced       on the sale of small home
properties    in fiscal    year 1970, (2) losses anticipated     to
be incurred     in the sales of multifamily    properties   on the
basis of estimated sa.les prices,   and (3) predetermined
loss rates on certain   other property.   At June 30, 1969,
the valuation  reserves were reduced by $17 million     as shown
in the statement of income and expense (sch. 2).




                                19
Liabilities

      Accounts       payable

     The amount of $66-3 million   for accounts  paTT?ble, as
shown in the combined balance    sheets (schs,  1 and 3), was
$22.3 million  more than at the close of the prior     year,

      The increase      of $22.3 million        was comprised    of (1) an
increase    of $11,5 million        in the amounts due to mortgagees
for securities       (properties)       acquired   in the settlement        of
mortgage    insurance      claims   and sundry amounts due vendors              by
MMIF, GIF, and SRIF, (2) an increase               of $10 million     in    ac-
counts payable      as a result       of the increase      in the liability
of SRIF to GIF, and (3) a net increase               of $0,8 million        in
the other payable         accounts.

      Debenture       oblinations--
      .-debentures     issued      and outstanding

    Debentures  issued and outstanding     at June 30, 1970,                  as
shown in the combined balance    sheets  (schs.   1 and 31,
amounted to $516.9 million   compared with $576-9 million                     at
June 30, 1969, a decrease  of $60 million.

      During  fiscal   year 1970, debentures      amounting    to
$25.8 million      were issued in payment of insurance         claims
presented    by insured    multifamily   property   mortgagees       because
of defaults     in mortgage    payments by mortgagors,      and deben-
tures   aggregating    $85,8 million    were redeemed.

Income

      Total    income

       The total income of $426.7 million      for fiscal     year 1970,             ;
 as shown in the statements    of income and expense       (schs.    2
 and 4), was the combined income of the four insurance            funds,
 and was $46.4 million   more than the combined income of
 $380.3 million  in the preceding    fiscal  year.    Each of the
four insurance   funds had more income in fiscal        year 1970
than in fiscal   year 1969.    The increases    were MMIF, $24.8 mil-
lion;   GIF, $8 million;  CMHIF, $0.3 million;      and SWIF,
 $13.3 million.
          The increase          of $24.8 million      in the income of MMIF re-
    sulted      principally       from increases      in revenues    derived     from
    insurance        premiums and interest         earned on U,S. Government
    securities,           Insurance    premiums    increased     by $10.2 million
    as a result         of insuring     an additional       268,962 mortgages        and
    interest        earned increased       by $13.9 million       as a result      of
    increased        investments.       Sundry increases        and a decrease       in
    the remaining           income accounts     netted    to an increase      of
    $0.7 million.

          The increase    of $8 million       in the income of GIF resulted
    from increases      in revenue     from (1) fees,       SE,3 million,     (2)
    insurance    premiums,      $4.7 million,     and (3) profit       on the sale
    of mortgages,      $2 million,       The increase     in fees and insurance
    premiums came from the addition             of insurance    on 65,149 mort-
    gages to the insurance          in force.

         The $0,3 million      increase     in the income of CMHIF resulted
    from an increase      in interest      earned on the additional    $3 mil-
    lion   investment   in U.S, Government        securities,   offset by de-
    creases    in fees and other      interest    earnings,

          The $13.3 million        increase    in the total         income of SRIF
    resulted    principally      from (1) increases        in     revenue    from fees
    and insurance       premiums of $7,7 million         and      $5,7 million,     re-
    spectively,      and (2) a net decrease          of $0.1      million    in the
    remaining    income accounts,           The increase     in     fees and in-
    surancepremiumsresulted             from the addition         of insurance     on
    84,608 mortgages        to the insurance       in force.

    Expense

          Loss   on acquired---   security

2          The loss sustained        on acquired     security     in fiscal   year
    1970, as shown in the           statements     of income and expense (schs,
    2 and 4), amounted to           $73.9 million,      a decrease     of $31.8 rni.1,
    lion    from the loss of        $105.7 million      sustained    in the prior
    fiscal     year.

           Of the $31.8 million     decrease    (1) $15.2 million   was
    attributable     to the reduction      in the number of small homes
    sold--from    33,230 in fiscal      year 1969 to 25,200 in fiscal
    year 1970-- and (2) $16.6 million         was attributable    to an


                                               21
increase in the number of multifamily       properties     sold--from
47 in fiscal    year 1969 to 64 in fiscal    year 1970. The av-
erage loss on a small home sold in fiscal        year IL969 was
$3,054 and in fiscal      year 1970 was $3,424.     ?kktifamihy
properties   were sold at a profit    in fiscal   year 1.970--the
average profit     on a property  amounted to $%93,k43---whereas
multifamily    properties   were sold at a loss in fiscal       year
J_969--the average Pass amounted to $90,423.




                                                                        i




                                  22
                          SCOPE OF' EXAMINATION

       We have examined FHAPs financial             statements      pertaining
to its insurance       operations       for the fiscal      year ended
June 30, 1970.        Our  examination       was  made   in  accordance      with
generally     accepted    auditing      standards   and included       such
tests    of the accounting        records    and such auditing       procedures
as we considered       necessary      in the circumstances.

        We reviewed       the HUB internal      auditors!      examination      of
the accounting         records  pertaining      to the insurance         opera-
tions.     We found that the internal             auditors     had not done a
sufficient      amount of audit       work on the balance         sheet and
income and expense accounts             to have enabled us to reduce
our tests      on the insurance       accounting      records,      We were able,
however,     to use certain      other audit       work performed        by the
internal     auditors.




                                         23
                   OPINION OF FINANCIAL         STATEMENTS

       The financial     statements,    schedules   1 through  5, are
the statements       of FTIA pertaining    to its insurance   operations.
Schedule    5 is based on the combined statement          of source and
application     of funds submitted      by the agency to the Trea-
sury Department.

        In our opinion,      the accompanying     financial     statements
(schs.     1 through    5) present    fairly  the financial       position
of FHA at June 30, 1970, and the results               of its operations
and source and application          of its funds for the fiscal            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.
25
                                           FEDERAL              IlOUSING                 ADWENISFRBPION


                                                             caoXNED     COi%XNdTIVE             BALANCE SHTFP

                                                                As OP JUNE 30,           1970 aND 1969


                                                                              ASSETS




CAS    AND FUND BALANCES:
      C.ab on hand and in t.rmsit                                                                                 $         e”f9;.3f+.~               $             8.:35.079.e6
                                                                                                                                                                        .-
                                                                                                                                                                      ..,3.7:t.71
      Fud brlancoo  with u. s. lba5u-Y                                                                                                    7 9.




                                                                                                                                4*5g3.592.W

                                                                                                                                  63.blb.35
                                                                                                                            nl.sbo.oa4.05




                                                                                                                            .&304.395.14

                                                                                                                                1.099.~&.48
                                                                                                                                2cb30.387.86
                                                                                                                            I     .00?.?33.09




                                                                                                                           ln,bZ.*oG7                            ll6.%3.7:3.EZ
                                                                                                                            11.6oe.355.95                   --       7.‘56.3cs.lC
                                                                                                                            14.03;.53     .6              2”           ‘ L-5..ZL~.I~

                                                                                                                           1$$.693.U.egL                         13;.9:2.::3.2Z



      8.   s.   G.zmrnslant   sacurities    at   smrtizsd      cost    fthrket      value
         $1,015.Wh1.443.42      at Jura 33.       1970.     and $fi&176.619.54              at
         June 30. IT691 (note       1)                                                                              l.W.721,7b5.3S                               92j.490.2Y.12
      St+ck ,,, rental     .r.d cooprative        hmming       cmp,rations:           209.222      shama
         at Jvm 30. 1970. .nd 220.858             sharss     at Jum 30.          1%9-at       cost                                  235.E23.FO                          r-2 . . .-1
                                                                                                                                                                                . . ..Y

                                                                                                                    u                     =3      .       -.., up       725      1c2.12


                                                                                                                         236.bO9.263.27                      243.6:&:61.2:
                                                                                                                      a33.719.30                          -16.~:        .o-;.c

                                                                                                                           220.677.5        44. 2-2              22 ,?%.-,?.Z~



                                                                                                                           6OO.W.32b.82
                                                                                                                           ‘V.903.239.67
                                                                                                                            44.OlC.L35.2~

                                                                                                                      1.052.792.019.76                    1.076.941.357.53

                                                                                                                           %643,7b9.60                            39.372.W.7b

                                                                                                                                                                        8’5&3&

                                                                                                                      MJ10,148~270.16                     1,036,6.92.989.9e

                                                                                                                    ~W.‘~I~.OC                                   3rJ.r5.e)s.:c
                                                                                                                        677.35O.W.lb                             :16,rr=6,151.            --

                                                                                                                                   260.b67.92                                       _C
                                                                                                                                   258.732.00

                                                                                                                                      1.675.92

                                                                                                                        67X 152.630.05                       716.4=6.15:.?


                                                                                                                         10.020.          I?b.W
                                                                                                                   -.J.&O.4Y..O6

                                                                                                                                4.459.??9.93

                                                                                                                   3.w6.055.24

                                                                                                                 L~-c.-o
                                                                                                                                                         SCHEDULE 1




                                                 LIABILITIES




                                                                             8          5.372.241.02            9            5.172.758.79
                                                                                        6,859.593.39                         5.672.891.73

                                                                                       9.617.365.Y,                       6.1M,45P.5l
                                                                                      26.931.220.82                      19.0~:.3~.43
                                                                                       3.062.9g6.40                       3.553.080.80
                                                                                      15.0n.03c.00                          .c::.o:*.x

                                                                                      66.81r2.416.8                      44,53:.580            24
ACCOCCRDES,
          LrAElrLITIEs:
    htemst        on debsntms      :
           Gawrmont      qencias                                                        i.l47,#Jh9e                       1,1Bc,60~51
           Gther                                                                        8.839.274.40                     10.20-'.Y    i.            0




                                                                                            83.572.63                          9s.775.90
                                                                                           203.139.74                        25:,528.39
                                                                                       14.619.924.95                     14,6::.724.3?
                                                                                        3.824,352.53                      2.5S.017.52
                                                                                                        -                           401.16

                                                                                           250.843.09                           156.36C.95
                                                                                        2.417.322.87                         ,.7‘:,197.52

                                                                                       2x.479-6                          ?9,45'.01:.01
                                                                                              **            -

                                                                                                                      ,97.379.300.97
                                                                                                                              515.75E.72
                                                                                                                           1.1-i . . 3 : . "5

                                                                                                                         ‘     .0’3!,1       3.!4



                                                                                       70.395.750.00                    73.???.933.00
                                                                                      446.465.033.00                _ ': 9.57'.253.')"

                                                                                      516.@52.650.03                    :76,P%-,1::.33


                                                                                                                                              *
                                                                                 -            910.100.00                           9c.3      ?.03

                                                                                              910.100.03                           cr _. py c.00


                                                                                              .?0.300.00                           27.000.00
                                                                                         2,446.250.33                         5,1;i,w:.cc

                                                                                  _      2.446~50.03                            .2CC.C3"."?

                                                                                      520.229.3OO.oo                    SY2,lo;.          03.30


                                                                                         4,265,1QLl9                          4,665.X1.63
                                                                                 _      10.537.467.22                         9,x-.lh7.77

                                                                                        14.792.631.&3                        1?.6c:,539.$!

                                                                                      685.133.8~                        72O.W.2?3.3;!

                           RESERVES    AND   BORROWINGS        FROW   U.S.   TR'EASURY


                                                                                      l20.105.199.ll                     1zz.137.025.65

                                                                                  1.~51.185.739.74                   1.275.2:7.397.?6

                                                                                  J&m                                ~9Jb,3"'."!?.5L

                                                                                        10.03c.000.00                        ,0.0c*.05:.03

                                                                                  ~61.:?!.539.5a                     l.w+.?c.~13.51


                                                                                 $2.!66."7-                         b:.:;4,7tc.697                  ?q




                                                                             27
                                                                        SCHEDULE                    2


BBDERAL   NOUSING   AON~~ISTRATIO~




                                     6      49.os3.790.45      $      40.230,@83.3b
                                           324.052.685.66           303.412.803.44
                                            49*“_9~;.~                35.600.66?.51
                                                      .   .

                                                    1,467.63                   1,097.P
                                                 M?.5’W.b7                 w.3a9.3b
                                                                             21.739.13
                                                 887.365.69                 90.467.91,
                                                 35a.cw.15                -317.w.52
                                              !.%?,706.75
                                                   94.a71.31                  21.517.92

                                           426.692.923.45


                                           120.477.322.74
                                                450.003.00
                                            21,7?9,639.7?

                                            73,941.012:23
                                             10.823.u6.01                a.es7.72s.i8
                                              1.908.145.51              6.905.651.15
                                              2,64,3.675.00             2.669.233.03
                                                 ;y.g.50                    33.97b.W
                                                       . c .               211.231.92

                                           232,y15,55:.71        --2      ,    6.9        .!O
                                                                    :26.529.5$6.2



                                           -13.422.501.00               14.766.21r8.00
                                              1.524.FYJ.00               2.252.000.W
                                                -259.792.03

                                           -12.1:4,?:9.00               17.C19.243.33




                                           122.13/,025.65              U4.117.637.6D
                                               -247‘576.81
                                                                                          -     e
                                              3.;~;'$6;=                 2.512.874.'34
                                               ,     ,(.                Jb.w.486.7p

                                           l2o,l~,l59.77

                                         1.272.223.?87.86          1.134.1a4.57a.41
                                                  24S,101.81          4.%5,16o.oob
                                            178.714,250.0?=          141.034,959.45~
                                                                       4136.493.76
                                                                         4.13&.493.?4

                                         1,451.185,739.74          , 2 2.X      3.387.Pb


                                             1o.wo,wo.oo                10,w0.000.00
                                                                                          -


                                             10.000.000.09              10.000.000.00

                                     Q&l&?y,5?~.El             s 1,434,~40.b!‘I.51




                     29
..




                 506.28
     L-L
     13.947.596.32
      4.w.wl.DO

     -5!la?lma
                                                                                                         SCHEDULE3




8    s.m.-1.w        4                 -    0                -   0           -    8                 -    8   S.J72.24!.W
     6.858.593.39                                                                                   -        6.859.591.39


      %61?.%5.%              5.373.Ib3.91        3.120.3?6.63              6.03        1.123.818.m
    26.9JG20.82             15.532.735.36        9.673.W.61           5.W.W            1.669;wS.eS
      3.cbZ.P~.‘rO           J.W*99c.“(i
     15.0M).010.00                                                                    ‘5’““.$6”.~
                         &4,.9i%                -l.lP.%J.#           4m:1o                      .   ..       4.457.76;93




                                            31
.,,,422,53*.w

   1.524.9%00

    -259.7q2.00

.,2.,56.‘59       w




                       8   -




                  32
                                          SCHEDVLE5




                         1Z.3JJ.615.15
   45o,oo,.bo

21.779.633.77

                               5.X7.5’)
                             154.750.00
                              2;,;17:0:
                                    379

                     -&p6.767.%




                                                69R393.17


        6oO.W

                     J6.239.876.1,.             699.395.u

                     -


                     _
                     2.      8%R79,16


                             856.736.22


                          16.727.55O.a




                     -2idz&a                ~‘0.391.42bgt

                     ;L137.340.30            10.354.424.pl




                33
                                                                                                                       64.175.56
                                                                                                                      -18.991.66




                                                                                                                              b.0,
                                                                                                                             10.28

Total   ,muns       426.6Yi.9:8.4~        ~472.995.0~               B7.843.429.62           m                   m.WZ.95


                                                                                                                    1.6Y.591.99
                                                                                                                           sc4.m

                      5.761.955.W                                    5.761.953.00

                    111.053.729.Ob         4j,405,6M.W              67,380.5~9.06                                     252.550.w

                      5.289.596.95             679.361.00            WW9n.W                          5J58.49
                                                                     .
                             L2.YnO.W                                       12.9w.00


                              6.445.25                          -                           -                   -

                    W.P97.?32.41          zZL~4o.zr7.4~         )61,871.57~                 a                       1.885.6bB.27
                       24 7.516.8L                                             .      .          -241.576.aI    -

                    021.~39.4~.D~         y46.?!3.252.52        ~.oo:.oo                    n                   y.e64.e9wl


                     2S.W7.W.0~                            .        25,6~k5~.00                   203.400.00

                    238.9YS50.00          229.26!,550.05                 1.171.0D0.W            4.5OD.030.W

                            2q:.W.bb                       .               m.v39.64                        .


                    265.032LQ@!!          229.261.55O.OQ            27.OM.689.h                 4.703.4Ocl.00

                )~.D%nl.~                ) ~4~b.RW.52          (2&784.h91.64              (~o,:"D.R9'.q




                                          34
                                  NOTESTO COMBINEDBALkNCE SHEEX

                                     JUNE 30,197OANDl%9

1.    Investments include debentures of FHA Insurance Funds in the amount of
      $69,794,650.00  at June 30, 1970, end $72,933,200.00 at June 30, 1969,
      purchased as an investment by the Mutual Mortgage Insurance Fund.

2.    The following         items are not recorded     in the assets:

      a.   Properties   and notes tendered by mortgagees but not accepted
           by FHA in the amount of $21,359,400.18    at June 30, 1970, and
           $15,172,208.44   at June 30, 1969.

      b.   Accrued interest receivable--collection  doubtful--on                defaulted
           Title I notes at June 30, 1970 and 1969.



On Notes with principal   balances                    $9,569,371.92              $ll,442,407.22
Principal balance paid-interest    due                 1,163,612.17                     769,36o.82

                          Total                    .$10,732,984.9                $12,211,768.04

3.    The following         items are not recorded. in the liabilities:

      a.   Unfilled   orders in the amount of $1,512,823.98         ($315,683.62
           furniture    and equipment and $1',197,140.36    operating      expenses) et
           June 30, 1970; $1,363,774.16    ($293,?41.49     furniture      end equipment                  and
           $1,40,432.67     operating expenses) at June 30. l%S.

      b.    Unfilled  orders and incomleted    portion  of contracts     for property
            repairs in the amount of $9,936,504.91     at June 30, 1970, and $6,760,088.10
            for incompleted portion of contracts for property        repairs at June 30, 1969.

      c.    Contingent        liability  with respect to pending        lawsuits in the amount of
            $290,850.94         at June 30, 1970, end $6U,861.98          at June 30, 1969.

      d.    Pending claims on properties and notes tendered                by mortgagees but not
            accepted by FW\ in the amount of $21,359,400.X3                at June 30, 1970, and
            $15,172,208.44 at June 309 1%9.

      e.    Certificates  of claim relating to properties and notes tendered                         by
            mortgagees but not. accepted by FHA in the amount of $193,571.15                         at
            June 30, 190, and $220,419.75 at June 30, 1%9.

      P.    Certificates  of claim relating  to acquired security               on hand of
            $14,937,084.%   at June 30, 1970, sod $15,871,ll3.31                at June 30, 1969.

4.    The amount shown as "Borrowings from U. S. Treasury" represents   $25,COO,ooO.00
      advanced to the General Insurance Fund less $15,000,ooO.00  repaid to date on
      authorized Treasury note of $50,OGO,ooO.00.

 5.   Residual of Reserves is equity of the Government                  upon the liquidation              of all
      claims and settlement  of contractual obligations.

6.    The maximum liability for outstanding               FHA insurance    contracts     in force          at
      June 30, 190 and 1%9 was:



      Mortgage Insurance Programs                $67,202,162,ll5            $61,671,654,221
      Modernization  and Improve-
        ment Pronrams (Title I.
        section 2)      .       '                      392,128,685               393,539,701

                       Total                     $67,594,2go,800            $62$65,193,922

 7.   The liabilities  shown for the "Deposits held for Mrtgagors   and lessees" is net
      of escrow advances by FHA in the amount of $415,591.41   at June 30, 1970, and
      $635,938.75at June 30, 1969.
 FHA in special. circumstances would be indemnified against loss on certain insured
 mortgages and assigned mortgage notes UP to $952.674.35   at June 30. 1970 and
 $1,133,101.74  at June 30, 1969.




                                                         35
APPENDIX




     37
                                                                APPENDIX I


                                PRINCIPAL OFFICIALS OF

             THE DEPARTMENTOF HOUSINGAND URBANDEVELOPMEXT

                           AND FEDERAL HOUSINGADMINISTRATION

                             CONCERNED
                                     WlTH THE ACTIVITIES

                               DISCUSSEDIN THIS REPORT


                                                    Tenure of office
                                                    From            To
                                                                    -
SECRETARY:
   George W. Romney                              Jan.    1969   Present
ASSISTANT SECRETARY-COMMISSIONER:
    Eugene A. Gulledge            Oct.                   1969   Present
    William B. Ross (acting)      Mar.                   1969   Oct.    1969
ASSISTANT COMMISSIONERFOR ADMIN-
  ISTRATION:
    Horace B. Bazan                              Jan.    1956   Present
ASSTSTANTCOMMISSIONER-
  COMPTROLLER:
    Woodward Kingman (acting)                    Apr.    1970   Present
    Lester H. Thompson                           June    1961   Apr.    1970




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

                                           39