oversight

Financial Audit: Federal Housing Finance Agency's Fiscal Years 2012 and 2011 Financial Statements

Published by the Government Accountability Office on 2012-11-15.

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

United States Government Accountability Office
Washington, DC 20548



           November 15, 2012


           The Honorable Tim Johnson
           Chairman
           The Honorable Richard Shelby
           Ranking Member
           Committee on Banking, Housing, and Urban Affairs
           United States Senate

           The Honorable Spencer Bachus
           Chairman
           The Honorable Barney Frank
           Ranking Member
           Committee on Financial Services
           House of Representatives

           Subject: Financial Audit: Federal Housing Finance Agency’s Fiscal Years 2012 and
           2011 Financial Statements

           This report transmits the GAO auditor’s report on the results of our audits of the
           fiscal years 2012 and 2011 financial statements of the Federal Housing Finance
           Agency (FHFA), which is incorporated in the enclosed Federal Housing Finance
           Agency Performance and Accountability Report for Fiscal Year 2012.

           As discussed more fully in the auditor’s report that begins on page 74 of the
           enclosed PAR, we found:

                   the financial statements are presented fairly, in all material respects, in
                    conformity with U.S. generally accepted accounting principles;
                   FHFA maintained, in all material respects, effective internal control over
                    financial reporting as of September 30, 2012; and
                   no reportable noncompliance in fiscal year 2012 with provisions of laws and
                    regulations we tested.




           Page 1                                GAO-13-124R FHFA’s Fiscal Years 2012 and 2011 Financial Statements
The Housing and Economic Recovery Act of 20081 established FHFA as an
independent agency empowered with supervisory and regulatory oversight of the
housing-related government-sponsored enterprises: Fannie Mae, Freddie Mac, the
12 Federal Home Loan Banks, and the Office of Finance.2 The Act requires FHFA to
annually prepare financial statements and requires GAO to audit the agency’s
financial statements. This report responds to these requirements.

We are sending copies of this report to the Chairman of the Federal Housing
Finance Oversight Board; the Secretary of Treasury; the Secretary of Housing and
Urban Development; the Chairperson of the Securities and Exchange Commission;
the Director of the Office of Management and Budget; and other interested parties.
In addition, this report is available at no charge on the GAO website at
http://www.gao.gov.

If you have questions about this report, please contact me at (202) 512-3406 or
malenichj@gao.gov. Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this report.




J. Lawrence Malenich
Director
Financial Management and Assurance

Enclosure




1
  Pub. L. No. 110-289, 122 Stat. 2654, (July 30, 2008). The 12 Federal Home Loan Banks and the Office of
Finance, whose primary function is to issue and service all debt securities for the FHLBanks, comprise the
Federal Home Loan Bank System.
2
  The Office of Finance is operated on behalf of the 12 Federal Home Loan Banks. Its primary function is to issue
and service all debt securities for the Federal Home Loan Banks, while obtaining the most cost-effective terms
possible given current market conditions.



Page 2                                       GAO-13-124R FHFA’s Fiscal Years 2012 and 2011 Financial Statements
                                                     2012
                                    FEDERAL
                                    HOUSING
                                    FINANCE
                                     AGENCY

                                                     Performance and
                                                     Accountability Report




FHLB Atlanta . FHLB Boston . FHLB Chicago . FHLB Cincinnati . FHLB
Dallas . FHLB Des Moines . Fannie Mae . Freddie Mac . FHLB Indianapoli
 FHLB New York . FHLBanks . FHLB Pittsburgh . FHLB San Francisco
FHLB Seattle . FHLB Topeka . FHLB Atlanta . FHLB Boston . FHLB Chicag
 FHLB Cincinnati . FHLB Dallas . FHLB Des Moines . Fannie Mae . Freddi
Mac . FHLB Indianapolis . FHLB New York . FHLBanks . FHLB Pittsburg
  FHLB San Francisco . FHLB Seattle . FHLB Topeka . FHLB Atlanta
FHLB Boston . FHLB Chicago . FHLB Cincinnati . FHLB Dallas . FHLB De
Moines . Fannie Mae . Freddie Mac . FHLB Indianapolis . FHLB New York
FHLBanks . FHLB Pittsburgh . FHLB San Francisco . FHLB Seattle . FHLB
Topeka B U I L D I N G A N I N F R A S T R U C T U R E F O R T H E S E C O N D A R Y M O R T G A G E M A R K E T
             2012
             Performance and
             Accountability Report


             MISSION

             Provide effective supervision, regulation, and
             housing mission oversight of Fannie Mae, Freddie
             Mac, and the Federal Home Loan Banks to
             promote their safety and soundness, support
             housing finance and affordable housing, and
             support a stable and liquid mortgage market.



VISION

A reliable, stable, and liquid housing finance system.



F H FA V A L U E S

RESPECT                                INTEGRITY
We strive to act with respect for      We seek to adhere to the highest
each other, to promote diversity, to   ethical and professional standards
share information and resources,       and to inspire trust and confidence
to work together in teams, and to      in our work.
collaborate to solve problems.

EXCELLENCE                             DIVERSITY
We aspire to excel in every            We pursue the full inclusion of all
aspect of our work and to seek         segments of the U.S. population
better ways to accomplish              in our business endeavors and
our mission and goals.                 at the entities we regulate.




                   FEDERAL HOUSING FINANCE AGENCY
2012 PERFORMANCE AND
A C C O U N TA B I L I T Y R E P O R T


Table                       of          Contents



|	   Message from the Acting Director  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 4
            How the Report is Organized  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                     7

|	   Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
            Strategic Goals and Resource Management Strategy .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                    9
            Alignment of Resource Allocation with Strategic Goals  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                    9
            FHFA at a Glance .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
            Organization  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
            Management Challenges and What Lies Ahead  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 20
            Performance Highlights by Strategic Goal  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
            FY 2012 Performance Summary .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
            Overview of FHFA’s Seven Key Performance Measures  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 36
            Program Evaluations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 40
            Analysis of Financial Statements  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 42
            Analysis of Systems, Controls and Legal Compliance  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 44
            Management Report on Final Actions  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 47
            FHFA’s Statement of Assurance  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49

|	   Performance Section  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 50
            Managing and Measuring Performance  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
            Strategic Human Capital Management  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 53
            Strategic Goal 1: Safety and Soundness .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 54
            Strategic Goal 2: Stable, Liquid, and Efficient Mortgage Market .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 58
            Strategic Goal 3: Preserve and Conserve Enterprise Assets  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 63
            Resource Management Strategy .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 67
|	   Financial Section  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 72
             Message from the Chief Financial Officer  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 73
             Independent Auditor’s Report .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 74
             Appendix I: Management’s Report on Internal Control Over Financial Reporting .  .  .  .  .  .  .  .  .  . 80
             Appendix II: FHFA Response to Auditor’s Report .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 81
             Financial Statements .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 82
             Notes to the Financial Statements  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 86

|	   Other Accompanying Information  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 104
             Performance Goals and Measures No Longer Reported  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 105
             Inspector General’s FY 2013 Management and Performance Challenges .  .  .  .  .  .  .  .  .  .  .  .  .  . 106
             Summary of Financial Statements Audit and Management Assurances .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 115

|	   Appendix  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 116
             Glossary .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 117
             Acronyms  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 119
             Index of Figures and Features  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 120
             Acknowledgements  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 120
             FHFA Agency Key Management Officials  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                         (inside back cover)
                  Message from the
                  Acting Director


                               I am pleased to present the Federal Housing Finance Agency’s (FHFA’s) FY 2012
                               Performance and Accountability Report. FHFA is an independent agency responsible
                               for providing effective supervision, regulation, and housing mission oversight of Fannie
                               Mae and Freddie Mac (the Enterprises), the Federal Home Loan Banks (FHLBanks) and
                               the FHLBank’s joint Office of Finance to promote their safety and soundness, support
                               housing finance, affordable housing, and a stable and liquid mortgage market. Together,
                               these 14 regulated entities are known as the housing government-sponsored enterprises,
                               or housing GSEs.

                               This report describes FHFA’s performance highlights, the challenges we face in
                               supervising the regulated entities, the collective work among FHFA and the Enterprises
                               to assist homeowners and support the housing market, and the ongoing initiatives by the
                               agency to ensure FHFA meets the strategic goals that are set.



                                FHFA’S FY 2012 STRATEGIC GOALS AND RESOURCE MANAGEMENT STRATEGY

                                 1       The housing GSEs operate in a safe and sound manner and comply with legal
                                         requirements.

                                 2       The housing GSEs support a stable, liquid, and efficient mortgage market
                                         including sustainable homeownership and affordable housing.

                                 3       FHFA preserves and conserves the assets and property of the Enterprises,
                                         ensures focus on their housing mission, and facilitates their financial stability and
                                         emergence from conservatorship.

                                 4       FHFA has the personnel, resources, and infrastructure to manage effectively and
                                         efficiently to achieve its mission and goals.



                               Enterprises
                               The Enterprises have been in conservatorships since September 2008 and they have
                               maintained a functioning conventional mortgage market throughout that period. Under
                               FHFA direction, the Enterprises made significant progress remediating the problems that
                               led to their being placed in conservatorships and refining programs designed to keep
                               borrowers in their homes.




4   Federal Housing Finance Agency   |    2012 Performance and Accountability Report
However, open-ended conservatorships cannot continue indefinitely. In February 2012, FHFA released A
Strategic Plan for Enterprise Conservatorships. This plan identifies three strategic goals for the next phase of the
conservatorships:
        „„Build   a new infrastructure for the secondary mortgage market;
        „„Contract  the Enterprises’ dominant presence in the marketplace gradually while simplifying and shrinking
          their operations; and
        „„Maintain   foreclosure prevention activities and credit availability for new and refinanced mortgages.

The plan is a roadmap for work FHFA and the Enterprises will undertake while the companies remain in
conservatorship. FHFA created the Office of Strategic Initiatives to help the agency execute the activities associated
with this plan.


Federal Home Loan Banks




                                                                                                                                MESSAGE FROM THE ACTING DIRECTOR
The FHLBanks continued to improve their financial condition and performance during the fiscal year. Balances of
private-label mortgage-backed securities (MBS) continued to decline and credit losses on these securities subsided,
allowing the FHLBanks to generate positive net income and augment their retained earnings.

In April 2012, FHFA concluded that the FHLBank of Chicago had satisfied the requirements established by the cease
and desist order that had been in place since October 2007 and removed that cease and desist order. In September
2012, FHFA determined that the FHLBank of Seattle was adequately capitalized under the risk-based capital
framework, removing the discretionary undercapitalized designation that had been in place.

The FHLBanks’ capital levels remained at or near historic highs during the fiscal year. Retained earnings have
increased dramatically in the past five years and now top $9 billion. Retained earnings should continue to increase
because of the capital plan provisions adopted last year to set aside 20 percent of income in restricted retained
earnings.


New FHFA Strategic Plan
FHFA developed a new Strategic Plan for FHFA for Fiscal Years 2013-2017 and released it in early October 2012. The
plan sets four strategic goals:

                                                               The new strategic plan builds on the agency’s
      FHFA’S FY 2013–2017 STRATEGIC GOALS
                                                               earlier document, A Strategic Plan for Enterprise
  1   Safe and sound housing GSEs.                             Conservatorships and lays out a series of initiatives
                                                               and strategies designed to improve current mortgage
      Stability, liquidity, and access in housing              processes, inspire greater confidence among potential
  2
      finance.
                                                               market participants and set the stage for an improved
  3   Preserve and conserve Enterprise assets.                 future system of housing finance.

      Prepare for the future of housing finance in the         In addition, the agency’s FY 2013 Annual Performance
  4
      United States.                                           Plan includes new performance measures for monitoring
                                                               progress toward meeting the strategic and performance
                                                               goals described in the Strategic Plan for FHFA for Fiscal
                                                               Years 2013-2017.




                                                             Building an Infrastructure for the Secondary Mortgage Market   5
    Program Data and Financial Performance
    For the fourth consecutive year, FHFA received an unqualified (clean) opinion on its financial statements from the U.S.
    Government Accountability Office (GAO). FHFA has no material internal control weaknesses, and our financial and
    performance data contained in this report are reliable and complete in accordance with Office of Management and
    Budget Circular A-123. FHFA met or exceeded 23 (92 percent) of its performance measures. The agency did not
    meet two (8 percent) of the measures (see the Performance Summary section on page 34).


    Conclusion
    The conservatorships of the Enterprises were never intended as a long-term solution but were meant primarily as
    a “time out.” However, in the four years since FHFA established the conservatorships, we have made significant
    strides towards maintaining a functioning mortgage market. The cornerstone of A Strategic Plan for Enterprise
    Conservatorships is to build a new securitization platform that could serve both Fannie Mae and Freddie Mac while
    in conservatorship—and potentially serve the secondary mortgage market in a post-conservatorship world that has
    multiple issuers of mortgage-backed securities.

    The FHLBanks have continued to play an important role in housing finance. There are many opportunities and
    challenges ahead, and the role of the FHLBanks in the country’s housing finance system will be part of the policy
    discussion.

    While the future structure of housing finance remains undetermined, the nation’s confidence in the housing market
    seems to be returning. FHFA looks forward to working with the Administration, Congress, and market participants in
    continuing the work of rebuilding the country’s housing finance system.




                                                                  EDWARD J. DEMARCO
                                                                  Acting Director
                                                                  November 15, 2012




6   Federal Housing Finance Agency    |   2012 Performance and Accountability Report
How the Report is Organized
This report highlights the agency’s accomplishments in FY 2012 and our future challenges. This report has five
sections, as follows:


MANAGEMENT’S DISCUSSION AND ANALYSIS
This section is an overview of the entire Performance and Accountability Report. It briefly describes FHFA’s
mission and organization, performance highlights, management challenges, and key performance measures. It
also gives a financial overview and management assurances of internal controls.


PERFORMANCE
This section identifies FHFA’s strategic goals and describes the fiscal year performance relative to the goals and




                                                                                                                                 MESSAGE FROM THE ACTING DIRECTOR
measures set forth in the agency’s Annual Performance Plan.


FINANCIAL
This section includes a Message from the Chief Financial Officer, the independent auditor’s report, Appendix I:
Management’s Report on Internal Control over Financial Reporting, Appendix II: FHFA Response to Auditor’s
Report, FHFA’s Financial Statements, and Notes to the Financial Statements.


OTHER ACCOMPANYING INFORMATION
This section includes performance goals and measures no longer reported, the Inspector General’s primary
management and performance challenges and the Summary of Financial Statements Audit and Management
Assurances.


APPENDIX
The appendix includes a glossary, a list of abbreviations and acronyms used in the report, acknowledgements,
and an index of figures and features.




                                                              Building an Infrastructure for the Secondary Mortgage Market   7
                     Management’s
                     Discussion and Analysis


                                     | 	 Strategic Goals and Resource Management Strategy
                                     | 	 Alignment of Resource Allocation with Strategic Goals
                                     | 	 FHFA at a Glance
                                     | 	Organization
                                     | 	 Management Challenges and What Lies Ahead
                                     | 	 Performance Highlights by Strategic Goal
                                     | 	 FY 2012 Performance Summary
                                     | 	 Overview of FHFA’s Seven Key Performance Measures
                                     | 	 Program Evaluations
                                     | 	 Analysis of Financial Statements
                                     | 	 Analysis of Systems, Controls and Legal Compliance
                                     | 	 Management Report on Final Actions
                                     | 	 FHFA’s Statement of Assurance


2 0 1 2 F E D E R A L H O U S I N G F I N A N C E A G E N C Y P E R F O R M A N C E A N D A C C O U N TA B I L I T Y R E P O R T
                                                                                                                                                                                          DISCUSSION AND ANALYSIS
                                                                                                                                                                                               MANAGEMENT’S
Strategic Goals and Resource Management Strategy

  STRATEGIC GOAL 1:                                   The housing government-sponsored enterprises (GSEs)—Fannie Mae, Freddie
  SAFE AND SOUND                                      Mac, and the Federal Home Loan Banks—operate in a safe and sound manner
  HOUSING GSES                                        and comply with legal requirements.

  STRATEGIC GOAL 2:                                   The housing GSEs support a stable, liquid, and efficient mortgage market
  HOUSING MISSION                                     including sustainable homeownership and affordable housing.

  STRATEGIC GOAL 3:                                   FHFA preserves and conserves the assets and property of the Enterprises,
  CONSERVATORSHIP                                     ensures focus on their housing mission, and facilitates their financial stability
                                                      and emergence from conservatorship.

  RESOURCE MANAGEMENT                                 FHFA has the personnel, resources, and infrastructure to manage effectively
  STRATEGY                                            and efficiently to achieve its mission and goals.




Alignment of Resource Allocation with Strategic Goals
FHFA tracks resource allocations and program costs                                  on each goal. Resources associated with the Resource
according to strategic goals. Figure 1 illustrates the                              Management Strategy were distributed proportionately to
costs that FHFA expended from FY 2010 to FY 2012                                    Strategic Goals 1 through 3 based on the percentage of
to accomplish its three strategic goals. Figure 2 shows                             direct costs of each strategic goal to the total direct costs
the number of full-time equivalent employees working                                for FHFA.




                     Figure 1: ACTUAL DOLLARS FY 2010–2012                             Figure 2: ACTUAL FULL-TIME EQUIVALENTS FY 2010–2012
                               (DOLLARS IN MILLIONS)
                                                                                       500
               200
                                                                                                         421 426
                                                                                       400
                              $153.6
               150                                                                               326
                         $126.0                                                        300

                     $95.9
               100
  $ Millions




                                                                                       200

                                                                          $39.0        100                                                    82
                50                                                                                                            54      69                   57
                                                  $24.9           $24.2                                                                                            36     43
                                       $16.0 $17.2        $16.7
                                                                                         0
                                                                                                    STRATEGIC                   STRATEGIC                    STRATEGIC
                 0                                                                                    GOAL 1                      GOAL 2                       GOAL 3
                       STRATEGIC          STRATEGIC          STRATEGIC
                         GOAL 1             GOAL 2             GOAL 3
                                                                                                  2010                      2011                      2012
                      2010             2011              2012
                                                                                             Note: Full-time equivalent (FTE) is calculated as the total number of hours worked (or
                                                                                                   to be worked) divided by the number of compensable hours in each fiscal year.




                                                                                  Building an Infrastructure for the Secondary Mortgage Market                                        9
     FHFA at a Glance

     OVERVIEW                                                       CONSERVATOR OF THE ENTERPRISES
     The Federal Housing Finance Agency was created as              In accordance with the Federal Housing Enterprises
     an independent agency on July 30, 2008, when the               Financial Safety and Soundness Act of 1992 as amended
     President signed the Housing and Economic Recovery             by HERA, FHFA was appointed conservator of Fannie
     Act of 2008 (HERA). This law merged the staffs at the          Mae and Freddie Mac on September 6, 2008.
     Office of Federal Housing Enterprise Oversight, the
                                                                    As conservator, FHFA is authorized to “take such action
     Federal Housing Finance Board, and certain staff from
                                                                    as may be:
     the U.S. Department of Housing and Urban Development
     (HUD). FHFA is responsible for overseeing the financial         (i)	necessary to put the regulated entity in a sound and
     safety and soundness and housing mission compliance of              solvent condition; and
     the housing GSEs.                                               (ii)	appropriate to carry on the business of the regulated
                                                                          entity and preserve and conserve the assets and
     REGULATOR OF THE ENTERPRISES AND                                     property of the regulated entity.”
     THE FHLBANKS
                                                                    In addition, FHFA holds authority over the management,
     As regulator, FHFA has a statutory responsibility to ensure
                                                                    boards, and shareholders of the Enterprises in
     that each regulated entity operates in a safe and sound
                                                                    conservatorship. However, the Enterprises continue to
     manner and that the operations and activities of each
                                                                    operate as business corporations. For example, they
     regulated entity foster liquid, efficient, competitive, and
                                                                    have chief executive officers and boards of directors, and
     resilient national housing finance markets.
                                                                    must follow the laws and regulations governing financial
     FHFA participates in a number of interagency initiatives       disclosure, including requirements of the Securities
     to improve the effectiveness of its oversight, including       Exchange Commission.
     the Financial Stability Oversight Council (FSOC), the
                                                                    Like other corporate executives, the Enterprises’
     Federal Housing Finance Oversight Board, and the
                                                                    executive officers have legal responsibilities to use sound
     Financial Stability Oversight Board (FINSOB). The FHFA
                                                                    and prudent business judgment in their stewardship of the
     Director is appointed by the President, subject to Senate
                                                                    companies.
     approval. The Director represents the agency on FSOC
     and FinSOB, and chairs the Federal Housing Finance             While FHFA has broad authority, the focus of the
     Oversight Board.                                               conservatorships is not to manage every aspect of
                                                                    the Enterprises’ operations. Instead, FHFA leadership
                                                                    reconstituted the Enterprises' boards of directors in 2008
                                                                    and charged them with ensuring that normal corporate
                                                                    governance practices and procedures are in place. The
                                                                    boards are responsible for carrying out normal board
                                                                    functions, which are subject to FHFA review and approval
                                                                    on critical matters. This division of duties represents
                                                                    the most efficient structure for carrying out FHFA
                                                                    responsibilities as conservator.




10   Federal Housing Finance Agency     |   2012 Performance and Accountability Report
                                                                                                                                      DISCUSSION AND ANALYSIS
                                                                                                                                           MANAGEMENT’S
FY 2012 Profile
„„During each calendar year (CY), FHFA completes               „„FHFA   worked with the Enterprises to complete
  examinations for Fannie Mae, Freddie Mac, each of              foreclosure prevention actions, which helped 522,575
  the 12 FHLBanks, and the Office of Finance. FHFA               homeowners avoid foreclosure from October 2011
  presents reports of examination to the respective              to August 2012. These actions are intended to assist
  boards of directors, though the scheduling of                  homeowners whose mortgages are in distress to
  examination fieldwork and reviews of examination               maintain their homes. The Home Affordable Refinance
  reports may vary from year to year. Results of the             Program (HARP) was established as a pre-distressed
  examinations are reported to Congress.                         action to enable homeowners to refinance their
„„FHFA
                                                                 mortgages and lower their monthly payments. From
         consolidated its operations from three separate
                                                                 October 2011 to August 2012, 711,409 mortgages
  locations to a new headquarters at Constitution
                                                                 were refinanced through HARP.
  Center in Washington, D.C., in January 2012. This
  move allowed the headquarters staff to work in a             „„FHFA  increased its staff by 64 employees in FY 2012,
  single location, which facilitates coordination and            ending the year at 574 employees.
  communications across the agency’s divisions and             „„FHFA’s  budget for FY 2012 was $185.8 million
  offices and contributes to more effective and efficient        (excluding the Office of Inspector General); the
  operations for the agency.                                     agency’s FY 2011 budget was $176.4 million.
„„FHFA   developed two new strategic plans
  during FY 2012—A Strategic Plan for Enterprise
  Conservatorships that describes the initiatives                   Figure 3: FHFA’S WORKFORCE BY SPECIALIZED AREA
  that will be undertaken in the next phase of the
                                                                                    FHFA EMPLOYEES
  conservatorships and the Strategic Plan for FHFA for                                  (by specialized area)
  Fiscal Years 2013-2017.                                                                                  2012         2013
„„FHFA  created the Office of Strategic Initiatives to                                                   Year End      Budgeted
  coordinate and oversee activities associated with A          Examinations                                     242            272
  Strategic Plan for Enterprise Conservatorships.              Other Mission                                    139            134
„„FHFA  expanded its regulatory presence at the                Office of the Director                             27            30
  Enterprises by increasing the number of examiners            Legal                                              40            42
  permanently onsite at Fannie Mae and Freddie Mac.            Information Technology                             53            54
„„FHFA handled 246 congressional inquiries, 2,065              Infrastructure                                     73            78
  non-consumer general public inquiries, and 2,554             TOTAL                                            574            610
  consumer inquiries in FY 2012.




                                                            Building an Infrastructure for the Secondary Mortgage Market             11
     Organization
     FHFA is an independent government agency with
     a workforce that includes highly skilled examiners,
     economists, financial and policy analysts, attorneys,
     and subject matter experts in banking, technology,
     accounting, and legal matters. The Acting Director sets
     the direction for the agency to achieve its mission with
     core divisions and offices working together to ensure
     effective execution of the agency’s mission (see Figure 4).

     The Office of Inspector General (OIG) is responsible
     for conducting independent objective audits, evaluations,
     investigations, surveys, and risk assessments of FHFA’s
     programs and operations. OIG informs the FHFA Director,                FHFA staffers chat before the annual employee awards ceremony in June
                                                                            2012.
     Congress, and the public of any problems or deficiencies
     relating to programs and operations. OIG activities assist
     FHFA staff and program participants in ensuring the                    or a person for submitting a complaint or appeal to the
     effectiveness, efficiency, and integrity of FHFA’s programs            Ombudsman. The office was created by regulation under
     and operations. The office was established by HERA in                  HERA and commenced operation in March 2011.
     2008 and commenced operation in October 2010.
                                                                            The Office of Chief Operating Officer oversees the
     The Office of Ombudsman is responsible for considering                 agency’s day-to-day operations, including facilities
     complaints and appeals from any regulated entity, the                  management, contingency planning, continuity of
     Office of Finance, or any person who has a business                    operations, financial and strategic planning and
     relationship with a regulated entity or the Office of Finance          budgeting. The office also directs human resources
     concerning any matter relating to FHFA’s regulation and                management, information technology, quality assurance,
     supervision. Neither FHFA nor any of its employees may                 internal and external communications, and coordination
     retaliate against a regulated entity, the Office of Finance,           with the FHFA Office of Inspector General. The office leads


                                                 Figure 4: FHFA PRINCIPAL ORGANIZATION UNITS



                                                 OFFICE OF THE DIRECTOR                            INSPECTOR GENERAL


               Office of the Ombudsman




              Office of the              Division of                                            Division of
                                                                  Division of Bank                                     Division of Housing
             Chief Operating             Enterprise                                          Supervision Policy
                                                                     Regulation                                        Mission and Goals
                 Officer                 Regulation                                            and Support




                Office of                                                                    Office of Minority
                                     Office of General                 Office of
             Conservatorship                                                                        and
                                          Counsel                Strategic Initiatives
               Operations                                                                    Women Inclusion




12   Federal Housing Finance Agency        |   2012 Performance and Accountability Report
                                                                                                                                     DISCUSSION AND ANALYSIS
                                                                                                                                          MANAGEMENT’S
reporting on strategic planning and accountability, and          FHFA’s mission and the Director’s responsibilities as a
develops recommendations for long-term improvements              member of the Federal Housing Finance Oversight Board,
in agency operations.                                            the Financial Stability Oversight Board, and the Financial
                                                                 Stability Oversight Council, the division also oversees and
The Division of Enterprise Regulation (DER) is                   coordinates FHFA activities that involve data analysis,
responsible for the supervision of the Enterprises to            market surveillance, systemic risk monitoring, and analysis
ensure their safe and sound operation. This office               affecting housing finance and financial markets.
provides management oversight, direction, and support
for all examination activity involving the Enterprises, the      The Office of Conservatorship Operations assists the
development of supervision findings, and preparation of          FHFA Director, as conservator, in preserving and conserving
the annual reports of examination. The division monitors         Fannie Mae’s and Freddie Mac’s assets and property. The
and assesses the financial condition and performance             office ensures that the Enterprises focus on their mission—
of the Enterprises and their compliance with regulations         providing stability, liquidity, and affordability to the housing
through annual on-site examinations and periodic                 market. The office interacts with the Enterprises and the
visitations. An examiner-in-charge leads examination             conservator to help restore confidence in the Enterprises,
activity at each Enterprise.                                     enhance their ability to fulfill their mission, and mitigate
                                                                 issues of systemic risk leading to market instability. The
The Division of Federal Home Loan Bank Regulation                office facilitates communications between the Enterprises
(DBR) is responsible for supervising the FHLBanks and            and the conservator to ensure the prompt identification of
the Office of Finance to promote their safe and sound            emerging issues and their timely resolution. The office also
operation. The division oversees and directs all FHLBank         works with the Enterprises’ boards and senior management
examination activities, develops examination findings,           to establish priorities and milestones for accomplishing the
and prepares annual examination reports. The division            goals of the conservatorship.
monitors and assesses the financial condition and
performance of the FHLBanks and the Office of Finance            The Office of the General Counsel advises and
and tests their compliance with laws and regulations             supports the Director and FHFA staff on legal matters
through annual on-site examinations, periodic visits,            related to the functions, activities, and operations of
and off-site monitoring and analysis. DBR also conducts          FHFA and the regulated entities. It supports supervision
Affordable Housing Program (AHP) on-site examinations            functions, regulations writing, and enforcement actions.
and visits each FHLBank annually to ensure compliance            The office oversees the bringing or defense of litigation.
with program regulations and to evaluate the effectiveness       The office also manages the Freedom of Information
of each FHLBank’s AHP program.                                   Act (FOIA) and Privacy Act programs. The ethics official
                                                                 advises, counsels, and trains FHFA employees on ethical
The Division of Supervision Policy and Support is                standards and conflicts of interest, and manages the
responsible for monitoring the regulated entities for            agency’s financial disclosure program.
emerging risks in housing and financial markets and key
counterparties. The division also is responsible for working     The Office of Strategic Initiatives leads, coordinates
with other federal financial regulators on identifying and       and clarifies agency and Enterprise activities related to
assessing emerging risks and regulatory best practices           FHFA’s A Strategic Plan for Enterprise Conservatorships
as well as working with DER and DBR to incorporate this          to achieve the objectives set forth therein. It oversees
information into FHFA’s supervisory program.                     FHFA activities involving engagement with the Enterprises
                                                                 on specific projects associated with the strategic plan.
The Division of Housing Mission and Goals is                     The office promotes consistency between FHFA and the
responsible for FHFA policy development and analysis,            Enterprises with regard to priorities and timelines and
oversight of housing and regulatory policy, and oversight        ensures that projects achieve their objectives in a timely
of the mission and goals of the Enterprises, and                 and efficient manner.
the housing finance and community and economic
development mission of the FHLBanks. In support of




                                                               Building an Infrastructure for the Secondary Mortgage Market         13
     The Office of Minority and Women Inclusion (OMWI)             and protects staff against workplace discrimination.
     is responsible for all matters of diversity in employment,    OMWI ensures that minorities, women, service-disabled
     management, and business activities at FHFA as well as        veterans, and persons with disabilities are fully included in
     programs to monitor minority and women inclusion at the       all job and business opportunities created as a part of the
     regulated entities. OMWI ensures that FHFA is compliant       Federal Government’s efforts to reform and strengthen the
     with Equal Employment Opportunity laws and regulations,       banking system and the financial services industry.




14   Federal Housing Finance Agency    |   2012 Performance and Accountability Report
                                                                                                                                                              DISCUSSION AND ANALYSIS
                                                                                                                                                                   MANAGEMENT’S
The Housing Government-Sponsored Enterprises

FANNIE MAE AND FREDDIE MAC                                                    The agreements require a 15 percent reduction in
(THE ENTERPRISES)                                                             the Enterprises’ retained portfolios each year. At the
Fannie Mae and Freddie Mac were created by                                    inception of the conservatorships, FHFA made clear that
Congress to provide stability and liquidity in the                            the Enterprises would continue to be responsible for
secondary market for home mortgages. The Enterprises                          normal business activities and day-to-day operations.
purchase mortgages that lenders have already made                             FHFA exercises oversight as safety and soundness
to homeowners. These mortgages are guaranteed by                              regulator while serving a more active role as conservator.
the Enterprise, pooled into mortgage-backed securities                        To manage the work of overseeing the Enterprises’
(MBS), and either sold to investors or kept by the                            conservatorships and to assist the FHFA Director, FHFA
Enterprise as an investment (see Figure 5).                                   created the Office of Conservatorship Operations in
                                                                              2008. In February 2012, FHFA released A Strategic
The Enterprises have operated under conservatorship                           Plan for Enterprise Conservatorships that describes the
since 2008 with FHFA as the legal conservator. The U.S.                       next phase of the conservatorships. The Management
Department of the Treasury supports the Enterprises                           Challenges and Performance Highlights sections of this
through Preferred Stock Purchase Agreements, which                            report detail more about the strategic plan on pages
ensure each Enterprise maintains a positive net worth.                        20–21 and 29.


                      Figure 5: FHFA OVERSIGHT AND CONSERVATORSHIP ROLES — FANNIE MAE AND FREDDIE MAC

   PRIMARY MORTGAGE MARKET                                                                                        Borrower Applies for Mortgage
   Market in which financial institutions
   provide mortgage loans to home buyers.                            LENDER
                                                                                                                                                  Borrower
                                                                                                                  Borrower Receives Loan
                                                             Lenders Sell Loans that
                                                              Meet Underwriting and
                                                                 Product Standards

                                                                                                Lenders Receive
   SECONDARY MORTGAGE MARKET
                                                                                                Cash or MBS
   Market in which existing mortgages
   and mortgage-backed securities                                                                                     Conservator
                                                                         FANNIE MAE and
   (MBS) are traded.
                                                                           FREDDIE MAC

                                                                       Credit             Portfolio
                                                                     Guarantee           Investment
                                Lenders Sell MBS   Lenders                                                            Financial Safety and
                                                                     Business             Business                    Soundness Regulator
                                   Received from   Receive
                                   Fannie Mae or   Cash
                                     Freddie Mac               Issues                  Issues
                                                                 MBS                     Debt
                                                                              Buys                   Buys
                                                                              MBS                    Debt

                                                               WALL STREET

                                                        Sells MBS
                                                         & Debt to
                                                         Investors       Buys MBS
                                                                         & Debt

                                                                 INVESTORS
                                                                • Individual
                                                                • Institutional
                                                                • Foreign




                                                                          Building an Infrastructure for the Secondary Mortgage Market                       15
     Despite being in conservatorship, the Enterprises continue                                                           accounting period (second quarter 2012) and for the first
     to play a dominant role in the secondary mortgage                                                                    time since 2008, neither Enterprise needed additional
     market. At the end of August 2012, the Enterprises                                                                   funding from the Treasury Department.
     owned or guaranteed nearly $5.2 trillion of mortgages
     consisting of approximately $1.2 trillion in mortgages and
                                                                                                                          FEDERAL HOME LOAN BANKS
     MBS held in the Enterprises’ investment portfolios and
                                                                                                                          Congress passed the Federal Home Loan Bank Act in
     nearly $4.0 trillion in MBS held by investors other than the
                                                                                                                          1932 to establish the Federal Home Loan Bank System
     Enterprises.
                                                                                                                          and reinvigorate a housing market devastated by the
     The Enterprises have been responsible for issuing the                                                                Great Depression.
     majority of all MBS to the market since 2008, when, as
                                                                                                                          The System includes 12 district banks, each serving a
     a result of the financial crisis, the private sector virtually
                                                                                                                          designated geographic area of the United States, and the
     withdrew from the market. As of August 2012, for
                                                                                                                          Office of Finance, which issues consolidated obligations
     example, the share of total MBS issued by the Enterprises
                                                                                                                          to fund the banks.
     stood at 78 percent. When combined with the 22 percent
     share for the Government National Mortgage Corporation                                                               The FHLBanks are member-owned cooperatives and
     (Ginnie Mae), the government sector accounted                                                                        provide a reliable source of liquidity to member financial
     essentially for all issuances of MBS (see Figure 6).                                                                 institutions. At the end of fiscal year 2012, there were
                                                                                                                          7,699 FHLBank members, which included:
     The Enterprises have received substantial support
     from the Federal Government while in conservatorship.                                                                  „„1,004         thrifts;
     Through the purchase of Senior Preferred Stock, the                                                                    „„5,266         commercial banks;
     Treasury Department has provided $187.5 billion to the
                                                                                                                            „„1,158         credit unions; and
     Enterprises—$116.2 billion to Fannie Mae and $71.3
     billion to Freddie Mac. In the most recent quarterly                                                                   „„271          insurance companies



                                                              Figure 6: ENTERPRISES’ MARKET SHARE—MBS ISSUANCE VOLUME

                    $300


                    $250


                    $200
       $ Billions




                    $150


                    $100


                     $50


                      $0
                                2001           2002            2003           2004            2005           2006            2007           2008       2009    2010    2011   2012
                                                                                                                                                                              Q1     Q2    Q3
        Enterprises               67%            68%            70%             47%            41%             40%            58%            73%       72%       70%   73%    79%    74%   78%

        Ginnie Mae                13%             9%             8%              7%             4%              4%              5%           22%       25%       26%   25%    20%    26%   22%

        Total Agency              80%            77%            78%             54%            45%             44%            63%            95%       97%       96%   98%    99%    100% 100%

                                  Private-Label                           Ginnie Mae                       Freddie Mac                        Fannie Mae

                           Sources: Inside Mortgage Finance, Enterprise Monthly Volume Summaries.
                                    Issuance figures exclude MBS issued backed by assets previously held in the Enterprises' portfolios.




16   Federal Housing Finance Agency                                   |     2012 Performance and Accountability Report
                                                                                                                                                         DISCUSSION AND ANALYSIS
                                                                                                                                                              MANAGEMENT’S
As of September 30, 2012, with total assets of $749 billion,                           and community development financial institutions
the FHLBank system represents one of the largest banking                               engaged in residential housing finance. Approximately 58
structures in the country. Few bank holding companies—                                 percent of members are borrowers (see Figure 9). Each
Citigroup, JP Morgan Chase, Bank of America, Wells                                     FHLBank district comprises whole contiguous states,
Fargo, Goldman Sachs, and Met Life—are larger.                                         including the District of Columbia and U.S. territories. The
                                                                                       districts range in size from two to nine states (see Figure
The FHLBank of Atlanta, with assets of $112.1 billion,                                 10).
is the largest FHLBank, and the FHLBank of New York,
with assets of $107.1 billion, is the second largest. The                              In addition to advances, the FHLBanks offer members
FHLBank of Dallas is the smallest in the System at $35.2                               letters of credit, correspondent banking (which includes
billion in assets, followed by Topeka, at $35.4 billion in                             security safekeeping, wire transfers, and settlements),
assets as of September 30, 2012 (see Figure 7).                                        cash management services, and derivative intermediation.
                                                                                       Some FHLBanks have Acquired Member Assets (AMA)
FHLBanks make loans, known as advances, to member                                      programs to purchase mortgages from their members.
institutions and housing associates, such as state housing                             The volume of loan purchases is low relative to advances,
agencies. Those loans are underwritten based on the                                    and AMA balances have generally declined over the past
borrower’s ability to repay and are collateralized by whole                            five to seven years.
mortgage loans, securities, and other real estate related
collateral (see Figure 8). Advances are the largest category                           The FHLBanks also offer their members several housing
of FHLBank assets and no FHLBank has ever incurred a                                   and community investment programs, such as the
credit loss on an advance. FHLBank advances and other                                  Affordable Housing Program. Members receive a
credit-related products increase the availability of credit for                        subsidy from an FHLBank used typically in conjunction
residential mortgages.                                                                 with an affordable housing sponsor for the purchase,
                                                                                       construction, or rehabilitation of housing for low- and
As a condition of membership in an FHLBank or to obtain                                moderate-income households. The Affordable Housing
an advance, an institution purchases capital stock in that                             Program supports both multifamily rental properties
bank. Only member institutions can purchase the capital                                and single-family home ownership projects. Each
stock in an FHLBank and, with the exception of certain                                 FHLBank must contribute the greater of 10 percent of
housing associates, only member institutions can borrow                                its net income or an aggregate $100 million to fund the
from an FHLBank.                                                                       Affordable Housing Program. Since 1990, the FHLBanks
                                                                                       have contributed $4.1 billion in subsidy to this program as
Membership is limited to regulated depository institutions
                                                                                       of September 30, 2012.
(banks, thrifts, and credit unions), insurance companies,


                                           Figure 7: TOTAL ASSETS OF THE FHLBANKS AT SEPTEMBER 30, 2012


                140

                120   112.1
                                 107.1
                100                          94.2

                 80
   $ Billions




                                                         67.2        66.4
                                                                                60.1
                 60
                                                                                            48.7    45.7        41.2
                 40                                                                                                          35.6     35.4     35.2

                 20

                  0
                                              San                                           Des
                      Atlanta   New York   Francisco   Cincinnati   Chicago   Pittsburgh   Moines   Boston   Indianapolis   Seattle   Topeka   Dallas




                                                                                    Building an Infrastructure for the Secondary Mortgage Market        17
                                                             Figure 8: FHFA OVERSIGHT ROLE — FHLBANKS


                                                                                                                  Borrower Applies for Mortgage
                                                                                    LENDER
                                                                                                                                                              Borrower
                                                                                                                    Borrower Receives Loan
                                                                             Lender
                                                                            Pledges          Lender
                                                                          Collateral*        Receives
                                                                                             Cash
                                                                                             (Advance)

                                                                                   FHLBANK

                                                                                                                            Ensures
                                                                                             All Debt Is Issued             Financial
                                                                                             through the                    Safety and
                                                                                             Office of Finance              Soundness


                                                                               OFFICE OF FINANCE

                                                                     Issues Debt to
                                                                       Underwriters
                                                                                             Receives
                                                                                             Cash from
                INVESTORS
                                                                                             Underwriters
                • Individual             Sells Bonds to Investors
                • Institutional                                                  WALL STREET
                • Foreign                                                                                                 * Note: The collateral pledged may include assets other
                                      Investors Purchase Bonds                                                                    than mortgages. Also, the collateral pledged may
                                          from Underwriters                                                                       be loans originated well in the past.




                                     Figure 9: NUMBER OF FHLBANK MEMBERS AND PERCENT OF MEMBERS THAT BORROW


                 9,000                                                                                                                                                          90%
                 8,000                                                                                                                                                          80%
                 7,000                                                                                                                                                          70%   Borrowing Percent

                 6,000                                                                                                                                                          60%
      Members




                 5,000                                                                                                                                                          50%
                 4,000                                                                                                                                                          40%
                 3,000                                                                                                                                                          30%
                 2,000                                                                                                                                                          20%
                 1,000                                                                                                                                                          10%
                     0
                         DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC JUN 0%
                         ´91 ´92 ´93 ´94 ´95 ´96 ´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07 ´08 ´09 ´10 ´11 ´12
                          Members                        Borrowing Percent




18   Federal Housing Finance Agency                  |   2012 Performance and Accountability Report
                                                                                                                                                               DISCUSSION AND ANALYSIS
                                                                                                                                                                    MANAGEMENT’S
                                                          Figure 10: BANK LOCATIONS




             Alaska




                         Seattle


Hawaii

                                                                                                                                               Boston

   Guam                                                                                                                                   New York
                                                                                  Des Moines                                 Pittsburgh
                                                                                               Chicago
                                                                                                                Cincinnati
                 San                                                                             Indianapolis                                 Puerto Rico
                 Francisco                                              Topeka

                                                                                                                                             Virgin Islands



                                                                                                                 Atlanta
                                                                       Dallas




          ATLANTA                  Alabama, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia
          BOSTON                   Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont
          CHICAGO                  Illinois, Wisconsin
          CINCINNATI               Kentucky, Ohio, Tennessee
          DALLAS                   Arkansas, Louisiana, Mississippi, New Mexico, Texas
          DES MOINES               Iowa, Minnesota, Missouri, North Dakota, South Dakota
          INDIANAPOLIS             Indiana, Michigan
          NEW YORK                 New Jersey, New York, Puerto Rico, Virgin Islands
          PITTSBURGH               Delaware, Pennsylvania, West Virginia
          SAN FRANCISCO            Arizona, California, Nevada
          SEATTLE                  Alaska, Guam, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming
          TOPEKA                   Colorado, Kansas, Nebraska, Oklahoma




                                                                           Building an Infrastructure for the Secondary Mortgage Market                       19
     Management Challenges and What Lies Ahead
                                                                             Several of the more challenging initiatives organized by
                                                                             goal, are described below.


                                                                             Building a New Infrastructure for the Secondary
                                                                             Mortgage Market
                                                                             Securitization Platform
                                                                             FHFA and the Enterprises have begun work on a possible
                                                                             design for a common securitization platform to replace
                                                                             the Enterprises’ current proprietary systems, which are
                                                                             aging, inflexible and in need of substantial improvement.
                                                                             This important infrastructure investment will provide a
                                                                             sound securitization platform designed to issue securities
                                                                             supported with or without a government guarantee.

                                                                             FHFA issued a white paper entitled Building a New
                                                                             Infrastructure for the Secondary Mortgage Market on
                                                                             October 4, 2012. The white paper identifies the core
                                                                             components of mortgage securitization necessary in
     Acting Director Edward J. Demarco addresses FHFA staff at a town hall
                                                                             the housing finance system going forward, including
     meeting on the Conservatorship Strategic Plan in March 2012.
                                                                             two cornerstone operational features: 1) a securitization
                                                                             platform to process payments and perform other
                                                                             functions that could be used by multiple MBS issuers,
     FHFA continues to face numerous challenges as regulator
                                                                             and 2) a contractual framework supporting the new
     of the housing GSEs and conservator of the Enterprises.
                                                                             infrastructure. FHFA requested public input on the
                                                                             concepts outlined in the paper.
     MANAGING THE ENTERPRISES
                                                                             As the agency looks ahead to 2013, FHFA will continue
     In the four years since the establishment of the
                                                                             to coordinate Enterprise efforts on new systems and
     conservatorships of the Enterprises, FHFA has made
                                                                             a common platform while seeking input from industry
     significant progress in maintaining a functioning mortgage
                                                                             stakeholders throughout this process. FHFA will remain
     market; but there is still more to do. In February 2012,
                                                                             mindful of policymakers’ possible future determinations
     FHFA Acting Director Edward DeMarco formalized
                                                                             about the degree of government involvement and support
     the agency’s plans about long-term improvements to
                                                                             in the nation’s housing finance system.
     the housing finance system into A Strategic Plan for
     Enterprise Conservatorships. The plan details three
                                                                             Model Pooling and Servicing Agreements
     strategic goals for the next phase of conservatorship and
     outlines an expansive and aggressive agenda of activities               Building for the future also requires developing and
     for FHFA, Fannie Mae, and Freddie Mac.                                  implementing standards for underwriting, disclosures,
                                                                             and servicing. Creating a robust and standardized pooling
     In conjunction with the strategic plan, FHFA developed                  and servicing agreement is essential to improving the
     a conservatorship scorecard for the Enterprises. This                   existing system. The white paper entitled Building a
     scorecard will hold management at the Enterprises                       New Infrastructure for the Secondary Mortgage Market,
     accountable for meeting certain objectives. FHFA has also               published in October 2012 by the agency, also sought
     established the Office of Strategic Initiatives to coordinate           industry feedback on a potential contractual framework
     and oversee the initiatives associated with the plan.                   for standardized pooling and servicing agreements.




20   Federal Housing Finance Agency             |   2012 Performance and Accountability Report
                                                                                                                               DISCUSSION AND ANALYSIS
                                                                                                                                    MANAGEMENT’S
The conservatorship scorecard sets a goal for the               More Private Sector Risk Sharing
Enterprises to propose a model pooling and servicing            Shifting mortgage credit risk from the Enterprises to
agreement framework, seek public feedback and produce           private investors is central to Goal 2—Contracting
final recommendations for standard Enterprise trust             Enterprise Operations—outlined in A Strategic Plan
documentation by December 31, 2012. The longer-term             for Enterprise Conservatorships. FHFA is considering
goal is to develop pooling and servicing standards that not     a number of alternatives, including expanded use of
only create more efficiencies and best practices for the        mortgage insurance and security structures that allow for
Enterprises, but also provide an option for other investors     private sharing of risk.
and participants to enter the secondary market by using a
functional contractual framework that could address many        Risk sharing is a complex, nuanced process that requires
of the shortcomings in today’s private-label structures.        the evaluation of various avenues for investors to deploy
                                                                private capital. In the private sector, the role of credit
                                                                risk-taking through securitization can be divided into two
Contracting the Enterprises’ Footprint in the
                                                                categories: 1) operating companies such as the two GSEs
Market
                                                                and mortgage insurance companies that provide credit
Raising Guarantee Fees                                          guarantee for a fee; and 2) investors in non-agency or
FHFA has been taking steps to improve the Enterprises’          private label securities (PLS).
pricing of credit risk. In addition to strengthening market
                                                                A Strategic Plan for Enterprise Conservatorships focuses
practices, these steps contribute to the strategic goal
                                                                on creating a securitization framework of the future to
of gradually reducing the Enterprises’ footprint in the
                                                                facilitate mortgage funding. Among various alternatives for
mortgage market. Since being placed into conservatorship,
                                                                credit risk transfer, FHFA has considered expanded use
the Enterprises have steadily raised guarantee fees, which
                                                                of mortgage insurance and senior-subordinate securities
should gradually reduce taxpayers’ risk.
                                                                structures that allow for private sharing of risk with the
During fiscal year 2012, there were two guarantee fee           Enterprises. In addition to evaluating various mechanisms
increases. The first increase was an across-the-board           for risk transfer with regard to market opportunities, FHFA
10-basis-point increase mandated by Congress and                and the Enterprises also need to make operational changes
used to fund the temporary payroll tax cut. The second          and develop proper risk metrics and controls. FHFA and
was designed to average 10 basis points, but the actual         the Enterprises are working diligently and making progress
increase will vary depending on loan terms and other            on this and other complex risk-related issues.
factors.
                                                                Retained Portfolio Contraction
The agency plans to continually increase guarantee fees
                                                                FHFA ensured that Fannie Mae and Freddie Mac
in anticipation of a future market where credit risk is
                                                                contracted their respective retained portfolios consistent
borne principally or exclusively by private capital. These
                                                                with the Senior Preferred Stock Purchase Agreements
increases may also encourage private firms to increase
                                                                (SPSPA). FHFA is working with both GSEs to ensure
their participation in the mortgage market.
                                                                that both remain in compliance with the revised SPSPA
FHFA will also consider guarantee fee pricing based             executed by the Treasury Department and FHFA as
on the costs of doing business in different parts of the        conservator in August 2012 (see sidebar regarding
country. FHFA sent a Notice to the Federal Register in          SPSPA on page 31).
September 2012, presenting an approach to adjust
the guarantee fees that the Enterprises charge on               Maintaining Foreclosure Prevention Efforts and
single-family mortgages in states where costs related           Credit Availability
to foreclosure practices are statistically higher than the
                                                                Improving Loss Mitigation Efforts
national average.
                                                                The third goal outlined in A Strategic Plan for Enterprise
                                                                Conservatorships—maintaining foreclosure prevention




                                                              Building an Infrastructure for the Secondary Mortgage Market    21
     activities and credit availability—continues to be central        IMPROVING HOUSING GSEs
     to the conservator’s obligation to preserve and conserve          SUPERVISION
     the assets and property of the Enterprises. Foreclosure
     prevention efforts are designed to reduce credit losses,          Fully Implemented Realignment of Supervision
     primarily on mortgages originated in the years before             Staff
     conservatorship.                                                  In August 2012, Acting Director DeMarco announced
                                                                       organizational refinements that will place additional
     Although loss mitigation efforts that focus on helping            examiners on-site at each Enterprise. This move will
     delinquent households as early as possible are in place,          consolidate core examination activities and provide
     high levels of mortgage delinquencies continue. Since             in-depth technical support, advice, and analysis to
     the conservatorships began, the Enterprises’ foreclosure          enhance supervision under the examiners-in-charge at the
     prevention activities, including loan modifications and           Enterprises.
     short sales, have helped nearly 2.5 million borrowers avoid
     foreclosure as of August 2012. The Home Affordable                This supervision structure emphasizes:
     Modification Plan (HAMP) and other modification                    „„The  authority and responsibility of the examiner-in-
     programs have enabled the Enterprises to help more than               charge as the focal point for FHFA’s supervision;
     one million families modify their loans since the start of the
                                                                        „„Communication         with the Enterprises; and
     conservatorships. Both Enterprises have used HAMP as
     the first option for troubled borrowers.                           „„FHFA’s  collaborative and coordinated approach to
                                                                           supervision.
     In 2012, FHFA also announced steps to align and
     consolidate a number of previously existing short sales           Coordination and transition to new positions and offices
     programs into one program. This streamlining will enable          have begun, but the agency is challenged to have the
     lenders and servicers to more quickly and easily qualify          restructured division fully staffed and operating by the
     eligible borrowers for a short sale. FHFA also announced          start of the 2013 exam cycle.
     that the Enterprises would accelerate review and
     approvals of short sale transactions. FHFA will continue to       Implementing Examiner Development Program
     find ways to help homeowners avoid foreclosure, reduce            In August 2012, FHFA Acting Director DeMarco
     taxpayer losses, and help stabilize communities.                  emphasized at an all-hands meeting the agency’s
                                                                       commitment to examiner development, including
     The Home Affordable Refinance Program (HARP) was
                                                                       establishing an examiner-commissioning program and
     modified in late 2011 to expand eligibility for participation.
                                                                       a “corporate university”-styled training program. FHFA
     From January 2012 to August 2012, the new and
                                                                       has already made progress on developing an examiner-
     streamlined HARP 2.0 has helped more than 618,217
                                                                       commissioning program, which it expects to introduce
     borrowers refinance their loans. As FHFA continues to
                                                                       in FY 2013. The FHFA corporate university will focus on
     gain insight from the program, we will make adjustments
     as necessary to enhance access to HARP.

     Although loss mitigation efforts have greatly improved,
     FHFA remains committed to enhancing these programs
     further. FHFA and the Enterprises will continue to improve
     existing programs for loan modifications, refinances, and
     other foreclosure avoidance tools.

     In addition to the initiatives related to the strategic plan,
     the following initiatives support the goals of FHFA.
                                                                       Executives Steve Cross (left), Wanda DeLeo (center) and Jon Greenlee
                                                                       (right) spoke to FHFA staff at the annual supervision conference in
                                                                       December 2011.




22   Federal Housing Finance Agency        |   2012 Performance and Accountability Report
                                                                                                                              DISCUSSION AND ANALYSIS
                                                                                                                                   MANAGEMENT’S
continuous training for all employees, offering courses to     FHFA’s challenge is to make sure the FHLBanks stay
improve skills and encourage professional development.         focused on their core business—particularly advances
                                                               to members—and promote competitive and balanced
                                                               mortgage finance and servicing systems.
MONITORING THE FHLBANKS IN A
CHANGING ENVIRONMENT                                           After increasing during the financial crisis to an historic
                                                               high of more than $1 trillion in October 2008, advances
Aligning Operating Expenses to Assets
                                                               fell to approximately $412 billion in September 2012. The
Despite the 12 FHLBanks’ earnings improvements, the            decline was in part a reversal of the increase observed
System still faces challenges. Advances and total assets       during the crisis. In addition, low loan generation and
of the System have contracted, but operating expenses          thriving deposits leave members with less need for the
have remained relatively steady.                               liquidity offered by FHLBank advances. FHLBanks price
                                                               advances with relatively narrow spreads over funding
The combination of lower interest income and level
                                                               costs to make them competitive to other sources of
operating expenses means the FHLBanks spend a larger
                                                               liquidity available to members, but advances have still
share of net interest income on operating costs. The ratio
                                                               dropped precipitously from their 2008 peaks.
of operating expenses to net interest income was 21
percent in 2012, compared to the 2008 ratio of 14 percent.     The percentage of members with outstanding advances
                                                               decreased to 58.4 percent as of June 30, 2012,
To address this challenge, FHFA must ensure that the
                                                               compared with 60.3 percent on December 31, 2011.
FHLBanks better align operating expenses with assets.
                                                               However, demand for advances has begun to show
However, FHFA also must ensure that the FHLBanks
                                                               some signs of regional stabilization and some FHLBank
do not cut operating expenses imprudently, which may
                                                               members have increased their use of advances during the
increase operational risks.
                                                               third quarter of 2012.

Expanding Core Business in a Weak Economy
Over the past year, FHLBank earnings have felt downward
pressure because of the low interest-rate environment and
a decline in demand for advances. The low interest-rate
environment adversely affects the FHLBanks’ net interest
income by reducing return on invested capital, while fewer
advances can lead to fewer return-generating assets.




                                                             Building an Infrastructure for the Secondary Mortgage Market    23
     Performance Highlights by Strategic Goal

                                        The housing government-sponsored enterprises operate in a safe and sound
       STRATEGIC GOAL 1
                                        manner and comply with legal requirements



     COMPLETED 2011 EXAMINATIONS OF                                          A YEAR IN THE LIFE OF AN EXAMINER
     THE ENTERPRISES AND FHLBANKS AND
     REPORTED SUMMARIES TO CONGRESS                                    FHFA’s staff examiners collectively perform annual
                                                                       safety and soundness assessments of the 12
     FHFA released its 2011 annual Report to Congress                  Federal Home Loan Banks, the Office of Finance,
     in June 2012. The report contains the results and                 Freddie Mac and Fannie Mae. During these annual
     conclusions of the annual examinations of the Enterprises         assessments, examiners perform a variety of tasks
                                                                       onsite at the subject institutions with the goal of
     and the FHLBanks.
                                                                       identifying significant credit, market, and operational
                                                                       risks. Additionally, examiners evaluate effectiveness of
     Report of Examinations of the Enterprises                         board and senior management oversight during the
                                                                       onsite examination.
     The overall ratings for both Enterprises did not change
                                                                       Key duties performed by an examiner before, during
     from FY 2010 to FY 2011. However, Fannie Mae improved
                                                                       and after examinations include:
     in three categories, including governance, which changed
                                                                        ƒƒ Collaborates internally with FHFA staff to develop
     from significant concerns to limited concerns while both the          supervisory plans
     market risk and operational risk management improved from
                                                                        ƒƒ Identifies issues, trends and concerns on a broad
     critical concerns to significant concerns. The management             range of business processes
     and the boards at both Enterprises were responsive                 ƒƒ Plans, organizes and leads examinations
     throughout 2011 to FHFA findings while continuing to take          ƒƒ Performs multiple complex tasks concurrently
     appropriate steps to resolve identified issues.                    ƒƒ Directs, guides and consults with FHFA staff
                                                                        ƒƒ Observes FHLBank/Enterprise management
     Report of Examinations of the FHLBanks                                meetings and conducts interviews with their staff
                                                                        ƒƒ Evaluates effectiveness of risk management
     The FHLBanks showed some improvements in 2011.
                                                                           practices
     Overall, governance practices improved. The FHLBanks’
                                                                        ƒƒ Ensures pertinent regulations, policies and
     financial condition and performance in terms of return on             procedures are followed
     assets and return on equity remained fairly stable. All            ƒƒ Communicates with FHLBank/Enterprise
     FHLBanks exceeded the minimum statutory capital                       representatives in a tactful and effective manner
     requirement of 4 percent of total assets and their risk-based      ƒƒ Prepares report of examination, memoranda and
     capital requirements at year end. Credit risk management              other written communications
     was generally stable while mortgage assets continued to be         ƒƒ Presents results to management and board of
                                                                           directors in a professional manner
     the greatest source of market risk for the FHLBanks.
                                                                        ƒƒ Documents support for findings, conclusions and
                                                                           annual assessments
     APPOINTMENT OF NEW CEOs FOR                                        ƒƒ Exercises restraint and tact when approaching
     FANNIE MAE AND FREDDIE MAC                                            adversarial situations
                                                                        ƒƒ Provides performance input on examination team
     During FY 2012, FHFA as conservator for both Fannie
                                                                           members
     Mae and Freddie Mac appointed new chief executive
                                                                        ƒƒ Consults with examiners and senior agency
     officers (CEOs) for their respective companies.	 Both                 officials on major oversight issues
     CEOs possess a breadth of knowledge and experience in              ƒƒ Reviews and edits examiners’ work products
     housing finance and financial services. They will also lead           internally
     efforts in continuing to strengthen their companies while




24   Federal Housing Finance Agency      |   2012 Performance and Accountability Report
                                                                                                                                   DISCUSSION AND ANALYSIS
                                                                                                                                        MANAGEMENT’S
promoting foreclosure prevention activities and supporting          comply with statutory requirements enacted as part of the
A Strategic Plan for Enterprise Conservatorships.                   Gramm-Leach-Bliley Act of 1999, making the Chicago
                                                                    Bank the last FHLBank to make this conversion. In April
                                                                    2012, FHFA terminated the cease and desist order on
IMPROVED FINANCIAL CONDITION OF
THE ENTERPRISES REDUCING NEED                                       the FHLBank of Chicago because of improvements in
FOR ADDITIONAL TREASURY SUPPORT                                     its financial and capital positions, the resolution of risk
                                                                    management concerns, and consideration of specific
To date, the Enterprises drew $187.5 billion from Treasury
                                                                    commitments and assurances made by the FHLBank’s
to maintain positive net worth. FHFA's projections on the
                                                                    board of directors to FHFA. This includes the limitation
financial performance of the Enterprises (using data as of
                                                                    of dividends, maintenance of retained earnings, and the
October 2012), including potential draws under the Senior
                                                                    reduction of excess stock so long as certain financial
Preferred Stock Purchase Agreements with the Treasury
                                                                    thresholds are maintained.
Department show cumulative Treasury draws are reduced
and more stable compared to previous projections. The key
drivers to these results include an overall reduction in actual     FHLBANK OF SEATTLE ADEQUATELY
and projected credit-related expenses and changes in the            CAPITALIZED
dividend structure contained in the Senior Preferred Stock          In 2010 as a result of deterioration in the value of its
Purchase Agreements, which eliminates the need to borrow            private-label MBS and other issues principally related to
from the Treasury Department to pay dividends.                      its capitalization, the FHLBank of Seattle entered into a
                                                                    consent order with FHFA. The consent order provided for
Modeling results under three different Moody's house price
                                                                    a stabilization period for the FHLBank to meet financial
paths, ranging from stronger near-term rebound, current
                                                                    thresholds related to retained earnings, securities
baseline, and deeper second recession, reveal that Freddie
                                                                    impairments, and market value before the FHLBank
Mac would not require additional Treasury draws after
                                                                    Seattle could resume certain activities, including the
2012 in any of the three scenarios while Fannie Mae would
                                                                    paying of dividends and the repurchase or redemption of
not require additional Treasury draws after 2012 in two of
                                                                    its capital stock.
the three scenarios (only in the deeper second recession
scenario).                                                          In September of 2012, FHFA reclassified the FHLBank of
                                                                    Seattle as ‘adequately capitalized’. This designation now
FHFA TERMINATES FHLBANK OF                                          permits the FHLBank of Seattle to repurchase excess
CHICAGO CEASE AND DESIST ORDER                                      capital stock, which is something it had been unable to do
                                                                    since December 2008. This reclassification is a significant
In October 2007, the FHLBank of Chicago entered into
                                                                    milestone as the FHLBank of Seattle works its way back
a consent cease and desist order with one of FHFA’s
                                                                    to autonomous activities.
predecessor agencies, the Federal Housing Finance
Board. The cease and desist order limited the Bank’s
ability to redeem, repurchase, or pay dividends on its
capital stock, and required the FHLBank to implement new
management policies and practices acceptable to FHFA.

Following a period of improvement, in January 2012, the
FHLBank of Chicago converted its capital structure to




                                                                  Building an Infrastructure for the Secondary Mortgage Market    25
                                        The housing government-sponsored enterprises support a stable, liquid, and
       STRATEGIC GOAL 2                 efficient mortgage market including sustainable homeownership and affordable
                                        housing



     BORROWER ASSISTANCE ACTIVITIES                                  Consequently, 711,409 refinances were completed
     The Enterprises completed 389,741 home retention                through HARP from October 2011 to August 2012
     actions that allowed homeowners to save their homes             compared with 448,746 refinances from October 2010
     from October 2011 to August 2012. Home retention                to September 2011. For the month of August 2012,
     actions include loan modifications, repayment plans,            51 percent of refinances through HARP have been to
     forbearance plans, and charge-offs-in-lieu. These actions       underwater borrowers with a LTV ratio greater than 105
     are intended to assist homeowners whose mortgages are           percent, a substantial improvement over the month of
     in distress with the goal of maintaining their homes. This      September 2011 when such borrowers accounted for
     number does not include HARP refinancing.                       just 17 percent of HARP refinances (see Figure 11). Since
                                                                     the program’s inception in April 2009, the Enterprises
                                                                     have financed more than 1.6 million loans through HARP
     HARP Enhancements
                                                                     as of August 2012. HARP was established as a pre-
     HARP was established in 2009 to assist homeowners               distressed action to enable homeowners to refinance their
     unable to refinance due to a decline in home values.            mortgages and lower their monthly payments.
     The program was originally designed to provide these
     borrowers with an opportunity to refinance by permitting        The continued high volume of HARP loans is attributed to
     the transfer of existing mortgage insurance to their newly      record-low mortgage rates and program enhancements
     refinanced loan, or by allowing those without mortgage          (see Figures 11a).
     insurance on their previous loan to refinance without
     obtaining new coverage.

     During FY 2012, FHFA worked collaboratively with                               Figure 11: HARP REFINANCES
     the GSEs and other industry participants in an effort
     to increase access to the program for responsible                     HARP REFINANCES          SHARE OF HARP REFINANCES
                                                                                                           LTV> 105%
     borrowers. The result of these efforts was a series
     of enhancements to the program (HARP 2.0) which                     711,409
     included:
                                                                                                         51%
      „„removing   the 125 percent loan-to-value (LTV) ceiling                       448,746
        for fixed-rate loans;
      „„waiving of certain lender representations and                                                               17%
        warranties;
      „„eliminating   the need for an appraisal in many cases;          OCT 2011–   OCT 2010–
                                                                        AUG 2012    SEP 2011          AUG 2012    SEPT 2011
      „„eliminating certain risk-based fees for borrowers
        refinancing into a shorter term; and
      „„lowering
               fees for other borrowers, and extending the
        HARP end date to December 31, 2013.




26   Federal Housing Finance Agency      |   2012 Performance and Accountability Report
                                                                                                                                                                     DISCUSSION AND ANALYSIS
                                                                                                                                                                          MANAGEMENT’S
           Figure 11a: MONTHLY HARP VOLUME BY LTV                                                   As part of the approval process, servicers will evaluate
                                                                                                    borrowers for capacity to cover some or all of the shortfall
 120,000
                                                                                                    between the outstanding loan balance and the property
                                                                                                    sales price. Fannie Mae and Freddie Mac will waive
 100,000
                                                                                                    the right to pursue deficiency judgments for a financial
  80,000                                                                                            contribution for all approved short sales. Borrowers who
  60,000                                                                                            sell their home through a short sale will not be eligible for
                                                                                                    a new mortgage backed by Fannie Mae or Freddie Mac
  40,000
                                                                                                    for at least two years after the short sale.
  20,000
                                                                                                    The new Standard Short Sale policies allow for a
      0
           Q3     Q4     Q1    Q2     Q3    Q4     Q1    Q2     Q3    Q4     Q1    Q2 AUG*          streamlined approach for borrowers who are seriously
           ´09    ´09    ´10   ´10    ´10   ´10    ´11   ´11    ´11   ´11    ´12   ´12 ´12
                                                                                                    delinquent and who have low credit scores. In addition,
             HARP LTV                 HARP LTV                  HARP LTV
                 >80%–105%                  >105%–125%                 >125%                        Fannie Mae and Freddie Mac will offer up to $6,000 to
                                                                                                    second lien holders who expedite a short sale.
       * The number of completed HARP refinances reported for deeply underwater borrowers
         increased sharply in June 2012 as further enhancements to HARP went into effect.
         Starting June 1, 2012, lenders became able to deliver loans with loan-to-value ratios      From October 2011 to August 2012, the Enterprises
         greater than 125 percent refinanced through HARP to the Enterprises to be securitized.
                                                                                                    completed 132,834 short sales and deeds-in-lieu
                                                                                                    (nonforeclosure-home forfeiture actions) compared to
                                                                                                    107,382 during the same period in 2011.
Streamlining Short Sales
In August 2012, Fannie Mae and Freddie Mac published
aligned guidance that consolidates four existing short                                              Improvements to Foreclosure Attorney Networks
sale programs into one Standard Short Sale program.                                                 In an effort to produce uniform foreclosure processing
The newly enhanced and streamlined program rules                                                    standards to assist servicers, homeowners, and lenders,
will enable servicers to quickly and easily qualify eligible                                        FHFA directed the Enterprises to change the procedures
borrowers for a short sale.                                                                         for selecting foreclosure attorneys. FHFA instructed the
                                                                                                    Enterprises to transition away from current foreclosure
The new guidelines went into effect on November 1,                                                  attorney network programs and move to a system where
2012, and permit borrowers with a Fannie Mae or                                                     mortgage servicers select qualified law firms that meet
Freddie Mac mortgage who have an eligible hardship to                                               certain minimum, uniform criteria. These changes will
sell their home in a short sale, even if they are current                                           support the consent orders entered into by financial
on their mortgage. Servicers will not need Fannie Mae                                               regulators and servicers. FHFA is also working with other
or Freddie Mac approval to expedite short sales that                                                regulators and industry stakeholders to create uniform
provide relief for borrowers with the following hardships:                                          qualifications and oversight of foreclosure attorneys.
death of a borrower or co-borrower, divorce, disability, or
employment relocation of more than 50 miles.
                                                                                                    OVERSIGHT OF FEDERAL HOME LOAN
Military service members who relocate under Permanent                                               BANKS’ HOUSING AND COMMUNITY
Change of Station (PCS) orders will automatically be                                                INVESTMENT PROGRAMS
eligible for a short sale, even if they are current on their                                        FHFA has a responsibility to ensure that all FHLBanks
existing mortgage. Moreover, service members with PCS                                               comply with statutory and regulatory requirements. As
orders will not be obligated to contribute funds to cover                                           required by law, the FHLBanks direct 10 percent of
the shortfall between the outstanding loan balance and                                              their previous year’s annual earnings to the Affordable
the sales price for principal residences purchased on or                                            Housing Program (AHP). In both 2011 and 2012, the
before June 30, 2012.




                                                                                                  Building an Infrastructure for the Secondary Mortgage Market      27
     FHLBanks fully funded their AHP programs consistent            to FHFA on the low-income housing activities of the
     with their statutory mandate. In 2012, FHFA developed          FHLBanks. FHFA, in turn, analyzes the councils’ reports
     an examination module for the AHP and the Community            and delivers a consolidated report to the councils on the
     Investment Program (CIP).This module is currently              low-income housing activities of all of the FHLBanks. The
     being pilot tested. AHP examiners conducted on-site            FHLBanks’ advisory councils and FHFA fully complied
     examinations of all 12 FHLBanks and additional on-site         with these requirements.
     visitations. During this reporting period, FHFA conducted
                                                                    On November 10, 2011, FHFA issued proposed
     on-site data integrity reviews of AHP and CIP data for five
                                                                    amendments to its community support regulation (12 CFR
     FHLBanks. All 12 FHLBanks complied with AHP and CIP
                                                                    1290). The proposed amendments, among other things,
     data reporting requirements in a timely manner.
                                                                    would require the FHLBanks to monitor and assess
     The Federal Home Loan Bank Act requires each FHLBank           the eligibility of each member institution for long-term
     to appoint an advisory council made up of community            advances based on compliance with the regulation’s
     representatives with experience in affordable housing.         Community Reinvestment Act of 1977 and first-time
     The law further requires that each council annually report     homebuyer standards.




28   Federal Housing Finance Agency     |   2012 Performance and Accountability Report
                                                                                                                                  DISCUSSION AND ANALYSIS
                                                                                                                                       MANAGEMENT’S
                                   FHFA preserves and conserves assets and property of the Enterprises, ensures
  STRATEGIC GOAL 3                 focus on their housing mission, and facilitates their financial stability and
                                   emergence from conservatorship



STRATEGIC PLAN FOR THE                                           delivery of foreclosure prevention options. Through SAI,
CONSERVATORSHIPS DEVELOPED                                       the Enterprises:
FHFA released A Strategic Plan for Enterprise                     „„Established   new borrower communication
Conservatorships that describes the next phase of                   requirements that ensure borrowers are contacted at
conservatorship for the Enterprises in February 2012.               the earliest stage of delinquency, when alternatives to
The plan sets forth a series of initiatives and strategies          foreclosure are most successful;
to improve current mortgage processes, inspire greater
                                                                  „„Required  that servicers simultaneously consider
confidence among prospective market participants, and
                                                                    borrowers for the full range of loss mitigation options
set the stage for an improved future system of housing
                                                                    (as opposed to treating the consideration of each
finance. The plan also sets forth objectives that are
                                                                    option as a separate process); and
consistent with FHFA’s legal mandate and the policy
                                                                  „„Required   that servicers refer a loan to foreclosure only
direction that emerged from the Administration and
Congress. The three strategic goals identified for the next         after an independent review of the case to ensure
phase of the conservatorships are discussed in detail on            that the borrower was, in fact, considered for an
pages 64–66.                                                        alternative.

                                                                 Under SAI, FHFA and the Enterprises have taken a
Office of Strategic Initiatives                                  highly targeted approach with the goal of refocusing the
During FY 2012, FHFA appointed an executive to lead              servicers’ resources and attention on moving all borrowers
the newly established Office of Strategic Initiatives in         into alternatives to foreclosure, quickly, efficiently, and
coordinating and overseeing the activities associated with       aggressively. To accomplish this, the Enterprises aligned
A Strategic Plan for Enterprise Conservatorships. This           their requirements for servicing troubled loans and
position reports directly to the Director and is responsible     removed a significant barrier for homeowners seeking a
for identifying and organizing key stakeholders, work            loan modification—inconsistencies that caused servicers
streams, and deliverables that flow from the plan.               confusion and delay.

                                                                 Uniform Mortgage Data Program
Conservatorship Scorecards Developed for
                                                                 FHFA first announced the Uniform Mortgage Data
Enterprises to Achieve the Plan
                                                                 Program in May of 2010, when Fannie Mae and Freddie
A month after the release of A Strategic Plan for                Mac were directed to develop uniform standards for
Enterprise Conservatorships, FHFA published a                    data reporting on mortgage loans and appraisals. This
Conservatorship Scorecard to provide the implementation          initiative is designed to improve the consistency, quality,
roadmap for the plan. The strategic plan is a multi-year         and uniformity of data collected at the front-end of the
endeavor; the scorecard sets forth performance goals             mortgage process. By identifying potential defects as
under the plan for the current calendar year. FHFA, in           early in the origination and delivery process as possible,
concert with the Enterprises implemented the following           the Enterprises will improve the quality of mortgage
initiatives:                                                     purchases, which should reduce repurchase risk for
                                                                 originators.
Servicing Alignment Initiative
FHFA directed the Enterprises to develop the Servicing           In the last two years, substantial progress has been
Alignment Initiative (SAI) to focus more aggressively on         made. In March 2012, use of the Uniform Collateral
                                                                 Data Portal became mandatory, which ensures that all




                                                               Building an Infrastructure for the Secondary Mortgage Market      29
     lenders are now submitting standard appraisal forms and         In August 2012, FHFA directed the Enterprises to make
     appraisal data electronically. This allows the Enterprises to   further changes to the single-family guarantee fees they
     evaluate the information in a more seamless and efficient       charge lenders to be effective in December 2012. These
     manner.                                                         changes will:
                                                                      „„Result in the Enterprises increasing guarantee fees
     The Enterprises also developed the Uniform Loan Delivery
                                                                        on single-family mortgages by an additional 10 basis
     Dataset standards that dictate the file format required at
                                                                        points on average;
     loan delivery for all mortgages delivered to the Enterprises
     on or after July 23, 2012, with applications dated on or         „„Make  the guarantee fees the Enterprises charge
     after December 1, 2011. The Uniform Mortgage Data                  lenders that deliver small and large volumes of loans
     Program requires lenders to adopt this file format in an           more uniform; and
     effort to further streamline and improve submissions of          „„Begin  to address the cross-subsidization of pricing
     mortgage data. These efforts pave the way for future               that exists whereby lower-risk loans currently subsidize
     enhancements and offer an integrated and efficient                 the pricing of higher-risk loans.
     way for mortgage investors to access basic loan-level
     information.                                                    In addition, FHFA announced in August 2012 that it was
                                                                     soliciting public comment on an approach to impose an
     Enhanced Loan-Level MBS Disclosure Initiative                   up-front fee on newly acquired loans originated in specific
     During FY 2012, Fannie Mae began making public                  states where the Enterprises are likely to incur default-
     disclosures of loan-level data about the mortgages              related losses much higher than the national average
     backing newly issued single-class, single-family MBS,           because of the individual laws in these states.
     which are comparable to the MBS disclosures that
     Freddie Mac has been making to investors since 2005.            Real Estate Owned Disposition Initiative
     Both Fannie Mae and Freddie Mac now disclose loan-              The Real Estate Owned (REO) Disposition Initiative is a
     level information when MBS are issued, and they will both       joint initiative with the Treasury Department, Department
     issue monthly ongoing disclosures over the life of each         of Housing and Urban Development, Federal Deposit
     security after Fannie Mae begins disclosures in the first       Insurance Corporation, the Federal Reserve System, and
     quarter of FY 2013.                                             the Enterprises.

     The Enterprises also jointly developed and submitted            The REO Initiative is designed to reduce taxpayer losses,
     a template with a comprehensive list of loan-level              stabilize neighborhoods and home values, shift to more
     disclosure data elements for their single-class, single-        private management of properties, and reduce the supply
     family fully guaranteed MBS. In FY 2012, the Enterprises        of REO properties in the marketplace. This initiative holds
     also began working, at FHFA’s direction, to develop             promise for providing support to local neighborhoods
     plans to implement enhancements of their loan-level             that were especially hard hit by the housing crisis and will
     MBS disclosures consistent with the template. They              help meet the rising demand for rental housing in many
     are now working on a second version of the template             communities.
     that will encompass data elements needed to support
                                                                     FHFA began the initiative with a Request for Information
     nonguaranteed mortgage securities.
                                                                     aimed at garnering industry ideas on how to sell REO
     Changes In Enterprise Guarantee Fees                            properties of Fannie Mae, Freddie Mac, and the Federal
                                                                     Housing Administration. After reviewing more than 4,000
     In December 2011, Congress directed FHFA in the
                                                                     responses, FHFA announced the first pilot transaction
     Temporary Payroll Tax Cut Continuation Act of 2011
                                                                     under the initiative in February 2012, targeting some
     to increase single-family guarantee fees by at least an
                                                                     of the metropolitan areas hardest hit by the housing
     average of 10 basis points. In fulfillment of that mandate,
                                                                     market crisis—Atlanta, Chicago, Las Vegas, Los Angeles,
     FHFA directed the Enterprises to raise guarantee fees by
                                                                     Phoenix, and parts of Florida.
     10 basis points beginning in April 2012.




30   Federal Housing Finance Agency      |   2012 Performance and Accountability Report
                                                                                                                               DISCUSSION AND ANALYSIS
                                                                                                                                    MANAGEMENT’S
Investors were qualified to bid after a rigorous evaluation       „„Requiring   an annual risk management plan from the
process. The process consisted of several factors,                  Enterprises while they are in conservatorship. Plans
including financial strength, asset management                      will detail actions each Enterprise will take to reduce
experience, property management expertise and                       both the financial and operational risk associated with
experience in the geographic area.                                  each reportable business segment.
                                                                  „„Replacing  the 10 percent fixed-dividend payment
The winning bidders for the REO initiative were chosen
                                                                    with a variable payment based on the Enterprise’s
to purchase approximately 1,772 single-family Fannie
                                                                    net worth to ensure all earnings generated by the
Mae foreclosed properties. Pacifica Companies, LLC has
                                                                    Enterprise benefit taxpayers and eliminate the need to
purchased 699 Fannie Mae properties in Florida, The
                                                                    borrow from the Treasury Department and pay back
Cogsville Group, LLC has purchased 94 properties in
                                                                    dividends.
Chicago, and Colony Capital, LLC has purchased 970
properties in California, Arizona and Nevada. Although the
Atlanta properties have not been awarded, they will be                          SENIOR PREFERRED STOCK
evaluated for future transactions.                                               PURCHASE AGREEMENTS

This pilot is not intended to be a nationwide program. It          The Enterprises continue to operate under
is a targeted effort only in markets with a large number           conservatorship, as they have since 2008. The U.S.
                                                                   Department of the Treasury provides the Enterprises
of foreclosed properties where local market conditions
                                                                   with financial support through the Senior Preferred
suggest a possible benefit from this approach.
                                                                   Stock Purchase Agreements, established at the
                                                                   same time the Enterprises entered conservatorship.
MODIFICATIONS TO THE TREASURY                                      The Senior Preferred Stock Purchase Agreements
SENIOR PREFERRED STOCK PURCHASE                                    were designed to ensure each Enterprise maintained
                                                                   positive net worth. If FHFA determines, on a quarterly
AGREEMENTS
                                                                   basis, that an Enterprise’s liabilities have exceeded
In August 2012, FHFA and the Treasury Department                   its assets under generally accepted accounting
modified the Senior Preferred Stock Purchase                       principles, the Treasury Department will contribute
Agreements. Key components of the changes include:                 cash capital to the Enterprise in an amount equal
                                                                   to the difference between liabilities and assets. An
 „„Accelerating  reduction of the retained mortgage                amount equal to such contribution will be added
   investment portfolios of the Enterprises from 10                to the senior preferred stock of the Enterprise
   percent per year to 15 percent per year. To begin               held by the Treasury Department. The terms of
   with, the upaid principal balance (UPB) of Enterprise-          the agreements require a 15 percent reduction in
   related investments portfolio may not exceed $650               the Enterprises’ retained portfolios each year. The
   billion on December 31, 2012. Also, on December 31              only material additions to these portfolios come
                                                                   from delinquent mortgages pulled out of Enterprise
   of each year thereafter, each Enterprise’s portfolio will
                                                                   mortgage-backed securities after being four months
   not be allowed to exceed 85 percent of the aggregate
                                                                   delinquent. The Enterprises are required to pay the
   amount of the preceding year’s UPB until the portfolio          Treasury Department a variable payment based upon
   reaches $250 billion.                                           the Enterprise’s net worth.




                                                               Building an Infrastructure for the Secondary Mortgage Market   31
       RESOURCE
                                               FHFA has the personnel, resources and infrastructure to manage effectively and
       MANAGEMENT
                                               efficiently to achieve its mission and goals
       STRATEGY


     CONSOLIDATING AGENCY RESOURCES                                           among the staff and program areas. It also allows for
     TO IMPROVE COLLABORATION AND                                             expansion in, and greater integration of, our examination
     COMMUNICATION – CONSTITUTION                                             and supervisory personnel and programs. The new
     CENTER                                                                   headquarters is in the same building as the Office of the
     FHFA consolidated its operations from three separate                     Comptroller of the Currency and located directly across
     locations into its new headquarters at Constitution                      the street from the Department of Housing and Urban
     Center in Washington, D.C., in January 2012. This                        Development.
     move has improved collaboration and communications


                                                                              FHFA SUPPORT FOR 40 EXTERNAL
                                                                              AUDITS, SURVEYS, AND EVALUATIONS
                                                                              During FY 2012, FHFA staff and management effectively
                                                                              responded to 40 different external audits, evaluations,
                                                                              and surveys. As a result, significant amounts of resources
                                                                              were allocated into these efforts, especially in the
                                                                              mission areas. In order to more efficiently manage the
                                                                              volume of these outside reviews, FHFA expanded its
                                                                              capacity by assigning additional staff for audit follow-up
                                                                              and by developing an automated system to track audit
     Chief Operating Officer Rick Hornsby spoke to the agency’s supervision   recommendations and agency responses.
     divisions at the December 2011 annual FHFA supervision conference.

                                                                              CERTIFICATE OF EXCELLENCE IN
                                                                              ACCOUNTABILITY REPORTING
                                                                              FHFA has received the Certificate of Excellence in
                                                                              Accountability Reporting from the Association of
                                                                              Government Accountants each year since 2008, our
                                                                              first year as a new agency. This award demonstrates the
                                                                              agency’s commitment to accountability and spotlights the
                                                                              high quality of our performance and financial information
                                                                              reporting.



     FHFA has won the CEAR award for four years.




32   Federal Housing Finance Agency             |   2012 Performance and Accountability Report
                                                                                                                                DISCUSSION AND ANALYSIS
                                                                                                                                     MANAGEMENT’S
FREEDOM PROJECT                                                   year to reflect on and celebrate the accomplishments of
                                                                  great men and women of our past and present. During
In FY 2010, FHFA began a special set of events called
                                                                  FY 2012, the Freedom Project recognized and celebrated
the Freedom Project to highlight and demonstrate how
                                                                  Veterans Day, Martin Luther King (MLK), Jr. Day,
Americans of all races and backgrounds have contributed
                                                                  Washington’s Birthday, Memorial Day, Independence Day,
to the freedoms we enjoy in America. The Freedom
                                                                  and Constitution Day.
Project brings agency employees together throughout the




                                       FY 2012 FREEDOM PROJECT EVENTS

                                                                  MLK & WASHINGTON’S
                                                                  BIRTHDAY
                            VETERANS DAY                          In February 2012, Dr. Daisy
                            FHFA held a special luncheon          Nelson Century, a historical
                            to honor all the employees            reenactor, portrayed
                            who are military veterans. The        Sojourner Truth in her later
                            veterans spoke about their time       years remembering life from
                            in the military, their service,       childhood through adulthood.
                            and how long they served.             She also recited Truth’s most
                                                                  famously and oft-quoted
                                                                  speech, “Ain’t I a Woman?”



                            FREEDOM LECTURE
                            U.S. Representative John
                            Lewis is often called “one of         MEMORIAL DAY
                            the most courageous persons”          Thomas Sherlock, senior
                                                                  historian of Arlington National
                            the Civil Rights Movement
                                                                  Cemetery, spoke to employees
                            ever produced. Representative
                                                                  about the history of America’s
                            Lewis shared with FHFA his            most famous burial ground
                            contributions to the Civil Rights     to celebrate Memorial Day as
                            Movement and to building              part of the Freedom Project.
                            what he calls “The Beloved
                            Community” in America.



                            INDEPENDENCE DAY
                            Abigail Adams reminded                CONSTITUTION DAY
                            FHFA of her famous plea to            FHFA celebrated Constitution
                            “Remember the Ladies” in the          Day with copies of a ”Pocket
                            creation of the Constitution          Constitution” that contains the
                            of the United States. Adams           Declaration of Independence,
                            was the wife of President John        the Constitution of the United
                            Adams and mother of President         States, the Bill of Rights,
                            John Quincy Adams. She was            Amendments XI-XXVII and
                            portrayed by actress and re-          Significant Dates for the staff.
                            enactor Kim Hanley.




                                                                Building an Infrastructure for the Secondary Mortgage Market   33
     FY 2012 Performance Summary
     This section describes FHFA’s strategic and performance-                              Figure 12: FY 2012 PERFORMANCE RESULTS
     planning framework, performance measures not met, the
     reasons why, proposed improvements, and the seven
                                                                                  100
     key performance measures that most closely reflect the                                 54%       14%       8% (2)
                                                                                            (14)       (4)
     agency’s achievements and desired outcomes. For a                              80
                                                                                                                                 Target Met
     comprehensive list of performance measures, see pages
     54–70. FHFA’s performance measures are rated as:                               60                                           Target Not Met

                  Target Met; or                                                    40


                  Target Not Met.                                                   20
                                                                                            46%       86%        92%
                                                                                            (12)      (25)       (23)
     FHFA determines that performance goals are met if                               0
                                                                                           FY 2010   FY 2011    FY 2012
     targets for all performance measures have been achieved.
     Goals are counted as not met if at least one target
     performance measure has not been achieved. In FY 2012,
     FHFA had 25 performance measures. The agency met
                                                                              FHFA met 92 percent and did not meet eight percent
     or exceeded 23 of its measures and failed to meet two
                                                                              of its performance measures in FY 2012. For additional
     performance measures (see Figure 12).
                                                                              details on unmet measures see Figure 13.



                                                 Figure 13: STATUS OF PERFORMANCE MEASURES UNMET

       UNMET MEASURES                                    REASON                                      STEPS REQUIRED TO MEET
      Measure 1.1.1               Component ratings at the Enterprises remain                FHFA will continue to conduct examinations and
      Improve component           unchanged given the absence of capital, the                ongoing monitoring of the Enterprises and give
      ratings at each Enterprise. continuation of credit losses and subpar financial         feedback on remediation efforts.
                                  performance. Improvements in the ratings are also
                                  hampered by the ongoing challenges the Enterprises
                                  face in strengthening the operational risk environment
                                  and improving corporate governance.

      Measure 4.3.2                 One recommendation was originally closed by FHFA         FHFA and the OIG agreed to extend the timeline to
      Ensure management             in the 4th quarter and then re-opened per agreement      close the recommendation to February 28, 2013,
      completes corrective          with the OIG.                                            since the recommendations identified required work
      action on OIG findings                                                                 beyond FY 2012. This will enable the required final
      within agreed timeframe                                                                actions to be completed.




34   Federal Housing Finance Agency          |    2012 Performance and Accountability Report
                                                                                                                           DISCUSSION AND ANALYSIS
                                                                                                                                MANAGEMENT’S
FHFA’S STRATEGIC PLANNING PROCESS                            Coordination with the applicable offices to validate
                                                             performance measures is carried out with senior level
FHFA sets long-term and annual goals and monitors
                                                             executives. FHFA is also in the process of developing an
progress throughout the year. The agency assesses its
                                                             automated performance measurement system that will be
record in meeting its performance measures through
                                                             in place at the end of the first quarter of FY 2013.
quarterly performance tracking meetings with the senior
executive leadership team.                                   Based on the agency’s assessment of internal controls
                                                             and compliance with Office of Management and Budget
The FHFA Director chairs these quarterly meetings. FHFA
                                                             Circular A-123, the agency’s risk management and
staff prepare the performance reports and discusses the
                                                             internal control systems, taken as a whole, conform to
agency’s record relative to its performance measures.
                                                             the standards prescribed by the GAO and the Federal
The meetings highlight the agency’s record-to-date and
                                                             Manager’s Financial Integrity Act.
challenges for the future, with a focus on how to meet
targets and ensure success in support of the agency
mission.                                                     FY 2012 ANNUAL PERFORMANCE PLAN
                                                             FHFA’s FY 2012 Annual Performance Plan includes
During FY 2012, FHFA operated under its FY 2009-2014
                                                             25 performance measures (four that are new) and
strategic plan. FHFA began working on a new strategic
                                                             14 performance goals to support our three strategic
plan after enactment of the Government Performance
                                                             goals and one resource management strategy. The
and Results Act Modernization Act of 2010. The agency
                                                             new measures represent ongoing activities related to
published a new Strategic Plan for FHFA for Fiscal
                                                             the Office of Inspector General and FHFA’s A Strategic
Years 2013-2017 in October 2012. This plan details the
                                                             Plan for Enterprise Conservatorships. The link to this
outcomes the agency is seeking to achieve, the means
                                                             plan is located at http://www.fhfa.gov/webfiles/23344/
and strategies that will be used to accomplish those
                                                             StrategicPlanConservatorshipsFINAL.pdf.
outcomes, and the performance measures that will be
used to gauge the agency’s progress.                         This section also describes the agency’s performance
                                                             against its FY 2012 Annual Performance Plan, which
DATA COMPLETENESS AND RELIABILITY                            outlined the means and strategies to achieve the annual
                                                             performance goals and related measures for the past
This report contains complete and reliable performance
                                                             year. Eight measures were deleted from the FY 2012
and financial data for FHFA. Where appropriate, the
                                                             plan: seven, which were process-oriented, and one that
report notes data limitations of specific performance
                                                             was met in FY 2011. (See page 105 for a list of the
goals. FHFA reviews, verifies and validates the accuracy
                                                             deleted measures in the Other Accompanying Information
of performance data reported on a quarterly basis.
                                                             section.)




                                                           Building an Infrastructure for the Secondary Mortgage Market   35
     Overview of FHFA’s Seven Key Performance Measures
     FHFA identified seven of the 25 performance measures for FY 2012 as key performance measures. These measures
     are critical to achieving our strategic goals and objectives. The key performance measures address external and internal
     influences at the housing GSEs, loss mitigation efforts, and promptly responding to the Inspector General’s recommendations.
     The seven key performance measures apply to all the agency’s three strategic goals and the resource management strategy.

     During FY 2012, FHFA met or exceeded all but two of the key performance measures.


                                                   The housing government-sponsored enterprises operate in a safe and sound
       STRATEGIC GOAL 1
                                                   manner and comply with legal requirements


     The focus of Strategic Goal 1 is to promote the safety                                   the former Division of Examinations and Program Support
     and soundness of the housing GSEs through prudential                                     (renamed the Division of Supervision Policy and Support).
     supervision and regulation (see pages 54–57 of the                                       These changes will improve the oversight and risk focus
     Performance Section for a list of all measures associated                                of examinations and encourage more coordination and
     with this goal).                                                                         communication among the examination staff. Performance
                                                                                              measure 1.1.1 requires an improvement in component
     Table 1 summarizes the key performance measures                                          ratings at each Enterprise. The measure was not met.
     for safety and soundness of the housing GSEs. During                                     As stated in Figure 13, improvements in the ratings are
     FY 2012, FHFA reassigned some examiners to the                                           hampered by ongoing challenges the Enterprises face
     Enterprises to improve the efficiency and effectiveness                                  in strengthening the operational risk environment and
     of examinations and oversight functions. To consolidate                                  improving corporate governance. FHFA will continue to
     core examination activities under the supervision of the                                 conduct examinations and ongoing monitoring of the
     examiner-in-charge at each of the regulated entities, FHFA                               Enterprises and provide feedback on remediation efforts.
     also restructured the Division of Enterprise Regulation and


                            Table 1: KEY PERFORMANCE MEASURES FOR SAFETY AND SOUNDNESS OF THE HOUSING GSES

                                                                       PERFORMANCE GOAL 1.1
                                 Fannie Mae and Freddie Mac comply with legal requirements and operate in a safe and
                                         sound manner with adequate capital and access to funds and capital.

                                                                         PERFORMANCE MEASURE 1.1.1
                                                                  Improve component ratings at each Enterprise.
                                                        FY 2010                                    FY 2011                                           FY 2012
      Target                               Improve in one or more by              Improve in one or more by September             Improve in one or more by September 30,
                                             September 30, 2010                                 30, 2011                                            2012
      Performance Results Key:
      Goal Fulfillment                                  Target Not Met                              Target Not Met                                    Target Not Met

                                                                       PERFORMANCE GOAL 1.2
                              The FHLBanks and the Office of Finance comply with legal requirements and operate in a
                                   safe and sound manner with adequate capital and access to funds and capital.
                                                                        PERFORMANCE MEASURE 1.2.1
                                                                       Composite rating at each FHLBank.
                 Note: If rating is less than “2”, an acceptable performance improvement plan shall be included with the Bank’s response to the Report of Examination.

                                                        FY 2010                                    FY 2011                                           FY 2012
      Target                          “2” or better or, within 180 days of          “2” or better or, within 180 days of         “2” or better or, within 180 days of a rating
                                       a rating downgrade to below “2”,              a rating downgrade to below “2”,             downgrade to below “2”, operating under
                                     operating under an approved capital           operating under an approved capital            an acceptable performance improvement
                                                restoration plan                              restoration plan                                  plan: Quarterly
      Performance Results Key:
      Goal Fulfillment                                  Target Not Met                                Target Met                                        Target Met



36   Federal Housing Finance Agency                 |    2012 Performance and Accountability Report
                                                                                                                                                    DISCUSSION AND ANALYSIS
                                                                                                                                                         MANAGEMENT’S
                                         The housing government-sponsored enterprises support a stable, liquid, and
  STRATEGIC GOAL 2                       efficient mortgage market including sustainable homeownership and affordable
                                         housing


The focus of the second strategic goal is the housing                        GSEs met or exceeded their required liquidity levels. A
mission of FHFA. As the supervisor for the housing                           recent change to the Senior Preferred Stock Purchase
GSEs, FHFA has a critical responsibility to foster a well-                   Agreements with the Treasury Department will improve
functioning, stable, and liquid housing finance system. Only                 stability in the housing finance market and decrease the
through effective supervision can FHFA ensure that the                       roles of the Enterprises in the market over the longer term.
entities serve as a source of liquidity to homeowner and                     See the Performance Highlights section on page 31 for
rental housing markets at an efficient and reasonable price.                 more about the amendment and pages 58–62 of the
                                                                             Performance Section for a list of all measures associated
Table 2 summarizes the key performance measures                              with this goal.
for the housing mission. During FY 2012, the housing


                                    Table 2: KEY PERFORMANCE MEASURES FOR THE HOUSING MISSION

                                                        PERFORMANCE GOAL 2.1
                        FHFA ensures the housing GSEs support a stable, liquid and efficient mortgage market.

                                                           PERFORMANCE MEASURE 2.1.1
     Ensure liquidity levels at Fannie Mae and Freddie Mac meet or exceed required levels or are brought into compliance within 5 business days.
                                            FY 2010                                  FY 2011                                 FY 2012
 Target                                     Monthly                                95 Percent                          95 Percent Quarterly
 Performance Results Key:
 Goal Fulfillment                            Target Not Met                            Target Met                               Target Met

                                                           PERFORMANCE MEASURE 2.1.2
            Ensure liquidity levels at the FHLBanks meet or exceed required levels or are brought into compliance within 5 business days.
                                            FY 2010                                  FY 2011                                 FY 2012
 Target                                     Annually                               95 Percent                          95 Percent Quarterly
 Performance Results Key:
 Goal Fulfillment                             Target Met                               Target Met                               Target Met




                                                                          Building an Infrastructure for the Secondary Mortgage Market             37
                                              FHFA preserves and conserves assets and property of the Enterprises, ensures
       STRATEGIC GOAL 3                       focus on their housing mission, and facilitates their financial stability and
                                              emergence from conservatorship


     The focus of Strategic Goal 3 is on conservatorship of                        significant progress improving loss mitigation strategies
     the Enterprises. As conservator, FHFA’s role is to foster                     by streamlining the short sale process, and implementing
     improvement in the Enterprises’ financial condition,                          HARP 2.0.
     underwriting practices, and operational capacity so they
                                                                                   FHFA met or exceeded the key measures of performance
     can fulfill their role in the nation’s housing finance system.
                                                                                   goal 3 during FY 2012. Pages 63–66 of the
     Table 3 summarizes the key performance measures                               Performance Section includes a list of all measures
     that demonstrate FHFA’s goal to preserve and conserve                         associated with this goal.
     the Enterprise assets. During FY 2012, FHFA made


         Table 3: KEY PERFORMANCE MEASURE DEMONSTRATING FHFA’S GOAL OF PRESERVING AND CONSERVING ENTERPRISE ASSETS

                                                                 PERFORMANCE GOAL 3.3
                                    Ensure the Enterprises have effective programs that respond to problems in
                                             mortgage markets by reducing preventable foreclosures.

                                                                 PERFORMANCE MEASURE 3.3.1
                                         Prevent current loans from going delinquent by helping borrowers to refinance.
                                                   FY 2010                                 FY 2011                                  FY 2012
      Target                                                                                                              Maintain the volume of HARP
                                                                                                                         refinances as a percent of total
                                         New Measure for 2012                     New Measure for 2012                 refinances at 10 percent or higher
      Performance Results Key:
      Goal Fulfillment                                                                                                                Target Met

                                                                PERFORMANCE MEASURE 3.3.2
               Maintain the percentage of modified loans that are 60 plus days delinquent, nine months after modification, at or below 20 percent.
                                                   FY 2010                                 FY 2011                                  FY 2012
      Target                                35 Percent or less                       35 Percent or less                 Less than or equal to 20 percent
      Performance Results Key:
      Goal Fulfillment                               Target Met                              Target Met                               Target Met




38   Federal Housing Finance Agency            |   2012 Performance and Accountability Report
                                                                                                                                                DISCUSSION AND ANALYSIS
                                                                                                                                                     MANAGEMENT’S
  RESOURCE
                                        FHFA has the personnel, resources and infrastructure to manage effectively and
  MANAGEMENT
                                        efficiently to achieve its mission and goals
  STRATEGY

The focus of the resource management strategy is to                       a list of all measures associated with this goal.
create and sustain an infrastructure responsive to mission-               Performance measure 4.3.2 was not met. This measure
critical program management. FHFA ensures effectiveness                   requires management to complete corrective action
and efficiency in this area through the recruitment and                   on OIG findings within an agreed timeframe. One
retention of a diverse and highly skilled staff.                          recommendation was originally closed by FHFA in the
                                                                          4th quarter and later re-opened after a mutual agreement
Table 4 summarizes the key performance measure                            between FHFA and the OIG. The timeline was extended to
that demonstrates FHFA’s use of its resources. Pages                      close the recommendation by February 28, 2013.
67–70 of the Performance Section includes


                            Table 4: KEY PERFORMANCE MEASURE DEMONSTRATING FHFA’S USE OF RESOURCES

                                                      PERFORMANCE GOAL 4.3
                                      FHFA has effective financial and risk management programs.

                                                      PERFORMANCE MEASURE 4.3.2
                             Ensure management completes corrective action on OIG findings within agreed timeframe.
                                           FY 2010                                FY 2011                                FY 2012
 Target                                                                                                        No overdue corrective actions
                                                                                                                       outstanding
                                   New Measure for 2012                   New Measure for 2012
 Performance Results Key:
 Goal Fulfillment                                                                                                         Target Not Met




                                                                       Building an Infrastructure for the Secondary Mortgage Market            39
     Program Evaluations
     During fiscal year 2012, FHFA operated under its FY                               serious management issues during FY 2012. See pages
     2009-2014 strategic plan. In October 2012, the agency                             106–114 of the Other Accompanying Information
     released a new Strategic Plan for FHFA for Fiscal Years                           section.
     2013-2017. This plan sets out the agency’s mission,
                                                                                       FHFA reviewed 10 audits, 7 evaluations, 2 evaluation
     vision, values, and strategic goals through FY 2017.
                                                                                       surveys, and 3 white papers issued by the OIG in FY 2012.
     Through quarterly performance tracking meetings with
                                                                                       The OIG also issued 50 recommendations that were due
     senior leadership, FHFA reviews its progress, and verifies
                                                                                       in FY 2012. FHFA completed/closed 49 recommendations
     and validates performance data to ensure reliability and
                                                                                       while one recommendation will remain open due to final
     accuracy. FHFA did not have an independent external
                                                                                       actions that will extend beyond FY 2012—the new timeline
     evaluation conducted this fiscal year.
                                                                                       was extended to February 28, 2013.
     FHFA’s Office of Inspector General began operations in
                                                                                       As of September 2012, OIG had completed the following
     October 2010. OIG assessed several of FHFA’s most
                                                                                       evaluations of FHFA:


                                                          OIG PERFORMANCE EVALUATIONS
          Evaluation                                     Summary                                                    Summary of FHFA’s Response
      FHFA’s Oversight       Although FHFA has taken several important steps to monitor            FHFA disagrees with a number of statements, characterizations,
      of Troubled Federal    closely and control the four troubled FHLBanks, FHFA lacks a          or inferences in the report but generally agrees with the
      Home Loan Banks –      clear consistent and transparent written enforcement policy.          substance of the report’s recommendations. FHFA will develop
      January 2012           The lack of a management reporting system as well as FHFA’s           and implement a written enforcement policy; develop an
                             practice of not consistently documenting troubled FHLBank             automated information system for agency managers cataloguing
                             interactions (i.e., recommending that FHLBank boards of               examination findings, planned corrective actions, timeframes
                             directors remove certain senior officers), also impedes outside       and status; and develop guidelines for documenting significant
                             oversight of the agency.                                              oral and written actions involving an FHLBank, including actions
                                                                                                   relating to the removal or replacement of senior officers.

      Evaluation of FHFA’s   FHFA confronts a challenging balance of interests in avoiding         FHFA concurs with the recommendations and will
      Management             potential losses by effectively defending ongoing lawsuits against    undertake additional steps to address future indemnification
      of Legal Fees          the Enterprises while having an interest in controlling significant   agreements. FHFA will continue its efforts at cost control
      for Indemnified        costs, particularly the tens of millions of dollars of payments       and work expeditiously to seek greater standardization in the
      Executives –           made to attorneys and others involved in representing former          administration of such legal costs by the Enterprises while
      February 2012          senior executives. OIG recommends that FHFA work to limit legal       increasing its scrutiny of legal costs. FHFA will also document
                             expenses to the extent possible and reasonable and continue to        oversight mechanisms and provide a summary report to OIG.
                             control costs of legal expenses.

      FHFA’s Oversight       As part of FHFA’s ongoing horizontal review of unsecured              FHFA agrees with both recommendations. FHFA has alerted the
      of the Federal         credit practices at the FHLBanks, OIG recommends that FHFA            FHLBanks of violations of existing regulatory limits identified by
      Home Loan Bank’s       follow up on any potential evidence of violations of the existing     the OIG evaluation. Factors that led to those violations are being
      Unsecured Credit       regulatory limits and take supervisory and enforcement actions        addressed. FHFA will follow-up on the adequacy of those efforts
      Risk Management        as warranted, determine the extent to which inadequate systems        through its FHLBank examination program.
      Practices –            and controls may compromise the FHLBanks’ capacity to
                                                                                                   The Dodd-Frank Wall Street Reform and Consumer Protection
      June 2012              comply with regulatory limits, and take any supervisory actions
                                                                                                   Act of 2010 require a review and modification of FHFA
                             necessary to correct such deficiencies, as warranted.
                                                                                                   regulations that rely on such ratings. This effort is currently
                             To strengthen the regulatory framework around the extension           underway – FHFA will consider the factors recommended by
                             of unsecured credit by the FHLBanks, OIG recommends, as a             OIG as part of its review and modification of the regulation
                             component of future rulemakings, that FHFA consider the utility       governing unsecured credit at the FHLBanks. FHFA will complete
                             of establishing maximum overall exposure limits; lowering the         its assessment and propose revisions to its rule governing
                             existing individual counterparty limits; and ensuring that the        unsecured credit at the FHLBanks by April 15, 2013.
                             unsecured exposure limits are consistent with the FHLBank
                             System’s housing mission.

                                                                                                                                                 continued on next page




40   Federal Housing Finance Agency             |   2012 Performance and Accountability Report
                                                                                                                                                                  DISCUSSION AND ANALYSIS
                                                                                                                                                                       MANAGEMENT’S
                                                   OIG PERFORMANCE EVALUATIONS
     Evaluation                                   Summary                                                    Summary of FHFA’s Response
FHFA’s                 OIG recommended and FHFA agreed to: (1) adhere to the                FHFA took immediate action to strengthen oversight controls
Certifications         requirements to certify both that the Enterprises have complied      for the preferred stock agreements identified by OIG. FHFA
for the Preferred      with the preferred stock agreement covenants and that the            established processes to enhance ongoing compliance with
Stock Purchase         Enterprises’ financial statements and related documents are free     the agreements and has implemented additional procedures to
Agreements –           of materially false or misleading representations; and (2) monitor   oversee the certification processes including the engagement
August 2012            the implementation of its oversight procedures to ensure that        of the Enterprises’ external auditors to independently test the
                       they are effective. These certifications enhance oversight of the    covenant compliance. These actions will improve the oversight of
                       preferred stock agreements and reduce the potential for errors       the Preferred Stock Purchase Agreement process.
                       and waste of taxpayer dollars.

Follow-up on           FHFA and Freddie Mac have acted on the concerns raised in            FHFA agrees that reforms currently in place or underway
Freddie Mac’s          OIG’s report by adopting a more expansive loan review process.       will address the weaknesses identified by OIG and Freddie
Loan Repurchase        Specifically, Freddie Mac changed its policies to review for         Mac Internal Audit. Additional steps are not planned at this
Process –              potential repurchase claims significantly larger numbers of loans    time, but as noted in the follow-up report, three measures
September 2012         that defaulted more than two years after origination. FHFA and       remain in progress for FHFA senior management: 1) ensure
                       Freddie Mac should continue to carry out the loan review and         that Freddie Mac management resolves concerns associated
                       related reforms they have initiated since OIG’s original report      with ‘unsatisfactory’ audit opinion; 2) initiate an independent
                       was issued.                                                          assessment of Enterprise repurchase practices; and 3) evaluate
                                                                                            whether the Enterprises should adopt consistent review practices
                                                                                            for repurchase claims.

Evaluation of FHFA’s   Fannie Mae’s purchase of mortgage servicing rights (MSR)             FHFA agrees with the following recommendations: 1) to consider
Oversight of Fannie    was the most recent of several transactions executed as part         revising FHFA’s Delegation Authorities to require FHFA approval
Mae’s Transfer of      of an ongoing initiative. BOA transaction was the largest of the     of unusual, high new initiatives; 2) ensure Fannie Mae does
Mortgage Servicing     transfers in the High Touch Servicing Program to date – however,     not have to pay a premium to transfer inadequately performing
Rights from            the amount that Fannie Mae paid was consistent with the              portfolios; 3) ensure Fannie Mae applies additional scrutiny
Bank of America        amount it had paid to other servicers from which it purchased        and rigor to pricing significant MSR transactions and consider
(BOA) to High          MSR under the program. FHFA OIG found that Fannie Mae relied         requiring Fannie Mae to assess the valuation methods of
Touch Servicers –      on a single consultant to price most of the MSR transactions         multiple MSR valuators in order to discern best practices; and
September 2012         under the program. OIG determined that FHFA can improve its          4) access the efficacy of the program and direct any necessary
                       oversight of Fannie Mae’s program.                                   modifications.

FHFA’s Oversight       OIG uncovered no evidence that FHFA or Freddie Mac obstructed        The following are FHFA’s responses to the OIG
of Freddie Mac’s       homeowners’ abilities to refinance their mortgages in an effort      recommendations: 1) FHFA will continue to follow Freddie Mac’s
Investment in          to influence the yields of the inverse floating-rate bonds that      portfolio and its hedging activities closely for many years (-this
Inverse Floaters –     the Enterprise retained in its investment portfolio. Freddie Mac     activity is part of our ongoing supervision program); 2) FHFA will
September 2012         has an “information wall” policy to prevent its capital markets      incorporate reviews of Freddie Mac’s information wall as part of
                       business from using non-public information to guide its              its risk-based supervision of Freddie Mac’s investment activities
                       investments. OIG found that FHFA’s position on inverse floaters      (-this activity is part of our ongoing supervision program);
                       could have been communicated more clearly.                           3a) FHFA does not agree with the implication that there was
                                                                                            confusion based on the timeline provided in our response, FHFA
                                                                                            nevertheless agrees it is important to confirm supervisory views
                                                                                            in writing and will continue to make this a critical part of our
                                                                                            supervisory process; 3b) FHFA agrees that supervisory work and
                                                                                            supervisory concerns should be based on the agency’s work
                                                                                            and analysis; and that the facts and high level timeline provided
                                                                                            demonstrate that we base our supervisory work, discussions and
                                                                                            findings on work that was well underway or completed prior to
                                                                                            the reports, including the receipt of a confirming communication
                                                                                            from Freddie Mac; 4) FHFA strongly believes that the public
                                                                                            statement issued regarding inverse floaters accurately reflected
                                                                                            all relevant facts and is supported by the timeline referenced in
                                                                                            this memorandum and documentation provided to OIG.




                                                                              Building an Infrastructure for the Secondary Mortgage Market                       41
     Analysis of Financial Statements

     Overview                                                         $76.4 million net position as of September 30, 2011 see
     FHFA prepares annual consolidated and combined                   Figure 14).
     financial statements for the agency and its Office of
     Inspector General in accordance with U.S. generally              Statement of Net Cost
     accepted accounting principles (GAAP) for Federal                The Statement of Net Cost presents the components
     Government entities and subjects the statements to an            of FHFA’s net cost, which is the gross cost incurred less
     independent audit to ensure their integrity and reliability in   any revenues earned. FHFA’s FY 2012 total program net
     assessing performance.                                           (income)/costs, as reflected on the Statement of Net
                                                                      Cost, were -$8.4 million (or net revenue) as compared to
     FY 2012 Financial Statement Audit                                the -$33.4 million in FY 2011. This change reflects the
                                                                      increase in gross costs and earned revenue needed to
     FHFA achieved an unqualified opinion from the GAO on
                                                                      carry out its mission as reflected in its FY 2012 operating
     its annual financial statements. GAO noted no material
                                                                      budget. The operating budget increase between fiscal
     weaknesses or significant deficiencies in FHFA’s internal
                                                                      years is the result of increased mission costs. However,
     controls and cited no instances of noncompliance with
                                                                      during the course of the year, FHFA was unable to fully
     laws and regulations.
                                                                      expend its FY 2012 earned revenue, thereby resulting in
                                                                      an excess of revenue over cost.
     Understanding the Financial Statements
     The principal financial statements present FHFA’s financial      Consistent with the Government Performance and Results
     position, net cost of operations, changes in net position,       Act of 1993, the Statement of Net Cost is reported by
     and budgetary resources for fiscal years 2012 and 2011.          FHFA’s strategic goals. FHFA tracked resource allocations
     Financial statements and notes for fiscal years 2012 and         and program costs to the strategic goals (responsibility
     2011 appear on pages 82–103. Highlights of the                   segments) developed for FHFA’s strategic plan. Strategic
     financial information presented in the principal financial       Goals, 1–Safety and Soundness; 2–Affordable Housing
     statements are shown below.                                      (Housing Mission); and 3–Conservatorship, guide
                                                                      program offices to carry out FHFA’s vision and mission.
     Balance Sheet                                                    FHFA has a Resource Management Strategy, which is
                                                                      distributed proportionately to Strategic Goals 1-3 based
     The Balance Sheet presents, as of the end of the fiscal
     year, the recorded value of assets and liabilities retained
     or managed by FHFA. The difference between the                                              Figure 14: ASSETS AND LIABILITIES
     assets and liabilities represents FHFA’s net position. The                                        (Dollars in Thousands)
     Balance Sheet reflects total assets of $144.8 million, a 44
                                                                                      $160,000
     percent increase over FY 2011. The increase is primarily                                                                $144,799

     due to a $40.0 million increase in Property, Equipment,
                                                                                      $120,000
     and Software due to leasehold improvements and                                                 $100,781
     furniture, fixtures and equipment purchases associated
                                                                        $ Thousands




                                                                                       $80,000
     with FHFA’s new location at Constitution Center. FHFA’s
                                                                                                                                        $54,126
     total liabilities increased by $29.8 million, a 122 percent
     increase over FY 2011. The increase is primarily due to                           $40,000
                                                                                                             $24,350
     a tenant allowance provided to FHFA related to the new
     Constitution Center lease and an increase in deferred                                 $0
                                                                                                     SEPTEMBER 2011          SEPTEMBER 2012
     rent. As a result, FHFA’s net position as of September 30,
     2012 was $90.7 million, a $14.2 million increase over the                                     Assets              Liabilities




42   Federal Housing Finance Agency       |   2012 Performance and Accountability Report
                                                                                                                                                                            DISCUSSION AND ANALYSIS
                                                                                                                                                                                 MANAGEMENT’S
  Figure 15: TOTAL NET (INCOME FROM)/COST OF OPERATIONS                                          Figure 16: STATEMENT OF CHANGES IN NET POSITION
                    (Dollars in Thousands)                                                                      (Dollars in Thousands)

                $50,000                                                                          $100,000         $90,673
                $40,000                                                                                     $76,431                                              $76,431
                                                       $28,890                                    $75,000
                $30,000
                $20,000                                                                           $50,000
                $10,000                                                                                                                                    $37,856




                                                                                   $ Thousands
  $ Thousands




                                                                      $2,366
                     $0                                                                           $25,000
                -$10,000                  -$3,232                                                                                          $5,193 $5,810
                           -$9,336                                                                    $0
                -$20,000
                                  -$20,814                                                                                           -$8,432
                -$30,000                                                                         -$25,000
                -$40,000                                                                                                  -$33,382
                                                              -$39,688
                -$50,000                                                                         -$50,000
                                                                                                             CUMULATIVE      NET INCOME          TOTAL        BEGINNING
                              SEPTEMBER 2011               SEPTEMBER 2012                                    RESULTS OF           OF           FINANCING      BALANCES
                                                                                                             OPERATIONS      OPERATIONS         SOURCES
                            Strategic Goal 1: Safety and Soundness
                            Strategic Goal 2: Affordable Housing                                             September 2011              September 2012
                            Strategic Goal 3: Conservatorship



                                                                                                  Figure 17: STATEMENT OF BUDGETARY RESOURCES
on the percentage of direct costs of each goal to the                                                               COMPARISONS
total direct costs for FHFA. FHFA places a significant                                                          (Dollars in Thousands)
emphasis on Strategic Goal 1, Safety and Soundness,
                                                                                                 $350,000
which comprises a major portion of the total program                                                               $304,635
                                                                                                 $300,000
costs. FHFA-OIG allocated their costs to FHFA’s Resource                                                                               $259,100               $262,252
                                                                                                            $253,568
Management Strategy, which is distributed proportionately                                        $250,000                       $225,896
to Strategic Goals 1-3 based on the percentage of direct                                         $200,000                                             $186,945
                                                                                   $ Thousands




costs of each goal to the total direct costs for FHFA (see                                       $150,000
Figure 15).
                                                                                                 $100,000

Statement of Changes in Net Position                                                              $50,000

The Statement of Changes in Net Position presents those                                                $0
                                                                                                                BUDGETARY             OBLIGATIONS            GROSS
                                                                                                                RESOURCES              INCURRED              OUTLAYS
accounting items that caused the net position section of
the Balance Sheet to change from the beginning to the                                                          September 2011                  September 2012

end of the reporting period. Financing sources increase
net position. FHFA’s financing source is imputed financing
                                                                                 statement shows that FHFA had $304.6 million in total
from costs absorbed on FHFA’s behalf by other Federal
                                                                                 budgetary resources for the 12 months ended September
agencies. Net income from/cost of operations impacts net
                                                                                 30, 2012. The 20 percent increase in budgetary resources
position.
                                                                                 is the result of an increase in mission costs. Obligations
FHFA’s cumulative results of operations for the period                           incurred increased 15 percent to $259.1 million. Gross
ending September 30, 2012 increased $14.2 million (see                           outlays increased 40 percent to $262.3 million (see
Figure 16).                                                                      Figure 17).


Statement of Budgetary Resources                                                 Source of Funds
This statement provides information about the budgetary                          HERA authorizes FHFA to collect annual assessments
resources available to FHFA and the status of these                              from its regulated entities to pay its costs and expenses
resources and the outlay of budgetary resources for                              and maintain a working capital fund. Under HERA,
the years ending September 30, 2012 and 2011. The                                annual assessments are levied against the Enterprises




                                                                               Building an Infrastructure for the Secondary Mortgage Market                                43
     and the FHLBanks to cover the cost and expenses of            during FY 2012, which included a $5.4 million special
     the agency’s operations for supervision of the regulated      assessment on the Enterprises related to conservatorship
     entities.                                                     activities and a $38.8 million assessment for costs related
                                                                   to the operations of the Office of Inspector General.
     FHFA calculates the assessments for each Enterprise by
     determining the proportion of each Enterprise’s assets
     and off-balance sheet obligations to the total for both
                                                                   Limitations of the Financial Statements
     Enterprises and then applying each of the Enterprise’s        The principal financial statements have been prepared
     proportion (expressed as a percentage) to the total           to report the financial position and results of operations
     budgeted costs for regulating the Enterprises. FHFA           of FHFA, pursuant to the requirements of 31 U.S.C.
     calculates the assessments for each of the 12 FHLBanks        3515(b). While the statements have been prepared from
     by determining each FHLBank’s share of minimum                the books and records of FHFA in accordance with GAAP
     required regulatory capital as a percentage of the total      for Federal entities and the formats prescribed by OMB,
     minimum capital of all the FHLBanks and applying this         the statements are in addition to the financial reports
     percentage to the total budgeted costs for regulating the     used to monitor and control budgetary resources, which
     banks. Assessments are paid semiannually on October 1         are prepared from the same books and records. The
     and April 1. FHFA collected assessments of $224.4 million     statements should read with the realization that they are for
                                                                   a component of the U.S. Government, a sovereign entity.




     Analysis of Systems, Controls and Legal Compliance

     MANAGEMENT ASSURANCES                                         During FY 2012, pursuant to its obligations under OMB
                                                                   Circular A-123, FHFA monitored and assessed the
     Federal Managers’ Financial Integrity Act                     following three areas:
     During FY 2012, FHFA adhered to the internal control
     requirements of the Federal Managers’ Financial Integrity     Reliability over Financial Reporting
     Act (FMFIA) and the guidance provided by OMB Circular         FHFA’s Office of Budget and Financial Management
     A-123. FHFA’s Executive Committee on Internal Controls        assessed the agency’s financial reporting controls
     (ECIC) met quarterly to oversee internal controls and         according to the requirements outlined in OMB Circular
     provide recommendations to the FHFA Acting Director on        A-123, Appendix A.
     the effectiveness of FHFA’s internal controls.
                                                                   Compliance with Laws and Regulations
     In 2012, the ECIC members were the Chief Operating
                                                                   Assessment teams from FHFA divisions and offices
     Officer who served as the Chairman, the Chief Financial
                                                                   identified the significant laws and regulations that relate
     Officer who served as the Vice-Chairman, the Chief
                                                                   to the operations for their respective offices. Assessment
     Information Officer, the Deputy Director for Enterprise
                                                                   teams documented the actions that demonstrated
     Regulation, the Deputy Director for Bank Regulation, the
                                                                   compliance, and the agency’s Office of General Counsel
     Deputy Director for Examination Programs and Support,
                                                                   reviewed all submissions.
     the Deputy Director for Housing Mission and Goals, the
     General Counsel, and the Associate Director Office of
                                                                   Effectiveness and Efficiency of Operations
     Quality Assurance. The Chairman and Vice Chairman of
     the ECIC invited other FHFA executives and managers           Assessment teams from FHFA divisions and offices
     when appropriate. The ECIC also established senior            reviewed controls over operations using the criteria
     assessment teams to review specific areas when needed.        outlined in the GAO Internal Control Management and
                                                                   Evaluation Tool. Division and office managers and the




44   Federal Housing Finance Agency    |   2012 Performance and Accountability Report
                                                                                                                                    DISCUSSION AND ANALYSIS
                                                                                                                                         MANAGEMENT’S
Office of Budget and Financial Management reviewed the            relative to the three areas assessed by the OIG; internal
reports of the assessment teams.                                  control over financial reporting, effectiveness and efficiency
                                                                  of operations, and compliance with laws and regulations.
The ECIC reviewed documentation from all three areas.
In compliance with the FMFIA requirements, the FHFA
Acting Director, on the basis of a recommendation
                                                                  Federal Management System and Strategy
from the ECIC, provided reasonable assurance that                 Section 1106(g)(3) of HERA requires FHFA to implement
internal controls over the effectiveness and efficiency           and maintain financial management systems that comply
of operations, compliance with applicable laws and                substantially with federal financial management systems
regulations, and financial reporting as of September 30,          requirements, applicable federal accounting standards,
2012 were operating effectively and that no material              and the U.S. Government Standard General Ledger at
weaknesses were found in the design or operation of the           the transaction level. FHFA, including FHFA-OIG, uses
internal controls.                                                the Bureau of the Public Debt for its accounting services
                                                                  and that agency’s financial management system (FMS)
The FHFA-OIG began operation in mid-October 2010 and              which includes (1) a core accounting system—Oracle
adhered to the internal control requirements of FMFIA             Federal Financials; (2) three feeder systems—PRISM
and the guidance provided by OMB Circular A-123. In               (procurement), GovTrip (travel), and Citidirect (charge card);
order to ensure compliance, the FHFA-OIG formed an                (3) a reporting system—Discoverer; and (4) an inventory
ECIC and established a senior assessment team headed              tracking system. FHFA is responsible for overseeing the
by the Chief of Staff to assess the internal controls of the      Bureau of the Public Debt’s performance of accounting
OIG. The assessment team included participants from               services for the agency. A financial oversight document
each office within the FHFA-OIG. Based on its review of           outlines the assignment of activities between FHFA and
the internal control assessments, the FHFA-OIG ECIC               the Bureau of the Public Debt. FMS includes manual and
provided reasonable assurance that OIG offices have               automated procedures and processes from the point at
developed and maintained effective internal controls              which a transaction is initiated to issuance of financial
for FY 2012, and no significant deficiencies or material          reports. FMS meets the requirements of HERA Section
weaknesses have been identified.                                  1106(g)(3). FHFA also uses the National Finance Center, a
                                                                  service provider within the Department of Agriculture, for
The Office of Counsel (OC), under the Chief Counsel’s
                                                                  its payroll and personnel processing. FHFA has streamlined
direction, is FHFA-OIG’s principal authority on legal matters
                                                                  accounting processes by electronically interfacing data
pertaining to FHFA-OIG activities, duties, and authorities.
                                                                  from charge cards, investment activities, the GovTrip travel
The OC works to ensure that all FHFA-OIG activities
                                                                  system, the PRISM procurement system, and the National
are conducted in accordance with applicable legal
                                                                  Finance Center payroll system to FMS.
requirements. Starting with the creation of FHFA-OIG in
mid-October 2010, the OC has developed rules, policies,
and procedures to ensure full FHFA-OIG compliance with            Federal Information Security Management Act
such requirements. Although these efforts continue, no            Title III of the Electronic Government Act of 2002,
FHFA-OIG office identified substantive deviations from            commonly referred to as the Federal Information Security
full compliance with those legal authorities to which             Management Act (FISMA), requires all Federal agencies
it is subject. Based on these factors and the controls            to develop and implement an agency-wide information
assessments performed at each OIG office, the FHFA-OIG            security program. The program provides a framework to
ECIC members determined that the FHFA-OIG’s A-123                 protect the agency’s information, operations, and assets.
efforts provide reasonable assurance that FHFA-OIG                During FY2011 and into FY2012, OMB issued guidance
complies with laws and regulations applicable to FHFA             requiring federal agencies to continuously monitor the
generally, and to FHFA-OIG specifically. As such, the             security posture of information systems to enable timely
FHFA-OIG ECIC recommended the Inspector General                   decision making regarding identified vulnerabilities and
sign an assurance statement to the FHFA Acting Director           threats. In FY2012, OMB directed Federal Agencies to
recommending an unqualified statement of assurance




                                                                Building an Infrastructure for the Secondary Mortgage Market       45
     increase monitoring of security-related events and to         management capability, updating information security
     acquire tools to automate security activities.                policy with corresponding procedures, and performing
                                                                   annual security control assessments of FHFA information
     The FHFA-OIG is required to review the agency’s               systems, including the Agency’s Financial Management
     information security program annually and report the          System (FMS). FHFA maintained security authorization
     results to OMB as required by FISMA. FHFA’s information       on 100 percent of all major systems in production
     security program activities during FY2012 reflect             which included a significant upgrade to the general
     efforts focused on enhancing the Agency’s continuous          support system as a result of the Agency’s move to a
     monitoring program as well as increasing automation           new building. FHFA developed and distributed monthly,
     capabilities. The continuous monitoring program requires      non-technical cyber security newsletters to all employees
     FHFA to proactively monitor the security posture of           to enhance user awareness and successfully provided
     its information technology infrastructure through the         annual security training to all employees and contractors.
     implementation of operational, management, and                FHFA also addressed security-related weaknesses for
     technical controls, including automated security tools and    systems noted in the prior year FISMA review as well
     supplemental resources for monitoring activities. The tools   as mitigating vulnerabilities identified during other SA&A
     and activities include the FHFA Security Assessment and       activities.
     Authorization (SA&A) process for evaluating information
     systems before they become operational; reviewing             To support the annual FY2012 FISMA review, the OIG
     system logs and configuration management activities; and      conducted several audits, including a network vulnerability
     conducting periodic vulnerability scans.                      assessment that resulted in a clean audit with no findings.
                                                                   The FY2012 FISMA audit report is in the final stages of
     Other FY2012 information security program activities          OIG management review.
     include implementing an enhanced vulnerability




46   Federal Housing Finance Agency    |   2012 Performance and Accountability Report
                                                                                                                                                DISCUSSION AND ANALYSIS
                                                                                                                                                     MANAGEMENT’S
Management Report on Final Actions
As required under amended Section 5 of the Inspector General Act of 1978, the FHFA must report information on final
action taken by management on certain audit reports. The tables that follow provide information on final action taken by
management on audit reports for the Federal fiscal year period October 1, 2011, through September 30, 2012.


            Table 5: MANAGEMENT REPORT ON FINAL ACTION ON AUDITS WITH DISALLOWED COSTS FOR FISCAL YEAR 2012
                                                                                                          NUMBER OF         DISALLOWED
                                              AUDIT REPORTS
                                                                                                           REPORTS             COSTS
                                                                       Dollars in Thousands
 A.   Management decisions – Final action not taken at beginning of period                                     0                 $0
 B.   Management decisions made during the period                                                              0                 $0
 C.   Total reports pending Final action during the period (A and B)                                           0                 $0
 D.   Final action taken during the period:
       1. Recoveries:
          (a) Collections & offsets                                                                            0                 $0
          (b) Other                                                                                            0                 $0
       2. Write-offs                                                                                           0                 $0
       3. Total of 1(a), 1(b), & 2                                                                             0                 $0
 E.   Audit reports needing final action at the end of the period                                              0                 $0


                            Table 6: MANAGEMENT REPORT ON FINAL ACTION ON AUDITS WITH RECOMMENDATIONS
                                           TO PUT FUNDS TO BETTER USE FOR FISCAL YEAR 2012
                                                                                                          NUMBER OF         DISALLOWED
                                              AUDIT REPORTS
                                                                                                           REPORTS             COSTS
                                                                       Dollars in Thousands
 A.   Management decisions – Final action not taken at beginning of period                                     0                 $0
 B.   Management decisions made during the period                                                              0                 $0
 C.   Total reports pending Final action during the period (A and B)                                           0                 $0
 D.   Final action taken during the period:
       1. Value of recommendations implemented (completed)                                                     0                 $0
       2. Value of receommendations that management concluded should not or could not be                       0                 $0
          implemented or completed
       3. Total of 1(a), 1(b), & 2                                                                             0                 $0
 E.   Audit reports needing final action at the end of the period                                              0                 $0




                                                                                Building an Infrastructure for the Secondary Mortgage Market   47
      Table 7: AUDIT REPORTS WITHOUT FINAL ACTIONS BUT WITH MANAGEMENT DECISIONS OVER ONE YEAR OLD FOR FISCAL YEAR 2012

                                                        MANAGEMENT ACTION IN PROCESS
       Report No. and Issue Date                           Recommendation                                                 Management Action
      EVL 2011-06, Evaluation of      The OIG recommended that FHFA and its senior                    In 2012, FHFA has completed corrective actions to address
      the Federal Housing Finance     management must promptly act on the significant concerns        the recommendations, including continuing to work
      Agency’s Oversight of Freddie   raised about the loan review process. To ensure that            with Freddie Mac on repurchase settlement processes
      Mac’s Repurchase Settlement     Freddie Mac is maximizing its repurchase claim recoveries:      and approvals. However, the actions to fully address the
      with Bank of America,                                                                           recommendations are still underway at the end of the fiscal
      September 27, 2011                                                                              year.

                                      ƒƒ FHFA should continue to withhold approval of Freddie         ƒƒ Completed
                                         Mac repurchase settlements until such time as it is
                                         confident that the concerns about the Enterprise’s loan
                                         review process have been resolved.

                                      ƒƒ FHFA senior management should ensure that Freddie            ƒƒ In-process, FHFA senior management has met regularly
                                         Mac management resolves the concerns that prompted              with Freddie Mac’s Chief Enterprise Risk Office and its
                                         their internal auditors to issue an “Unsatisfactory” audit      General Auditor and agree that progress has been made
                                         opinion.                                                        but work remains to be completed.

                                      ƒƒ FHFA senior management should oversee Freddie Mac’s          ƒƒ In-process, Freddie Mac continues to perform “out-of-
                                         “out-of-sample” loan testing and consider independently         sample” loan testing. FHFA is currently in the process of
                                         validating the testing.                                         independently validating the conclusions. Freddie Mac’s
                                                                                                         internal auditors also intend to validate the out-of-
                                                                                                         sample testing.

                                      ƒƒ FHFA should evaluate whether Fannie Mae and Freddie          ƒƒ In-process, FHFA issued a directive covering future
                                         Mac should adopt consistent review practices for                repurchase claims by Fannie Mae and Freddie Mac.
                                         repurchase claims                                               FHFA continues to assess the sampling strategies and
                                                                                                         implications for legacy repurchase claims.

                                      ƒƒ FHFA senior management should initiate an                    ƒƒ In-process, FHFA issued a directive covering future
                                         independent assessment of Enterprise repurchase                 repurchase claims by Fannie Mae and Freddie Mac.
                                         practices in order to ensure that they are maximizing           FHFA continues to assess the sampling strategies and
                                         their repurchase claim recoveries                               implications for legacy repurchase claims.

                                      ƒƒ FHFA should issue internal guidance regarding its            ƒƒ Completed
                                         handling of future repurchase settlements, should they
                                         arise.

                                                                                                      Expected Completion Date: FHFA will monitor the
                                                                                                      repurchase settlement process throughout fiscal year
                                                                                                      2013.




48   Federal Housing Finance Agency             |   2012 Performance and Accountability Report
                                                                                                DISCUSSION AND ANALYSIS
                                                                                                     MANAGEMENT’S
FHFA’s Statement of Assurance




                                Building an Infrastructure for the Secondary Mortgage Market   49
                     Performance
                     Section


                                     | 	 Managing and Measuring Performance
                                     | 	 Strategic Human Capital Management
                                     | 	 Strategic Goal 1: Safety and Soundness
                                     | 	 Strategic Goal 2: Housing Mission
                                     | 	 Strategic Goal 3: Conservatorship
                                     | 	 Resource Management Strategy	




2 0 1 2 F E D E R A L H O U S I N G F I N A N C E A G E N C Y P E R F O R M A N C E A N D A C C O U N TA B I L I T Y R E P O R T
Managing and Measuring Performance
During FY 2012, FHFA retooled its performance measures           The annual performance budget describes how FHFA
to align with initiatives that are mission critical and          achieves its goals and the costs, systems, and initiatives
reflective of how the housing market has evolved. The            associated with them. The agency accomplishes its
agency identified eight performance measures that will           mission primarily by:
no longer be reported on externally. Although these               „„Examining    the regulated entities;
performance measures will no longer be reported on
                                                                  „„Monitoring their progress in completing their
externally, they remain important and will continue to be
                                                                    remediation plans;




                                                                                                                                    PERFORMANCE SECTION
tracked and reviewed internally (see page 105 of the
Other Accompanying Information for more information).             „„Assessing    their capital adequacy;
                                                                  „„Preserving   and conserving Enterprise assets;
The Performance Section is organized by strategic goals
to describe FHFA’s efforts to meet the goals defined in           „„Setting   and enforcing affordable housing goals;
the agency’s FY 2009–2014 strategic plan. In October              „„Monitoring   credit and financial market conditions; and
2012, FHFA released a new Strategic Plan for FHFA for
                                                                  „„Researching and analyzing the regulated entities and
Fiscal Years 2013-2017. As a result of this plan and in
                                                                    the housing markets.
concert with the initiatives associated with the new A
Strategic Plan for Enterprise Conservatorships, four new         FHFA continued to employ a numbering system to link
performance measures will be added in FY 2013. The               performance measures to strategic and performance
initiatives associated with the conservatorship strategic        goals. For each performance measure, the first digit
plan will be guided by our newly created Office of               represents the strategic goal it supports, the second digit
Strategic Initiatives.                                           is the number of the performance goal, and the third digit
                                                                 is the number of the performance measure related to that
The Performance Section also includes a discussion of
                                                                 goal. For example, performance measure 1.1.1 supports
each performance goal, the results of the performance
                                                                 strategic goal 1 and performance goal 1.1—it is the first
measures for the current year as well as two prior fiscal
                                                                 performance measure under that goal.
years, the associated targets, how the agency verifies
performance data, factors describing why performance             Strategic and performance goals are developed during
measures were not met and our plans to improve our               the planning process and approved by the Acting
performance.                                                     Director. Senior executive leaders develop performance

FHFA’s annual performance plan establishes specific
outcomes to accomplish the strategic goals. The annual                         Figure 18: FHFA’S GOAL HIERARCHY
plan also outlines performance measures used to track
achievement of each goal while providing the means and
strategies that will be utilized. Performance measures also
                                                                                                G




highlight the achievement level towards the overarching
                                                                                           RIN
                                                                                          ITO




performance goal. In FY 2012, there were 14 performance
                                                                                          ON




                                                                                                    MISSION
                                                                                     &M




goals; 10 supported the agency’s three strategic goals
                                                                                    ION




and 4 supported our resource management strategy.
                                                                                 UT




                                                                                                STRATEGIC GOALS
                                                                                EC
                                                                               EX




Figure 18 shows the hierarchy of FHFA’s performance
goals and measures. It also depicts how FHFA intends to                                        PERFORMANCE GOALS
                                                                                                                    PL
                                                                                                                     AN




devote its resources to fulfill its mission in practical and
                                                                                                                     NIN




measurable ways.
                                                                                                                         G




                                                                                          PERFORMANCE MEASURES




                                                               Building an Infrastructure for the Secondary Mortgage Market    51
                                                 Figure 19: FHFA’S PERFORMANCE MANAGEMENT CYCLE


                                                                              Strategic Planning
                                                                               • Mission
                                                                               • Strategic goals
                                                                               • Performance standards

                                                                                         FHFA’s FIVE-YEAR STRATEGIC PLAN



                                                                              Performance Planning
                                                                               • Reconfirms goals
           Management, Monitoring & Accountability                             • Key means & strategies
            • Oversight and coordination of key means & strategies             • Annual performance targets
            • Quarterly execution reviews of progress towards goals and        • Propose new initiatives
              strategies
            • Accountability for results                                                FHFA’s ANNUAL PERFORMANCE PLAN
            • Strategic plans for systems
            • Employee performance evaluation management systems (PEMS)

           FHFA’s ANNUAL PERFORMANCE & ACCOUNTABILITY REPORT                  Performance Budget Development
                                                                               • Resource levels
                                                                               • System requirements & investment decisions
                                                                               • Adjustments to targets based on investment decisions

                                                                                       FHFA’s ANNUAL PERFORMANCE BUDGET




     measures, as well as the means and strategies that                   Most of FHFA’s performance measures, with the
     describe how FHFA is going to measure performance.                   exception of data used as input for capital calculations,
     Performance results are monitored throughout the year                reflect internal milestones. Some of the performance
     to determine the success of program activities. During FY            measures depend on the actions and results of the
     2012, senior executives and supporting staff submitted               regulated entities. Figure 20 depicts FHFA’s achievement
     quarterly reports on progress they made toward achieving             of performance measures for FY 2012.
     performance measures for which they were accountable.
     These reports are reviewed and analyzed by the
     Performance Management and Strategic Planning staff                           Figure 20: FY 2012 PERFORMANCE MEASURES
     to ensure accuracy, validity of information being reported,
     and progress toward achieving planned performance
     levels. The FHFA Acting Director then holds quarterly                                  8%
     performance tracking meetings with senior executive
                                                                                                                               Target Met
     leaders to review accomplishments and make required
     adjustments to programs. The agency uses the quarterly                                           92%                      Target Not Met
     reports as the basis for developing the Performance and
     Accountability Report. See Figure 19 for an outline of
     FHFA’s performance management cycle.




52   Federal Housing Finance Agency          |    2012 Performance and Accountability Report
VERIFICATION AND VALIDATION OF                                  to obtain and validate the data to ensure the accuracy
PERFORMANCE DATA                                                and accountability of the information.

Information reported in this Performance and                    During the performance planning cycle, the following data
Accountability Report is complete and reliable. The             are collected on each performance measure:
sources of data are identified and verified to ensure
                                                                 „„Definition
accuracy, reliability, and completeness. Individual offices
maintain a checks and balances system that is reflective         „„Data   source
of their performance measures, e.g., measures that               „„Process    for calculating or tabulating performance data
are more reflective to external influence versus internal
                                                                 „„Process    for validation and verification




                                                                                                                                    PERFORMANCE SECTION
influence. The data for all the performance goals are
complete and reliable. The data are created internally,          „„Responsible     manager
reported in the agency’s performance tracking system,            „„Location     of documentation
and reviewed each quarter by senior executive leadership.
Additionally, FHFA’s staff documents the procedures used        Data related to supervision activities are collected through
                                                                FHFA’s supervision process and reviewed by the quality
                                                                assurance staff and FHFA management.




Strategic Human Capital Management
FHFA’s Human Capital strategic plans, programs, and             of the agency. The FHFA Human Capital Management
operations are aligned to fully support the agency’s            Balanced Scorecard highlights 18 key objectives that
mission and performance goals. FHFA’s workforce is its          provide the structure and direction needed to achieve
most valuable resource. Attracting, hiring, developing,         a high– performing workforce in support of FHFA’s
rewarding, and retaining a diverse staff with cutting-          important mission and for furthering an agency culture
edge professional skills that possess the breadth and           that encourages collaboration, flexibility, and fairness to
depth of knowledge to support FHFA’s mission and                enable individuals to participate to their full potential.
strategic performance goals is critical to the success




                                                              Building an Infrastructure for the Secondary Mortgage Market     53
     Strategic Goal 1

       STRATEGIC GOAL 1                       The housing GSEs operate in a safe and sound manner and comply with legal requirements


     FHFA’s primary duty as regulator and conservator is                            During FY 2012, FHFA completed key organizational
     to ensure that the housing GSEs have the financial                             changes and established a new supervisory strategy to
     strength, operational capacity, and risk management                            lead and coordinate the agency’s activities highlighted
     controls to fulfill their critical role in the nation’s housing                in this strategic goal. Through its examination process,
     finance system. Providing a comprehensive and effective                        FHFA is improving the efficiency and effectiveness of
     oversight program for the housing GSEs requires attention                      examinations by integrating examination resources and
     to all aspects of operations and management, the risks                         standards. In addition, FHFA verifies that the GSEs are
     inherent in their activities, and the dynamic environment in                   timely in managing required improvements, remedial
     which they operate.                                                            actions, and litigation.

                                                               PERFORMANCE GOAL 1.1
                          Fannie Mae and Freddie Mac (the Enterprises) comply with legal requirements and operate in
                               a safe and sound manner with adequate capital and access to funds and capital.

                                                                PERFORMANCE MEASURE 1.1.1
                                                         Improve component ratings at each Enterprise.
                                                  FY 2010                                    FY 2011                                  FY 2012
      Target                           Improve in one or more by                   Improve in one or more by                 Improve in one or more by
                                         September 30, 2010                          September 30, 2011                        September 30, 2012
      Performance                The market risk rating for Freddie Mac      The composite ratings for both Fannie     Examinations have been conducted
                                 improved from critical to significant       Mae and Freddie Mac are critical          through the course of 2012. Ratings
                                 concerns for the quarter ending March       concerns. Stress on the mortgage          will be assigned and included in the
                                 31, 2010, based on improvements             market and poor financial performance     2012 Reports of Examination for the
                                 in interest rate risk management.           by the Enterprises continues. Target      Enterprises, which are scheduled to
                                 Component ratings did not improve at        met for Fannie Mae though not for both    be prepared, finalized, and reported
                                 Fannie Mae during FY 2010. Several          Enterprises as Freddie Mac did not        to the Enterprises in 2013. Target met
                                 areas, improved, increasing the             have component improvements               for Fannie Mae though not for both
                                 likelihood that some component ratings                                                Enterprises as Freddie Mac did not
                                 will improve during the next fiscal year.                                             have component improvements.
      Performance Results Key:
      Goal Fulfillment                            Target Not Met                             Target Not Met                            Target Not Met

                                                               PERFORMANCE MEASURE 1.1.2
                                   Matters Requiring Attention (MRAs) that are more than 120 days old are resolved or are
                                            being resolved in accordance with an acceptable remediation plan.
                                                  FY 2010                                    FY 2011                                  FY 2012
      Target                              90 percent Quarterly                        90 percent Quarterly                At least 90 percent each quarter
      Performance                80 MRAs were cited. Of those, 61            All MRAs were open fewer than 20          All MRAs were resolved or were
                                 (76 percent) were resolved or were          days. There were 27 total conclusion      in the process of being resolved
                                 in the process of being resolved in         letters in FY 2011. All of them were      in accordance with a remediation
                                 accordance with a remediation plan          resolved or were in the process of        plan acceptable to FHFA within 120
                                 acceptable to FHFA within 90 calendar       being resolved in accordance with a       calendar days of recognition. FHFA met
                                 days of recognition. FHFA met this          remediation plan acceptable to FHFA       this target at least 99 percent each
                                 performance measure the last three          within 90 calendar days of recognition.   quarter of FY 2012.
                                 quarters of the fiscal year, but the        FHFA met this target 100 percent each
                                 target was “not met” because of the         quarter of FY 2011.
                                 failure to meet the target in the first
                                 quarter of FY 2010.
      Performance Results Key:
      Goal Fulfillment                            Target Not Met                               Target Met                                Target Met




54   Federal Housing Finance Agency           |   2012 Performance and Accountability Report
OVERVIEW OF PERFORMANCE GOAL 1.1                                 process, FHFA works with the Enterprises to ensure the
                                                                 MRAs have been resolved within 120 days of identifying
FHFA conducts risk-based supervision and examinations
                                                                 an issue by requiring and monitoring corrective action
at the Enterprises to ensure they operate in a safe and
                                                                 plans. FHFA will continue to monitor the effectiveness of
sound manner. Key areas of risk include: credit risk,
                                                                 loss mitigation efforts to support the conservation of GSE
market risk, operational risk, governance, solvency and
                                                                 assets.
earnings. While FHFA did not meet performance measure
1.1.1 in FY 2012, examinations were conducted and
ratings will be assigned and included in the 2012 Reports
                                                                                          DID YOU KNOW?
of Examination (ROE). The absence of capital and the




                                                                                                                                                                         PERFORMANCE SECTION
continuation of credit losses jeopardized improving                                                               FY 2011                          FY 2012
the Enterprises’ ability to make improvements in those              TOTAL
                                                                    NEW                                       $1.08 Trillion         VS.       $1.31 Trillion
areas. Human capital flight and the uncertainty of the
                                                                    BUSINESS 1
conservatorship status jeopardized improvement in
Governance, Market Risk, and Operational Risk. FHFA                 TOTAL
will continue to focus on the improvement of Enterprise             ENTERPRISE HARP                                 448,746          VS.             711,409 2
                                                                    REFINANCES
operations. Key challenges to meeting this goal in the
future will be the health of the U.S. economy, house
                                                                    INTEREST
prices, and human capital risk at the Enterprises. It should                                                          4.11%          VS.               3.47%
                                                                    RATES
                                                                                                         Month of September 2011          Month of September 2012
be noted that this performance measure has not been
carried forward for the next fiscal year. FHFA will continue
                                                                                                          Fannie              4.00%         VS.     3.41%
to conduct examinations and ongoing monitoring of the                                                     Mae
                                                                                            Single
Enterprises, and ratings will be assigned in accordance             DELINQUENCY             Family
                                                                                                          Freddie
                                                                    RATES                                                     3.51%         VS.     3.37%
with the revised FHFA ratings system.                                                                     Mac

For performance measure 1.1.2, FHFA met its quarterly                                                     Fannie
                                                                                            Multi-        Mae                      .57%     VS.       .28%
target of 90 percent in FY 2012, requiring the submission,                                  Family
                                                                                                          Freddie
review and resolution of remediation plans within 120 days                                                Mac                      .33%     VS.       .27%
of issuance of an MRA. FHFA accomplished this goal by
meeting with the Enterprises biweekly to track progress
                                                                    RETAINED
and reconcile to Enterprise remediation packages. The               MORTGAGE                                  $1.40 Trillion         VS.       $1.22 Trillion
                                                                    PORTFOLIO
FHFA is in the process of developing an enhanced
process for tracking MRA remediation due dates. FHFA
                                                                    TOTAL MBS
continues to expend effort and resources to address high            OUTSTANDING
                                                                                                              $3.90 Trillion         VS.       $3.94 Trillion
levels of nonperforming loans and evaluate the success of
U.S. government programs, while maintaining a core risk-             1 Data includes purchases of mortgages into portfolio and issuances of the MBS
based supervision program. Throughout the supervision                2 FY 2012 total HARP refinancesis from Oct 2011–Aug 2012




                                                               Building an Infrastructure for the Secondary Mortgage Market                                         55
                                                                     PERFORMANCE GOAL 1.2
                                The FHLBanks and the Office of Finance comply with legal requirements and operate in a
                                     safe and sound manner with adequate capital and access to funds and capital.

                                                                       PERFORMANCE MEASURE 1.2.1
                                                                      Composite rating at each FHLBank.
                 Note: If rating is less than “2”, an acceptable performance improvement plan shall be included with the Bank’s response to the Report of Examination.

                                                        FY 2010                                        FY 2011                                          FY 2012
     Target                              “2” or better or, within 180 days                “2” or better or, within 180 days               “2” or better or, within 180 days
                                          of a rating downgrade to below                   of a rating downgrade to below                  of a rating downgrade to below
                                         2, operating under an approved                   2, operating under an approved                  2, operating under an acceptable
                                               capital restoration plan                         capital restoration plan                   performance improvement plan
     Performance                     Seven institutions were rated below              One institution was downgraded below            No FHLBanks were downgraded below
                                     2 in FY 2010. Four were operating                2 during FY 2011 and developed a                2 in FY 2012.
                                     under an acceptable performance                  remediation plan within 180 days of
                                     improvement plan within 90 days of               the downgrade.
                                     the downgrade, three were not.
     Performance Results Key:
     Goal Fulfillment                                    Target Not Met                                   Target Met                                       Target Met

                                                                        PERFORMANCE MEASURE 1.2.2
                                                                    Classify capital rating at each FHLBank.
                                                        FY 2010                                        FY 2011                                          FY 2012
     Target                                             Quarterly                            Classified as “adequately                        Classified as “adequately
                                                                                          capitalized” or, within 180 days                 capitalized” or, within 180 days
                                                                                         of a rating downgrade, operating                 of a rating downgrade, operating
                                                                                             under an approved capital                        under an approved capital
                                                                                             restoration plan Quarterly                       restoration plan Quarterly
     Performance                     Eleven of the 12 FHLBanks were                   Eleven of the 12 FHLBanks were                  All of the 12 FHLBanks were
                                     adequately capitalized throughout                adequately capitalized throughout               adequately capitalized at the end of
                                     FY 2010. One Bank was classified                 FY 2011. FHFA has continued to                  FY 2012. One FHLBank, previously
                                     as undercapitalized. That Bank                   classify one Bank as undercapitalized.          classified as undercapitalized through
                                     subsequently stipulated to a consent             The consent order and associated                a discretionary downgrade, was
                                     order, which constituted its approved            agreement constitute the FHLBank’s              upgraded to adequately capitalized for
                                     capital restoration plan.                        capital restoration plan.                       the quarter ending June 30, 2012.
     Performance Results Key:
     Goal Fulfillment                                    Target Not Met                                   Target Met                                       Target Met

                                                               PERFORMANCE MEASURE 1.2.3
                    MRAs that are more than 90 days old are resolved or being resolved in accordance with an acceptable remediation plan.
                                                        FY 2010                                        FY 2011                                          FY 2012
     Target                                     90 percent Quarterly                            90 percent Quarterly                      At least 90 percent each Quarter
     Performance                     FHFA examiners identified MRAs                   FHFA examiners identified MRAs at                FHFA examiners identified MRAs
                                     at FHLBanks during FY 2010. All                  FHLBanks during FY 2011. All MRAs               at FHLBanks during FY 2012. All
                                     matters requiring attention were either          more than 90 days old were either               matters requiring attention were either
                                     successfully resolved or in the process          successfully resolved or being resolved         successfully resolved or in the process
                                     of being resolved in accordance with             with an acceptable remediation plan             of being resolved in accordance with
                                     an approved remediation plan within              within 90 calendar days.                        an approved remediation plan within
                                     90 calendar days.                                                                                90 calendar days.
     Performance Results Key:
     Goal Fulfillment                                      Target Met                                     Target Met                                       Target Met




56   Federal Housing Finance Agency                 |    2012 Performance and Accountability Report
OVERVIEW OF PERFORMANCE GOAL 1.2                               capitalized and reflected on-going improvement in key risk
                                                               metrics of the Bank, FHFA continues to monitor concerns
FHFA supervises each FHLBank to ensure it operates in
                                                               with the level of retained earnings and the poor quality of
a safe and sound manner. In FY 2012, FHFA conducted
                                                               the Bank’s private label securities portfolio.
supervisory examinations primarily through on-site
examinations and off-site monitoring and analysis.             FHFA employs a risk-based examination program
                                                               that focuses on five key areas: market risk, credit risk,
During FY2012, composite ratings were assigned at each
                                                               operational risk, governance, and financial condition and
FHLBank. No FHLBanks were downgraded during FY
                                                               performance. FHFA provides its ROE and related findings
2012. All Reports of Examination regardless of a Bank’s
                                                               to FHLBank management and their boards of directors.
composite rating, contain a summary of examination




                                                                                                                                  PERFORMANCE SECTION
                                                               FHFA also provides information on the condition of each
issues identified and Matters Requiring Attention (MRA),
                                                               FHLBank and the Office of Finance in its Annual Report to
which include follow-up dates by which the Bank is to
                                                               Congress.
resolve the identified issues.
                                                               In FY 2012, the FHLBanks successfully resolved or
In FY 2012, all of the FHLBanks were adequately
                                                               began resolving all MRAs with an acceptable remediation
capitalized per Prompt Corrective Action (PCA) rule
                                                               plan. All ROE contain a summary of examination issues
thresholds. It should be noted that one FHLBank
                                                               identified and MRAs, which include follow-up dates by
previously classified as undercapitalized through a
                                                               which the Bank is to resolve the identified issues. The
discretionary downgrade, was upgraded to adequately
                                                               resolution of some MRAs are long-term in nature (e.g.,
capitalized for the quarter ending June 30, 2012. Although
                                                               those that are information technology (IT)-related often do
the PCA capital classification was upgraded to adequately
                                                               not lend themselves to short-term resolution).




                                                             Building an Infrastructure for the Secondary Mortgage Market    57
     Strategic Goal 2
                                              The housing GSEs support a stable, liquid, and efficient mortgage market, including
       STRATEGIC GOAL 2                       sustainable home ownership and affordable housing.


     The housing GSEs contribute to the smooth operation                           During FY 2012, the housing GSEs have continued to
     of the markets by providing liquidity and stability and by                    have a central role in the mortgage market. FHFA’s policy
     meeting housing goals. Fostering a stable, liquid, and                        research and analysis helps inform stakeholders and
     efficient secondary mortgage market promotes a steady                         contributes to effective supervision. FHFA’s affordable
     stream of funds for sustainable homeownership and                             housing goals are intended to influence the housing
     affordable housing. Since the housing GSEs comprise                           GSEs’ actions. Further, they set a baseline for the housing
     a large share of an increasingly dynamic and complex                          finance system that includes community investment and
     market, their role is critical in providing liquidity and                     affordable housing.
     stability and in addressing affordable housing needs.


                                                               PERFORMANCE GOAL 2.1
                             FHFA ensures the housing GSEs support a stable, liquid and efficient mortgage market.

                                                                PERFORMANCE MEASURE 2.1.1
          Ensure liquidity levels at Fannie Mae and Freddie Mac meet or exceed required levels or are brought into compliance within 5 business days.
                                                   FY 2010                                 FY 2011                                    FY 2012
      Target                                       Monthly                               95 percent                            95 percent Quarterly
      Performance                 Fannie Mae did not maintain              Both Fannie Mae and Freddie Mac            In FY 2012, both Fannie Mae and
                                  liquidity levels consistent with FHFA    maintained liquidity levels consistent     Freddie Mac maintained liquidity levels
                                  requirements. All the other housing      with FHFA requirements.                    consistent with FHFA requirements.
                                  GSEs met the liquidity requirements.
      Performance Results Key:
      Goal Fulfillment                              Target Not Met                            Target Met                                 Target Met


                                                                PERFORMANCE MEASURE 2.1.2
                 Ensure liquidity levels at the FHLBanks meet or exceed required levels or are brought into compliance within 5 business days.
                                                   FY 2010                                 FY 2011                                    FY 2012
      Target                                       Annually                              95 percent                            95 percent Quarterly
      Performance                 Liquidity levels at the FHLBanks met     All FHLBanks maintained liquidity levels   During FY 2012, liquidity levels at the
                                  the required levels consistent with      consistent with FHFA requirements.         FHLBanks met the required levels
                                  FHFA requirements.                                                                  consistent with FHFA requirements.
      Performance Results Key:
      Goal Fulfillment                               Target Met                               Target Met                                 Target Met



     OVERVIEW OF PERFORMANCE GOAL 2.1                                              represent something that happens once every month at
     Both Enterprises and FHLBanks support the health of                           most.
     the secondary mortgage market through their regular
                                                                                   The Enterprises must each meet certain liquidity criteria:
     activities of guaranteeing, securitizing, and purchasing
                                                                                   maintain at least 30 calendar days of liquidity; hold at
     mortgage loans and securities. This support reduces the
                                                                                   least 50 percent of their expected 30-day cash needs in
     cost of mortgages to the public and promotes sustainable
                                                                                   Treasury and/or Federal deposits; and maintain at least
     home ownership. The 95 percent target for each measure
                                                                                   100 percent of their expected 365 day cash needs in
     represents a very good level of compliance based on daily
                                                                                   cash and unencumbered assets. During FY 2012, liquidity
     observations. Not falling within the liquidity limit would
                                                                                   levels were monitored daily at the Enterprises and as a




58   Federal Housing Finance Agency            |    2012 Performance and Accountability Report
result, the Enterprises exceeded required liquidity levels.                   Specifically, FHFA requires each FHLBank to maintain
Given ongoing problems in Europe and the U.S. debt                            positive cash balances for 15 days assuming no access to
ceiling debate, each Enterprise reduced or eliminated                         the capital markets while allowing maturing advances to
unsecured bank deposits and increased Treasury and/or                         roll off, and for 5 days assuming no maturing advances roll
Federal deposits to enhance liquidity.                                        off. FHFA prepares a report each week to assess FHLBank
                                                                              compliance with these standards. Every FHLBank met the
FHFA also monitored each FHLBank’s liquidity level to                         liquidity requirements for each week during FY 2012.
ensure their ongoing ability to respond to market demands.


                                                           PERFORMANCE GOAL 2.2




                                                                                                                                                          PERFORMANCE SECTION
                   FHFA ensures the housing GSEs provide leadership in housing finance and affordable housing by
                   operating these programs in an effective and efficient manner, developing products, establishing
                       partnerships, and financing homes for very low, low, and moderate income households.

                                                         PERFORMANCE MEASURE 2.2.1
                      Ensure all FHLBanks award affordable housing program (AHP) funds at least equal to statutory minimums.
                                              FY 2010                                FY 2011                                    FY 2012
 Target                                 September 30, 2011                         100 percent                                100 percent
 Performance                   FHFA completed AHP examinations         FHFA completed AHP examinations at      FHFA completed AHP examinations
                               at all 12 FHLBanks. FHFA identified     all 12 FHLBanks.                        at all 12 FHLBanks. All FHLBanks
                               one violation and recommended                                                   awarded AHP funds at least equal to
                               remediation.                                                                    statutory minimums.
 Performance Results Key:
 Goal Fulfillment                                Target Met                             Target Met                                Target Met

                                                              PERFORMANCE MEASURE 2.2.2
                            Regulated entities will provide updated performance plans within 180 days in response to agency
                                       notification of potential performance shortfalls in meeting housing goals.
                                              FY 2010                                FY 2011                                    FY 2012
 Target                                                                            100 percent                                100 percent
 Performance                                                           FHFA required no updated performance    Each FHLBank provided updated
                                                                       plans during FY 2011 and met the        performance plans during FY 2012.
                                      New Measure for 2012
                                                                       target.
 Performance Results Key:
 Goal Fulfillment                                                                       Target Met                                Target Met



OVERVIEW OF PERFORMANCE GOAL 2.2                                              advised of any violations of this statutory requirement, and
The Bank Act requires each FHLBank to establish an                            met performance measure 2.2.1.
affordable housing program (AHP) to enable members to
                                                                              In response to agency notification of potential performance
provide long-term subsidized financing for very low-, low-,
                                                                              shortfalls in meeting housing goals, FHFA met its goal of
and moderate- income owner-occupied and affordable
                                                                              requiring the Enterprises to provide updated performance
rental housing. These subsidies may be in the form of grants
                                                                              plans in FY 2012. Each performance plan addresses unique
or subsidized interest rates on an advance to a member.
                                                                              benchmarks for the Enterprises. FHFA’s approach while
The Bank Act also requires each FHLBank to contribute                         Fannie Mae and Freddie Mac are under conservatorship is
at least 10 percent of its net earnings from the previous                     to compare the Enterprises’ affordable housing attainment
year to its AHP, subject to a minimum annual combined                         to the overall volume of affordable housing produced in the
contribution by all 12 FHLBanks of $100 million. FHFA                         primary market. With this fluctuating target, an indicative
conducts on-site examinations and visitations of each                         measure will not be set but the affordable housing objective
FHLBank to ensure compliance with AHP regulations and                         remains an important component of the Enterprises’
to evaluate the effectiveness of the FHLBanks’ programs.                      activities.
During FY 2012, FHFA did not identify nor were we



                                                                           Building an Infrastructure for the Secondary Mortgage Market              59
                                                                PERFORMANCE GOAL 2.3
                  FHFA supports an efficient secondary mortgage market through research that increases transparency of the
                     housing GSEs’ risks and activities and improves understanding of mortgage market developments.

                                                                  PERFORMANCE MEASURE 2.3.1
                                 Develop and publish house price indexes that omit or reduce the influence of distressed sales from
                                             the estimation sample for Metropolitan Statistical Areas (MSAs) or states.
                                                     FY 2010                                FY 2011                                    FY 2012
      Target                                                                                                                 By September 30, 2012
      Performance                                                                                                     The updated Housing Price Index (HPI)
                                                                                                                      published in July 2012 included new
                                                                                                                      price indexes that omit or reduce the
                                           New Measure for 2012                     New Measure for 2012
                                                                                                                      influence of distressed sales from the
                                                                                                                      estimation sample for MSAs or states.
      Performance Results Key:
      Goal Fulfillment                                                                                                                   Target Met


                                                                 PERFORMANCE MEASURE 2.3.2
                                         Ensure working papers, mortgage market notes, or research papers are published.
                                                     FY 2010                                FY 2011                                    FY 2012
      Target                              Six by September 30, 2010                        At least 6                                 At least 6
      Performance                   FHFA published two working papers,       FHFA published two working papers,       FHFA published two working papers,
                                    six research papers, and three           two mortgage market notes, one           two mortgage market notes, and two
                                    mortgage market notes during             research paper, and one research         research papers during FY 2012.
                                    FY 2010.                                 report to Congress in FY 2011.           These publications are posted on the
                                                                             These publications are posted on         agency’s web site. www.fhfa.gov/
                                                                             the agency’s web site. This measure      Default.aspx?Page=5
                                                                             pertains to the number of such
                                                                             publications released in FY 2011.
      Performance Results Key:
      Goal Fulfillment                                 Target Met                             Target Met                                 Target Met



     OVERVIEW OF PERFORMANCE GOAL 2.3                                               and publishing distress-free house price indexes
     During FY 2012, FHFA continued to provide information                          that are available to the public www.fhfa.gov/Default.
     to promote an efficient secondary mortgage market. The                         aspx?Page=14.
     presentation of accurate and timely information is critical
                                                                                    During FY 2012, FHFA also published several research
     to understanding mortgages, mortgage markets and
                                                                                    papers, staff working papers, and mortgage market
     the housing GSEs’ risks and activities. FHFA publishes a
                                                                                    notes aimed at improving the public’s understanding of
     variety of data and reports throughout the year to increase
                                                                                    mortgages, mortgage markets and the nation’s housing
     the transparency of mortgage market developments, as
                                                                                    financial system. These various publications cover topics
     well as the housing GSEs’ risks and activities.
                                                                                    related to the economic environment and complement
     FHFA conducted market research to assess likely                                FHFA’s supervision of the housing GSEs. These
     distress-indicators that enabled the production of a                           publications include:
     distress-free Housing Price Index (HPI). The distress                            „„Fannie  Mae and Freddie Mac Single-Family Guarantee
     “discount” reflects a number of factors, including                                  Fees in 2010 and 2011 http://www.fhfa.gov/
     (frequently) deteriorated property condition. Many users                            webfiles/24558/rp_sf_guarantee_fees_2010_2011.pdf;
     of the HPI would prefer to remove the effects of those                           „„FHFA    Technical Analysis of Principal Forgiveness
     factors from FHFA’s metrics. To satisfy that demand
                                                                                         http://www.fhfa.gov/webfiles/24557/rp_
     and to improve public understanding of housing
                                                                                         technicalanalysisprincipalforgive.pdf;
     market developments, FHFA met its goal of developing




60   Federal Housing Finance Agency              |   2012 Performance and Accountability Report
 „„Countercyclical Capital Regime: A Proposed Design                       In June 2012, FHFA delivered its 2011 Annual
    and Empirical Evaluation http://www.fhfa.gov/                          Report to Congress and published the report on its
    webfiles/24538/countercyclicalcapitalregime122.pdf;                    website (http://www.fhfa.gov/webfiles/24009/FHFA_
 „„House
                                                                           RepToCongr11_6_14_508.pdf). The report includes
            Price Indexes for Homes in Different Price
                                                                           the conclusions and findings of the agency’s annual
    Tiers: Biases and Corrections http://www.fhfa.gov/
                                                                           examination of the Enterprises and the FHLBanks.
    webfiles/24272/FHFA_Working_Paper_12-1.pdf;
 „„20   Year vs. 30 Year Refinance Option http://www.                      In 2012, FHFA leaders testified at various congressional
    fhfa.gov/webfiles/24521/FHFA_Mortgage_Market_                          hearings, met and briefed Congress on current FHFA
    Note_12-2.pdf; and                                                     issues, provided technical assistance to members of




                                                                                                                                                        PERFORMANCE SECTION
 „„A
                                                                           Congress on proposed legislation, gave presentations
     Primer on Price Discount of REO Properties http://
                                                                           at industry functions, and responded to inquiries from
    www.fhfa.gov/webfiles/24490/FHFA_Mortgage_
                                                                           members of Congress on a variety of issues.
    Market_Note_12-1.pdf.


                                                       PERFORMANCE GOAL 2.4
                   FHFA collaborates with other federal agencies and stakeholders to share information concerning
                           mortgage markets, the nation’s housing finance system, and regulatory issues.

                                                        PERFORMANCE MEASURE 2.4.1
                                          Respond to Ccongressional inquiries within 15 business days.
                                           FY 2010                                 FY 2011                                 FY 2012
 Target                                  90 percent                               85 percent                             85 percent
 Performance                For FY 2010, FHFA responded to 253      For FY 2011, 86 percent of the         During FY 2012, FHFA responded to
                            formal congressional inquiries, and     responses to congressional inquiries   246 formal congressional inquiries,
                            FHFA responded to 88 percent of those   completed within 15 business days.     and FHFA responded to 88 percent
                            inquiries within 15 business days.                                             of those inquiries within 15 business
                                                                                                           days.
 Performance Results Key:
 Goal Fulfillment                          Target Not Met                             Target Met                             Target Met



OVERVIEW OF PERFORMANCE GOAL 2.4                                           soundness, promote affordable housing, and ensure an
Communication with other federal agencies and                              efficient secondary mortgage market.
stakeholders is key to FHFA’s support of an efficient
                                                                           Congress is a key stakeholder. During FY 2012, FHFA met
secondary mortgage market. FHFA provides information
                                                                           its goal of responding to congressional inquiries within 15
on the housing GSEs that includes the risks they face, the
                                                                           days. The inquiries tracked are formal inquiries regarding
economic environment in which they operate, and policy
                                                                           constituent or policy issues. Over the entire fiscal
issues facing the agency.
                                                                           year, FHFA responded to a total of 246 congressional
FHFA works with other federal agencies including the                       inquiries. Of the 246 inquiries, 216 received a response
U.S. Department of Housing and Urban Development, the                      within 15 business days, which translates into 87.8
U.S. Department of the Treasury and the Federal Reserve                    percent receiving a response within the target range of
System, and other stakeholders to share information and                    15 business days. The annual average response time
discuss issues of common interest to promote an efficient                  was 10 days. FHFA received congressional inquiries on
secondary mortgage market. FHFA promotes regular                           a wide range of topics, including: Principal forgiveness,
communication among financial regulators and works                         Home Affordable Refinance Program (HARP), Real Estate
with the Financial Stability Oversight Council (FSOC) to                   Owned (REO) bulk sales pilot, executive compensation
develop regulatory standards that will improve safety and                  at the Enterprises, constituent inquiries regarding their
                                                                           mortgages, Property Assessed Clean Energy (PACE)
                                                                           loans, Enterprise attorney networks, minority and women




                                                                        Building an Infrastructure for the Secondary Mortgage Market               61
     inclusion, Freddie Mac investments, and the proposed          policy positions, and activities of the agency that
     qualified residential mortgage regulation.                    serve to develop an improved understanding of the
                                                                   financial condition of the housing GSEs. FHFA met
     FHFA staff is also in continuous communication with           with key organizations and associations in the housing
     relevant congressional staff on an informal basis. FHFA       industry regarding A Strategic Plan for Enterprise
     also provided outreach through meetings with industry         Conservatorships.
     stakeholders on mortgage market developments,




62   Federal Housing Finance Agency    |   2012 Performance and Accountability Report
Strategic Goal 3
                                             FHFA preserves and conserves the assets and property of the Enterprises, ensures focus
  STRATEGIC GOAL 3                           on their housing mission, and facilitates their financial stability and emergence from
                                             conservatorship.


The conservatorships of Fannie Mae and Freddie Mac                                 FHFA has also directed Fannie Mae and Freddie Mac
allow FHFA to preserve the assets of the Enterprises,                              to pursue appropriate foreclosure mitigation activities,
ensure they focus on their housing mission and remediate                           including loan modifications in a way intended to conserve




                                                                                                                                                                    PERFORMANCE SECTION
operational and risk management shortcomings. As                                   the Enterprises’ assets while providing foreclosure
conservator, FHFA seeks to strengthen the Enterprises                              alternatives to eligible distressed borrowers. FHFA will
financial condition, minimize losses, and strive for                               continue to closely monitor market conditions, guide the
operations, controls and risk management that meet                                 Enterprises’ activities and decisions, and work to improve
or exceed industry standards. FHFA will continue to                                their operations to ensure they are safe and sound and
promulgate regulations mandated by HERA and to                                     promote liquidity and stability in the housing market.
strengthen the Enterprises’ safety and soundness.


                                                             PERFORMANCE GOAL 3.1
                                           Preserve and conserve each Enterprise’s assets and property.

                                                              PERFORMANCE MEASURE 3.1.1
                                 Each Enterprise submits an acceptable asset disposition plan for assets identified by FHFA.
                                                FY 2010                                   FY 2011                                      FY 2012
 Target                                                                             September 30, 2011                        September 30, 2012
 Performance                                                               The plans the Enterprises submitted       Both of the Enterprises submitted
                                                                           to FHFA in 2011 did not meet the          acceptable asset disposition plans to
                                        New Measure for 2012
                                                                           requirements and were unacceptable.       FHFA during FY 2012.
 Performance Results Key:
 Goal Fulfillment                                                                          Target Not Met                                Target Met


                                                              PERFORMANCE MEASURE 3.1.2
                            Complete quarterly review of both Enterprises assets, partnerships, contracts and litigation activities.
                                                FY 2010                                   FY 2011                                      FY 2012
 Target                                   Quarterly, beginning                        100% Quarterly                            100% Quarterly
                                          December 31, 2009
 Performance                     FHFA received Fannie Mae’s inventory      Neither Enterprise submitted              Both Enterprises submitted all their
                                 on July 13, 2010, and Freddie Mac’s       inventories on time.                      quarterly inventories on time, allowing
                                 inventory on July 16, 2010.                                                         FHFA to conduct and complete its
                                                                                                                     review of the Enterprises’ submissions
                                                                                                                     relative to assets, partnerships,
                                                                                                                     contracts, and litigation activities.
 Performance Results Key:
 Goal Fulfillment                                Target Not Met                            Target Not Met                                Target Met




                                                                               Building an Infrastructure for the Secondary Mortgage Market                    63
     OVERVIEW OF PERFORMANCE GOAL 3.1                                            Enterprises submitted acceptable plans to FHFA
                                                                                 regarding REO disposition.
     FHFA placed both Fannie Mae and Freddie Mac in
     conservatorship in 2008 to preserve and conserve their                      During FY 2012, FHFA reviewed non-core assets for
     assets and put both entities in a sound and solvent                         feasibility of sale or liquidation, consistent with minimizing
     condition. During FY 2012, FHFA worked with the                             taxpayer’s losses and the portfolio shrinkage required by
     Enterprises to ensure they took important steps in                          the SPSPA with the U.S. Department of Treasury. FHFA
     asset disposition. The Senior Preferred Stock Purchase                      reviewed the quarterly asset inventory submissions,
     Agreement (SPSPA) required both Enterprises to reduce                       the GSEs’ non-mission activity reports, and the detail
     their retained mortgage portfolios by 10 percent from                       of specific accounts. We coordinated within FHFA to
     the previous year’s maximum allowed portfolio level                         begin the process for automated submission of certain
     by December 31, 2011(see page 31 in the MD&A                                information from the asset inventory report. As part of
     Section for SPSPA description). On December 31,                             the review, FHFA performed a comparison between
     2011, both Enterprises were in compliance with this                         quarters identifying any unusual activities and changes
     requirement. In addition, each quarter of the year, the                     among accounts along with litigation trends (if any), new
     Enterprises submitted quarterly asset inventories to                        claims, dissolutions or new partnerships. The challenges
     FHFA. During the second quarter, Fannie Mae submitted                       faced include identifying assets and other items in the
     an asset disposition plan through the Financial Activities                  asset inventory submission in sufficient detail to make
     Review (FAR) process. Furthermore, as part of FHFA’s                        meaningful quarter to quarter comparisons. FHFA will
     REO Initiative targeted to the hardest-hit metropolitan                     continue to monitor developments in the markets and
     areas, which was announced in August of 2011, both                          work to stabilize each Enterprise.


                                                             PERFORMANCE GOAL 3.2
                                 Delegate appropriate authorities to each Enterprise’s management to continue with or
                                        improve upon the Enterprises’ mission and their business operations.

                                                                PERFORMANCE MEASURE 3.2.1
                             All conservator requests received through the FHFA Conservator Decision email box are brought to the
                                   Conservatorship Governance Committee (CGC) and assigned to a lead office for resolution.
                                                   FY 2010                               FY 2011                                    FY 2012
      Target                                                                                                            Within 15 calendar days of
                                                                                                                          receipt of the request.
      Performance                                                                                                 All requests submitted through the
                                                                                                                  email box were presented at CGC
                                          New Measure for 2012                   New Measure for 2012             meetings or emailed to the CGC
                                                                                                                  meetings and assigned to lead offices
                                                                                                                  within 15 calendar days.
      Performance Results Key:
      Goal Fulfillment                                                                                                                Target Met



     OVERVIEW OF PERFORMANCE GOAL 3.2                                            FHFA met this performance measure target for each
     As conservator, FHFA has delegated operational and                          quarter during FY 2012, assigning within 15 calendar days
     other duties to the Enterprises’ directors and officers.                    a lead office for resolution of all conservatorship requests.
     FHFA manages all conservator requests received through                      FHFA ensures the decision making process is timely and
     the FHFA Conservator Decision email box, which are                          appropriately coordinated throughout the agency.
     brought to the Conservator Governance Committee
     (CGC) and then assigned to a lead office for resolution
     within 15 calendar days of receipt of the request.




64   Federal Housing Finance Agency            |   2012 Performance and Accountability Report
                                                             PERFORMANCE GOAL 3.3
                              Ensure the Enterprises have effective programs that respond to problems in
                                       mortgage markets by reducing preventable foreclosures.

                                                           PERFORMANCE MEASURE 3.3.1
                                   Prevent current loans from going delinquent by helping borrowers to refinance.
                                             FY 2010                                  FY 2011                                   FY 2012
 Target                                                                                                              Maintain the volume of HARP
                                                                                                                    refinances as a percent of total
                                                                                                                      refinances at 10% or higher
 Performance                                                                                                   The Volume of HARP refinances as




                                                                                                                                                             PERFORMANCE SECTION
                                                                                                               a percent of total refinances during
                                    New Measure for 2012                      New Measure for 2012
                                                                                                               FY 2012 (through August 31, the
                                                                                                               most recent data available) was
                                                                                                               approximately 18%.
 Performance Results Key:
 Goal Fulfillment                                                                                                                 Target Met


                                                           PERFORMANCE MEASURE 3.3.2
            Maintain the percentage of modified loans that are 60- plus days delinquent, nine months after modification, at or below 20%.
                                             FY 2010                                  FY 2011                                   FY 2012
 Target                                 35 percent or less                       35 percent or less                 Less than or equal to 20 percent
 Performance                 Less than 35 percent of modified          Approximately 16 percent of modified    Approximately 13 percent of modified
                             loans were 60-plus days delinquent        loans were 60-plus days delinquent      loans were 60-plus days delinquent
                             after modification in three of the four   six months after completion of a loan   nine months after modification in four
                             quarters. During one quarter, the         modification.                           out of the four quarters.
                             percentage of modified loans 60-plus
                             days delinquent was 35 percent.
 Performance Results Key:
 Goal Fulfillment                               Target Met                               Target Met                               Target Met




OVERVIEW OF PERFORMANCE GOAL 3.3                                              FHFA exceeded the annual target of having less than or
Performance measure 3.3.1 is an indicator of the ability of                   equal to 20 percent of modified loans that are 60- plus
current borrowers with high loan-to-value loans to obtain                     days delinquent, nine months after modification. For loans
refinances, which may prevent delinquency at a later date.                    modified between July 1, 2011 and September 30, 2011,
During FY 2012, FHFA tracked the Enterprises’ efforts                         13 percent were 60-plus days delinquent nine months
to prevent avoidable foreclosures through a variety of                        after completion of a loan modification. FHFA continues
mechanisms including loan modifications, refinances and                       to work with the Enterprises and mortgage servicers to
short sales. This information was reported publicly in a                      implement a Servicing Alignment Initiative to standardize
monthly foreclosure prevention report. HARP, one of the                       their approaches to loss mitigation and foreclosure
refinance programs, accounted for 17.9 percent of total                       prevention. However, high levels of unemployment
loan refinances between October 1, 2011 and August 31,                        and underemployment and the decline of house prices
2012.                                                                         continue to affect the ability and willingness of some
                                                                              borrowers to pay their mortgages.




                                                                           Building an Infrastructure for the Secondary Mortgage Market                 65
                                                                 PERFORMANCE GOAL 3.4
                                    Work with the Administration and Congress to develop an effective structure for
                                                   the Enterprises to emerge from conservatorship.

                                                                   PERFORMANCE MEASURE 3.4.1
                                 Provide technical assistance to Congress and the Administration on various future structures for the
                                       secondary mortgage market and for post-conservatorship outcomes for the Enterprises.
                                                      FY 2010                                FY 2011                                    FY 2012
      Target                                          Ongoing                       Participate in interagency                Develop and disseminate a
                                                                                    meetings at least Quarterly           strategic plan prescribing the next
                                                                                                                          phase of the conservatorships for
                                                                                                                            Fannie Mae and Freddie Mac.
      Performance                    FHFA provided technical assistance       FHFA provided technical assistance       FHFA published a strategic plan for
                                     to the Administration and Congress       to the Administration and Congress       the Conservatorships on February
                                     regarding the secondary mortgage         through participation in meetings        21, 2012 and provided technical
                                     market and post conservatorship          where options related to the future of   assistance to the Administration
                                     outcomes for the Enterprises             the secondary mortgage market and        and Congress through participation
                                     through congressional testimony,         post conservatorship outcomes for the    in meetings and speeches on the
                                     full participation in the President’s    Enterprises were discussed.              secondary mortgage market and
                                     Working Group on Financial Markets,                                               post- conservatorship outcomes.
                                     and meetings with key representative                                              In addition, FHFA participated in
                                     to explore topics related to overall                                              interagency meetings on Dodd-Frank,
                                     housing policy.                                                                   including risk retention, Strategically
                                                                                                                       Important Financial Institutions (SIFI’s),
                                                                                                                       and Strategically Important Financial
                                                                                                                       Market Utilities (SIFMU’s).
      Performance Results Key:
      Goal Fulfillment                                  Target Met                              Target Met                                 Target Met


                                                                PERFORMANCE MEASURE 3.4.2
                         Discuss the progress regarding the objectives outlined in the Conservatorship Scorecard with each Enterprise.
                                                      FY 2010                                FY 2011                                    FY 2012
      Target                                                                                                                            Quarterly
      Performance                                                                                                      During FY 2012, FHFA held meetings
                                                                                                                       with Fannie Mae and Freddie Mac
                                                                                                                       to review the progress made on the
                                                                                                                       Conservatorship Scorecard goals.
                                                                                                                       Assessments are reviewed quarterly.
                                            New Measure for 2012                     New Measure for 2012
                                                                                                                       Each goal has an FHFA owner who
                                                                                                                       provides input on their assessment
                                                                                                                       of Fannie Mae’s and Freddie Mac’s
                                                                                                                       achievements and obstacles.
      Performance Results Key:
      Goal Fulfillment                                                                                                                     Target Met




     OVERVIEW OF PERFORMANCE GOAL 3.4                                                Many of the items on the Scorecard require Freddie Mac
     During FY 2012, FHFA provided technical assistance to                           and Fannie Mae to work together in order to achieve
     Congress on a variety of legislative measures to address                        success. These projects focused on: (1) building a new
     the future of secondary mortgage markets and mortgage                           infrastructure for the secondary mortgage market; (2)
     securities markets. FHFA published A Strategic Plan                             gradually contracting the Enterprises’ dominant position
     for Enterprise Conservatorships detailing the agency’s                          in the marketplace while simplifying and shrinking their
     plans, and later published a Conservatorship Scorecard                          operations; and (3) maintaining foreclosure prevention
     describing specific projects for the Enterprises to work on                     activities and credit availability for new and refinanced
     and accomplish in order for the Plan to be implemented.                         mortgages.




66   Federal Housing Finance Agency               |    2012 Performance and Accountability Report
Resource Management Strategy

  RESOURCE
                                       FHFA has the personnel, resources, and infrastructure to manage effectively and efficiently
  MANAGEMENT                           to achieve its mission and goals.
  STRATEGY


FHFA approaches the resources management strategy by                    operations. Significant progress has been made with the
ensuring that the agency is addressing its administrative               implementation of new training programs for employees,
and workforce needs including information technologies                  upgrading information technology systems, updating




                                                                                                                                                 PERFORMANCE SECTION
and systems, and financial and human resources programs                 infrastructure, and implementing a new strategic plan to
and processes. FHFA management is successful with                       provide a focus and direction for the next five years.
the integration of strategic planning efforts into everyday


                                                      PERFORMANCE GOAL 4.1
                        FHFA has a diverse workforce that is highly skilled, highly motivated and results oriented.

                                                       PERFORMANCE MEASURE 4.1.1
                              Improve FHFA Employee Viewpoint Survey (EVS) results in the area of “Communication.”
                                          FY 2010                                  FY 2011                                FY 2012
 Target                                                                  Improvement over previous              Improvement over previous
                                                                               year’s results                         year’s results
 Performance                                                       FHFA increased scores in 6             FHFA increased scores in 6
                                   New Measure for 2012            of 10 questions in the area of         of 10 questions in the area of
                                                                   communication.                         communication.
 Performance Results Key:
 Goal Fulfillment                                                                    Target Met                             Target Met



OVERVIEW OF PERFORMANCE GOAL 4.1                                        results. OPM is responsible for calculating and preparing
FHFA’s workforce continues to be its most valuable                      survey result reports for each federal agency, based on
resource. In accordance with Title 5, Code of Federal                   the number of participating employees and the number of
Regulations (CFR), part 250, federal agencies are required              responses received. Agencies are responsible for analyzing
to annually survey employees. The Federal Employee                      and interpreting the results and using them to inform human
Viewpoint Survey (FEVS) is administered each year by                    capital management policies, programs, and initiatives.
the Office of Personnel Management (OPM), and is a tool
                                                                        The annual FEVS results in the area of communication
used to measure employees’ feelings and perceptions in
                                                                        indicates FHFA increased scores in six of the ten
topic areas such as Talent, Leadership and Knowledge
                                                                        communication related questions. Based on the survey
Management, Performance Culture, and Job Satisfaction.
                                                                        results and subsequent comparison, FHFA fully met the
The ultimate goal of the survey is to provide agencies
                                                                        fiscal year 2012 measure to improve FHFA FEVS results in
with information to build on identified strengths and focus
                                                                        the area of “Communication” over fiscal year 2011 results.
on areas requiring additional attention, based on survey




                                                                       Building an Infrastructure for the Secondary Mortgage Market         67
                                                             PERFORMANCE GOAL 4.2
                            FHFA demonstrates a strong commitment to equal employment opportunity that supports
                                    diversity in employment, operations and the contracting of services.

                                                               PERFORMANCE MEASURE 4.2.1
                    Number and variation of targeted outreach events designed to provide information and education to qualified candidates
                             and facilitate increased employment applications and inquiries by women and minority candidates.
                                                  FY 2010                                 FY 2011                                 FY 2012
      Target                                                                            10 Annually                             10 Annually
      Performance                                                         FHFA participated in 10 conference      FHFA participated in 17 conference
                                                                          events and career fairs with minority   events and career fairs with minority
                                         New Measure for 2012
                                                                          and women groups during FY 2011.        and women groups during FY 2012.
      Performance Results Key:
      Goal Fulfillment                                                                      Target Met                               Target Met


                                                                PERFORMANCE MEASURE 4.2.2
                  Percentage or number of contracts that are executed with minority-owned and women-owned businesses above 2011 levels.
                                                  FY 2010                                 FY 2011                                 FY 2012
      Target                                                                      Establish baseline and           Increase from prior year as included in
                                                                                    set a stretch goal              the 2011 Annual Report to Congress
      Performance                                                         FHFA analyzed past and existing         FHFA increased the number of
                                                                          contracts to determine its spending     contracts executed by 122 percent
                                                                          on contracts with minority-owned,       from prior year results during FY 2012.
                                         New Measure for 2012
                                                                          women-owned, and disabled- person–
                                                                          owned businesses. A baseline amount
                                                                          and goal were established.
      Performance Results Key:
      Goal Fulfillment                                                                      Target Met                               Target Met




     OVERVIEW OF PERFORMANCE GOAL 4.2                                             activities. FHFA also supports diversity in the contracting
     FHFA expanded its efforts to recruit qualified minority and                  of services by encouraging the use of small business,
     women candidates by leveraging the Agency’s resources                        veteran-owned small business, service-disabled veteran-
     with those of professional organizations that promote                        owned small business, Historically Underutilized Business
     and advocate for minority and women financial services                       Zone (HUBZone) small business, small disadvantaged
     professionals. Measure 4.2.1 was designed to reflect the                     business, and women-owned small business concerns
     number of organizations the Agency has worked with as                        in its acquisition of goods and services, whether as
     well as an estimate of the number of applications received                   contractors or subcontractors.
     as a result of these endeavors. FHFA’s hiring practices
                                                                                  During FY 2012 FHFA sought partnerships, alliances, and
     follow merit system principles and OPM regulatory
                                                                                  agreements with organizations in order to enhance its
     standards in addition to the hiring flexibilities provided to
                                                                                  ability to include and utilize minorities, women, disabled
     it by law.
                                                                                  individuals and minority-owned, women-owned, and
     During FY 2012, the agency participated in 17 events                         disabled-owned businesses when contracting for goods
     sponsored by different organizations to recruit qualified                    and services. FHFA has experienced a positive increase
     minority and women candidates for FHFA. FHFA also met                        in contracting actions with minority- and women-owned
     with representatives of several organizations that promote                   businesses (MWOBs) in FY 2012. The number of
     workforce diversity in order to increase their awareness                     transactions increased from 63 in FY 2011 to 140 in FY
     of FHFA and our job opportunities. FHFA also worked                          2012. The 140 contracting actions represent $7.3 million
     directly with the regulated entities during this period to                   dollars of business with minority- and women-owned
     follow up on the results of targeted events and outreach                     firms and represent approximately 21 percent of the total
                                                                                  dollars obligated during FY 2012.




68   Federal Housing Finance Agency           |   2012 Performance and Accountability Report
                                                        PERFORMANCE GOAL 4.3
                                      FHFA has effective financial and risk management programs.

                                                         PERFORMANCE MEASURE 4.3.1
                                     Percentage of FHFA's external audits and reviews that receive unqualified
                                          opinions with no material weaknesses or unacceptable risks.
                                           FY 2010                                  FY 2011                                  FY 2012
 Target                                  100 percent                             100 percent                              100 percent
 Performance                                                        In FY 2011, all external audits and      In FY 2012, all external audits and
                            In FY 2010, all external audits and
                                                                    reviews had unqualified opinions         reviews had unqualified opinions
                            reviews had unqualified opinions with
                                                                    with no material weaknesses or           with no material weaknesses or
                            no material weaknesses.




                                                                                                                                                            PERFORMANCE SECTION
                                                                    unacceptable risks.                      unacceptable risks.
 Performance Results Key:
 Goal Fulfillment                             Target Met                              Target Met                               Target Met


                                                     PERFORMANCE MEASURE 4.3.2
                            Ensure management completes corrective action on OIG findings within agreed timeframe.
                                           FY 2010                                  FY 2011                                  FY 2012
 Target                                                                                                           No overdue corrective actions
                                                                                                                          outstanding
 Performance                                                                                                 In FY 2012, 49 of 50 corrective actions
                                                                                                             were completed and closed on time.
                                                                                                             One recommendation was originally
                                   New Measure for 2012                    New Measure for 2012
                                                                                                             closed by FHFA in the 4th quarter and
                                                                                                             then re-opened per agreement with
                                                                                                             the OIG.
 Performance Results Key:
 Goal Fulfillment                                                                                                            Target Not Met




OVERVIEW OF PERFORMANCE GOAL 4.3                                            and efficiently used to achieve agency strategic and
To ensure resources are managed effectively and                             performance goals. FHFA cooperated with the OIG,
efficiently, FHFA will continue to expand its use of financial              GAO and external auditors to conduct internal reviews
and performance information in managing program                             of agency activities and respond to all audit findings and
operations, integrating its budget and performance                          recommendations to improve agency operations.
development, and making program improvements.
                                                                            FHFA did not meet Performance Goal 4.3.2 because
FHFA must continue to maintain a strong internal control
                                                                            one recommendation that was originally closed in the 4th
and risk management program. This includes financial
                                                                            quarter of fiscal year 2012 was re-opened per agreement
management, information security and other management
                                                                            with the OIG. FHFA completed 49 of 50 corrective actions
and operating processes.
                                                                            on time during fiscal year 2012. The timeline for the one
During FY 2012, FHFA supported GAO’s FY 2012 audit of                       outstanding corrective action was extended to February
FHFA’s financial statements and revised agency policies                     2013 since the recommendations that were identified
and procedures, ensuring that resources were effectively                    would require actions beyond FY 2012.




                                                                         Building an Infrastructure for the Secondary Mortgage Market                  69
                                                          PERFORMANCE GOAL 4.4
                    FHFA has the information technology and physical infrastructure needed to achieve its mission and goals.

                                                              PERFORMANCE MEASURE 4.4.1
                                 Percentage of incidents responded to by Help Desk personnel within 15 business minutes.
                                                FY 2010                                FY 2011                                FY 2012
      Target                                                                     80 percent or more                 80 percent or more Quarterly
      Performance                                                       Help Desk personnel responded to       Help Desk personnel responded to
                                                                        more than 80 percent of requests       more than 93 percent of requests
                                       New Measure for 2012             within 15 minutes each quarter of FY   within 15 minutes each quarter of FY
                                                                        2011.                                  2012.
      Performance Results Key:
      Goal Fulfillment                                                                   Target Met                             Target Met




     OVERVIEW OF PERFORMANCE GOAL 4.4                                          resources from three buildings into one facility helped with
     FHFA’s supervision of the housing GSEs is highly                          workload management and dispatching logistical support.
     dependent upon the strategic use of technology. FHFA
                                                                               FHFA links IT initiatives to the annual performance
     effectively uses IT to provide independent analysis of
                                                                               budget which supports the agency in achieving its long
     safety and soundness issues to accomplish FHFA’s
                                                                               term goals. FHFA will continue to ensure maximum
     mission.
                                                                               availability of FHFA information resources, and continue
     During FY 2012, 93 percent of Help Desk requests were                     to enhance the security, reliability and capacity of FHFA’s
     responded to within 15 minutes. FHFA closely monitors                     IT infrastructure, consistent with the Federal Information
     Help Desk trouble tickets to ensure expectations are met                  Security Management Act, Federal Information Processing
     for customers. The consolidation of users and Help Desk                   Standards, National Institute of Science and Technology
                                                                               special publications, and annual reviews and updates of
                                                                               common controls and continuous monitoring.




70   Federal Housing Finance Agency         |   2012 Performance and Accountability Report
                                                                    PERFORMANCE SECTION




Building an Infrastructure for the Secondary Mortgage Market   71
                     Financial
                     Section


                                     | 	 Message from the Chief Financial Officer
                                     | 	 Independent Auditor’s Report
                                     | 	 Appendix I:
                                         Management’s Report on Internal Control
                                         Over Financial Reporting

                                     | 	 Appendix II:
                                         FHFA’s Response to Auditor’s Report

                                     | 	 Financial Statements	
                                     | 	 Notes to the Financial Statements	
                                     	




2 0 1 2 F E D E R A L H O U S I N G F I N A N C E A G E N C Y P E R F O R M A N C E A N D A C C O U N TA B I L I T Y R E P O R T
Message from the Chief Financial Officer


I am pleased to present the FY 2012 financial statements for the Federal Housing Finance
Agency as an important component of the agency’s 2012 Performance and Accountability
Report (PAR). Once again, FHFA received an unqualified audit opinion on its financial
statements from the Government Accountability Office (GAO). In its financial statements audit
report, GAO concluded that 1) FHFA’s FY 2012 financial statements are fairly presented in all
material respects; 2) FHFA had effective internal control over financial reporting; and 3) there
were no reportable instances of noncompliance with the laws and regulations it tested.

In addition to a clean audit opinion, FHFA received the Certificate for Excellence in
Accountability Reporting (CEAR) award for its FY 2011 PAR from the Association of
Government Accountants, the fourth straight year since its inception as a new agency that
FHFA has received this prestigious award. The CEAR award is given to government agencies
that received unqualified audit opinions on their financial statements and produced PARs that
achieved the highest standards in communicating results and demonstrating accountability.

This year’s PAR represents the last reporting year on FHFA’s 2009-2014 Strategic Plan.
FHFA developed a new Strategic Plan for the years 2013-2017 that will guide the agency’s
future activities and serve as the basis for performance reporting for next year’s PAR. The
new Strategic Plan continues to maintain the agency’s focus on its core responsibilities




                                                                                                        FINANCIAL SECTION
for regulating the housing GSEs and managing the conservatorships of the Enterprises. In
addition, the new plan incorporates all of the key elements contained in the Strategic Plan for
Enterprise Conservatorships that was released by the agency to the public in February 2012.

Finally, the commitment of senior management and staff to maintain effective programs of
internal control over agency activities and financial reporting provides the solid foundation
necessary for managing and monitoring the effective and efficient use of FHFA resources.

                                               Sincerely,




                                               MARK KINSEY
                                               Chief Financial Officer
                                               November 15, 2012




                                 Building an Infrastructure for the Secondary Mortgage Market      73
     Independent Auditor’s Report




74   Federal Housing Finance Agency   |   2012 Performance and Accountability Report
                                                                    FINANCIAL SECTION




Building an Infrastructure for the Secondary Mortgage Market   75
76   Federal Housing Finance Agency   |   2012 Performance and Accountability Report
                                                                    FINANCIAL SECTION




Building an Infrastructure for the Secondary Mortgage Market   77
78   Federal Housing Finance Agency   |   2012 Performance and Accountability Report
                                                                    FINANCIAL SECTION




Building an Infrastructure for the Secondary Mortgage Market   79
     Appendix I:
     Management’s Report on Internal Control Over Financial Reporting




80   Federal Housing Finance Agency   |   2012 Performance and Accountability Report
Appendix II:
FHFA’s Response to Auditor’s Report




                                                                                                    FINANCIAL SECTION




                                Building an Infrastructure for the Secondary Mortgage Market   81
     F E D E R A L H O USING FINANCE AG ENCY

     CONSOLIDATED BALANCE SHEETS
     AS OF SEPTEMBER 30, 2012 AND 2011
     (In Thousands)




                                                                                                      2012          2011


        Assets:
           Intragovernmental
               Fund Balance With Treasury - Note 2                                              $    20,998   $   16,445
               Investments - Note 3                                                                  77,420       78,252
              Accounts Receivable - Note 4                                                               –            19
           Total Intragovernmental                                                                   98,418       94,716


           Accounts Receivable, Net - Note 4                                                            13             5
           Property, Equipment, and Software, Net - Note 5                                           45,528        5,569
           Prepaid Expenses                                                                            840           491
        Total Assets                                                                            $   144,799   $   100,781


        Liabilities:
           Intragovernmental
              Accounts Payable                                                                  $      766    $     1,221
              Other Intragovernmental Liabilities - Note 7                                            2,727        1,219
           Total Intragovernmental                                                                    3,493        2,440


           Accounts Payable                                                                           9,728         6,601
           Other Liabilities - Note 7                                                                40,905       15,309
        Total Liabilities                                                                            54,126       24,350


        Net Position:
           Cumulative Results of Operations                                                          90,673        76,431
           Total Net Position                                                                   $    90,673   $    76,431
        Total Liabilities and Net Position                                                      $   144,799   $   100,781
        The accompanying notes are an integral part of these financial statements.




82   Federal Housing Finance Agency            |   2012 Performance and Accountability Report
F E D E R A L H O USING FINANCE AG ENCY

CONSOLIDATED STATEMENTS OF NET COST
FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011
(In Thousands)




                                                                                                         2012                 2011


   Program Costs by Strategic Goal:
      Safety and Soundness:
         Gross Costs                                                                               $   153,621          $   125,961
         Less: Earned Revenue                                                                          (124,731)            (135,297)
         Net Safety and Soundness (Income from)/Cost of Operations                                 $    28,890          $     (9,336)


      Affordable Housing:
         Gross Costs                                                                               $    24,919          $    17,240
         Less: Earned Revenue                                                                           (64,607)             (38,054)
         Net Affordable Housing (Income from)/Cost of Operations                                   $    (39,688)        $    (20,814)


      Conservatorship:
         Gross Costs                                                                               $    38,961          $    24,200
         Less: Earned Revenue                                                                           (36,595)             (27,432)




                                                                                                                                               FINANCIAL SECTION
         Net Conservatorship (Income from)/Cost of Operations                                      $     2,366          $     (3,232)


   Total Gross Program Costs                                                                       $   217,501          $   167,401
   Less:Total Earned Revenue                                                                           (225,933)            (200,783)
   Net (Income from)/Cost of Operations                                                            $     (8,432)        $    (33,382)


   The accompanying notes are an integral part of these financial statements.




                                                                           Building an Infrastructure for the Secondary Mortgage Market   83
     F E D E R A L H O USING FINANCE AG ENCY

     CONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION
     FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011
     (In Thousands)




                                                                                                     2012         2011


        Cumulative Results of Operations:
        Beginning Balance                                                                       $   76,431   $   37,856


        Budgetary Financing Sources:
           Imputed Financing Sources                                                                 5,810        5,193
        Total Financing Sources                                                                      5,810        5,193
        Net Income From Operations                                                                   8,432       33,382
        Net Change                                                                                  14,242       38,575
        Cumulative Results of Operations                                                        $   90,673   $   76,431
        Net Position                                                                            $   90,673   $   76,431
        The accompanying notes are an integral part of these financial statements.




84   Federal Housing Finance Agency            |   2012 Performance and Accountability Report
F E D E R A L H O USING FINANCE AG ENCY

COMBINED STATEMENTS OF BUDGETARY RESOURCES
FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011
(In Thousands)




                                                                                                         2012                  2011

   Budgetary Resources:
   Unobligated Balance Brought Forward, October 1                                                  $    27,672          $    22,743
   Recoveries of Prior Year Unpaid Obligations                                                          11,018                1,033
   Unobligated Balance From Prior Year Budget Authority, Net                                            38,690               23,776
   Appropriations                                                                                      224,352              200,689
   Spending Authority From Offsetting Collections                                                       41,593               29,103
   Total Budgetary Resources                                                                       $   304,635          $   253,568

   Status of Budgetary Resources:
   Obligations Incurred - Note 11                                                                  $   259,100          $   225,896
   Unobligated Balance, End of Year:
      Exempt from Apportionment                                                                         45,535               27,672
   Total Unobligated Balance, End of Year                                                               45,535               27,672
   Total Budgetary Resources                                                                       $   304,635          $   253,568

   Change in Obligated Balance:
   Unpaid Obligations, Brought Forward, October 1                                                  $    67,053          $    29,135




                                                                                                                                               FINANCIAL SECTION
   Uncollected Customer Payments From Federal Sources, Brought Forward, October 1                           (28)                  –
      Obligated Balance, Start of Year                                                                  67,025               29,135
   Obligations Incurred                                                                                259,100              225,896
   Outlays (Gross)                                                                                     (262,252)            (186,945)

   Change in Uncollected Customer Payments From Federal Sources                                             28                   (28)
   Recoveries of Prior Year Unpaid Obligations                                                          (11,018)              (1,033)
   Obligated Balance, End of Year
      Unpaid Obligations, End of Year (Gross)                                                           52,883               67,053
      Uncollected Customer Payments From Federal Sources, End of Year                                        –                   (28)
   Obligated Balance, End of Year, Net                                                             $    52,883          $    67,025

   Budget Authority and Outlays, Net:
   Budget Authority (Gross)                                                                        $   265,945          $   229,792
   Actual Offsetting Collections                                                                        (41,621)             (29,075)
   Change in Uncollected Customer Payments From Federal Sources                                             28                   (28)
   Budget Authority, Net                                                                           $   224,352          $   200,689

   Outlays (Gross)                                                                                 $   262,252          $   186,945
   Actual Offsetting Collections                                                                        (41,621)             (29,075)
   Outlays, Net                                                                                        220,631              157,870
   Distributed Offsetting Receipts                                                                     (224,353)            (200,689)
   Agency Outlays, Net                                                                             $     (3,722)        $   (42,819)


   The accompanying notes are an integral part of these financial statements.



                                                                           Building an Infrastructure for the Secondary Mortgage Market   85
     F E D E R A L H O USING FINANCE AG ENCY

     Notes to the Financial Statements
     FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011




     NOTE 1.	 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A. Reporting Entity
     The Federal Housing Finance Agency (FHFA) was established on July 30, 2008, when the President signed into law
     the Housing and Economic Recovery Act of 2008 (HERA). FHFA is an independent agency in the Executive branch
     empowered with supervisory and regulatory oversight of the twelve Federal Home Loan Banks (FHLBanks), Federal
     National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and the Office
     of Finance, all of which are referred to as Regulated Entities. FHFA is responsible for ensuring that each Regulated Entity
     operates in a safe and sound manner, including maintenance of adequate capital and internal control, and carries out
     their housing and community development finance missions.

     HERA provided for a FHFA Office of the Inspector General (FHFA-OIG), which has maintained its own Agency Location
     Code and set of books since April, 2011. The Inspector General Act of 1978, as amended, sets forth the functions and
     authorities of the FHFA-OIG. The reporting entity for purposes of financial statements includes FHFA and FHFA-OIG.

     Under the authority of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended
     by HERA, FHFA placed Fannie Mae and Freddie Mac under conservatorship on September 6, 2008, to stabilize the
     two entities with the objective of maintaining normal business operations and restoring safety and soundness. FHFA,
     as Conservator, assumed the power of stockholders, boards, and management. FHFA delegated to Fannie Mae and
     Freddie Mac certain business and operational authority. FHFA personnel monitor the operations of the enterprises.

     In September 2008, after Fannie Mae and Freddie Mac were placed in conservatorship under the FHFA, the Office of
     Management and Budget (OMB) determined that the assets, liabilities and activities of the companies would not be
     included in the financial statements of the federal government. For fiscal year 2008, OMB and the Department of the
     Treasury (Treasury) concluded that Fannie Mae and Freddie Mac did not meet the conclusive or indicative criteria for a
     federal entity contained in OMB Circular A-136, Financial Reporting Requirements, and Statement of Federal Financial
     Accounting Concepts No. 2, Entity and Display, because they are not listed in the section of the federal government’s
     budget entitled “Federal Programs by Agency and Account,” and because the nature of FHFA’s conservatorships over
     Fannie Mae and Freddie Mac and the federal government’s ownership and control of the entities is considered to be
     temporary. Treasury reaffirmed this position for fiscal year 2009, with which FHFA concurs. OMB continued to hold
     this view in the President’s fiscal year 2010, 2011, 2012 and 2013 budget submissions to Congress. Consequently,
     the assets, liabilities, and activities of Fannie Mae and Freddie Mac have not been consolidated into FHFA’s financial
     statements. However, Treasury records the value of the federal government’s investments in Fannie Mae and Freddie
     Mac in its financial statements as a General Fund asset.

     Both Fannie Mae and Freddie Mac, as represented by FHFA as their Conservator, entered into separate agreements
     with Treasury known as the Senior Preferred Stock Purchase Agreements (Agreements) on September 7, 2008. These
     two Agreements are identical and have since been amended on September 26, 2008, May 6, 2009, December 24,
     2009, and August 17, 2012. The Agreements commit Treasury to provide funding for each Enterprise up to the greater
     of: (1) $200 billion; or (2) $200 billion plus the cumulative total of draws for each calendar quarter in 2010, 2011 and
     2012 minus any amount by which the assets of the Enterprise exceed its liabilities on December 31, 2012. This funding
     is to ensure that each Enterprise maintains a non-negative Net Worth, thereby avoiding a statutory requirement that




86   Federal Housing Finance Agency     |   2012 Performance and Accountability Report
an Enterprise be put in receivership following an extended period of negative Net Worth. Under the Agreements, each
Enterprise submits a request for any needed draw amount once their financials (to be published in their 10-K or 10-Q) are
finalized. The Enterprise also submits a statement certifying compliance with Agreement covenants, which include limits
on portfolio size and indebtedness. FHFA, in its role as Conservator, reviews any request for a draw and certifies that the
request is available for funding under the Agreement. FHFA then sends a letter to Treasury requesting the draw amount
prior to the end of the current quarter.

The August 17, 2012 amendment eliminates the circularity of Treasury funding dividends paid to Treasury. Beginning on
January 1, 2013, all future net income/profits above an established threshold will be distributed to Treasury as dividends.
The Agreements require each Enterprise to obtain Treasury approval for the disposition of assets, except under certain
circumstances. FHFA as Conservator reviews these requests. Draws by Fannie Mae and Freddie Mac on their Agreements
with Treasury are summarized below (dollars in billions). These draws are reported in Treasury’s financial statements.


                                  ENTERPRISE DRAWS ON TREASURY AGREEMENTS
                             Quarter                           Fannie Mae            Freddie Mac
                             September 30, 2008                $        –           $      13.8
                             December 31, 2008                       15.2                  30.8
                             March 31, 2009                          19.0                    6.1
                             June 30, 2009                           10.7                     –
                             September 30, 2009                      15.0                     –
                             December 31, 2009                       15.3                     –
                             March 31, 2010                           8.4                  10.6
                             June 30, 2010                            1.5                    1.8




                                                                                                                                      FINANCIAL SECTION
                             September 30, 2010                       2.5                    0.1
                             December 31, 2010                        2.6                    0.5
                             March 31, 2011                           8.5                     –
                             June 30, 2011                            5.1                    1.5
                             September 30, 2011                       7.8                    6.0
                             December 31, 2011                        4.6                    0.1
                             March 31, 2012                             –                     –
                             June 30, 2012                              –                     –
                             Cumulative Draws                  $    116.2           $      71.3



B. Basis of Presentation
FHFA’s principal statements were prepared from its official financial records and general ledger in conformity with
accounting principles generally accepted in the United States and follow the presentation guidance established by OMB
Circular No. 136 “Financial Reporting Requirements,” as amended. The statements are a requirement of the Government
Management Reform Act of 1994, the Accountability of Tax Dollars Act of 2002, and HERA. These financial statements
are in addition to the financial reports prepared by FHFA, pursuant to OMB directives, which are used to monitor and
control budgetary resources. As required by HERA, the financial statements of FHFA are audited by the U.S. Government
Accountability Office (GAO). The financial statements include the activities and transactions of the FHFA-OIG. The
amounts reported in the financial statements are consolidated totals net of intra-entity transactions, except for the
Statement of Budgetary Resources (SBR), which is presented on a combined basis. The financial statements have been
prepared to report the financial position, net cost of operations, changes in net position, and the status and availability of
budgetary resources of FHFA. Unless specified otherwise, all amounts are presented in thousands.




                                                               Building an Infrastructure for the Secondary Mortgage Market      87
     C. Basis of Accounting
     Transactions are recorded on both an accrual accounting basis and a budgetary basis. Under the accrual basis of
     accounting, revenues are recognized when earned, and expenses are recognized when a liability is incurred, without
     regard to receipt or payment of cash. Budgetary accounting facilitates compliance with legal requirements and controls
     over the use of funds. FHFA’s financial statements conform to accounting principles generally accepted in the United
     States for federal entities as prescribed by the standards set forth by the Federal Accounting Standards Advisory Board
     (FASAB). FASAB is recognized by the American Institute of Certified Public Accountants as the body designated to
     establish generally accepted accounting principles for federal entities. Certain assets, liabilities, earned revenues, and
     costs have been classified as intragovernmental throughout the financial statements and notes. Intragovernmental is
     defined as transactions made between two reporting entities within the federal government.


     D. Revenues, Imputed & Other Financing Sources
     Operating revenues of FHFA are obtained through assessments of the Regulated Entities. The agency’s acting Director
     approved the annual budget in August 2012 and 2011. By law, FHFA is required to charge semi-annual assessments to
     the entities. Assessments collected shall not exceed the amount sufficient to provide for the reasonable costs associated
     with overseeing the entities, plus amounts determined by the acting Director to be necessary for maintaining a working
     capital fund.

     FHFA develops its annual budget using a ‘bottom up’ approach. Each office within the agency is asked to bifurcate their
     budget request between the amount of resources needed for the regulation of Fannie Mae and Freddie Mac and the
     resources needed for the regulation of the twelve FHLBanks. The office requests are then aggregated (with overhead
     costs distributed proportionately) to determine the total expected costs associated with regulating Fannie Mae and Freddie
     Mac and the total expected costs associated with regulating the FHLBanks. These two totals, along with any expected
     collection for the working capital fund, comprise the fiscal year budget for the agency. Additionally, FHFA levied a special
     assessment for conservatorship activities on Fannie Mae and Freddie Mac during fiscal years 2012 and 2011.

     Fannie Mae and Freddie Mac pay a pro rata share of their portion of the total assessment based on the combined
     assets and off-balance sheet obligations of each enterprise. Each FHLBank’s share of their portion of the total
     assessment is based on the dollar value of its capital stock relative to the combined dollar value of all FHLBanks’ capital
     stock. Assessment letters are sent to the entities 30 days prior to the assessment due dates of October 1st and April
     1st. Assessments received prior to due dates are available for investment but are unavailable for obligation. These
     assessments are recorded as deferred revenue.

     Federal government entities often receive goods and services from other federal government entities without reimbursing
     the providing entity for all the related costs. In addition, federal government entities also incur costs that are paid in total
     or in part by other entities. An imputed financing source is recognized by the receiving entity for costs that are paid by
     other entities. FHFA recognized imputed costs and financing sources in fiscal years 2012 and 2011 as prescribed by
     accounting standards. FHFA recognizes as an imputed financing source the amount of pension and post-retirement
     benefit expenses for current employees accrued on FHFA’s behalf by the Office of Personnel Management (OPM).


     E. Use of Estimates
     The preparation of the accompanying financial statements in accordance with U.S. generally accepted accounting
     principles requires management to make certain estimates and assumptions that affect the reported amounts of assets,
     liabilities, revenues, and expenses. Actual results could differ from those estimates.




88   Federal Housing Finance Agency      |   2012 Performance and Accountability Report
F. Earmarked Funds
FASAB’s Statement of Federal Financial Accounting Standards (SFFAS) No. 27 “Identifying and Reporting Funds
from Dedicated Collections” established certain disclosure requirements for funds defined as “funds from dedicated
collections.” SFFAS No. 27 states that “funds from dedicated collections are financed by specifically identified revenues,
provided to the government by non-federal sources, often supplemented by other financing sources, which remain
available over time. These specifically identified revenues and other financing sources are required by statute to be used
for designated activities, benefits or purposes and must be accounted for separately from the Government’s general
revenues.” The standard also presents three required criteria for a fund from dedicated collections. Based on the
standard’s criteria, FHFA determined that it has no funds from dedicated collections.


G. Fund Balance with Treasury
The U.S. Treasury (Treasury) processes cash receipts and disbursements on FHFA’s behalf. Funds held at the Treasury
are available to pay agency liabilities and finance authorized purchase obligations. FHFA does not maintain cash in
commercial bank accounts or foreign currency balances.

During the year, increases to FHFA’s Fund Balance with Treasury are comprised of semi-annual assessments, investment
interest, collections on reimbursable agreements, civil penalty monies, and Freedom of Information Act (FOIA) request
fees. FHFA is not authorized to retain civil penalty monies or FOIA fees, and as such, records these as custodial liabilities
(See Note 15. Incidental Custodial Collections) until transferred to the Treasury General Fund.

HERA provides authority for FHFA to maintain a working capital fund. The working capital fund is defined in FHFA’s
Assessment Regulation as an account for amounts collected from the Regulated Entities to establish an operating
reserve that is intended to provide for the payment of large or multiyear capital and operating expenditures, as well as
unanticipated expenses. The balance in the working capital fund is evaluated annually.




                                                                                                                                       FINANCIAL SECTION
H. Investments
FHFA has the authority to invest in U.S. Treasury securities with maturities suitable to FHFA’s needs. FHFA invests solely
in U.S. Treasury securities, which are normally held to maturity and carried at amortized cost. Investments are adjusted
for unamortized premiums or discounts. Premiums and discounts are amortized and interest is accrued using the level-
yield, scientific method of effective interest amortization over the term of the respective issues.


I. Accounts Receivable
Accounts receivable consists of amounts owed to FHFA by other federal agencies and the public. Amounts due from
federal agencies are considered fully collectible and consist of interagency agreements. Accounts receivable from the
public include reimbursements from employees, civil penalty assessments, and FOIA request fees. An allowance for
uncollectible accounts receivable from the public is established when either (1) management determines that collection is
unlikely to occur after a review of outstanding accounts and the failure of all collection efforts, or (2) an account for which
no allowance has been established is submitted to the Department of the Treasury for collection, which takes place
when it becomes 180 days delinquent. Based on historical experience, all receivables are collectible and no allowance is
provided.




                                                               Building an Infrastructure for the Secondary Mortgage Market       89
     J. Property, Equipment, and Software, Net
     Property, Equipment and Software is recorded at historical cost. It consists of tangible assets and software. Based
     on a review of capitalization policy thresholds of 22 other agencies, FHFA implemented new capitalization thresholds
     beginning in June 2011. The new capitalization thresholds are being applied prospectively.

     Under FHFA’s Oversight Procedures for the Identification of Capitalized Assets, revised June 2011, the following are the
     capitalization thresholds:

                                       Description                                     Threshold
                                        Furniture and Equipment                    $        50,000
                                        Leasehold Improvements                     $       250,000
                                        Software: Internally Developed             $       500,000
                                        Software: Off-the-Shelf                    $       200,000
                                        Capitalized Leases                         $       250,000
                                        Bulk Purchases                             $       250,000



     Prior to the revision in June 2011, the capitalization thresholds were as follows:

                                       Description                                     Threshold
                                        Furniture and Equipment                    $        25,000
                                        Leasehold Improvements                     $        25,000
                                        Internal Use Software                      $        25,000
                                        Capitalized Leases                         $        25,000
                                        Bulk Purchases                             $       250,000



     Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Applicable standard
     governmental guidelines regulate the disposal and convertibility of agency property and equipment. The useful life
     classifications for capitalized assets are as follows:

                                       Description                               Useful Life (Years)
                                        Furniture, Fixtures, and Equipment                         3
                                        Internal Use Software                                      3



     A leasehold improvement’s useful life is equal to the remaining lease term or the estimated useful life of the improvement,
     whichever is shorter. FHFA has no real property holdings or stewardship or heritage assets. Other property items and
     normal repairs and maintenance are charged to expense as incurred.


     K. Advances and Prepaid Charges
     Advance payments are generally prohibited by law. There are some exceptions, such as reimbursable agreements,
     subscriptions, and payments to contractors and employees. Payments made in advance of the receipt of goods and
     services are recorded as advances or prepaid charges at the time of prepayment and recognized as expenses when the
     related goods and services are received.




90   Federal Housing Finance Agency     |   2012 Performance and Accountability Report
L. Liabilities
Liabilities represent the amount of funds that are obligations to be paid by FHFA as the result of a transaction or event
that has already occurred.

FHFA reports its liabilities under two categories, Intragovernmental and With the Public. Intragovernmental liabilities
represent funds owed to another government agency. Liabilities With the Public represent funds owed to any entity or
person that is not a federal agency, including private sector firms and federal employees. Each of these categories may
include liabilities that are covered by budgetary resources and liabilities not covered by budgetary resources.

Liabilities covered by budgetary resources are liabilities funded by a current appropriation or other funding source. These
consist of accounts payable and accrued payroll and benefits. Accounts payable represent amounts owed to another
entity for goods ordered and received and for services rendered except for employees. Accrued payroll and benefits
represent payroll costs earned by employees during the fiscal year which are not paid until the next fiscal year. The
Department of Labor (DOL) is the central paying agent for all workman compensation claims filed under the Federal
Employees Compensation Act (FECA). Accrued FECA represents the amount FHFA is to reimburse DOL for claims paid
to FHFA employees.

Liabilities not covered by budgetary resources are liabilities that are not funded by any current appropriation or other
funding source. These liabilities consist of accrued annual leave, deferred rent, deferred liability and the amounts due
to Treasury for collection and accounts receivable of civil penalties and FOIA request fees. Annual leave is earned
throughout the fiscal year and is paid when leave is taken by the employee; the accrued liability for annual leave
represents the balance earned but not yet taken. Deferred rent is the difference at year-end between the sum of monthly
cash disbursements paid to-date for rent and the sum of the average monthly rent calculated based on the term of the
lease. This determination and recording of deferred rent is applicable to the lease agreements on the properties at 400 7th
Street Constitution Center and 5080 Spectrum Drive (See Note 8. Leases).




                                                                                                                                     FINANCIAL SECTION
M. Employee Leave and Benefits
All full-time FHFA employees are entitled to accrue sick leave at a rate of four hours per pay period. Annual leave
is accrued based on years of creditable federal service and military service, with the following exceptions: Former
Office of Federal Housing Enterprise Oversight (OFHEO) employees hired between April 25, 2005 and July 30, 2008
accrue annual leave based on years of creditable federal and military service as well as years of relevant private sector
experience (HERA abolished OFHEO when FHFA was established in July 2008). Additionally, FHFA employees hired
into mission critical positions, EL-13 and above, after May 2011 accrue annual leave under this same formula. For most
employees, annual leave may be accrued up to 240 hours each year. The FHFA executive employees equivalent to the
Senior Executive Service (SES) employees may accrue annual leave consistent with the rules for SES level employees.
Accrued annual leave is treated as an unfunded expense with an offsetting liability when earned. The accrued liability is
reduced when the annual leave is taken. Any unused annual leave balance is paid to the employee upon leaving federal
service, based on the employee’s earnings per hour. There is no maximum limit on the amount of sick leave that may be
accrued. Upon separation, any unused sick leave of Civil Service Retirement System (CSRS) plan employees is creditable
as additional time in service for the purpose of calculating an employee’s retirement annuity. Credit is given for sick leave
balances in the computation of annuities upon the retirement of Federal Employees Retirement System (FERS)-covered
employees effective at 50% beginning in fiscal year 2010 and 100% beginning in fiscal year 2014.

Health Benefits and Life Insurance: FHFA, through programs established for all agencies by the federal government,
offers its employees health and life insurance coverage through the Federal Employees Health Benefits Program and
Federal Employees Group Life Insurance Program. The cost of each is shared by FHFA and its employees. In addition, all
employees have 1.45% of gross earnings withheld to pay for future Medicare coverage.




                                                              Building an Infrastructure for the Secondary Mortgage Market      91
     N. Retirement Plans
     FHFA employees participate in the retirement plans offered by OPM, which consist of CSRS, CSRS – Offset, or FERS
     (FERS is provided under calculations for both regular employees as well as law enforcement employees in the Office of
     the Inspector General). The employees who participate in CSRS are beneficiaries of FHFA’s contribution, equal to 7% of
     pay, distributed to the employee’s annuity account in the Civil Service Retirement and Disability Fund. Prior to December
     31, 1983, all employees were covered under the CSRS program. From January 1, 1984 through December 31, 1986,
     employees had the option of remaining under CSRS or joining FERS. As of January 1, 1987, hires to FHFA without
     previous Federal service are automatically covered under FERS. Both CSRS and FERS employees may participate in the
     federal Thrift Savings Plan (TSP). FERS employees receive an automatic Agency contribution equal to 1% of pay. Effective
     July 31, 2010, FERS employees are automatically enrolled in TSP equal to 3% of pay unless they make an election to
     stop or change the contribution. FHFA matches any FERS employee contribution up to an additional 4% of pay. For FERS
     participants, FHFA also contributes the employer’s matching share of Social Security.

     FERS employees and CSRS – Offset employees are eligible to participate in the Social Security program after retirement.
     In these instances, FHFA remits the employer’s share of the required contribution, which is 11.9% for FERS and 7% for
     CSRS.

     FHFA expenses its contributions to the retirement plans of covered employees as the expenses are incurred. FHFA
     reports imputed (unfunded) costs with respect to retirement plans, health benefits and life insurance pursuant to
     guidance received from OPM. These costs are paid by OPM and not by FHFA. Disclosure is intended to provide
     information regarding the full cost of FHFA’s program in conformity with generally accepted accounting principles.

     FHFA does not report on its financial statements information pertaining to the retirement plans covering its employees.
     Reporting amounts such as plan assets, accumulated plan benefits, and related unfunded liabilities, if any, is the
     responsibility of OPM as the administrator.

     In addition to the TSP, FHFA offers a supplemental 401(K) plan that is administered by T. Rowe Price. All CSRS
     employees are eligible to contribute to the 401(K). Only FERS employees contributing at least 3% to the TSP are eligible
     to participate in the 401(K). All eligible employees that participate may contribute up to 10% of their bi-weekly salary on a
     pre-tax basis while FHFA will match contributions up to 3% of the employee’s salary. Qualified employees may participate
     in the TSP and/or FHFA’s 401(K) Savings Plan, up to the Internal Revenue Code limitations established for salary deferral
     and annual additions.


     O. Contingencies
     FHFA recognizes contingent liabilities, in the accompanying balance sheet and statement of net cost, when they are both
     probable and can be reasonably estimated. FHFA discloses contingent liabilities in the notes to the financial statements
     when a loss from the outcome of future events is more than remote but less than probable or when the liability is
     probable but cannot be reasonably estimated.




92   Federal Housing Finance Agency     |   2012 Performance and Accountability Report
NOTE 2.	 FUND BALANCE WITH TREASURY

Fund Balance with Treasury consists of an Operating Fund and a Working Capital Fund. The funds in the Working Capital
Fund were fully invested during fiscal years 2012 and 2011. Fund Balance with Treasury (FBWT) account balances as of
September 30, 2012 and 2011, were as follows (dollars in thousands):

                                                                                      2012               2011
                      Fund Balances:
                      Operating Fund                                        $       (20,998)      $    (16,445)
                      Total                                                 $       (20,998)      $    (16,445)

                      Status of Fund Balance with Treasury:
                      Unobligated Balance
                         Available                                          $        45,535       $     27,672
                      Obligated Balance Not Yet Disbursed                            52,883             67,025
                      Investments                                                   (77,420)           (78,252)
                      Total                                                 $        20,998       $     16,445

(See Note 12. Legal Arrangements Affecting Use of Unobligated Balances)




NOTE 3.	 INVESTMENTS




                                                                                                                                       FINANCIAL SECTION
Investments as of September 30, 2012 consist of the following (dollars in thousands):

                                                          Amortized                                                Market Value
                                           Cost       (Premium) Discount   Interest Receivable   Investments Net    Disclosure
     Intragovernmental Securities:
     Non-Marketable
       Market-Based                    $    77,420          $      –            $         –       $    77,420      $   77,420


Investments as of September 30, 2011 consist of the following (dollars in thousands):

                                                          Amortized                                                Market Value
                                           Cost       (Premium) Discount   Interest Receivable   Investments Net    Disclosure
     Intragovernmental Securities:
     Non-Marketable
       Market-Based                    $    78,252          $      –            $         –       $    78,252      $   78,252


Non-marketable, market-based securities are Treasury notes and bills issued to governmental accounts that are not
traded on any securities exchange, but mirror the prices of marketable securities with similar terms. FHFA is currently
investing in one-day certificates issued by the U.S. Treasury. There were no amortized premiums/discounts or interest
receivable on investments as of September 30, 2012 or 2011. Interest earned on investments was $57,000 and $66,000
for fiscal years 2012 and 2011, respectively.




                                                                  Building an Infrastructure for the Secondary Mortgage Market    93
     NOTE 4.	 ACCOUNTS RECEIVABLE

     Accounts Receivable balances as of September 30, 2012 and 2011, were as follows (dollars in thousands):

                                                                                               2012                 2011
                            Intragovernmental
                                  Accounts Receivable                               $             –        $          19
                            With the Public
                                  Accounts Receivable                                            13                    5
                            Total Accounts Receivable                               $            13        $          24

     There are no amounts that are deemed uncollectible as of September 30, 2012 and 2011.




     NOTE 5.	 PROPERTY, EQUIPMENT, AND SOFTWARE, NET

     Schedule of Property, Equipment, and Software as of September 30, 2012 (dollars in thousands):

                                                                                        Accumulated Amortization/
          Major Class                                        Acquisition Cost                Depreciation                      Net Book Value
          Equipment                                                   24,630                           10,980              $          13,650
          Leasehold Improvements                                      31,708                            1,515                         30,193
          Capital Lease                                                         –                              –                            –
          Internal-Use Software                                         4,160                           3,542                             618
          Construction-in-Progress                                      1,067                                  –                        1,067
          Total                                             $         61,565               $           16,037              $          45,528


     Schedule of Property, Equipment, and Software as of September 30, 2011 (dollars in thousands):

                                                                                        Accumulated Amortization/
           Major Class                                       Acquisition Cost                Depreciation                  Net Book Value
           Equipment                                                  13,958                          10,874               $           3,084
           Leasehold Improvements                                      6,974                            6,902                             72
           Capital Lease                                                  22                               22                               –
           Internal-Use Software                                      30,316                          29,286                           1,030
           Construction-in-Progress                                    1,383                                –                          1,383
           Total                                            $         52,653               $          47,084               $           5,569


     The leasehold improvement acquisition cost for September 30, 2012 includes a Constitution Center tenant allowance in
     the amount of $21 million.




94   Federal Housing Finance Agency          |   2012 Performance and Accountability Report
NOTE 6.	 LIABILITIES COVERED AND NOT COVERED BY BUDGETARY RESOURCES

Liabilities Covered and Not Covered By Budgetary Resources as of September 30, 2012 consist of the following (dollars
in thousands):

                                                             Covered            Not-Covered              Total

      Intragovernmental Liabilities
         Accounts Payable                                $             766      $             –      $           766
         Other Intragovernmental Liabilities                       2,727                      –              2,727
      Total Intragovernmental Liabilities                $         3,493        $             –      $       3,493

         Accounts Payable                                $         9,728        $             –      $       9,728
         Other Liabilities                                         6,503              34,402                40,905
      Total Public Liabilities                           $       16,231         $     34,402         $      50,633
      Total Liabilities                                  $       19,724         $     34,402         $      54,126


Liabilities Covered and Not Covered By Budgetary Resources as of September 30, 2011 consist of the following (dollars
in thousands):

                                                             Covered            Not-Covered              Total

      Intragovernmental Liabilities
         Accounts Payable                                $         1,221        $             –      $       1,221




                                                                                                                                 FINANCIAL SECTION
         Other Intragovernmental Liabilities                       1,216                      3              1,219
      Total Intragovernmental Liabilities                $         2,437        $             3      $       2,440

         Accounts Payable                                $         6,601        $             –      $       6,601
         Other Liabilities                                         5,809               9,500                15,309
      Total Public Liabilities                           $       12,410         $      9,500         $      21,910
      Total Liabilities                                  $       14,847         $      9,503         $      24,350




                                                             Building an Infrastructure for the Secondary Mortgage Market   95
     NOTE 7.	 OTHER LIABILITIES

     Current liabilities are amounts owed by a federal entity for which the financial statements are prepared, and which need
     to be paid within the fiscal year following the reporting date. The other liabilities for FHFA are comprised of FECA liability,
     unemployment insurance liability, payroll accruals, payroll taxes payable, deferred liabilities and unfunded leave. Payroll
     accruals represent payroll expenses that were incurred prior to year-end but were not paid. Deferred liabilities represent
     recording of the deferred rent that is associated with the leased premises at 400 7th Street SW – Constitution Center
     and at the leased premises at 5080 Spectrum Drive. The deferred liabilities also include the Constitution Center tenant
     allowance.

     Other Liabilities as of September 30, 2012 consist of the following (dollars in thousands):

                                                                      Non Current             Current               Total

           Intragovernmental Liabilities
              Funded FECA Liability                                   $             –     $              11     $            11
              Accrued Funded Payroll                                                –                    36                  36
              Payroll Taxes Payable                                                 –              1,500                1,500
              Advances and Prepayments                                              –              1,180                1,180
           Total Intragovernmental Other Liabilities                  $             –     $        2,727        $       2,727

           With the Public
              Payroll Taxes Payable                                   $             –     $             713     $           713
              Accrued Funded Payroll                                                –              5,790                5,790
              Unfunded Leave                                                10,485                       –             10,485
              Deferred Lease Liabilities                                    22,352                 1,565               23,917
           Total Public Liabilities                                   $     32,837        $        8,068        $      40,905


     Other Liabilities as of September 30, 2011 consist of the following (dollars in thousands):

                                                                      Non Current             Current               Total

           Intragovernmental Liabilities
              Funded and Unfunded FECA Liability                      $             –     $               3     $             3
              Unemployment Insurance Liability                                      –                     1                   1
              Payroll Taxes Payable                                                 –              1,215                1,215
           Total Intragovernmental Other Liabilities                  $             –     $        1,219        $       1,219

           With the Public
              Payroll Taxes Payable                                   $             –     $             624     $           624
              Accrued Funded Payroll                                                –              5,185                5,185
              Unfunded Leave                                                        –              9,500                9,500
           Total Public Liabilities                                   $             –     $       15,309        $      15,309




96   Federal Housing Finance Agency        |     2012 Performance and Accountability Report
NOTE 8.	 LEASES


Operating Leases Terminated During Fiscal Year 2012
1700 G Street NW
FHFA had an occupancy lease with the Office of the Comptroller of the Currency (OCC) at 1700 G Street NW, Washington,
DC that covered office space and building services, including utilities, security guards, janitorial services, mail delivery, use
of the loading dock, garage parking and building operation and maintenance. The initial term of the lease was for five years
beginning in 1993, with the option to renew for three 5-year terms with OFHEO. This lease was transferred to FHFA with
its creation. FHFA exercised the third of the three option terms. FHFA terminated the lease effective January 31, 2012.


1750 Pennsylvania Avenue NW
FHFA leased office space in Washington, DC at 1750 Pennsylvania Avenue NW. The lease term expired on January 31,
2012.


1625 Eye Street NW – FHFA-OIG Space
FHFA-OIG leased office space at 1625 Eye Street NW. The FHFA-OIG lease terms at 1625 Eye Street NW expired
one year after the occupation date, January 24, 2011, with optional renewal periods for up to two years. FHFA-OIG
terminated the lease on January 24, 2012.


Current Operating Leases
1625 Eye Street NW – FHFA Space




                                                                                                                                         FINANCIAL SECTION
FHFA leases office space in Washington, DC at 1625 Eye Street NW. The lease terms of 1625 Eye Street expire on June
30, 2015. The lease is non-cancellable. FHFA entered into an Interagency Agreement (IAA) with the Consumer Financial
Protection Bureau (CFPB) on March 29, 2012 for the use of certain already-acquired but unused services, supplies
and space available on a short-term basis. The IAA includes, but is not limited to, furniture, equipment, IT network
infrastructure, and space at 1625 Eye Street, NW. The CFPB took occupancy on April 1, 2012. The IAA expires on June
30, 2015 in conjunction with FHFA’s lease expiration. The receipts from CFPB are less than the lease expenditures, thus
requiring FHFA to record a loss. Therefore, the loss recognized as of September 30, 2012 is $679 thousand. FHFA will
not recognize a loss contingency for the remaining life of the IAA since the agreement is with a federal agency and is
deemed collectable.


400 7th Street SW – Constitution Center
FHFA entered into a lease for office space at 400 7th Street SW, Constitution Center, on January 31, 2011. FHFA took
occupancy in January 2012. FHFA does not have the right to terminate the lease for the convenience of the government.
FHFA may only exercise a one-time early termination at the end of the 10th year, contingent upon FHFA having less
than 400 employees in the Washington DC area as of the date that is 20 months prior to the early termination date and
representing that it reasonably believes it will have less than 400 employees in the DC area as of the termination date.
The lease terms of 400 7th Street SW expire on January 31, 2027.


5080 Spectrum Drive
FHFA entered into a lease for office space at 5080 Spectrum Drive in Addison, Texas on April 23, 2012. FHFA
took occupancy on August 16, 2012. FHFA does not have the right to terminate the lease for the convenience of
the government. FHFA may only exercise a one-time early termination at the end of the 39th month following the




                                                                Building an Infrastructure for the Secondary Mortgage Market        97
     commencement date of the lease. The written termination notice must be provided to the landlord nine months prior to
     the termination date. The lease terms of 5080 Spectrum Drive expire on July 31, 2017.

     The minimum future payments for the 400 7th Street SW, 1625 Eye Street NW, and 5080 Spectrum Drive operating
     leases are as follows (dollars in thousands):

                                     Fiscal Year                                         Amount
                                     2013                                         $      19,544
                                     2014                                                19,951
                                     2015                                                19,362
                                     2016                                                16,703
                                     2017                                                16,982
                                     Thereafter                                          77,557
                                     Total Future Payments                        $   170,099


     The minimum future receipts for the IAA with CFPB for the 1625 Eye Street NW space are as follows (dollars in thousands):

                                     Fiscal Year                                         Amount
                                     2013                                         $       2,877
                                     2014                                                 2,992
                                     2015                                                 2,319
                                     2016                                                    –
                                     2017                                                    –
                                     Thereafter                                              –
                                     Total Future Operating Lease Receivables     $       8,188


     Additionally, FHFA leases contingency space at an undisclosed location. The lease expires on March 31, 2013.

     Total rental payments for the fiscal years ended September 30, 2012 and 2011 were $15.6 million and $6.1 million,
     respectively.




98   Federal Housing Finance Agency    |    2012 Performance and Accountability Report
NOTE 9.	 COMMITMENTS AND CONTINGENCIES

FHFA did not have any material commitments or contingencies that met disclosure requirements as of September 30,
2012 and 2011.




NOTE 10.	PROGRAM COSTS

Pursuant to HERA, FHFA was established to supervise and regulate the fourteen Regulated Entities. The Regulated
Entities include Freddie Mac, Fannie Mae and the twelve FHLBanks. FHFA tracks resource allocations and program
costs to the strategic goals (responsibility segments) developed for FHFA’s strategic plan. Strategic Goals, 1–Safety
and Soundness; 2–Affordable Housing; and 3–Conservatorship, guide program offices to carry out FHFA’s vision and
mission. FHFA has a Resource Management Strategy, which is distributed proportionately to Strategic Goals 1–3 based
on the percentage of direct costs of each goal to the total direct costs for FHFA. FHFA-OIG allocated their costs to
FHFA’s Resource Management Strategy. FHFA’s revenue was provided by the Regulated Entities through assessments.
FHFA-OIG received their funding through a $38.8 million transfer from FHFA in fiscal year 2012 and a $29 million transfer
in fiscal year 2011. FHFA-OIG’s total expenses for fiscal years 2012 and 2011 were $36.2 million and $17.3 million,
respectively.

Program costs are broken out into two categories—“Intragovernmental” and “With the Public”. Intragovernmental costs
are costs FHFA incurs through contracting with other federal agencies for goods and/or services, such as rent paid to
OCC, payroll processing services received from the Department of Agriculture and imputed financing costs for post-
retirement benefits with OPM. With the Public costs are costs FHFA incurs through contracting with the private sector
for goods or services, payments for employee salaries, depreciation, annual leave and deferred rent expenses. Revenue




                                                                                                                                 FINANCIAL SECTION
is comprised of assessments, investment interest, and miscellaneous revenue. Intragovernmental expenses relate to the
source of goods and services purchased by the agency and not to the classification of related revenue. Such costs and
revenue are summarized as follows (dollars in thousands):




                                                             Building an Infrastructure for the Secondary Mortgage Market   99
                                                                                              2012            2011

                Safety and Soundness
                   Intragovernmental Costs                                            $       31,042    $    27,364
                   Public Costs                                                           122,579            98,597
                      Total Program Costs                                                 153,621           125,961
                   Less: Intragovernmental Earned Revenue                                       904            108
                   Less: Public Earned Revenue                                            123,827           135,189
                      Net Safety and Soundness Program (Income)/Costs                         28,890         (9,336)

                Affordable Housing
                   Intragovernmental Costs                                                     6,059          4,216
                   Public Costs                                                               18,860         13,024
                      Total Program Costs                                                     24,919         17,240
                   Less: Intragovernmental Earned Revenue                                       468              30
                   Less: Public Earned Revenue                                                64,139         38,024
                      Net Affordable Housing Program (Income)/Costs                       (39,688)          (20,814)

                Conservatorship
                   Intragovernmental Costs                                                      267           2,683
                   Public Costs                                                               38,694         21,517
                      Total Program Costs                                                     38,961         24,200
                   Less: Intragovernmental Earned Revenue                                       265              22
                   Less: Public Earned Revenue                                                36,330         27,410
                      Net Conservatorship Program (Income)/Costs                               2,366         (3,232)

                Total Intragovernmental costs                                                 37,368         34,263
                Total Public costs                                                        180,133           133,138
                      Total Costs                                                         217,501           167,401
                Less: Total Intragovernmental Earned Revenue                                   1,637           160
                Less: Total Public Earned Revenue                                         224,296           200,623
                      Total Net (Income)/Cost                                         $       (8,432)   $   (33,382)




100   Federal Housing Finance Agency         |   2012 Performance and Accountability Report
NOTE 11.	APPORTIONMENT CATEGORIES OF OBLIGATIONS INCURRED

All obligations incurred are characterized as Category C, Exempt from apportionment (i.e. not apportioned), on the
Statement of Budgetary Resources. Obligations incurred and reported in the Statement of Budgetary Resources in fiscal
years 2012 and 2011 consisted of the following (dollars in thousands):

                                                                              2012           2011
                           Direct Obligations, Category C                 $ 256,340      $ 225,802
                           Reimbursable Obligations, Category C                2,760            94
                           Total Obligations Incurred                     $ 259,100      $ 225,896




NOTE 12.	LEGAL ARRANGEMENTS AFFECTING USE OF UNOBLIGATED BALANCES

HERA requires that any balance that remains unobligated at the end of the fiscal year, except for amounts assessed
for contribution to FHFA’s working capital fund, must be credited against the next year’s assessment to the Regulated
Entities. As of September 30, 2012 and 2011, the unobligated balance was $45.5 million and $27.7 million. The portion
of the fiscal year 2012 unobligated available balance that will be credited against the Regulated Entities’ April 2013
assessments is $19.9 million with the remaining $10 million retained in the working capital fund and $15.6 million retained
for conservatorship activities. The portion of the fiscal year 2011 unobligated balance that was credited against the
Regulated Entities’ April 2012 assessment was $9.5 million with the remaining $9 million retained in the working capital
fund and $9.2 million retained for conservatorship related activities. (See Note 2. Fund Balance With Treasury)




                                                                                                                                   FINANCIAL SECTION
NOTE 13.	BUDGETARY RESOURCE COMPARISONS TO THE BUDGET OF THE UNITED
         STATES GOVERNMENT

Statement of Federal Financial Accounting Standards No. 7, “Accounting for Revenue and Other Financing Sources
and Concepts for Reconciling Budgetary and Financial Accounting”, calls for explanations of material differences
between amounts reported in the Statement of Budgetary Resources and the actual balances published in the Budget
of the United States Government (President’s Budget). The President’s Budget that will include fiscal year 2012 actual
budgetary execution information has not yet been published. The President’s Budget is scheduled for publication in
February 2014 and can be found at the OMB Web site: http://www.whitehouse.gov/omb/. The 2013 Budget of the
United States Government, with the “Actual” column completed for 2011, has been reconciled to the Statement of
Budgetary Resources and there were no material differences.




NOTE 14.	UNDELIVERED ORDERS AT THE END OF THE PERIOD

For the fiscal years ended September 30, 2012 and 2011, budgetary resources obligated for undelivered orders
amounted to $35.2 million and $52.7 million, respectively.




                                                                  Building an Infrastructure for the Secondary Mortgage Market   101
      NOTE 15.	INCIDENTAL CUSTODIAL COLLECTIONS

      FHFA’s custodial collections primarily consist of Freedom of Information Act requests and civil penalties assessed.
      Custodial collections are reflected in Fund Balance with Treasury during the year. While these collections are considered
      custodial, they are neither primary to the mission of the agency nor material to the overall financial statements. FHFA also
      collects civil penalties assessed against the Regulated Entities. FHFA’s custodial collections are $6.7 thousand for the
      year ended September 30, 2012. Custodial collections totaled $3.4 thousand for the year ended September 30, 2011.
      There were no civil penalties assessed or collected in fiscal year 2011 or 2012. Custodial collections are transferred to
      the Treasury General Fund on September 30 and are not reflected in the financial statements of the Agency.




102   Federal Housing Finance Agency     |   2012 Performance and Accountability Report
NOTE 16.	RECONCILIATION OF NET COST OF OPERATIONS TO BUDGET

FHFA has reconciled its budgetary obligations and non-budgetary resources available to its net cost of operations (dollars
in thousands).

                                                                                                      2012                 2011

  Resources Used to Finance Activities:	
  Budgetary Resources Obligated	
    Obligations Incurred                                                                        $   259,100          $   225,896
    Spending Authority from Offsetting Collections and Recoveries                                    (52,611)             (30,136)
    Obligations Net of Offsetting Collections and Recoveries                                        206,489              195,760
    Offsetting Receipts
                                                                                                    (224,353)            (200,689)
    Net Obligations                                                                                  (17,863)              (4,929)
  Other Resources	
    Imputed Financing from Costs Absorbed by Others                                                    5,810                5,193
    Net Other Resources Used to Finance Activities                                                     5,810                5,193
  Total Resources Used to Finance Activities	                                                        (12,053)                264

  Resources Used to Finance Items Not Part of the of the Net Cost of Operations:	
    Change in Budgetary Resources Obligated for Goods,
       Services and Benefits Ordered But Not Yet Provided                                            18,689               (32,083)




                                                                                                                                         FINANCIAL SECTION
    Resources That Fund Expenses Recognized in Prior Periods                                             (10)                 (55)
    Resources That Finance the Acquisition of Assets                                                 (47,679)              (5,226)
    Total Resources Used to Finance Items Not Part of the Net Cost of Operations                     (29,000)             (37,364)
  Total Resources Used to Finance the Net Cost of Operations	                                        (41,053)             (37,100)

  Components of the Net Cost of Operations That Will Not Require or Generate Resources in the Current
  Period:
  Components Requiring or Generating Resources in Future Periods	
    Increase in Annual Leave Liability                                                                  986                 1,662
    Other                                                                                            23,917                     2
    Total Components of Net Cost of Operations That Will Require or
    Generate Resources in Future Periods                                                             24,903                 1,664
  Components Not Requiring or Generating Resources	
    Depreciation and Amortization                                                                      6,907                2,164
    Revaluation of Assets or Liabilities                                                                963                     –
    Other                                                                                               (152)                (110)
    Total Components of Net Cost of Operations That Will Not Require or
    Generate Resources                                                                                 7,718                2,054
  Total Components of Net Cost of Operations That Will Not Require or
  Generate Resources in the Current Period                                                           32,621                 3,718
  Net (Income from)/Cost of Operations	                                                         $     (8,432)        $    (33,382)




                                                                        Building an Infrastructure for the Secondary Mortgage Market   103
                     Other Accompanying
                     Information


                                     | 	 Performance Goals and Measures No Longer
                                         Reported

                                     | 	 Inspector General’s FY 2013 Management and
                                         Performance Challenges

                                     | 	 Summary of Financial Statement Audit and
                                         Management Assurances




2 0 1 2 F E D E R A L H O U S I N G F I N A N C E A G E N C Y P E R F O R M A N C E A N D A C C O U N TA B I L I T Y R E P O R T
FHFA FY 2011 Performance Goals and Measures
No Longer Reported

PERFORMANCE MEASURES

                                             STRATEGIC GOAL 2:
         The housing GSEs support a stable, liquid, and efficient mortgage market including sustainable
                                  homeownership and affordable housing.
 MEASURE 2.2.3: Finalize the duty to serve regulation.
Why Discontinued:    Although the final rule continues to be under consideration, FHFA is reassessing the duty to serve requirements in light of changing
                     economic conditions, and the financial condition of the Enterprises to determine the best manner in which to proceed.


                                              STRATEGIC GOAL 3:
   FHFA preserves and conserves the assets and property of the Enterprises, ensures focus on their housing
            mission, and facilitates their financial stability and emergence from conservatorship.
 MEASURE 3.3.1: Number of loan modifications and foreclosure alternatives completed by the Enterprises.
Why Discontinued:    This measure was not discontinued but refined; the measure now reads “Prevent current loans from going delinquent by helping
                     borrowers to refinance.”
 MEASURE 3.3.2: Percentage of modified loans that are 60-plus days delinquent.
Why Discontinued:    This measure was not discontinued but refined; the measure now reads “Maintain the percentage of modified loans that are 60 plus
                     days delinquent, nine months after modification, at or below 20 percent.”


                                           RESOURCE MANAGEMENT STRATEGY:
                              FHFA has the personnel, resources, and infrastructure to manage
                                 effectively and efficiently to achieve its mission and goals.
 MEASURE 4.1.2: Percentage of FHFA supervisors who receive supervisory, management, or leadership training in compliance with 5 CFR, part 412,
                 which requires agencies to train new supervisors within one year of appointment and retrain every three years.
Why Discontinued:    Progress in supervisory training as gauged by this measure did not offer fair illustration of the wide-ranging trainings FHFA managers
                     are exposed to.
 MEASURE 4.2.1: Number of partnerships, alliances, and agreements FHFA established to increase diversity in its workforce.
Why Discontinued:    FHFA currently has two measures which successfully reflect the outlook in this discontinued indicator (The activities within 4.2.1 and
                     4.2.3 are represented in the two measures that were kept that speak to (i) outreach events and (ii) number of contracts awarded).
 MEASURE 4.2.3: Number and variation of targeted outreach events designed to provide information, education and capacity building assistance to
                 potential minority and women owned businesses to increase procurement contracts awarded for goods, services, and technical
                 assistance provided to FHFA.
Why Discontinued:    FHFA currently has two measures which successfully reflect the outlook in this discontinued indicator (The activities within 4.2.1 and
                     4.2.3 are represented in the two measures that were kept that speak to (i) outreach events and (ii) number of contracts awarded).
 MEASURE 4.3.2: Percentage of FHFA resources allocated directly to supervision of the housing GSEs – Strategic Goals 1 and 2.
Why Discontinued:    This indicator is not illustrative of current agency resource apportionments which now include management of the two                      OTHER ACCOMPANYING
                     conservatorships.
                                                                                                                                                                   INFORMATION



 MEASURE 4.4.1: Ensure FHFA’s infrastructure systems are continuously available for use by FHFA staff.
Why Discontinued:    While systems availability is a priority for the agency and continues to be monitored internally, FHFA regards this measure as more of
                     a process indicator that does not warrant external reporting.




                                                                             Building an Infrastructure for the Secondary Mortgage Market                     105
      Inspector General’s FY 2013 Management and Performance Challenges




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                                                                OTHER ACCOMPANYING
                                                                    INFORMATION




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                                                                OTHER ACCOMPANYING
                                                                    INFORMATION




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                                                                OTHER ACCOMPANYING
                                                                    INFORMATION




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                                                                OTHER ACCOMPANYING
                                                                    INFORMATION




Building an Infrastructure for the Secondary Mortgage Market   113
114   Federal Housing Finance Agency   |   2012 Performance and Accountability Report
Summary of Financial Statements Audit and Management
Assurances
                                          Table 1: SUMMARY OF FINANCIAL STATEMENTS AUDIT
    AUDIT OPINION                                                         UNQUALIFIED
 Restatement                                                                      No
 Material Weaknesses         Beginning Balance           New                   Resolved               Consolidated       Ending Balance
 Total Material Weaknesses            0                  0                        0                       0                   0


                                          Table 2: SUMMARY OF MANAGEMENT ASSURANCES
 EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING
 (Federal Management Financial Integrity Act Paragraph 2)
 Statement of Assurance                                                       Unqualified
                              Beginning
 Material Weaknesses           Balance             New             Resolved            Consolidated         Reassessed    Ending Balance
 Total Material Weaknesses        0                0                  0                     0                   0                 0

 EFFECTIVENESS OF INTERNAL CONTROL OVER OPERATIONS
 (Federal Management Financial Integrity Act Paragraph 2)
 Statement of Assurance                                                       Unqualified
                              Beginning
 Material Weaknesses           Balance             New             Resolved            Consolidated         Reassessed    Ending Balance
 Total Material Weaknesses        0                0                  0                     0                   0                 0

 CONFORMANCE WITH FINANCIAL MANAGEMENT SYSTEM REQUIREMENTS
 (Federal Management Financial Integrity Act Paragraph 4)
 Statement of Assurance                            Systems conform to financial management system requirements
                              Beginning
 Non-Conformances              Balance             New             Resolved            Consolidated         Reassessed    Ending Balance
 Total Non-Conformances           0                0                  0                     0                   0                 0


Erroneous Payments                                                   identified no activities susceptible to significant erroneous
The Improper Payments Elimination and Recovery Act                   payments that meet the Act’s thresholds.
requires that agencies (1) review activities susceptible to
significant erroneous payments; (2) estimate the amount              Prompt Pay
of annual erroneous payments; (3) implement a plan to
                                                                                                                                            OTHER ACCOMPANYING
                                                                     The Prompt Payment Act requires federal agencies to
reduce erroneous payments; and (4) report the estimated              make timely payments to vendors and improve the cash
amount of erroneous payments and the progress to
                                                                                                                                                INFORMATION


                                                                     management practices of the government by encouraging
reduce them. The Act defines significant erroneous                   the use of discounts when they are justified. This also
payments as the greater of 2.5 percent of program                    means that FHFA must pay its bills within a narrow
activities or $10 million.                                           window of time. In FY 2012, the dollar amount subject
                                                                     to prompt payment was $71.9 million. The amount of
FHFA, in the spirit of compliance and as part of a sound
                                                                     interest penalty paid in FY 2012 was $372 or 0.00052
internal control structure, has established controls to
                                                                     percent of the total dollars disbursed.
detect and prevent improper vendor payments. FHFA has




                                                                   Building an Infrastructure for the Secondary Mortgage Market            115
                     Appendix



                                     | 	 Glossary	
                                     | 	 Acronyms
                                     | 	 Index of Figures and Features
                                     | 	 Acknowledgements
                                     | 	 Federal Housing Finance Agency Key Management
                                         Officials (inside back cover) 	


                                     	




2 0 1 2 F E D E R A L H O U S I N G F I N A N C E A G E N C Y P E R F O R M A N C E A N D A C C O U N TA B I L I T Y R E P O R T
Glossary

Advances – Core mission assets in the form of loans to                Foreclosure – A legal process dictated by state law in which
    member institutions.                                                  the mortgaged property is sold to pay off the mortgage of
                                                                          the defaulting borrower.
Basis Points – Unit of measure used in finance to denote
    a change in value. Basis points are commonly used to              Governance – Includes policies and controls related to
    express a change of less than one percent. For example,               financial and regulatory reporting, leadership effectiveness
    50 basis points denote a 0.5 percent shift.                           of the board of directors and enterprise management,
                                                                          compliance, overall risk management, strategy, internal
Capitalization – The sum of a firm’s or individual’s long-term
                                                                          audit, and reputational risk.
    debt, stock and retained earnings.
                                                                      Government Sponsored Enterprises (GSE) – Fannie Mae,
Cease and Desist Order – A directive halting certain financial
                                                                          Freddie Mac and the twelve Federal Home Loan Banks.
    activities and requiring improvements to risk management
    policies and practices. Orders may be terminated                  Home Affordable Modification Program (HAMP) – A
    following improvements in and entity’s financial condition,          program designed to help homeowners avoid foreclosure
    capital position, and resolution of risk management                  by modifying loans to a level that is affordable for
    concerns.                                                            borrowers and sustainable over the long term.

Collateralize – To secure a financial instrument, such as a loan,     Home Affordable Refinance Program (HARP) – A home




                                                                                                                                           APPENDIX
     with an asset, such as a security or property.                      retention program that focuses on mortgages Fannie
                                                                         Mae and Freddie Mac already hold in their portfolios or
Conservatorship – Statutory process designed to stabilize
                                                                         guarantee through their mortgage-backed securities.
    a troubled institution with the objective of maintaining
                                                                         It provides unique flexibilities on the level of credit
    normal business operation and restoring safety and
                                                                         enhancement required on loans with loan-to-values
    soundness.
                                                                         greater than 80 percent. Borrowers who are current on
Consolidated Obligations – A term for the joint obligations              their mortgages can refinance into a lower mortgage
    of the 12 FHLBanks. Consolidated obligations are debt                payment or more sustainable mortgage without requiring
    instruments that are sold to the public through the                  additional credit enhancements—generally private
    Office of Finance but are not guaranteed by the U.S.                 mortgage insurance.
    government.
                                                                      Loan Modification – A change or changes to the original
Earnings – Includes adequacy of earnings to build and                     mortgage terms, such as a change to the product
    maintain capital and provide acceptable returns to                    (adjustable-rate or fixed-rate), interest rate, term and
    shareholders, the quality of earnings, earnings projections,          maturity date, amortization term, or amortized balance.
    the integrity of management information systems, and the
                                                                      Matter Requiring Attention (MRA) – A specific written
    soundness of the business model.
                                                                          recommendation made to Enterprise management that
Enterprise(s) – Represent Fannie Mae and Freddie Mac.                     requires attention and correction, but does not include
                                                                          consent order items. Each MRA requires a due date for
Enterprise Risk – Includes enterprise credit risk, market risk,           correction.
    and operational risk.
                                                                      Operating Risk – The risk of possible losses resulting from
Forbearance Plans – An agreement between the servicer and                 inadequate or failed internal processes, people, and
    the borrower (or estate) to reduce or suspend monthly                 systems or from external events.
    payments for a defined period, after which the borrower
    resumes regular monthly payments and pays additional              Permanent Capital – The sum of common stock, preferred
    money toward the delinquency to bring the account                     stock, and retained earnings.
    current or works with the servicer to identify a permanent
    solution, such as a loan modification or a short sale, to
    address the delinquency.




                                                                    Building an Infrastructure for the Secondary Mortgage Market         117
      Permanent Change of Station (PCS) – The official relocation          Secondary Mortgage Market – A market in which mortgages
          of an active duty military service member or a civilian              or mortgage-backed securities are acquired by the
          employee along with any family members living with                   Enterprises and traded.
          him or her to a different duty location such as a military
                                                                           Senior Preferred Stock – Capital stock owned by the Treasury
          base – the permanent move may be within or outside the
                                                                               Department, which pays specific dividends before
          continental United States. A permanent change of station
                                                                               preferred stock or common stock dividends. In the event
          applies until muted by another PCS order, completion of
                                                                               of a liquidation, senior preferred stock takes precedence
          active duty service, or some other preemptive event.
                                                                               over preferred and common stock.
      Portfolio – A collection of investments, either diverse or similar
                                                                           Short Sale – A sale of real estate in which the proceeds do not
           in nature, held by an institution or individual.
                                                                               satisfy the full balance owed on the property’s loan.
      Preferred Stock Purchase Agreement (PSPA) – PSPAs
                                                                           Supervisory Rating – FHFA has established four rating levels
           ensure that the Enterprises maintain a positive net
                                                                               for supervisory concerns: (1) no or minimal concerns;
           worth so they can continue to be active suppliers of
                                                                               (2) limited concerns; (3) significant concerns; and (4)
           housing finance. The agreements are ongoing, explicit,
                                                                               critical concerns. These ratings describe how well risks
           and irreversible contractual commitments of the federal
                                                                               are identified, measured, monitored, controlled, and
           government ensuring that Fannie Mae and Freddie Mac
                                                                               managed. No or minimal concerns have very minor
           can meet their obligations and maintain a positive net
                                                                               weaknesses or criticisms that affect the Enterprise’s
           worth.
                                                                               safety and soundness, while critical concerns involve a
      Private-label Mortgage-backed Securities (PLMBS) – A                     consent order or formal agreement between FHFA and
           residential mortgage-backed security where the underlying           the Enterprise to ensure that appropriate corrective action
           loans are not guaranteed by the U.S. government or a                is taken.
           government-sponsored agency. The collateral is often
                                                                           Total Capital – The sum of permanent capital, the par value of
           referred to as “nonconforming loans” because the loans
                                                                                Class A stock outstanding, a general allowance for losses,
           usually do not meet all the strict requirements for a
                                                                                and the amount of any other instruments identified in an
           government or government agency guarantee.
                                                                                FHLBank’s capital plan that FHFA has determined to be
      Repayment Plans – An agreement between the servicer and                   available to absorb losses.
          a borrower that gives the borrower a defined period to
                                                                           Undercapitalized – A state of hindered operation for an
          reinstate the mortgage by paying normal regular payments
                                                                              FHLBank resulting from limited amounts of capital.
          plus an additional agreed upon amount in repayment of
          the delinquency.                                                 Underwriting Standards – The process a lender uses to
                                                                              determine whether the risk of lending to a particular
      Reports of Examination (ROEs) – During each calendar
                                                                              borrower under certain parameters is acceptable. Most
          year, FHFA complete ROEs for each of the 12 FHLBanks
                                                                              of the risks and terms underwriters consider fall under the
          and the Office of Finance (OF) and presents them to
                                                                              three C’s of underwriting: credit, capacity, and collateral.
          their respective boards of directors. The scheduling of
          examination fieldwork and the review of ROEs may vary
          from one year to the next.




118   Federal Housing Finance Agency         |   2012 Performance and Accountability Report
Acronyms

AGA          Association of Government Accountants                 HARP         Home Affordable Refinance Program
AHP          Affordable Housing Program                            HERA         Housing and Economic Recovery Act of 2008
BOA          Bank of America                                       HPI          House Price Index
C&D          Cease and Desist                                      HUD          U.S. Department of Housing and Urban
                                                                                Development
CEO          Chief Executive Officer
                                                                   HUBZone      Historically Underutilized Business Zone
CFR          Code of Federal Regulations
                                                                   ICP          Incentive Compensation Plan
CGC          Conservatorship Governance Committee
                                                                   IT           Information Technology
CY           Calendar Year
                                                                   LLC          Limited Liability Company
DBR          Division of FHLBank Regulation
                                                                   LTV          Loan-to-Value
DER          Division of Enterprise Regulation
                                                                   MBS          Mortgage-backed Securities
DOL          U. S. Department of Labor
                                                                   MHA          Making Homes Affordable (Program)
DSPS         Division of Supervision Policy and Support
                                                                   MRA          Matter Requiring Attention
ECIC         Executive Committee on Internal Controls
                                                                   MSA          Metropolitan Statistical Area
EESA         Emergency Economic Stabilization Act of 2008
                                                                   MSR          Mortgage Servicing Rights




                                                                                                                                       APPENDIX
EIC          Examiner in Charge
                                                                   MWOBs        Minority-and-Women-Owned Businesses
EVS          Employee Viewpoint Survey
                                                                   OMB          Office of Management and Budget
Fannie Mae Federal National Mortgage Association
                                                                   OF           Office of Finance
FASAB        Federal Accounting Standards Advisory board
                                                                   OFHEO        Office of Federal Housing Enterprise Oversight
FBWT         Fund Balance with Treasury
                                                                   OIG          Office of Inspector General
FECA         Federal Employees Compensation Act
                                                                   OPM          Office of Personnel Management
FEVS         Federal Employee Viewpoint Survey
                                                                   PACE         Property Assessed Clean Energy
FHA          Federal Housing Administration
                                                                   PCA          Prompt Corrective Action
FHFA         Federal Housing Finance Agency
                                                                   PCS          Permanent Change of Station
FHFB         Federal Housing Finance Board
                                                                   PLMBS        Private-label Mortgage-backed securities
FHLBank      Federal Home Loan Bank
                                                                   POA&Ms       Plan of Action and Milestones
FICO         Fair Isaac Corporation
                                                                   PRISM        Procurement Request Information System
FinSOB       Financial Stability Oversight Board
                                                                                Management
FISMA        Financial Information Security Management Act
                                                                   PSPA (s)     Preferred Stock Purchase Agreement
FMFIA        Federal Managers Financial Integrity Act of 1982
                                                                   REO          Real Estate-Owned
FMS          Federal Management System
                                                                   RFI          Request for Information
FOIA         Freedom of Information Act
                                                                   ROE          Reports of Examination
Freddie      Federal Home Loan Mortgage Corporation
                                                                   SA&A         Security Assessment & Authorization
Mac
                                                                   SAI          Service Alignment Initiative
FSOC         Financial Stability Oversight Council
                                                                   SBR          Statement of Budgetary Resources
FTE          Full-Time Equivalent
                                                                   SIFI         Strategically Important Financial Institutions
FY           Fiscal Year
                                                                   SIFMU        Strategically Important Financial Market Utilities
GAAP         Generally Accepted Accounting Principles
                                                                   SPSPA        Senior Preferred Stock Purchase Agreement
GAO          U.S. Government Accountability Office
                                                                   TARP         Troubled Asset Relief Program
Ginnie Mae Government National Mortgage Association
                                                                   TSP          Thrift Savings Plan
GSE          Government-Sponsored Enterprise
                                                                   UPB          Unpaid Principal Balance
HAMP         Home Affordable Modification Program




                                                                Building an Infrastructure for the Secondary Mortgage Market         119
      Index of Figures and Features

      FIGURES
      Figure 1. Actual Dollars for FY 2010–2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
      Figure 2. Actual Full-Time Equivalents for FY 2010–2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
      Figure 3. FHFA Employees (by specialized areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
      Figure 4. FHFA Principal Organization Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
      Figure 5. FHFA Oversight of Fannie Mae and Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
      Figure 6. Enterprise’s Market Share-MBS Issuance Volume  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
      Figure 7. Total Assets of the FHLBanks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
      Figure 8. FHFA’s Oversight Role – FHLBanks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
      Figure 9. Number of FHLBank Members and Percent of Members that Borrow  . . . . . . . . . . . . . . . . . . . . . . . . . 18
      Figure 10. Federal Home Loan Bank Districts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
      Figure 11. HARP Refinances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
      Figure 11a. Monthly HARP Volume by LTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
      Figure 12. FY 2012 Performance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
      Figure 13. Status of Performance Measures Unmet  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
      Figure 14. Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
      Figure 15. Total Net (Income from)/Cost of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
      Figure 16. Statement of Changes in Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
      Figure 17. Statement of Budgetary Resources Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
      Figure 18. FHFA Goal Hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
      Figure 19. FHFA’s Performance Management Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
      Figure 20. FY 2012 Performance Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52


      PHOTO CREDITS
      Photos appearing in the text were taken in-house.




       Acknowledgements

       This Performance and Accountability Report was produced through the energies and talents
       of the FHFA staff. To them we offer our sincerest thanks and acknowledgement.

       We would also like to acknowledge the U.S. Government Accountability Office for the professional
       manner in which they conducted the audit of FHFA’s FY 2012 Financial Statements.




120   Federal Housing Finance Agency                       |   2012 Performance and Accountability Report
Key Management Officials

Edward J. DeMarco                                       Jeffrey Spohn
  Acting Director, Deputy Director of                      Senior Associate Director, Office of
  Housing, Mission and Goals                               Conservatorship Operations

Richard Hornsby                                         Denise Dunckel
   Chief Operating Officer                                Senior Associate Director, Office of
                                                          Congressional Affairs and Communications
Alfred Pollard
    General Counsel                                     Mark Kinsey
                                                          Chief Financial Officer
Jon Greenlee
   Deputy Director, Division of Enterprise Regulation   Kevin Winkler
                                                          Chief Information Officer
Stephen Cross
   Deputy Director, Division of Federal                 Lee Bowman
   Home Loan Bank Regulation                               Associate Director, Office of Minority
                                                           and Women Inclusion
Wanda DeLeo
  Deputy Director, Office of Strategic Initiatives      Michael Powers
                                                           Ombudsman
Fred Graham
   Acting Deputy Director, Division of                  Steve Linick
   Supervision Policy and Support                          Inspector General




   FHFA OVERSIGHT BOARD                                    CONTACT INFORMATION

   Edward J. DeMarco                                       We welcome your comments on how we
     Chairman                                              can improve our report. Please provide
                                                           comments or questions to:
   Timothy F. Geithner
      Secretary of the Treasury                            Toni R. Harris
                                                           Performance Improvement Officer
   Shaun Donovan
      Secretary of Housing and                             202-649.3800
      Urban Development                                    FHFAinfo@fhfa.gov

   Mary L. Schapiro                                        The report can be accessed on the World
     Chairperson, Securities and                           Wide Web at:
     Exchange Commission
                                                           www.fhfa.gov
FHLB Atlanta . FHLB Boston     . FHLBFINANCE
                         FEDERAL HOUSING      ChicagoAGENCY
                                                            . FHLB Cincinnati . FHLB
Dallas . FHLB Des Moines . Fannie      Mae
                                 400 7th         . Freddie Mac . FHLB Indianapoli
                                         Street, SW

 FHLB New York . FHLBanks . FHLB              Pittsburgh . FHLB San Francisco
                                Washington, DC 20024
                                   202.649.3800

FHLB Seattle . FHLB Topeka . FHLB        atlanta . FHLB Boston . FHLB Chicag
                                  www.fhfa.gov

 FHLB Cincinnati . FHLB Dallas . FHLB Des Moines . Fannie Mae . Freddi
Mac . FHLB Indianapolis . FHLB New York . FHLBanks . FHLB Pittsburg
  FHLB San Francisco . FHLB Seattle . FHLB Topeka . FHLB Atlanta
FHLB Boston . FHLB Chicago . FHLB Cincinnati . FHLB Dallas . FHLB De
Moines . Fannie Mae . Freddie Mac . FHLB Indianapolis . FHLB New York
FHLBanks . FHLB Pittsburgh . FHLB San Francisco . FHLB Seattle . FHLB
Topeka
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