Issue I)ate /audit\ /report \ November 7. 200$ udit Case \umber 2009-FO-0002 I TO: Brian D. Montgomery, Assistant Secretary for HousingFederal Housing Commissioner, II FROM: Thnas R. McEnanly, ector, Financial Audits Division, GAF SUBJECT: Audit of the Federal I-lousing Administration’s Financial Statements for Fiscal Years 2008 and 2007 In accordance with the Government Corporation Control Act as amended (3 1 U.S.C. 9105). the Office of Inspector General engaged the independent certified public accounting firm of Urbach Kahn and Werlin LLP (UKW) to audit the fiscal sear 2008 and 2007 financial statements of the Federal Housing Administration (FHA). The contract required that the audit be performed according to generally accepted government auditing standards (GAGAS). UKW is responsible for the attached auditor’s report dated October 30. 2008 and the conclusions expressed in the report. Accordingly, we do not express an opinion on FHA’s financial statements or conclusions on FHA’s internal controls or compliance with laws, regulations and government-wide policies. Within 30 days of this report. UKW expects to issue a separate letter to management dated October 30. 2008 regarding other matters that came to its attention during the audit. This report includes both the Independent Auditor’s Report and FHAs principal financial statements. Under Federal Accounting Standards Advisory Board (FASAB) standards. a general- purpose federal financial report should include, as required supplementary information (RSI). a section devoted to Management’s Discussion and Analysis (MD&A). The MD&A is not included with this report. FHA plans to separately publish an annual report for fiscal year 2008 that conforms to FASAB standards. The report contains one significant deficiency in FHA’s internal controls and two reportable instances of noncompliance with laws and regulations. The report contains six new recommendations. As part of the audit resolution process. we will record six new recommendation(s) in the I)epartment’s Audit Resolution and Corrective Action Tracking System (ARCATS). We will also endeavor to work with FHA to reach a mutually’ acceptable management decision prior to the mandated deadline. Ihe proposed management decision and corrective action plan will be rev ievved and evaluated by UKW with concurrence from the 01G. We appreciate the courtesies and cooperation extended to the UKW and OIG audit staffs during the conduct of the audit. (THIS PAGE LEFT BLANK INTENTIONALLY) _____________________________________________________________________________________ 2009-FO-0002 Table of Contents OIG Transmittal Memorandum........................................................................................1 Independent Auditor’s Report ..........................................................................................5 Appendix A – Significant Deficiency................................................................ 11 Appendix B – Management's Response ........................................................... 15 Appendix C – UKW’s Assessment of Management's Response .................... 17 Appendix D – Status of Prior Year Findings and Recommendations ............. 18 Principal Financial Statements ...................................................................................... 21 Consolidated Balance Sheets ............................................................................. 23 Consolidated Statements of Net Cost ................................................................ 24 Consolidated Statements of Changes in Net Position ....................................... 25 Combined Statement of Budgetary Resources .................................................. 26 Notes to the Financial Statements ...................................................................... 28 Required Supplementary Information ............................................................... 67 3 _____________________________________________________________________________________ 2009-FO-0002 (THIS PAGE LEFT BLANK INTENTIONALLY) 4 _____________________________________________________________________________________ 2009-FO-0002 INDEPENDENT AUDITOR’S REPORT Inspector General United States Department of Housing and Urban Development Commissioner Federal Housing Administration We have audited the accompanying consolidated balance sheets of the Federal Housing Administration (FHA), a wholly owned government corporation within the United States Department of Housing and Urban Development (HUD), as of September 30, 2008 and 2007, and the related consolidated statements of net cost, changes in net position, and the combined statements of budgetary resources (Principal Financial Statements) for the years then ended. Summary We concluded that FHA’s Principal Financial Statements are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our consideration of internal control over financial reporting resulted in the following matter being identified as a significant deficiency: x FHA needs to continue its efforts to modernize and enhance its information systems We found two reportable instances of noncompliance with laws and regulations. This report (including Appendices A through D) discusses: (1) these conclusions and our conclusions relating to supplemental information presented in the Annual Management Report, (2) management’s responsibilities, (3) our objectives, scope and methodology, (4) management’s response and our evaluation of their response, and (5) the current status of prior year findings and recommendations. Opinion on the Principal Financial Statements In our opinion, the Principal Financial Statements referred to above present fairly, in all material respects, the financial position of FHA as of September 30, 2008 and 2007, and its net cost, changes in net position, and combined budgetary resources for the years then ended, in conformity with accounting principles generally accepted in the United States of America. 5 _____________________________________________________________________________________ 2009-FO-0002 INDEPENDENT AUDITOR’S REPORT, CONTINUED The Cranston-Gonzales National Affordable Housing Act of 1990 required that FHA’s Mutual Mortgage Insurance Fund maintain a capital ratio of at least 2.0 percent, which is determined based on a statutorily-defined formula relating net assets (or economic value) as a percentage of insurance-in-force. As reported by management in Note 6 to the Principal Financial Statements, an independent actuarial study found that the capital ratio has dropped from 6.4 percent in fiscal year 2007 to 3.0 percent at the end of fiscal year 2008. This study used independent macroeconomic forecast data as of June 2008 as well as certain management assumptions to estimate the economic value of endorsements for each of the next seven years. Based on these assumptions, the study projects the capital ratio will decline slightly through fiscal year 2011, but remain slightly above 2.0 percent, and begin to increase through fiscal year 2015. These projections are profoundly sensitive to macroeconomic data forecasts and several alternative projections using more pessimistic assumptions, including higher loss rates of foreclosed properties and the continued use of seller-assisted down payment loans, show the capital ratio dropping below 2.0 percent in future years. The dramatic deterioration in the macroeconomic environment during the third quarter of 2008 may result in this study overstating the projected capital ratio of the fund. Consideration of Internal Control In planning and performing our audits, we considered FHA’s internal control over financial reporting and compliance (internal control) as a basis for designing our audit procedures that are appropriate in the circumstances and to comply with Office of Management and Budget (OMB) audit guidance, but not for the purpose of expressing an opinion on the effectiveness of FHA’s internal control. Accordingly, we do not express an opinion on FHA’s internal control. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency in internal control, or a combination of deficiencies, that adversely affects FHA’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of FHA’s Principal Financial Statements that is more than inconsequential will not be prevented or detected by FHA’s internal control. We noted one matter, summarized below and more fully described in Appendix A, involving the internal control and its operation that we consider to be a significant deficiency: FHA needs to continue to modernize and enhance its information systems FHA continues to make progress improving its overall financial system control environment despite limited systems resources. Efforts to implement newly legislated HUD and FHA programs have increased the demand on these resources. This may further reduce FHA’s ability to address various system initiatives and control deficiencies affecting the reliability of FHA’s financial information. We recommend FHA management work with the HUD Secretary and the Chief Information Officer to conduct a risk assessment of the various systems initiatives in connection with the Office of the Chief 6 _____________________________________________________________________________________ 2009-FO-0002 INDEPENDENT AUDITOR’S REPORT, CONTINUED Information Officer Strategic Plan and ensure HUD information technology resources are appropriately allocated to address the Department’s and FHA’s highest system priorities. Additional detail and the related recommendations for this finding are provided in Appendix A of this report. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control. However, we believe that the significant deficiency described above is not a material weakness. Our consideration of internal control was for the limited purpose described in the first paragraph above and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. Compliance with Laws and Regulations The results of our tests of compliance with laws, regulations and government-wide policies disclosed two instances of noncompliance that are required to be reported under Government Auditing Standards and OMB Bulletin No. 07-04, Audit Requirements for Federal Financial Statements, as amended, as described below. Providing an opinion on compliance with laws and regulations was not an objective of our audit and, accordingly, we do not express such an opinion. Due to deficiencies in the interface with the Generic Debt subsystem, the FHA’s core financial management system does not maintain accurate trial balance account information at the cohort level for the financing accounts. Accordingly, FHA may not be able to accurately calculate the reestimated cost “for a group of direct loans or loan guarantees for a given credit program made in a fiscal year” in accordance with the requirements of Statement of Federal Financial Accounting Standard No 2, Accounting for Direct Loans and Loan Guarantees and the Federal Credit Reform Act of 1990. These balances are adjusted manually at the end of the year. The HUD Office of the Chief Financial Officer (OCFO) is responsible for investigating and reporting on violations of the Anti-Deficiency Act. The OCFO determined an Anti-Deficiency Act violation occurred associated with the commitment limitation for FHA's General Insurance/Special Risk Fund programs for fiscal year 2003, but has not formally reported this matter to the President and Congress of the United States and the Government Accountability Office (GAO) as required by OMB Circular A-11, Preparation, Submission and Execution of the Budget, Section 435 and 31 U.S.C. 1351 and 1517(b). Other potential violations are still under review by the OCFO. No final legal determination regarding these other potential compliance matters has been made. 7 _____________________________________________________________________________________ 2009-FO-0002 INDEPENDENT AUDITOR’S REPORT, CONTINUED Supplementary Information The information in the Management’s Discussion and Analysis and Required Supplementary Information sections is not a required part of the Principal Financial Statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Management Responsibilities Management is responsible for the information in the Annual Management Report, including the preparation of: (1) the Principal Financial Statements in conformity with accounting principles generally accepted in the United States of America, (2) Management’s Discussion and Analysis (including the performance measures), and (3) Required Supplementary Information. Management is also responsible for establishing, maintaining and assessing internal control to provide reasonable assurance that the broad control objectives of the Federal Managers Financial Integrity Act of 1982 (FMFIA) are met, ensuring that FHA’s financial management systems substantially comply with the Federal Financial Management Improvement Act of 1996 (FFMIA) and complying with applicable laws, regulations and government-wide policies. Objectives, Scope and Methodology Our responsibility is to express an opinion on FHA’s Principal Financial Statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and OMB Bulletin No. 07-04, as amended. Those standards and OMB Bulletin No. 07-04 require that we plan and perform the audit to obtain reasonable assurance about whether the Principal Financial Statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In planning and performing our audits, we also obtained an understanding of FHA and its operations, including it’s internal control over financial reporting (including safeguarding of assets) and compliance with laws, regulations and government-polices (including execution of transactions in accordance with budget authority), determined whether these internal controls had been placed in operation, assessed control risk, and performed tests of controls in order to evaluate and report on internal control and determine our auditing procedures for the purpose of expressing our opinion on the financial statements. We limited our internal control testing to those controls necessary to achieve the objectives described in OMB Bulletin No. 07-04 and Government Auditing Standards, which include ensuring: 8 _____________________________________________________________________________________ 2009-FO-0002 INDEPENDENT AUDITOR’S REPORT, CONTINUED x Transactions are properly recorded, processed, and summarized to permit the preparation of financial statements in conformity with U.S. generally accepted accounting principles, and assets are safeguarded against loss from unauthorized acquisition, use, or disposition. x Transactions are executed in accordance with (1) laws governing the use of budget authority, (2) other laws and regulations that could have a direct and material effect on the financial statements, and (3) any other laws, regulations, and government-wide policies identified by OMB audit guidance. We did not test all internal controls relevant to operating objectives as broadly defined by FMFIA, such as those controls relevant to preparing statistical reports and ensuring efficient operations. Because of inherent limitations in internal control, misstatements due to error or fraud may nevertheless occur and not be detected. We also caution that projecting our evaluation to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with controls may deteriorate. We are also responsible for testing compliance with selected provisions of laws, regulations and government-wide policies that have a direct and material effect on the financial statements. We limited our tests of compliance to those laws and regulations required by OMB audit guidance that we deemed applicable to the financial statements for the fiscal year ended September 30, 2008. Compliance with FFMIA will be reported on by the HUD Office of Inspector General (OIG) in connection with their audit of the consolidated financial statements of HUD. We limited our tests of compliance to the provisions described above and we did not test compliance with all laws and regulations applicable to FHA. We caution that noncompliance may occur and not be detected by these tests and that such testing may not be sufficient for other purposes. FHA Comments and Our Evaluation FHA management generally concurred with our findings and recommendations. The full text of FHA management’s response is included in Appendix B. We did not perform audit procedures on FHA management’s written response and accordingly, we express no opinion on it. Our assessment of FHA management’s response is included in Appendix C. The current status of prior year findings and recommendations is included in Appendix D. We also noted other less significant matters involving FHA’s internal control and its operation, which we have reported to the management of FHA in a separate letter, dated October 30, 2008. 9 _____________________________________________________________________________________ 2009-FO-0002 INDEPENDENT AUDITOR’S REPORT, CONTINUED Distribution This report is intended solely for the information and use of the HUD OIG, the management of HUD and FHA, OMB, GAO and the Congress of the United States, and is not intended to be and should not be used by anyone other than these specified parties. Arlington, Virginia October 30, 2008 10 _____________________________________________________________________________________ 2009-FO-0002 Appendix A Significant Deficiency In our report dated October 30, 2008, we described the results of our audits of the consolidated balance sheets of the Federal Housing Administration (FHA), a wholly owned government corporation within the United States Department of Housing and Urban Development (HUD), as of September 30, 2008 and 2007, and the related consolidated statements of net cost, changes in net position, and the combined statements of budgetary resources (Principal Financial Statements) for the years then ended. The objective of our audits was to express an opinion on these financial statements. In connection with our audits, we also considered FHA’s internal control over financial reporting and tested FHA’s compliance with certain provisions of applicable laws and regulations that could have a direct and material effect on its financial statements. The following presents additional detail on the internal control matters discussed in that report. 1. FHA needs to continue to enhance and modernize its information systems FHA continues to make progress improving its overall financial system control environment despite limited systems resources. During fiscal year (FY) 2008, we noted several key improvements to FHA’s overall systems general control environment, including (a) reductions in the number of system security vulnerabilities, (b) progress in implementing a new user access management system, (c) a new automated interface between FHA’s reverse mortgage notes management system and the core financial management system, and (d) improved security controls at the single family property management contractors. These improvements were implemented with FHA’s historically limited resources for IT systems maintenance and development. Our audit and several audits by the Office of Inspector General (OIG) continue to identify systems control deficiencies that need to be addressed. However, recent efforts to implement newly legislated FHA programs have increased the demand on these limited resources. Although FHA received new funding in FY2008 for these new programs, management focus on these new initiatives may further reduce FHA’s capacity to simultaneously address other system modernization initiatives and control deficiencies thereby affecting the reliability and completeness of FHA’s financial information. FHA manages its program operations through a complex set of Multifamily and Single Family business systems that provide data to the core financial management system (FHA Subsidiary Ledger or FHASL) through automated interfaces. After the implementation of FHASL in 2003, FHA’s Enterprise Architecture Plan anticipated than many of these business systems would be replaced by components of FHASL. Several of these system replacements have been delayed due to resource constraints. FHA currently maintains four Multifamily and 11 Single Family systems that are administered separately from FHASL. 11 _____________________________________________________________________________________ 2009-FO-0002 Appendix A Significant Deficiency, Continued Multifamily Systems Two of these business systems to be replaced are FHA’s two primary Multifamily insurance systems. The new systems were scheduled to be operational on October 1, 2008, but as of the date of this report they were still going through user acceptance testing. The implementation date was revised to November 11, 2008. Preliminary test results indicated anomalies in the transaction processing and missing system functionality. The FHA Comptroller has indicated that these anomalies have been corrected. Because these systems are being developed as modules of FHASL, FHA will conduct a re-accreditation of FHASL in November 2008. Funding for the systems implementation contract expires on December 31, 2008. Single Family Systems In an audit conducted by the OIG, other system general control weaknesses were noted as follows: x Only 3 of 24 HUD employees or contractors with access to the Single Family Claims system had complete and proper background investigations. x Two users of the Single Family Claims system had unauthorized access rights to read, write and update records. x Five contract developers had update access to Single Family Claims production data files. x FHA neither had adequate controls over, nor reviews of, audit logs for the Single Family Claims system. x FHA did not develop or implement adequate security controls over information transmitted between FHA and its numerous lenders and other business partners. x FHA failed to adequately assess its compliance with mandatory system security controls. x FHA did not properly ensure annual security reviews were completed by HUD employees. Detailed findings and specific recommendations can be found in a separate OIG audit report.1 HECM Systems As noted in our prior year Independent Auditor’s Report, the FHA continues to use a manual business process for handling applications for claim benefits for the FHA’s Home Equity Conversion Mortgage (HECM) program. FHA has conducted an accounting risk assessment to identify short and long term deficiencies in this process, but will continue to rely on significant review and reconciliation procedures as compensating controls until a replacement system solution can be procured and implemented. 1 Audit Report No. 2008-DP-0004 Review of Selected FHA Major Applications’ Information Security Controls 12 _____________________________________________________________________________________ 2009-FO-0002 Appendix A Significant Deficiency, Continued An independent examination, conducted in accordance with AICPA Statement on Auditing Standards (SAS) No. 70, Audits of Service Organizations, Type I, Control Design, of the HECM notes servicing system identified over thirty specific system control deficiencies, including: x Lack of formal approval for critical system security documents x Weaknesses with system access policies and physical access control monitoring x Inadequate system baseline documentation x Lack of formal authorization procedures for system software changes x Segregation of duties weaknesses x Deficiencies in the Continuity of Operations Plan Management has planned to conduct a SAS No. 70 Type II examination, which will test the operation of the controls over the HECM notes servicing system during FY2009. Other Systems We also found that due to deficiencies in the Generic Debt subsystem interface, FHA is unable to maintain reliable cohort level data for the financing accounts within its (FHASL) general ledger system as required by the Credit Reform Act of 1990. In addition to the efforts to address these deficiencies, the FHA’s Systems Division is currently responsible for a number of other major IT related projects, including: x Implementing systems to handle the newly legislated Hope for Homeowners program for risk-sharing of single family loans insured that became effective October 1, 2008. x Procurement and implementation of a new integrated insured reverse mortgage loan and notes servicing system. x Implementing the new Real Estate Owned property management system at the various Single Family Marketing and Management (M&M) contractor sites. This system will be interfaced with the SAMS legacy application system. Managing such critical system initiatives simultaneously and without sufficient funding or staff resources may increase the risk of system or processing errors in the agency’s financial data, or increase the risk of unauthorized access into critical or sensitive agency systems. Such errors or unauthorized access could lead to misstatements in financial reporting or misappropriation of FHA assets. Recommendations We recommend: 1a. The FHA Commissioner, Assistant Secretary for Housing, coordinate with the HUD Secretary and the HUD CIO to conduct a risk assessment of the various systems initiatives and required corrective actions in connection with the OCIO Strategic Plan and document how HUD’s/FHA’s IT resources will be appropriately allocated in fiscal year 2009 to address the Department’s and FHA’s highest system priorities. (New) 13 _____________________________________________________________________________________ 2009-FO-0002 Appendix A Significant Deficiency, Continued 1b. The FHA Comptroller document the revised Multifamily business processes, identify and assess key internal controls and perform tests of those controls commensurate with the inherent risk for a new system in conjunction with the agency’s OMB Circular No. A-123 Management Control Program and ensure the system’s compliance with OMB Circular No. A-130, Management of Federal Information Resources. (New) 1c. The FHA Comptroller develop an automated process for HECM claims and establish an automated interface with FHASL and ensure such interfaces are included in the overall system functional requirements document. (Repeat) 1d. The FHA Comptroller should ensure the identified deficiencies in the controls over the HECM notes servicing system are corrected before proceeding with the Type II review. (New) 1e. The FHA Comptroller should ensure the control testing of the HECM notes system to be performed under AICPA SAS No. 70, Type II is expanded to test for compliance with systems requirements unique to the federal government. (New) 1f. The FHA Comptroller should ensure that any HECM system replacement is initiated in accordance with HUD system development life cycle guidelines and established program timelines. (New) 1g. The FHA Comptroller should work with OCIO to correct the Generic Debt system interfaces to ensure FHASL properly balances the financing accounts at the cohort level. (New) 14 _____________________________________________________________________________________ 2009-FO-0002 Appendix B Management’s Response 15 _____________________________________________________________________________________ 2009-FO-0002 Appendix B Management’s Response, Continued 16 _____________________________________________________________________________________ 2009-FO-0002 Appendix C UKW’s Assessment of Management’s Response UKW has obtained and reviewed FHA management’s response to the findings and recommendations made in connection with our audit of FHA’s 2008 Principal Financial Statements, which is included as Appendix B. We did not perform audit procedures on FHA’s written response to the significant deficiency and accordingly, we express no opinion on it. Our assessment of management’s responses is discussed below. Assessment of management’s response to significant deficiency No. 1: As indicated in Appendix B, FHA management concurred with our finding and recommendations, but did not provide specific information regarding planned corrective actions or information needed to assess whether management will be able to effectively implement our recommendations. Assessment of management’s response to noncompliance with laws and regulations: We concur that FHA’s core financial management system is properly designed to account for credit reform transactions at the cohort level and that the transactions derived from the Generic Debt subsystem are generally not material to the financial statements as a whole. However, qualitative, rather than quantitative, factors are considered when assessing reportable matters regarding an agency’s compliance with laws and regulations. We believe SFFAS No. 2 and OMB Circular A-11, Preparation, Submission and Execution of the Budget, which represent government-wide policies designed to properly and effectively implement the requirements of the Credit Reform Act of 1990, explicitly outline the requirements for the use of cohorts to account for financing account transactions. Federal system guidelines are designed to ensure that agencies comply with accounting standards “at the transaction level”. This system deficiency affects the ability of FHA to perform reconciliations to ensure that all of its other accounting transactions are being recorded to the proper cohorts and resulting reestimates may not accurately present the interest costs or technical reestimate costs arising from changes in the program’s performance for a given cohort. Accordingly, we believe we have properly classified this as reportable noncompliance. 17 _____________________________________________________________________________________ 2009-FO-0002 Appendix D Status of Prior Year Findings and Recommendations Our assessment of the current status of reportable conditions and material weaknesses identified in prior year audits is presented below: Prior Finding/Recommendation Type Fiscal Year 2008 Status 1. We recommend the FHA Comptroller: a. Coordinate with the Acting Deputy 2007 Material Resolved. Assistant Secretary for Single Family Weakness Housing to compile and document a comprehensive program risk assessment of the HECM program based on anticipated program volume, and activity. b. Coordinate with HUD’s Acting Chief 2007 Material Not yet completed. Information Officer and the Acting Deputy Weakness FHA has developed a Assistant Secretary for Single Family solicitation Statement Housing to establish a comprehensive of Work but no system functional requirements document Functional in accordance with HUD guidance for the Requirements new HECM system based on anticipated Document. future volumes of transactions. c. Coordinate with HUD’s Acting Chief 2007 Material Resolved. Information Officer to complete a full Weakness assessment of the Privacy Act requirements for the HECM notes database and its contractor. d. Complete a full assessment of the 2007 Material Partially resolved. effectiveness of the existing controls Weakness Management was able (including an Independent Type II review to complete a Type I of the service provider under AICPA SAS 70 review and Statement on Auditing Standards No. 70, plans to complete a Service Organizations) over the notes Type II review in database given the sensitivity of the data FY2009. See 2008 and the anticipated growth in reported Significant Deficiency. assigned note balances and transactions. e. Develop and implement automated 2007 Material Partially resolved. A system interfaces between the current Weakness system interface HECM claims and notes systems and between the HECM FHASL, if the new system(s) cannot be notes system and implemented timely. FHASL implemented in 2008. See 2008 Significant Deficiency. 18 _____________________________________________________________________________________ 2009-FO-0002 Appendix D Status of Prior Year Findings and Recommendations, Cont’d Prior Finding/Recommendation Type Fiscal Year 2008 Status 2. We recommend the Deputy Assistant Secretary for Finance and Budget request the Director of the Office of Evaluation to: a. Enhance its documentation on how 2007 Material Resolved. specific assignment and termination rates Weakness are calculated and how macroeconomic projections are incorporated b. Document the results of the current 2007 Material Resolved. pricing and termination model reviews Weakness and their effect on the methodology for calculating future cash flow reestimates c. Document any impact on the FY2007 2007 Material Resolved. HECM liability reestimate as a result of Weakness changes in the methodologies for calculating future cash flow estimates d. Document FHA’s conclusion on how 2007 Material Resolved. recent HUD studies on HECM Weakness experience can be used to improve the calculation of the model’s calculated assumptions e. Establish new validation review 2007 Material Resolved. procedures to compare the actual Weakness premium collections and post-assignment terminations to the balances in the model f. Document the use OMB approved CSC2 2007 Material Resolved. calculator in the model Weakness g. Ensure the propriety of the discounting 2007 Material Resolved. algorithm used in next year’s model Weakness h. Reevaluate the assumption for 2007 Material Resolved. calculating note recoveries to better Weakness reflect the “crossover risk” in the recovery cash flows 19 _____________________________________________________________________________________ 2009-FO-0002 Appendix D Status of Prior Year Findings and Recommendations, Cont’d Prior Finding/Recommendation Type Fiscal Year 2008 Status 2. We recommend the Deputy Assistant Secretary for Finance and Budget request the Director of the Office of Evaluation to: i. Incorporate the use of disbursements into 2007 Material Resolved. the calculation of the credit subsidy rate Weakness j. Incorporate sensitivity analysis variables 2007 Material Resolved. directly within the cash flow model and Weakness document management’s assessment of the results of the sensitivity analysis. k. Develop a more formal process for 2007 Material Resolved. documenting management’s conclusions Weakness regarding required model modifications as a result of the annual validation process. 20 _____________________________________________________________________________________ 2009-FO-0002 PRINCIPAL FINANCIAL STATEMENTS 21 _____________________________________________________________________________________ 2009-FO-0002 (THIS PAGE LEFT BLANK INTENTIONALLY) 22 _____________________________________________________________________________________ 2009-FO-0002 FEDERAL HOUSING ADMINISTRATION (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT) CONSOLIDATED BALANCE SHEETS As of Septe mbe r 30, 2008 and 2007 (Dollars in Millions) 2008 2007 ASSETS Intragovernmental Fund Balance with U.S. Treasury (Note 3) $ 12,590 $ 9,559 Investments (Note 4) 19,254 22,481 Other Assets (Note 7) 21 4 Total Intragovernmental 31,865 32,044 Investments (Note 4) 48 121 Accounts Receivable, Net (Note 5) 128 119 Loans Receivable and Related Foreclosed Property, Net (Note 6) 5,506 4,738 Other Assets (Note 7) 134 143 TOTAL ASSETS $ 37,681 $ 37,165 LIABILITIES Intragovernmental Borrowings from U.S. Treasury (Note 9) $ 4,832 $ 4,573 Other Liabilities (Note 10) 1,530 3,657 Total Intragovernmental 6,362 8,230 Accounts Payable (Note 8) 585 385 Loan Guarantee Liability (Note 6) 19,486 7,431 Debentures Issued to Claimants (Note 9) 52 70 Other Liabilities (Note 10) 438 474 TOTAL LIABILITIES 26,923 16,590 NET POSITION Unexpended Appropriations (Note 16) 411 544 Cumulative Results of Operations 10,347 20,031 TOTAL NET POSITION 10,758 20,575 TOTAL LIABILITIES AND NET POSITION $ 37,681 $ 37,165 The accompanying notes are an integral part of these statements. 23 _____________________________________________________________________________________ 2009-FO-0002 FEDERAL HOUSING ADMINISTRATION (AN AG ENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT) CONSOLIDATED STATEMENTS OF NET COST As of September 30, 2008 and 2007 (Dol lars i n Mill ions) 2008 2007 MMI/CMHI PROGRAM COSTS Intragovernmental Gross Costs (Note 12) $ 175 $ 284 Less: Intragovernmental Earned Revenue (Note 13) 1,320 1,299 Intragovernmental Net Costs (1,145) (1,015) Gross Costs with the Public (Note 12) 9,495 4,700 Less: Earned Revenue from the Public (Note 13) 9 24 Net Costs with the Public 9,486 4,676 NET MMI/CMHI PROG RAM COST (SURPLUS) $ 8,341 $ 3,661 GI/SRI PROGRAM COSTS Intragovernmental Gross Costs (Note 12) $ 138 $ 141 Less: Intragovernmental Earned Revenue (Note 13) 73 107 Intragovernmental Net Costs 65 34 Gross Costs with the Public (Note 12) 1,569 (1,235) Less: Earned Revenue from the Public (Note 13) 68 91 Net Costs with the Public 1,501 (1,326) NET G I/SRI PROG RAM COST (SURPLUS) 1,566 (1,292) NET COST (SURPLUS) OF OPERATIONS $ 9,907 $ 2,369 The accompanying notes are an integral part of these statements. 24 _____________________________________________________________________________________ 2009-FO-0002 FEDERAL HOUSING ADMINISTRATION (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT) CONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION As of September 30, 2008 and 2007 (Dollars in Millions) 2008 2008 2007 2007 Cumulative Cumulative Results of Unexpended Results of Unexpended Operations Appropriations Operations Appropriations BEG INNING BALANCES $ 20,031 $ 544 $ 23,405 $ 594 BUDGETARY FINANCING SOURCES Appropriations Received (Note 16) - 627 - 1,252 Other Adjustments (Note 16) - (49) 2 (119) Appropriations Used (Note 16) 435 (435) 415 (415) Transfers-Out (Note 15 and Note 16) (613) (276) (1,014) (768) OTHER FINANCING SOURCES Transfers In/Out (Note 15) 387 - (445) - Imputed Financing (Note 12) 14 - 37 - TOTAL FINANCING SOURCES 223 (133) (1,005) (50) NET (COST) SURPLUS OF OPERATIONS (9,907) - (2,369) - ENDING BALANCES $ 10,347 $ 411 $ 20,031 $ 544 The accompanying notes are an integral part of these statements. 25 _____________________________________________________________________________________ 2009-FO-0002 FEDERAL HOUSING ADMINISTRATION (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT) COMBINED STATEMENT OF BUDGETARY RESOURCES As of September 30, 2008 (Dollars in Millions) 2008 2008 2008 Budgetary Non-Budgetary Total BUDGETARY RESOURCES Unobligated Balance, brought forward, October 1 $ 22,843 $ 4,077 $ 26,920 Recoveries of prior year unpaid obligations 72 19 91 Budget Authority: Appropriations 627 - 627 Borrowing authority 3 940 943 Spending authority from offsetting collections (gross): Earned Collected (Note 18) 1,636 14,160 15,796 Change in receivables from Federal sources (25) (42) (67) Change in unfilled customer order w/o advance - - - Nonexpenditure transfers, net (Note 19) (41) - (41) Permanently not available (294) (690) (984) TOTAL BUDGETARY RESOURCES $ 24,821 $ 18,464 $ 43,285 STATUS OF BUDGETARY RESOURCES Obligations incurred, Direct (Note 20) $ 5,274 $ 10,316 $ 15,590 Unobligated balance-Apportioned 365 2,622 2,987 Unobligated balance-Not available 19,182 5,526 24,708 TOTAL STATUS OF BUDGETARY RESOURCES $ 24,821 $ 18,464 $ 43,285 Change in Obligated Balances Obligated balance, net: Unpaid obligations, brought forward, October 1 $ 954 $ 1,342 $ 2,296 Uncollected customer payments from Federal sources, (263) (44) (307) brought forward, October 1 Total, unpaid obligated balance, brought forward, net 691 1,298 1,989 Obligations incurred (Note 20) 5,274 10,316 15,590 Gross outlays (5,293) (10,043) (15,336) Recoveries of prior-year unpaid obligations, actual (72) (19) (91) Change in uncollected customer payments-Federal sources 25 42 67 Total, unpaid obligated balance, net, end of period 625 1,594 2,219 Obligated balance, net, end of period: Unpaid obligations 863 1,596 2,459 Uncollected customer payments from Federal sources (238) (2) (240) Total, unpaid obligated balance, net, end of period 625 1,594 2,219 Net outlays: Gross outlays 5,293 10,043 15,336 Offsetting collections (Note 18) (1,636) (14,160) (15,796) Less: Distributed offsetting receipts 1,511 - 1,511 NET OUTLAYS $ 2,146 $ (4,117) $ (1,971) The accompanying notes are an integral part of these statements. 26 _____________________________________________________________________________________ 2009-FO-0002 FEDERAL HOUSING ADMINISTRATION (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT) COMBINED STATEMENT OF BUDGETARY RESOURCES As of September 30, 2007 (Dollars in Millions) 2007 2007 2007 Budgetary Non-Budgetary Total BUDGETARY RESOURCES Unobligated Balance, brought forward, October 1 $ 22,390 $ 7,032 $ 29,422 Recoveries of prior year unpaid obligations 89 124 213 Budget Authority: Appropriations 1,252 2 1,254 Borrowing authority 15 602 617 Spending authority from offsetting collections (gross): Earned Collected (Note 18) 2,057 9,104 11,161 Change in receivables from Federal sources 56 42 98 Change in unfilled customer order w/o advance - (4) (4) Nonexpenditure transfers, net (Note 19) (609) - (609) Permanently not available (291) (2,315) (2,606) TOTAL BUDGETARY RESOURCES $ 24,959 $ 14,587 $ 39,546 STATUS OF BUDGETARY RESOURCES Obligations incurred, Direct (Note 20) $ 2,116 $ 10,510 $ 12,626 Unobligated balance-Apportioned 187 993 1,180 Unobligated balance-Not available 22,656 3,084 25,740 TOTAL STATUS OF BUDGETARY RESOURCES $ 24,959 $ 14,587 $ 39,546 Change in Obligated Balances Obligated balance, net: Unpaid obligations, brought forward, October 1 $ 980 $ 1,377 $ 2,357 Uncollected customer payments from Federal sources, (207) (7) (214) brought forward, October 1 Total, unpaid obligated balance, brought forward, net 773 1,370 2,143 Obligations incurred (Note 20) 2,116 10,510 12,626 Gross outlays (2,053) (10,420) (12,473) Recoveries of prior-year unpaid obligations, actual (89) (124) (213) Change in uncollected customer payments-Federal sources (56) (38) (94) Total, unpaid obligated balance, net, end of period 691 1,298 1,989 Obligated balance, net, end of period: Unpaid obligations 954 1,342 2,296 Uncollected customer payments from Federal sources (263) (44) (307) Total, unpaid obligated balance, net, end of period 691 1,298 1,989 Net outlays: Gross outlays 2,053 10,420 12,473 Offsetting collections (Note 18) (2,057) (9,104) (11,161) Less: Distributed offsetting receipts 2,759 - 2,759 NET OUTLAYS $ (2,763) $ 1,316 $ (1,447) The accompanying notes are an integral part of these statements. 27 _____________________________________________________________________________________ 2009-FO-0002 NOTES TO THE FINANCIAL STATEMENTS September 30, 2008 Note 1. Significant Accounting Policies Entity and Mission The Federal Housing Administration (FHA) was established under the National Housing Act of 1934 and became a wholly owned government corporation in 1948 subject to the Government Corporation Control Act, as amended. While FHA was established as a separate Federal entity, it was subsequently merged into the Department of Housing and Urban Development (HUD) when that department was created in 1965. FHA does not maintain a separate staff or facilities; its operations are conducted, along with other Housing activities, by HUD organizations. FHA is headed by HUD's Assistant Secretary for Housing/Federal Housing Commissioner, who reports to the Secretary of HUD. FHA's activities are included in the Housing section of the HUD budget. FHA administers a wide range of activities to make mortgage financing more accessible to the home-buying public and to increase the availability of affordable housing to families and individuals, particularly to the nation's poor and disadvantaged. FHA insures private lenders against loss on mortgages, which finance Single Family homes, Multifamily projects, health care facilities, property improvements, manufactured homes, and reverse mortgages, also referred to as Home Equity Conversion Mortgage (HECM). The objectives of the activities carried out by FHA relate directly to developing affordable housing. FHA categorizes its activities as Single Family including Title 1, Multifamily and HECM. Single Family activities support initial or continued home ownership; Title I activities support manufactured housing and property improvement. Multifamily activities support high-density housing and medical facilities. HECM activities support reverse mortgages which allow homeowners 62 years of age or older to convert the equity in their homes into lump sum or monthly cash payments without having to repay the loan until the loan terminates. FHA organizes its operations into two overall program types – MMI/CMHI and GI/SRI. These program types are comprised of four major funds. The Mutual Mortgage Insurance fund (MMI), FHA's largest fund, provides basic Single Family mortgage insurance and is a mutual insurance fund, whereby mortgagors, upon non-claim termination of their mortgages, share surplus premiums paid into the MMI fund that are not required for operating expenses and losses or to build equity. The Cooperative Management Housing Insurance fund (CMHI), another mutual fund, provides mortgage insurance for management-type cooperatives. The General Insurance fund (GI), provides a large number of specialized mortgage insurance activities, including insurance of loans for property improvements, cooperatives, condominiums, housing for the elderly, land development, group practice medical facilities, nonprofit hospitals, and reverse mortgages. The Special Risk Insurance fund (SRI) provides mortgage insurance on behalf of mortgagors eligible for interest reduction payments who otherwise would not be eligible for mortgage insurance. Effective in fiscal year 2009, the HECM program and Single Family programs currently in the GI fund will move to the MMI fund. The Housing and Economic Recovery Act of 2008 On July 30, 2008 the President signed the Housing and Economic Recovery Act of 2008. This legislation requires FHA to modify existing programs and initiated a new program entitled HOPE for Homeowners (H4H). The H4H program will begin on October 1, 2008; however, preparations for this new program began soon after the legislation was signed. 28 _____________________________________________________________________________________ 2009-FO-0002 Basis of Accounting The principal financial statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to Federal agencies as promulgated by the Federal Accounting Standards Advisory Board (FASAB). The recognition and measurement of budgetary resources and their status for purposes of preparing the Combined Statements of Budgetary Resources (SBR), is based on concepts and guidance provided by Office of Management and Budget (OMB) Circular A-11, Preparation, Submission, and Execution of the Budget. The format of the SBR is based on the SF 133, Report on Budget Execution and Budgetary Resources. Reclassifications In fiscal year 2008, FHA reclassified certain accounts receivable and accounts payable amounts to different financial statement note line items in Note 5 and Note 8, respectively. These changes in classifications have no effect on previously reported financial statements. Basis of Consolidation The accompanying principal financial statements include all Treasury Account Fund Symbols (TAFSs) designated to FHA, which consist of three principal program funds, six revolving funds, two general funds and a deposit fund. All inter-fund accounts receivable, accounts payable, transfers in and transfers out within these TAFSs have been eliminated to prepare the consolidated balance sheets, statements of net cost, and statements of changes in net position. The SBR is prepared on a combined basis as allowed by OMB Circular A-136, Financial Reporting Requirements. Fund Balance with U.S. Treasury Fund balance with U.S. Treasury consists of amounts collected from premiums, interest earned from Treasury, recoveries and appropriations. The balance is available to fund payments for claims, property and operating expenses and of amounts collected but unavailable until authorizing legislation is enacted (see Notes 2 and 3). Investments FHA investments include investments in U.S. Treasury securities, Multifamily risk sharing debentures and investments in private-sector entities where FHA is a member with other parties under the Accelerated Claims Disposition Demonstration program (see Note 4). Under current legislation, FHA invests available MMI/CMHI capital reserve fund resources in excess of its current needs in non-marketable market-based U.S. Treasury securities. These U.S. Treasury securities may not be sold on public securities exchanges, but do reflect prices and interest rates of similar marketable U.S. Treasury securities. Investments are presented at acquisition cost net of the amortized premium or discount. Amortization of the premium or discount is recognized monthly on investments in U.S. Treasury securities using the effective interest rate method. FHA implemented the Accelerated Claims Disposition Demonstration program (the 601 program) to shorten the claim filing process, obtain higher recoveries from its defaulted guaranteed loans, and support the Office of Housing’s mission of keeping homeowners in their home. To achieve these objectives, FHA transfers assigned mortgage notes to private sector entities in exchange for cash and equity interest. With the transfer of assigned mortgage notes under the 601 program, FHA obtains ownership interest in the private-sector entities. To comply with the requirement of Opinion No. 18 issued by the Accounting Principles Board (APB 18), FHA uses the equity method of accounting to measure the value of its investments in these entities. The equity method of accounting 29 _____________________________________________________________________________________ 2009-FO-0002 requires FHA to record its investments in the entities at cost initially. Periodically, the carrying amount of the investments is adjusted for cash distributions to FHA and for FHA’s share of the entities’ earnings or losses. Multifamily Risk Sharing Debentures [Section 542(c)] is a program available to lenders where the lender shares the risk in a property by issuing debentures for claim amount paid by FHA on defaulted insured loans. If FHA’s risk is over 50%, HUD must review and approve the underwriting standards, terms, and conditions of the loan. If the loan defaults FHA pays the lender the initial settlement. On the settlement date the lender issues FHA a debenture for the amount of the settlement at the note rate (determined by the U.S. Treasury) thus sharing the risk in the property. Credit Reform Accounting The Federal Credit Reform Act (FCRA) established the use of program, financing, general fund receipt and capital reserve accounts to separately account for transactions that are not controlled by the Congressional budget process. It also established the liquidating account for activity relating to any loan guarantees committed and direct loans obligated before October 1, 1991 (pre-Credit Reform). These accounts are classified as either budgetary or non- budgetary in the Combined Statements of Budgetary Resources. The budgetary accounts include the program, capital reserve and liquidating accounts. The non-budgetary accounts consist of the credit reform financing accounts. In accordance with the Statement of Federal Financial Accounting Standards (SFFAS) No. 2, Accounting for Direct Loans and Loan Guarantees, the program account receives and obligates appropriations to cover the subsidy cost of a direct loan or loan guarantee and disburses the subsidy cost to the financing account. The program account also receives appropriations for administrative expenses. The financing account is a non-budgetary account that is used to record all of the cash flows resulting from Credit Reform direct loans, assigned loans, loan guarantees and related foreclosed property. It includes loan disbursements, loan repayments and fees, claim payments, recoveries on sold collateral, borrowing from the U.S. Treasury, interest, negative subsidy and the subsidy cost received from the program account. The general fund receipt account is used for the receipt of amounts paid from the GI/SRI financing account when there is negative subsidy from the original estimate or a downward reestimate. The receipt account is a general fund receipt account and amounts are not earmarked for the FHA’s credit programs. They are available for appropriations only in the sense that all general fund receipts are available for appropriations. Any assets in this account are non-entity assets and are offset by intragovernmental liabilities. At the beginning of the following fiscal year, the fund balance in the general fund receipt account is transferred to the U.S. Treasury general fund. Negative subsidy and downward reestimates in the MMI/CMHI fund are transferred to the Capital Reserve account. The liquidating account is a budget account that is used to record all cash flows to and from FHA resulting from pre-Credit Reform direct loans or loan guarantees. Liquidating account collections in any year are available only for obligations incurred during that year or to repay debt. Unobligated balances remaining in the GI and SRI liquidating funds at year-end are transferred to the U.S. Treasury’s general fund. Consequently, in the event that resources in the GI/SRI liquidating account are otherwise insufficient to cover the payments for obligations or commitments, the FCRA provides that the GI/SRI liquidating account can receive permanent indefinite authority to cover any resource shortages. Loans Receivable and Related Foreclosed Property, Net FHA’s loans receivable include mortgage notes assigned (MNA), also described as Secretary-held notes, and purchase money mortgages (PMM). Under the requirements of the FCRA, PMM notes are considered to be direct loans while MNA notes are considered to be defaulted guaranteed loans. The PMM loans are generated from the sales on credit of FHA’s foreclosed properties to qualified non-profit organizations. The MNA notes are created when FHA pays the lenders for claims on defaulted guaranteed loans and takes assignment of the defaulted loans 30 _____________________________________________________________________________________ 2009-FO-0002 for direct collections. In addition, Multifamily and Single Family performing notes insured pursuant to Section 221(g)(4) of the National Housing Act may be assigned automatically to FHA at a pre-determined point. In accordance with the FCRA and SFFAS No. 2, Credit Reform direct loans, defaulted guaranteed loans and related foreclosed property are reported at the net present value of expected cash flows associated with these assets, primarily estimated proceeds less selling and maintenance costs. The difference between the cost of these loans and property and the net present value is called the allowance for subsidy (AFS). Pre-Credit Reform loans receivable and foreclosed property in inventory are recorded at net realizable value, which is based on historical recovery rates net of any selling expenses (see Note 6). Loan Guarantee Liability The net potential future losses related to FHA’s central business of providing mortgage insurance are reflected in the Loan Guarantee Liability in the consolidated balance sheets. As required by SFFAS No. 2, the Loan Guarantee Liability includes the Credit Reform related Liabilities for Loan Guarantees (LLG) and the pre-Credit Reform Loan Loss Reserve (LLR) (see Note 6). The LLG is calculated as the net present value of anticipated cash outflows and cash inflows. Anticipated cash outflows include lender claims arising from borrower defaults, (i.e., claim payments), premium refunds, property costs to maintain foreclosed properties arising from future defaults and selling costs for the properties. Anticipated cash inflows include premium receipts, proceeds from asset sales and principal and interest on Secretary-held notes. FHA records loss estimates for its Single Family LLR (includes MMI and GI/SRI) to provide for anticipated losses incurred (e.g., claims on insured mortgages where defaults have taken place but claims have not yet been filed). Using the net cash flows (cash inflows less cash outflows), FHA computes an estimate based on conditional claim rates and loss experience data, and adjusts the estimate to incorporate management assumptions about current economic factors. FHA records loss estimates for its Multifamily LLR (includes CMHI and GI/SRI) to provide for anticipated outflows less anticipated inflows. Using the net present value of claims less premiums, fees, and recoveries, FHA computes an estimate based on conditional claim rates, prepayment rates, and recovery assumptions based on historical experience. Use of Estimates The preparation of the principal financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Amounts reported for net loans receivable and related foreclosed property and the Loan Guarantee Liability represent FHA’s best estimates based on pertinent information available. To estimate the allowance for subsidy (AFS) associated with loans receivable and related to foreclosed property and the liability for loan guarantees (LLG), FHA uses cash flow model assumptions associated with loan guarantee cases subject to the Federal Credit Reform Act of 1990 (FCRA), as described in Note 6, to estimate the cash flows associated with future loan performance. To make reasonable projections of future loan performance, FHA develops assumptions, as described in Note 6, based on historical data, current and forecasted program and economic assumptions. 31 _____________________________________________________________________________________ 2009-FO-0002 Certain programs have higher risks due to increased chances of fraudulent activities perpetrated against FHA. FHA accounts for these risks through the assumptions used in the liabilities for loan guarantee estimates. FHA develops the assumptions based on historical performance and management's judgments about future loan performance. General Property, Plant and Equipment FHA does not maintain separate facilities. HUD purchases and maintains all property, plant and equipment used by FHA, along with other Office of Housing activities. Current HUD policy concerning SFFAS No. 10, Accounting for Internal Use Software, indicates that HUD will either own the software or the functionality provided by the software in the case of licensed or leased software. This includes “commercial off-the-shelf” (COTS) software, contractor-developed software, and internally developed software. FHA had several procurement actions in place and had incurred expenses for software development. FHA identified and transferred those expenses to HUD to comply with departmental policy. Unearned Premiums Unearned premiums are recognized for pre-Credit Reform loan guarantee premiums collected but not yet earned in the liquidating account. Premiums charged by FHA’s MMI fund include up-front and annual risk-based premiums. Up-front risk-based premiums are recorded as unearned revenue upon collection and are recognized as revenue over the period in which losses and insurance costs are expected to occur. Annual risk-based premiums are recognized as revenue on a straight-line basis throughout the year. FHA's other funds charge periodic insurance premiums over the mortgage insurance term. Premiums on annual installment policies are recognized for the liquidating account on a straight-line basis throughout the year. Premiums associated with Credit Reform loan guarantees are included in the calculation of the LLG and are not included in the unearned premium amounts reported in the consolidated balance sheets. Appropriations FHA receives annual appropriations for Working Capital and Administrative Contract expenses for its MMI/CMHI, GI/SRI, and H4H program activities. Additionally, FHA receives appropriations for GI/SRI positive subsidy, upward reestimates, and permanent indefinite authority to cover any shortage of resources in the liquidating account. The MMI/CMHI fund obtains appropriations for upward reestimates from the Capital Reserve account. Full Cost Reporting SFFAS No. 4, Managerial Cost Accounting Concepts and Standards, requires that Federal agencies report the full cost of program outputs in the financial statements. Full cost reporting includes all direct, indirect, and inter-entity costs. For purposes of HUD’s consolidated financial statements, HUD identifies each responsibility segment’s share of the program costs or resources provided by other Federal agencies. As a responsibility segment of HUD, FHA’s portion of these costs was $14 million for fiscal year 2008 and $19 million for fiscal year 2007, and was included in FHA’s financial statements as an imputed cost in the Consolidated Statements of Net Cost, and an imputed financing in the Consolidated Statements of Changes in Net Position. In a separate effort, FHA conducts time allocation surveys of all Office of Housing operational managers. These surveys determine FHA’s direct personnel costs associated with the Housing Salaries and Expenses (S&E) transfer in from HUD and where to allocate these costs between the MMI/CMHI and GI/SRI programs. The HUD Chief Financial Officer (CFO) office also conducts surveys to determine how the department’s fiscal year overhead, Office of Inspector General, and Working Capital Fund costs should be accounted for by responsibility segments. This data is an integral part of the FHA direct cost S&E allocation prepared for financial statement reporting. 32 _____________________________________________________________________________________ 2009-FO-0002 Distributive Shares As mutual funds, excess revenues in the MMI/CMHI Fund may be distributed to mortgagors at the discretion of the Secretary of HUD. Such distributions are determined based on the funds' financial positions and their projected revenues and costs. No distributive share distributions have been declared from the MMI fund since the enactment of the National Affordable Housing Act (NAHA) in 1990. Liabilities Covered by Budgetary Resources Liabilities of federal agencies are required to be classified as those covered and not covered by budgetary resources, as defined by OMB Circular A-136, and in accordance with SFFAS No. 1, Selected Assets and Liabilities. In the event that available resources are insufficient to cover liabilities due at a point in time, FHA has authority to borrow monies from the U.S. Treasury (for post-1991 loan guarantees) or to draw on permanent indefinite appropriations (for pre-1992 loan guarantees) to satisfy the liabilities. Thus, all of FHA’s liabilities are considered covered by budgetary resources. Statement of Budgetary Resources The Statement of Budgetary Resources has been prepared as a combined statement and as such, intra-entity transactions have not been eliminated. Budget authority is the authorization provided by law to enter into obligations to carry out the guaranteed and direct loan programs and their associated administrative costs, which would result in immediate or future outlays of federal funds. FHA's budgetary resources include current budgetary authority (i.e., appropriations and borrowing authority) and unobligated balances brought forward from multi-year and no-year budget authority received in prior years, and recoveries of prior year obligations. Budgetary resources also include spending authority from offsetting collections credited to an appropriation or fund account. Unobligated balances associated with appropriations that expire at the end of the fiscal year remain available for obligation adjustments, but not for new obligations, until that account is canceled. When accounts are canceled, five years after they expire, amounts are not available for obligations or expenditure for any purpose. FHA funds its programs through borrowings from the U.S. Treasury and debentures issued to the public. These borrowings and debentures are authorized through a permanent indefinite authority at interest rates set each year by the U.S. Treasury and the prevailing market rates. 33 _____________________________________________________________________________________ 2009-FO-0002 Note 2. Non-entity Assets Non-entity assets consist of assets that belong to other entities but are included in FHA’s consolidated balance sheets. To reflect FHA’s net position accurately, these non-entity assets are offset by various liabilities. FHA’s non-entity assets as of September 30, 2008 and 2007 are as follows: (Dollars in Millions) 2008 2007 Intragovernmental: Fund Balance with U.S. Treasury $ 1,551 $ 2,828 Investments in U.S. Treasury Securities 8 5 Total Intragovernmental 1,559 2,833 Other Assets 103 110 Total Non-entity Assets 1,662 2,943 Total Entity Assets 36,019 34,222 Total Assets $ 37,681 $ 37,165 FHA’s non-entity assets consist of FHA’s U.S. Treasury deposit of negative credit subsidy in the GI/SRI general fund receipt account and of escrow monies collected by FHA from the borrowers of its loans. According to the FCRA, FHA transfers negative credit subsidy from new endorsements and downward credit subsidy reestimates from the GI/SRI financing account to the GI/SRI general fund receipt account. At the beginning of each fiscal year, fund balance in the GI/SRI general fund receipt account is transferred into the U.S. Treasury’s general fund. Other assets consisting of escrow monies collected from FHA borrowers are either deposited at the U.S. Treasury or Minority-owned banks or invested in U.S. Treasury securities. Subsequently, FHA disburses these escrow monies to pay for property taxes, property insurance or maintenance expenses on behalf of the borrowers. 34 _____________________________________________________________________________________ 2009-FO-0002 Note 3. Fund Balance with U.S. Treasury FHA’s fund balance with U.S. Treasury was comprised of the following as of September 30, 2008 and 2007: (Dollars in Millions) 2008 2007 Fund Balances: Revolving Funds $ 10,746 $ 6,450 Appropriated Funds 308 321 Other Funds 1,536 2,788 Total $ 12,590 $ 9,559 Status of Fund Balance with U.S. Treasury: Unobligated Balance: Available $ 2,987 $ 1,180 Unavailable 7,144 6,083 Obligated Balance not yet Disbursed 2,459 2,296 Total $ 12,590 $ 9,559 Revolving Funds FHA’s revolving funds include the liquidating and financing accounts as required by the FCRA. These funds are created to finance a continuing cycle of business-like operations in which the fund charges for the sale of products or services. These funds also use the proceeds to finance spending, usually without requirement of annual appropriations. Appropriated Funds FHA’s appropriated funds consist of the program accounts created by the FCRA. Annual or multi-year program accounts expire at the end of the time period specified in the authorizing legislation. For the subsequent five fiscal years after expiration, the resources are available only to liquidate valid obligations incurred during the unexpired period. Adjustments are allowed to increase or decrease valid obligations incurred during the unexpired period that were not previously reported. At the end of the fifth expired year, the annual and multi-year program accounts are cancelled and any remaining resources are returned to the U.S. Treasury. Other Funds FHA’s other funds include the general fund receipt accounts established under the FCRA. Additionally, included with these funds is the capital reserve account that is used to retain the MMI/CMHI negative subsidy and downward credit subsidy reestimates transferred from the financing account. If subsequent upward credit subsidy reestimates are calculated in the financing account or there is shortage of budgetary resources in the liquidating account, the capital reserve account will return the retained negative subsidy to the financing account or transfer the needed funds to the liquidating account, respectively. Status of Fund Balance with U.S. Treasury Unobligated Fund Balance with U.S. Treasury represents Fund Balance with U.S. Treasury that has not been obligated to purchase goods or services either because FHA has not received apportionment authority from OMB to use the resources (unavailable unobligated balance) or because FHA has not obligated the apportioned resources (available unobligated balance). Fund Balance with U.S. Treasury that is obligated, but not yet disbursed, consists of resources that have been obligated for goods or services but not yet disbursed either because the ordered goods or services have not been delivered or because FHA has not yet paid for goods or services received by the end of the fiscal year. 35 _____________________________________________________________________________________ 2009-FO-0002 Note 4. Investments Investment in U.S. Treasury Securities As discussed in Note 1, all FHA investments in Treasury securities are in non-marketable securities issued by the U.S. Treasury. These securities carry market-based interest rates. The market value of these securities is calculated using the bid amount of similar marketable U.S. Treasury securities as of September 30th. The cost, net amortized premium/discount, net investment, and market values of FHA’s investments in U.S. Treasury securities as of September 30, 2008 were as follows: Amortized (Premium)/ Investment, (Dollars in Millions) Cost Discount, Net Ne t Market Value MMI/CMHI Investments $ 18,958 $ 55 $ 19,013 $ 20,214 GI/SRI Investments 8 - 8 8 Subtotal $ 18,966 $ 55 $ 19,021 $ 20,222 MMI/CMHI Accrued Interest - - $ 233 $ 233 Total $ 18,966 $ 55 $ 19,254 $ 20,455 The cost, net amortized premium/discount, net investment, and market values as of September 30, 2007 were as follows: Amortized (Premium)/ Investment, (Dollars in Millions) Cost Discount, Net Ne t Market Value MMI/CMHI Investments $ 22,129 $ 85 $ 22,214 $ 22,667 GI/SRI Investments 5 - 5 5 Subtotal $ 22,134 $ 85 $ 22,219 $ 22,672 MMI/CMHI Accrued Interest - - $ 262 $ 262 Total $ 22,134 $ 85 $ 22,481 $ 22,934 . 36 _____________________________________________________________________________________ 2009-FO-0002 Investments in Private-Sector Entities The following table presents financial data on FHA’s investments in Section 601 and Risk Sharing Debentures as of September 30, 2008 and 2007: Share of Be ginning New Earnings Return of Ending (Dollars in Millions) Balance Acquisitions or Losses Investment Rede emed Balance 601 Program $ 41 $ - $ (4) $ (19) $ - $ 18 Risk Sharing Debentures 80 - - - (50) 30 FY 2008 Total $ 121 $ - $ (4) $ (19) $ (50) $ 48 601 Program $ 98 $ - $ (1) $ (56) $ - $ 41 Risk Sharing Debentures - 80 - - - 80 FY 2007 Total $ 98 $ 80 $ (1) $ (56) $ - $ 121 The fiscal year for the Section 601 Program investments is from December 1 to November 30 for 2008 and a combination of December 1 to November 30 and January 1 to December 31 for 2007. The condensed, audited financial information is as follows: (Dollars in Millions) 2008 2007 Total assets, primarily mortgage loans $ 107 $ 258 Liabilities - 2 Partners’ capital 107 256 Total liabilities and partners’ capital $ 107 $ 258 Revenues 7 78 Expenses (5) (23) Ne t Income $ 2 $ 55 37 _____________________________________________________________________________________ 2009-FO-0002 Note 5. Accounts Receivable, Net Accounts receivable, net, as of September 30, 2008 and 2007 are as follows: Gross Allowance Net (Dollars in Millions) 2008 2007 2008 2007 2008 2007 With the Public: Receivables Related to $ 55 $ 6 $ (3) $ (5) $ 52 $ 1 Credit Program Assets Premiums Receivable 2 5 - - 2 5 Generic Debt Receivables 72 113 - - 72 113 Miscellaneous receivables 2 - - - 2 - Total $ 131 $ 124 $ (3) $ (5) $ 128 $ 119 Receivables Related to Credit Program Assets These receivables include asset sale proceeds receivable and rents receivable from FHA’s foreclosed properties. Premiums Receivable These amounts consist of the up-front and periodic premiums due to FHA from the mortgagors at the end of the reporting period. The details of FHA premium structure are discussed in Note 13 – Earned Revenue/Premium Revenue. Generic Debt Receivables These amounts are mainly composed of receivables from various sources the largest of which are Single Family Partial Claims, Single Family Indemnification, and Single Family Restitutions. Miscellaneous Receivables Miscellaneous receivables include late charges and penalties receivable on premiums receivable, refunds receivable from overpayments of claims and distributive shares and other immaterial receivables. Allowance for Loss The allowance for loss for these receivables is calculated based on FHA’s historical loss experience and management’s judgment concerning current economic factors. 38 _____________________________________________________________________________________ 2009-FO-0002 Note 6. Direct Loans and Loan Guarantees, Non-Federal Borrowers FHA Direct Loan and Loan Guarantee Programs and the related loans receivable, foreclosed property, and Loan Guarantee Liability as of September 30, 2008 and 2007 are as follows: Direct Loan and Loan Guarantee Programs Administered by FHA Include: MMI/CMHI Direct Loan Program GI/SRI Direct Loan Program MMI/CMHI Loan Guarantee Program GI/SRI Loan Guarantee Program For the Loan Guarantee Program at FHA, in both the MMI/CMHI and GI/SRI funds there are Single Family and Multifamily activities. In the MMI/CMHI fund, the Single Family portion is represented by Section 203(b) which is the largest program in terms of Insurance in Force. The Multifamily portion of the MMI/CMHI fund is represented by Section 213 which is one of the smallest programs at FHA. In the GI/SRI fund, the Single Family portion is mostly comprised of Section 234(c) and HECM. Due to the size of the program, HECM is reported on its own line in this footnote and the rest of Single Family in GI/SRI on a separate line. The Multifamily portion of the GI/SRI fund contains numerous programs the largest of which are Section 221(d)(4), Section 207/223(f), Section 223(a)(7), and Section 232. For the Direct Loan Program at FHA, all activity in the MMI/CMHI fund is Single Family and all activity in the GI/SRI fund is Multifamily. Direct Loan Program (Dollars in Millions) Loans Value of Assets Receivable, Interest Foreclosed Related to Programs Gross Receivable Allowance Property Direct Loans MMI/CMHI - Single Family $ 1 $ - $ (4) $ - $ (3) GI/SRI - Multifamily 13 4 (5) - 12 FY 2008 Total $ 14 $ 4 $ (9) $ - $ 9 MMI/CMHI - Single Family $ 2 $ 1 $ (4) $ - $ (1) GI/SRI - Multifamily 15 4 (6) - 13 FY 2007 Total $ 17 $ 5 $ (10) $ - $ 12 Total Amount of Direct Loans Disbursed (Post-1991): (Dollars in millions) Programs FY 2008 FY 2007 MMI/CMHI - Single Family $ - $ 3 GI/SRI - Multifamily - - Total $ - $ 3 39 _____________________________________________________________________________________ 2009-FO-0002 Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for Loss Method): (Dollars in Millions) Value of Assets Related to Defaulted Defaulted Guaranteed Guaranteed Loans Loans Receivable, Interest Allowance for Foreclosed Receivable, Loan Guarantee Programs Gross Receivable Loan Losses Property Net FY 2008 MMI/CMHI Single Family - 203(b) $ 16 $ 3 $ (2) $ 9 $ 26 Multifamily - - - - - MMI/CMHI Subtotal $ 16 $ 3 $ (2) $ 9 $ 26 GI/SRI Multifamily $ 2,787 $ 179 $ (738) $ - $ 2,228 Single Family - HECM * 5 2 - 1 8 Single Family - Other 9 3 (6) 6 12 GI/SRI Subtotal $ 2,801 $ 184 $ (744) $ 7 $ 2,248 FY08 Total $ 2,817 $ 187 $ (746) $ 16 $ 2,274 FY 2007 MMI/CMHI Single Family - 203(b) $ 10 $ 4 $ (2) $ 4 $ 16 Multifamily - - - - - MMI/CMHI Subtotal $ 10 $ 4 $ (2) $ 4 $ 16 GI/SRI Multifamily $ 2,963 $ 202 $ (794) $ - $ 2,371 Single Family - HECM * 5 2 - - 7 Single Family - Other 11 4 (8) 5 12 GI/SRI Subtotal $ 2,979 $ 208 $ (802) $ 5 $ 2,390 FY07 Total $ 2,989 $ 212 $ (804) $ 9 $ 2,406 *HECM loans, while not defaulted, have reached 98% of the maximum claim amount and have been assigned to FHA. 40 _____________________________________________________________________________________ 2009-FO-0002 Defaulted Guaranteed Loans from Post-1991 Guarantees: (Dollars in Millions) Value of Assets Related to Defaulted Defaulted Guaranteed Guaranteed Loans Loans Receivable, Interest Foreclosed Allowance for Receivable, Loan Guarantee Programs Gross Receivable Property Subsidy Cost Net FY 2008 MMI/CMHI Single Family - 203(b) $ 403 $ - $ 4,053 $ (2,219) $ 2,237 Multifamily - - - - - MMI/CMHI Subtotal $ 403 $ - $ 4,053 $ (2,219) $ 2,237 GI/SRI Multifamily $ 356 $ - $ 2 $ (263) $ 95 Single Family - HECM * 565 277 13 (89) 766 Single Family - Other 39 1 398 (313) 125 GI/SRI Subtotal $ 960 $ 278 $ 413 $ (665) $ 986 FY08 Total $ 1,363 $ 278 $ 4,466 $ (2,884) $ 3,223 FY 2007 MMI/CMHI Single Family - 203(b) $ 331 $ - $ 2,710 $ (1,661) $ 1,380 Multifamily - - - - - MMI/CMHI Subtotal $ 331 $ - $ 2,710 $ (1,661) $ 1,380 GI/SRI Multifamily $ 187 $ - $ - $ (44) $ 143 Single Family - HECM * 310 188 3 - 501 Single Family - Other 45 (2) 327 (74) 296 GI/SRI Subtotal $ 542 $ 186 $ 330 $ (118) $ 940 FY07 Total $ 873 $ 186 $ 3,040 $ (1,779) $ 2,320 *HECM loans, while not defaulted, have reached 98% of the maximum claim amount and have been assigned to FHA. 41 _____________________________________________________________________________________ 2009-FO-0002 Guaranteed Loans Outstanding: (Dollars in millions) Outstanding Principal of Guaranteed Loans, Face Amount of Outstanding Loan Guarantee Programs Value Principal Guaranteed FY 2008 Guaranteed Loans Outstanding: MMI/CMHI Single Family - 203(b) $ 479,579 $ 447,299 Multifamily 416 353 MMI/CMHI Subtotal $ 479,995 $ 447,652 GI/SRI Single Family 30,346 27,685 Multifamily 62,855 56,384 GI/SRI Subtotal $ 93,201 $ 84,069 Total $ 573,196 $ 531,721 FY 2007 Guaranteed Loans Outstanding: MMI/CMHI Single Family - 203(b) $ 351,751 $ 321,816 Multifamily 449 336 MMI/CMHI Subtotal $ 352,200 $ 322,152 GI/SRI Single Family 24,164 21,519 Multifamily 62,509 56,289 GI/SRI Subtotal $ 86,673 $ 77,808 Total $ 438,873 $ 399,960 42 _____________________________________________________________________________________ 2009-FO-0002 New Guaranteed Loans Disbursed: (Dollars in millions) Outstanding Principal of Guaranteed Loans, Face Amount of Outstanding Loan Guarantee Programs Value Principal Guaranteed FY 2008 New Guaranteed Loans Disbursed: MMI/CMHI Single Family - 203(b) $ 171,811 $ 167,338 Multifamily 14 14 MMI/CMHI Subtotal $ 171,825 $ 167,352 GI/SRI Single Family 9,449 9,204 Multifamily 3,458 3,446 GI/SRI Subtotal $ 12,907 $ 12,650 Total $ 184,732 $ 180,002 FY 2007 New Guaranteed Loans Disbursed: MMI/CMHI Single Family - 203(b) $ 56,477 $ 56,134 Multifamily 33 33 MMI/CMHI Subtotal $ 56,510 $ 56,167 GI/SRI Single Family 3,409 3,387 Multifamily 3,592 3,584 GI/SRI Subtotal $ 7,001 $ 6,971 Total $ 63,511 $ 63,138 43 _____________________________________________________________________________________ 2009-FO-0002 HECM (reverse mortgages) are not included in the previous tables due to the unique nature of the program. Currently, FHA has 360,033 active HECM insured loans with a maximum claim amount of $78 billion. As of September 30, 2008, the insurance in force (the outstanding balance of active loans) was $44 billion. The insurance in force includes balances drawn by the mortgagee; interest accrued on the balances drawn, service charges, and mortgage insurance premiums. The maximum claim amount is the dollar ceiling to which the outstanding loan balance can grow before being assigned to FHA. Home Equity Conversion Mortgage Loans Outstanding (not included in the balances in the previous table) (Dollars in M illions) Cumulative Current Year Outstanding Potential Loan Guarantee Programs Endorsements Balance Liability FY 2008 GI/SRI $ 24,166 $ 43,741 $ 77,736 FY 2007 GI/SRI $ 24,567 $ 29,982 $ 56,676 44 _____________________________________________________________________________________ 2009-FO-0002 Loan Guarantee Liability, Net: Liabilities for Losses on Pre- Liabilities for Loan (Dollars in Millions) 1992 Guarantees, Guarantees for Total Loan Estimated Future Post-1991 Guarantee Loan Guarantee Programs Default Claims Guarantees (LLG) Liability FY 2008 MMI/CMHI Single Family - 203(b) $ 20 $ 17,384 $ 17,404 Multifamily - (4) (4) MMI/CMHI Subtotal $ 20 $ 17,380 $ 17,400 GI/SRI Multifamily $ 160 $ (354) $ (194) Single Family - HECM - 1,521 1,521 Single Family - Other 2 757 759 GI/SRI Subtotal $ 162 $ 1,924 $ 2,086 FY 2008 Total $ 182 $ 19,304 $ 19,486 FY 2007 MMI/CMHI Single Family - 203(b) $ 89 $ 6,906 $ 6,995 Multifamily - (4) (4) MMI/CMHI Subtotal $ 89 $ 6,902 $ 6,991 GI/SRI Multifamily $ 275 $ (419) $ (144) Single Family - HECM (2) 326 324 Single Family - Other 9 251 260 GI/SRI Subtotal $ 282 $ 158 $ 440 FY 2007 Total $ 371 $ 7,060 $ 7,431 45 _____________________________________________________________________________________ 2009-FO-0002 Subsidy Expense for Loan Guarantees by Program and Component: (Dollars in millions) Subsidy Expense for New Loan Fees and Other Guarantees Defaults Collections Other Total FY 2008 MMI/CMHI Single Family - 203(b) $ 4,545 $ (6,600) $ 1,620 $ (435) Multifamily 1 (1) - - MMI/CMHI Total $ 4,546 $ (6,601) $ 1,620 $ (435) GI/SRI Multifamily $ 151 $ (227) $ - $ (76) Single Family - HECM 486 (948) - (462) Single Family - Other 284 (339) - (55) GI/SRI Total $ 921 $ (1,514) $ - $ (593) FY08 Total $ 5,467 $ (8,115) $ 1,620 $ (1,028) FY 2007 MMI/CMHI Single Family - 203(b) $ 1,248 $ (2,124) $ 667 $ (209) Multifamily 1 (1) - - MMI/CMHI Total $ 1,249 $ (2,125) $ 667 $ (209) GI/SRI Multifamily $ 177 $ (255) $ - $ (78) Single Family - HECM 491 (1,188) - (697) Single Family - Other 86 (126) - (40) GI/SRI Total $ 754 $ (1,569) $ - $ (815) FY07 Total $ 2,003 $ (3,694) $ 667 $ (1,024) Subsidy Expense for Modifications and Reestimates: (Dollars in Millions) Total Technical Modifications Reestimate FY 2008 MMI/CMHI $ - $ 8,650 GI/SRI - 1,709 Total $ - $ 10,359 FY 2007 MMI/CMHI $ (5) $ 3,940 GI/SRI - (310) Total $ (5) $ 3,630 46 _____________________________________________________________________________________ 2009-FO-0002 Total Loan Guarantee Subsidy Expense: (Dollars in Millions) 2008 2007 MMI/CMHI $ 8,215 $ 3,726 GI/SRI 1,116 (1,125) Total $ 9,331 $ 2,601 Subsidy Rates for Loan Guarantee Endorsements by Program and Component: (Percentage) Fees and Defaults Other Other Total Budget Subsidy Rates for FY 2008 Loan Guarantees: MMI/CMHI Single Family - Section 203(b), Effective 10/01/2007-7/13/2008 2.45 (3.71) 0.95 (0.31) Single Family - Section 203(b), Effective 7/14/2008-9/30/2008 2.99 (4.07) 0.93 (0.15) Multifamily 1.96 (3.86) 1.00 (0.90) GI/SRI Multifamily Section 221(d)(4) 4.46 (5.29) - (0.83) Section 207/223(f) 1.98 (4.73) - (2.75) Section 223(a)(7) 1.98 (4.73) - (2.75) Section 232 3.73 (5.31) - (1.58) Single Family - HECM 2.00 (3.90) - (1.90) Single Family - Section 234(c.) 2.68 (3.56) - (0.88) Budget Subsidy Rates for FY 2007 Loan Guarantees: MMI/CMHI Single Family - Section 203(b) 2.21 (3.76) 1.18 (0.37) Multifamily 1.77 (3.93) 0.87 (1.29) GI/SRI Multifamily Section 221(d)(4) 4.87 (5.48) - (0.61) Section 207/223(f) 3.15 (4.78) - (1.63) Section 223(a)(7) 3.15 (4.78) - (1.63) Section 232 4.64 (5.55) - (0.91) Single Family - HECM 1.99 (4.81) - (2.82) Single Family - Section 234(c.) 2.15 (3.64) - (1.49) 47 _____________________________________________________________________________________ 2009-FO-0002 Schedule for Reconciling Loan Guarantee Liability Balances: (Dollars in millions) 2008 2007 LLR LLG LLR LLG Beginning Balance of the Loan Guarantee Liability $ 371 $ 7,060 $ 498 $ 2,984 Add: Subsidy Expense for guaranteed loans disbursed during the reporting fiscal years by component: Default Costs (Net of Recoveries) - 5,467 - 2,003 Fees and Other Collections - (8,115) - (3,694) Other Subsidy Costs - 1,620 - 667 Total of the above subsidy expense components - (1,028) - (1,024) Adjustments: Fees Received - 5,468 - 3,234 Foreclosed Property and Loans Acquired - 4,683 - 3,756 Claim Payments to Lenders - (8,486) - (5,869) Interest Accumulation on the Liability Balance - 161 - (68) Other - (66) - (6) Ending Balance before Reestimates 371 7,792 498 3,007 Add or Subtract Subsidy Reestimates by Component: Technical/Default Reestimate: Subsidy Expense Component (189) 10,369 (127) 3,571 Interest Expense Component - 1,141 - 381 Adjustment to credit subsidy reestimates - 2 - 101 Total Technical/Default Reestimate (189) 11,512 (127) 4,053 Ending Balance of the Loan Guarantee Liability $ 182 $ 19,304 $ 371 $ 7,060 Administrative Expense: (Dollars in millions) 2008 2007 MMI/CMHI $ 228 $ 221 GI/SRI 277 273 Total $ 505 $ 494 Other Information on Foreclosed Property: Additional information on FHA foreclosed property as of September 30, 2008 and 2007 is as follows: 2008 2007 Number of properties in foreclosure process 67 84 Number of properties held 37,890 27,782 Average holding period for property held 7 months 6 months 48 _____________________________________________________________________________________ 2009-FO-0002 Pre-Credit Reform Valuation Methodology FHA values its Pre-Credit Reform related notes and properties in inventory at net realizable value, determined on the basis of net cash flows. To value these items, FHA uses historical claim data, revenues from premiums and recoveries, and expenses of selling and maintaining property. The majority of FHA’s Pre-Credit Reform liability relates to the Mark-to-Market program. A separate analysis was conducted to adjust the loan loss estimate for anticipated reductions for these project-based Section 8 rental assistance subsidies administered by the Office of Affordable Housing Preservation (OAHP). All projects that are required to submit financial statements and have submitted annual financial statements within the past two years, received Section 8 assistance, expected to expire in the next five years, and had contract rents exceeding 100 percent of fair market value were included. In the analysis, the gross rent for these projects was reduced to bring the contract rent for assisted units to fair market levels. The effects of this rent reduction on projects’ financial health was assessed and a revised loan principal balance was computed based on a sustainable debt service level. A potential claim was calculated based on this reduction of loan principal. Credit Reform Valuation Methodology FHA values its Credit Reform LLG and related receivables on notes and properties in inventory at the net present value of their estimated future cash flows. To apply the present value computations, FHA divides the loans into cohorts and risk categories. Multifamily cohorts are defined based on the year in which loan guarantee commitments are made. Single Family mortgages are grouped into cohorts based on loan endorsement dates for the GI/SRI and MMI fund. Within each cohort year, loans are subdivided by risk categories. Each risk category has characteristics that distinguish it from others, including risk profile, premium structure, and the type and quality of collateral underlying the loan. The MMI fund has one risk category and single family GI/SRI loans are grouped into four risk categories. HECM loans are considered a separate risk category. There are thirteen different multifamily risk categories. The cash flow estimates that underlie the present value calculations are determined using the significant assumptions detailed below. Significant Assumptions – FHA developed financial models in order to estimate the present value of future program cash flows. The models incorporate information on the cash flows’ expected magnitude and timing. The models rely heavily on the following loan performance assumptions: x Conditional Termination Rates: The estimated probability of an insurance policy claim or non-claim termination in each year of the loan guarantee’s term given that a loan survives until that year. x Recovery Rates: The estimated percentage of a claim payment that is recovered through disposition of a mortgage note or underlying property. x Claim Amount: The estimated amount of the claim payment relative to the unpaid principal balance at the time the claim occurs. Additional information about loan performance assumptions is provided below: Sources of data: FHA developed assumptions for claim rates, prepayment rates, claim amounts, and recoveries based on historical data obtained from its systems. 49 _____________________________________________________________________________________ 2009-FO-0002 Economic assumptions: Forecasts of economic conditions used in conjunction with loan-level data to generate Single Family and Multifamily claim and prepayment rates were obtained from Global Insights (formerly DRI) forecasts of U.S. annual economic figures. OMB provides other economic assumptions used, such as discount rates. Actuarial Review: An independent actuarial review of the MMI fund each year produces conditional claim and prepayment rates that are used as inputs to the LLG calculation. Reliance on historical performance: FHA relies on the average historical performance of its insured portfolio to forecast future performance of that portfolio. Changes in legislation, subsidy programs, tax treatment and economic factors all influence loan performance. FHA assumes that similar events may occur during the remaining life of existing mortgage guarantees, which can be as long as 40 years for Multifamily programs and affect loan performance accordingly. Current legislation and regulatory structure: FHA's future plans allowed under current legislative authority have been taken into account in formulating assumptions when relevant. In contrast, future changes in legislative authority may affect the cash flows associated with FHA insurance programs. These changes cannot be reflected in LLG calculations because of uncertainty over their nature and outcome. Discount rates: The disbursement weighted interest rate on U.S. Treasury securities of maturity comparable to the guaranteed loan term is the discount factor used in the present value calculation for cohorts 1992 to 2000. For the 2001 and future cohorts, the rate on U.S. Treasury securities of maturity comparable to the term of each cash flow for the loan guarantee is used in the present value calculation. This methodology is referred to as the basket of zeros discounting methodology. OMB provides these rates to all Federal agencies for use in preparing credit subsidy estimates and requires their use under OMB Circular A-11, Part 4, “Instructions on Budget Execution.” The basket of zeros discount factors are also disbursement weighted. Analysis of Change in the Liability for Loan Guarantees FHA has estimated and applied credit subsidy rates to each FHA loan guarantee program since fiscal year 1992. Over this time FHA’s credit subsidy rates have varied. The variance is caused by three factors: (1) additional loan performance data underlying the credit subsidy rate estimates, (2) revisions to the calculation methodology used to estimate the credit subsidy rates, and (3) revisions on expected claims and prepayments derived from the revised Actuarial Review of the MMI Fund. Loan performance data, which reflect mortgage market performance and FHA policy direction, are added as they become available. Revisions to the estimation methodology result from legislative direction and technical enhancements. FHA estimated the credit subsidy rates for the 2008 cohort in December 2006. At the time of budget submission, the rates reflected prevailing policy and loan performance assumptions based on the most recent information available at that time. The annual credit subsidy reestimates allow FHA to adjust the LLG and subsidy expense to reflect the most current and accurate credit subsidy rate. Described below are the programs that comprise the majority of FHA’s fiscal year 2008 business. These descriptions highlight the factors that contributed to changing credit subsidy rates and the credit subsidy reestimates. Overall, FHA’s liability increased from the fiscal year 2007 estimates. Mutual Mortgage Insurance (MMI) - During fiscal year 2008, FHA continued to experience increased claim rates due to the nationwide decrease in house price appreciation, which resulted in increased claims and lower proceeds from the sale of foreclosed properties. Moreover, due to the shrinkage of capital availability in the conventional mortgage market, FHA has experienced a surge in new endorsements during fiscal year 2008. This caused a significant increase in the volume of insurance-in-force, coupled with the increase in expected claims and lowered 50 _____________________________________________________________________________________ 2009-FO-0002 sales proceeds, the liability for MMI increased from $6,906 million in fiscal year 2007 to $17,384 million in fiscal year 2008. GI/SRI Home Equity Conversion Mortgage (HECM) - The HECM volume leveled off during fiscal year 2008 and the HECM liability increased from $326 million in fiscal year 2007 to $1,521 million in fiscal year 2008. The change in liability from fiscal 2007 to fiscal 2008 is primarily due to the drop in house price appreciation projections from Global Insights. The drop in house price appreciation projections results in lower recoveries from future HECM assigned assets which increases the liability. GI/SRI Section 221(d)(4) - The Section 221(d)(4) program was established to provide mortgage insurance for the construction or substantial rehabilitation of Multifamily rental properties with five or more units. Under this program, HUD may insure up to 90 percent of the total project cost and is prohibited from insuring loans with HUD-subsidized interest rates. The Section 221(d)(4) program is the largest Multifamily program in the GI/SRI fund. The Section 221(d)(4) liability increased by $4 million in FY 2008. Mark-to-Market - The Mark to Market (MTM) program was established by legislation to assess rents at the time of Section 8 Assistance contract renewal. If rents are above market levels, the project is referred to OAHP. OAHP then evaluates the project for potential financial restructuring to determine if the project could survive given the lower revenues from reduced rents. The pool of loans eligible for MTM restructuring is comprised of active insured loans with Section 8 Assistance contracts, which also meet all eligibility requirements such as financial statements submitted within the last 2 years and assistance contracts expiring within the next 5 years. While new Section 8 assistance contracts are not being offered to any properties, which reduces the number of active insured loans with section 8 contracts, the number of projects that meet MTM eligibility criteria may actually increase from year to year. A loan can fail one or more of the eligibility criteria one year but become eligible the following year. For calculating the liability for loan guarantees in FY 2008, the number of loans that met all eligibility requirements increased. As a result, the MTM liability increased. GI/SRI Section 234(c) - The Section 234(c) program insures loans for condominium purchases. One of the many purposes of FHA’s mortgage insurance programs is to encourage lenders to make affordable mortgage credit available for non-conventional forms of ownership. Condominium ownership, in which the separate owners of the individual units jointly own the development’s common areas and facilities, is one particularly popular alternative. As in the MMI fund, Section 234(c) continued to experience increased claim rates due to the nationwide decrease in house price appreciation, which resulted in increased claims and lower proceeds from the sale of foreclosed properties. These changes resulted in an increase in the liability from $108 million in fiscal year 2007 to $502 million for fiscal year 2008. Hurricane Ike - In September 2008, Hurricane Ike made landfall in Texas as a category 2 hurricane. While this hurricane caused property damage in areas along or near the Texas shoreline, the impact on FHA insured mortgages is not significant enough to warrant an adjustment in the liability calculation. Impact of Changing Economic Conditions The MMI Fund constitutes the majority of FHA’s single family business, with 93.7 percent of the total single family IIF dollars. One measure of the fund’s financial soundness is the MMI capital ratio, based on the economic value of the MMI Fund to the balance of the MMI Insurance-In-Force. The Cranston-Gonzalez National Affordable Housing Act of 1990 requires an independent actuarial analysis of the economic net worth of the MMI Fund. In addition, the Act mandates that the MMI Fund achieve a capital ratio, a measure of the Fund’s economic net worth, of at least 2 percent by the year 2000, which was achieved in 1995 and maintained ever since. In fiscal year 2008, the estimated economic value of the MMI fund decreased significantly with the forecast of expected house price declines due to a declining housing market. Conversely, the total MMI insurance-in-force, increased significantly due to the volume of new endorsements. The combination of these factors resulted in a decrease in the capital ratio from 6.4 percent in fiscal year 2007 to 3.0 percent in fiscal year 2008. 51 _____________________________________________________________________________________ 2009-FO-0002 Note 7. Other Assets The following table presents the composition of Other Assets held by FHA as of September 30, 2008 and 2007: (Dollars in Millions) 2008 2007 Intragovernmental: Advances to HUD for Working Capital Fund Expenses $ 21 $ 4 Total $ 21 $ 4 With the Public: Escrow Monies Deposited at Minority-Owned Banks $ 103 $ 110 Undistributed Charges 31 33 Total $ 134 $ 143 Advances to HUD for Working Capital Fund Expenses The Working Capital Fund was established by HUD to consolidate, at the department level, the acquisition of certain property and equipment to be used by different organizations within HUD. Advances to HUD for Working Capital Fund expenses represent the amount of payments made by FHA to reimburse the HUD Working Capital Fund for its share of the fund’s expenses prior to the receipt of goods or services from this fund. Escrow Monies Deposited at Minority-Owned Banks FHA holds in trust escrow monies received from the borrowers of its Multifamily mortgage notes to cover property repairs and renovations expenses. These escrow monies are deposited at the U.S. Treasury (see Note 2), invested in U.S. Treasury securities (see Note 4 - GI/SRI Investments) or deposited at minority-owned banks. Undistributed Charges Undistributed charges include FHA disbursements processed by the U.S. Treasury but the identification of the specific FHA operating area associated with the disbursement has not been determined by the end of the reporting period. When the FHA operating area that initiated the disbursement is identified, the undistributed charges are reclassified by recognizing new expenses or by liquidating previously established accounts payable. . 52 _____________________________________________________________________________________ 2009-FO-0002 Note 8. Accounts Payable Accounts Payable as of September 30, 2008 and 2007 are as follows: (Dollars in Millions) 2008 2007 With the Public: Claims Payable $ 316 $ 152 Premium Refunds and Distributive Shares Payable 174 175 Miscellaneous Payables 95 58 Total $ 585 $ 385 Claims Payable Claims payable represents the amount of claims that have been processed by FHA, but the disbursement of payment to lenders has not taken place at the end of the reporting period. Premium Refunds and Distributive Shares Payable Premium refunds payable are refunds of previously collected Single Family premiums that will be returned to the borrowers resulting from prepayment of the insured mortgages. Distributive shares payable represent the amount of excess revenues in the liquidating account of the CMHI fund that is to be distributed to the mortgagors at the discretion of the Secretary of HUD. Miscellaneous Payables Miscellaneous payables include interest enhancement payables, interest penalty payables for late payment of claims, generic debt payables and other payables related to various operating areas within FHA. 53 _____________________________________________________________________________________ 2009-FO-0002 Note 9. Debt The following tables describe the composition of Debt held by FHA as of September 30, 2008 and 2007: (Dollars in Millions) 2007 2008 Beginning Net Ending Net Ending Balance Borrowing Balance Borrowing Balance Agency Debt: Debentures Issued to Claimants $ 95 $ (25) $ 70 $ (18) $ 52 Other Debt: Borrowings from U.S. Treasury 6,258 (1,685) 4,573 259 4,832 Total $ 6,353 $ (1,710) $ 4,643 $ 241 $ 4,884 2008 2007 Classification of Debt: Intragovernmental Debt $ 4,832 $ 4,573 Debt held by the Public 52 70 Total $ 4,884 $ 4,643 Debentures Issued to Public The National Housing Act authorizes FHA, in certain cases, to issue debentures in lieu of cash to settle claims. FHA-issued debentures bear interest at rates established by the U.S. Treasury. Interest rates related to the outstanding debentures ranged from 4.00 percent to 12.875 percent in both fiscal years 2008 and 2007. Lenders may redeem FHA debentures prior to maturity in order to pay mortgage insurance premiums to FHA, or they may be called with the approval of the Secretary of the U.S. Treasury. The par value of debentures outstanding, not including accrued interest, was September 30 was $51 million in fiscal year 2008 and $69 million in fiscal year 2007. The fair values for fiscal years 2008 and 2007 were $74 and $101 million, respectively. Borrowings from U.S. Treasury In accordance with Credit Reform accounting, FHA borrows from the U.S. Treasury when cash is needed in its financing accounts. Usually, the need for cash arises when FHA has to transfer the negative credit subsidy amounts related to new loan disbursements and existing loan modifications from the financing accounts to the general fund receipt account (for cases in GI/SRI funds) or to the capital reserve account (for cases in MMI/CMHI funds). In some instances, borrowings are also needed to transfer the credit subsidy related to downward reestimates from the GI/SRI financing account to the GI/SRI receipt account or when available cash is less than claim payments due. During fiscal year 2008, FHA’s U.S. Treasury borrowings carried interest rates ranging from 2.33 percent to 7.34 percent. In fiscal year 2007, the carried interest rates also ranged from 2.33 percent to 7.34 percent. Fiscal year 2008 maturity dates occur from September 2009 – September 2027. Loans may be repaid in whole or in part without penalty at any time prior to maturity. 54 _____________________________________________________________________________________ 2009-FO-0002 Note 10. Other Liabilities The following table describes the composition of Other Liabilities as of September 30, 2008 and 2007: (Dollars in Millions) 2008 Current Non-Current Total Intragovernmental: Receipt Account Liability $ 1,530 $ - $ 1,530 Total $ 1,530 $ - $ 1,530 With the Public: Trust and Deposit Liabilities $ 152 $ - $ 152 Unearned Premiums 15 13 28 Undistributed Credits 49 - 49 Miscellaneous Liabilities 209 - 209 Total $ 425 $ 13 $ 438 2007 Current Non-Current Total Intragovernmental: Receipt Account Liability $ 3,657 $ - $ 3,657 Total $ 3,657 $ - $ 3,657 With the Public: Trust and Deposit Liabilities $ 155 $ - $ 155 Unearned Premiums 24 7 31 Undistributed Credits 48 - 48 Miscellaneous Liabilities 240 - 240 Total $ 467 $ 7 $ 474 Special Receipt Account Liability The special receipt account liability is created from negative subsidy endorsements and downward credit subsidy in the GI/SRI special receipt account. Trust and Deposit Liabilities Trust and deposit liabilities include mainly escrow monies received by FHA for the borrowers of its mortgage notes and earnest money received from potential purchasers of the FHA foreclosed properties. The escrow monies are eventually disbursed to pay for insurance, property taxes, and maintenance expenses on behalf of the borrowers. The earnest money becomes part of the sale proceeds or is returned to any unsuccessful bidders. Unearned Premiums As discussed in Note 1, unearned premiums represent premiums collected for the pre-1992 loan guarantees, but not recognized as revenue because the earning process has not been completed. 55 _____________________________________________________________________________________ 2009-FO-0002 Undistributed Credits Undistributed credits represent FHA collections processed by U.S. Treasury, but the identification of the specific operating area associated with the collections has not been determined at the end of the reporting period. When the FHA operating area that is entitled to the collections is identified, the undistributed credits are reclassified by recognizing revenue or by liquidating previously established accounts receivable. Miscellaneous Liabilities Miscellaneous liabilities include mainly other unearned revenue from Single Family and Multifamily operations. It also may include loss contingencies that are recognized by FHA for past events that warrant a probable, or likely, future outflow of measurable economic resources. Note 11. Commitments and Contingencies Litigation FHA is party in various legal actions and claims brought by or against it. In the opinion of management and general counsel, the ultimate resolution of these legal actions and claims will not have a material affect on FHA’s consolidated financial statements as of September 30, 2008. FHA has not recognized any contingent liability due to the probable, or likely, adverse judgment in these cases. However, there are legal actions where judgment against FHA is considered reasonably possible with an estimated potential loss of $3 million. Pending Litigation Against FHA (Dollars in millions) 2008 2007 Expected Outcome Estimated Loss Estimated Loss Probable - $11 Reasonably Possible $3 $3 Remote - - 56 _____________________________________________________________________________________ 2009-FO-0002 Note 12. Gross Costs Gross costs incurred by FHA for the fiscal years ended September 30, 2008 and 2007 are as follows: (Dollars in Millions) 2008 2007 MMI/CMHI GI/SRI MMI/CMHI GI/SRI Intragovernmental: Interest Expense $ 167 $ 127 $ 263 $ 104 Imputed Costs 6 8 8 29 Other Expenses 2 3 13 8 Total $ 175 $ 138 $ 284 $ 141 With the Public: Salary and Administrative Expenses $ 226 $ 274 $ 208 $ 265 Subsidy Expense 8,215 1,116 3,726 (1,125) Interest Expense 1,108 251 697 (338) Bad Debt Expense 5 (49) (20) 11 Loan Loss Reserve Expense (69) (123) 48 (143) Other Expenses 10 100 41 95 Total $ 9,495 $ 1,569 $ 4,700 $ (1,235) Interest Expense Intragovernmental interest expense includes interest expense on borrowings from the U.S. Treasury in the financing account. Interest expense is calculated annually for each cohort using the interest rates provided by the U.S Treasury. Interest expense with the public consists of interest expense on debentures issued to claimants to settle claim payments and interest expense on the annual credit subsidy reestimates. Imputed Costs/Imputed Financing Imputed costs represent FHA’s share of the departmental imputed cost calculated and allocated to FHA by the HUD CFO office. Federal agencies are required by SFFAS No. 4, Managerial Cost Accounting Concepts and Standards, to account for costs assumed by other Federal organizations on their behalf. The HUD CFO receives its imputed cost data from the Office of Personnel Management (OPM) for pension costs, federal employee health benefits (FEHB) and life insurance costs. It also receives Federal Employees’ Compensation Act (FECA) costs from the Department of Labor (DOL). Subsequently, using its internally developed allocation basis, HUD CFO allocates the imputed cost data to each of its reporting offices. The imputed costs reported by FHA in its Statements of Net Cost are equal to the amounts of imputed financing in its Statements of Changes in Net Position. Salary and Administrative Expenses Salary and administrative expenses include FHA’s reimbursement to HUD for FHA personnel costs and FHA’s payments to third party contractors for administrative contract expenses. 57 _____________________________________________________________________________________ 2009-FO-0002 Subsidy Expense Subsidy expense, positive and negative, consists of credit subsidy expense from new endorsements, modifications, and annual credit subsidy reestimates and the subsidy expense incurred by the Church Arson program. Credit subsidy expense is the estimated long-term cost to the U.S. Government of a direct loan or loan guarantee, calculated on a net present value basis of the estimated future cash flows associated with the direct loan or loan guarantee. Subsidy expense incurred by the Church Arson program is the expense of a HUD program administered by the Office of Community Planning and Development (CPD) even though its cost is funded through a FHA program account. Bad Debt Expense Bad debt expense represents the provision for loss recorded for uncollectible amounts related to FHA’s pre-1992 accounts receivable and credit program assets. FHA calculates its bad debt expense based on the estimated change of these assets’ historical loss experience and FHA management’s judgment concerning current economic factors. Loan Loss Reserve Expense Loan loss reserve expense is recorded to account for the change in the balance of the loan loss reserve liabilities associated with FHA’s pre-1992 loan guarantees. The loan loss reserve is provided for the estimated losses incurred by FHA to pay claims on its pre-1992 insured mortgages when defaults have taken place but the claims have not yet been filed with FHA. Other Expenses Other expenses with the public include only those associated with the FHA pre-1992 loan guarantees. They consist of net losses or gains on sales of FHA credit program assets, insurance claim expenses, fee expenses, and other miscellaneous expenses incurred to carry out FHA operations. Other intragovernmental expenses include FHA’s share of HUD expenses incurred in the Working Capital Fund and expenses from intra-agency agreements. 58 _____________________________________________________________________________________ 2009-FO-0002 Note 13. Earned Revenue Earned revenues generated by FHA for the fiscal years ended September 30, 2008 and 2007 are as follows: (Dollars in Millions) 2008 2007 MMI/CMHI GI/SRI MMI/CMHI GI/SRI Intragovernmental: Interest Revenue from Deposits at U.S. Treasury $ 424 $ 73 $ 308 $ 107 Interest Revenue from MMI/CMHI Investments 896 - 991 - Total $ 1,320 $ 73 $ 1,299 $ 107 With the Public: Premium Revenue $ 10 $ 21 $ 13 $ 38 Interest Revenue (1) 41 2 53 Other Revenue - 6 9 - Total $ 9 $ 68 $ 24 $ 91 Interest Revenue Intragovernmental interest revenue includes interest revenue from deposits at the U.S. Treasury and investments in U.S. Treasury securities. FHA’s U.S. Treasury deposits are generated from post-1991 loan guarantees and direct loans in the financing accounts. FHA’s investments in U.S. Treasury securities consist of investments of surplus resources in the MMI/CMHI liquidating accounts and of escrow monies collected from borrowers in the GI/SRI liquidating accounts. Interest revenue with the public is generated mainly from FHA’s acquisition of pre-1992 performing MNA notes as a result of claim payments to lenders for defaulted guaranteed loans. Interest revenue associated with the post-1991 MNA notes is included in the Allowance for Subsidy (AFS) balance. Premium Revenue According to the FCRA accounting, FHA’s premium revenue includes only premiums associated with the pre-1992 loan guarantee business. Premium revenue for post-1991 loan guarantee cases is included in the balance of the LLG. The FHA premium structure, set by the National Affordable Housing Act and published in the Code of Federal Regulations, which became effective July 1991, includes both up-front premiums and annual periodic premiums. Up-front Premiums The up-front premium rates, which are set by legislation, vary according to the mortgage type and the year of origination. The pre-1992 up-front premiums in the MMI fund were recorded as unearned revenue upon collection and are recognized as revenue over the period in which losses and insurance costs are expected to occur. Other FHA funds’ unearned revenue is recognized monthly as revenue on a straight-line basis. . 59 _____________________________________________________________________________________ 2009-FO-0002 The FHA up-front premium rates in fiscal year 2008 were: Premium Rate Single Family 1.50% Multifamily 0.45 %, 0.50%, 0.57% or 0.80% HECM 2.00% (Based on Maximum Claim Amount) Periodic Premiums The periodic premium rate is used to calculate monthly or annual premiums receivable. These rates, which are also legislated, vary by mortgage type and program. The FHA periodic premium rate in fiscal year 2008 for Single Family and Multifamily were: Mortgage Term 15 Mortgage Term More Years or Less Than 15 Years Single Family 0.25% 0.50% Multifamily 0.45 %, 0.50%, 0.57% 0.45 %, 0.50%, 0.57% or 0.80% or 0.80% HECM 0.50% (All Terms) For Title I, the maximum insurance premium paid for guaranteed cases endorsed in years 1992 through 2001 is equal to 0.50 percent of the loan amount multiplied by the number of years of the loan term. The annual insurance premium for a Title I Property Improvement loan is 0.50 percent of the loan amount until the maximum insurance charge is paid. The annual insurance premium of a Title I Manufactured Housing loan is calculated in tiers by loan term until the maximum insurance charge is paid. For guaranteed cases endorsed in fiscal years 2007 and 2008, the Title I annual insurance premium is 1.00 percent of the loan amount until maturity. Other Revenue Other revenue includes revenue associated with FHA pre-1992 loan guarantees. FHA’s other revenue consists of late charges and penalty revenue, fee income, and miscellaneous income generated from FHA operations. Note 14. Gross Cost and Earned Revenue by Budget Functional Classification FHA cost and earned revenue reported on the Statements of Net Cost is categorized under the budget functional classification (BFC) for Mortgage Credit (371). All FHA U.S. Treasury account symbols found under the department code “86” for Department of Housing and Urban Development appear with the Mortgage Credit BFC. 60 _____________________________________________________________________________________ 2009-FO-0002 Note 15. Transfers Transfers in/out incurred by FHA for the fiscal years ended September 30, 2008 and 2007 are as follows: (Dollars in Millions) 2008 Budgetary Financing Sources Cumulative Results of Operations Unexpended Appropriations Total Treasury $ (613) $ (235) $ (848) HUD - (41) (41) Total $ (613) $ (276) $ (889) Other Financing Sources Cumulative Results of Operations Unexpended Appropriations Total Treasury $ (19) $ - $ (19) HUD 406 - 406 Total $ 387 $ - $ 387 2007 Budgetary Financing Sources Cumulative Results of Operations Unexpended Appropriations Total Treasury $ (1,014) $ (159) $ (1,173) HUD - (609) (609) Total $ (1,014) $ (768) $ (1,782) Other Financing Sources Cumulative Results of Operations Unexpended Appropriations Total Treasury $ (834) $ - $ (834) HUD 389 - 389 Total $ (445) $ - $ (445) Transfers Out to U.S. Treasury Transfers out to U.S. Treasury consists of negative subsidy from new endorsements, modifications and downward credit subsidy reestimates in the GI/SRI general fund receipt account, and the prior year unobligated balance of budgetary resources in the GI/SRI liquidating account. Transfers In/Out From HUD In fiscal year 2007, FHA made non-expenditure Transfers Out of appropriated funds to HUD for Salaries and Administrative Expenses (S&E) as well as for Working Capital Fund Expenses. In FY 2008, FHA did not receive an appropriation for S&E; instead the FHA amounts were appropriated directly to HUD. In order to recognize the S&E in FHA’s Statement of Net Cost, a Transfer In from HUD was recorded with the recognition of FHA S&E costs. FHA continues to make a non-expenditure Transfer Out to HUD for Working Capital Fund Expenses. 61 _____________________________________________________________________________________ 2009-FO-0002 Note 16. Unexpended Appropriations Unexpended appropriation balances at September 30, 2008 and 2007 are as follows: (Dollars in Millions) Beginning Appropriations Other Appropriations Transfers-Out Ending 2008 Balance Received Adjustments Used Balance Positive Subsidy $ 28 $ 8 $ - $ (21) $ - $ 15 Working Capital and 293 205 (49) (98) (41) 310 Contract Expenses Reestimates - 301 - (301) - - GI/SRI Liquidating 223 113 - (15) (235) 86 Total $ 544 $ 627 $ (49) $ (435) $ (276) $ 411 2007 Positive Subsidy $ 64 $ 9 $ (40) $ (5) $ - $ 28 Working Capital and 365 721 (79) (105) (609) 293 Contract Expenses Reestimates - 109 - (109) - - GI/SRI Liquidating 165 413 - (196) (159) 223 Total $ 594 $ 1,252 $ (119) $ (415) $ (768) $ 544 As required under FCRA, FHA receives appropriations to cover expenses or fund shortages related to its loan guarantee and direct loan operations. FHA receives appropriations in the annual program accounts for administrative and contract expenses. The GI/SRI no-year program account also receives appropriations for positive credit subsidy and upward reestimates. Additionally, FHA obtains permanent indefinite appropriations to cover any shortfalls for its GI/SRI pre-1992 loan guarantee operations. When appropriations are first received, they are reported as unexpended appropriations. As these appropriations are expended, appropriations used are increased and unexpended appropriations are decreased. Additionally, unexpended appropriations are decreased when: administrative expenses, and working capital funds are transferred out to HUD; the year-end unobligated balance in the GI/SRI liquidating account is returned to the U.S. Treasury; appropriations are rescinded; or other miscellaneous adjustments are required. 62 _____________________________________________________________________________________ 2009-FO-0002 Note 17. Budgetary Resources The SF-133 and the Statement of Budgetary Resources for fiscal year 2007 have been reconciled to the fiscal year 2007 actual amounts included in the Program and Financing Schedules presented in the Budget of the United States Government. There were no significant reconciling items. Information from the fiscal year 2008 Statement of Budgetary Resources will be presented in the fiscal year 2010 Budget of the U.S. Government. The Budget will be transmitted to Congress on the first Monday in February 2010 and will be available from the Government Printing Office and online at that time. Obligated balances for the period ended September 30, 2008 and 2007 are as follows: Unpaid Obligations (Dollars in Millions) Undelivered Orders FY 2008 FY 2007 MMI/CMHI $ 795 $ 662 GI/SRI 526 588 Undelivered Orders Subtotal $ 1,321 $ 1,250 Accounts Payable MMI/CMHI $ 793 $ 772 GI/SRI 345 274 Accounts Payable Subtotal $ 1,138 $ 1,046 Unpaid Obligations Total $ 2,459 $ 2,296 In fiscal year 2007, FHA made non-expenditure Transfers Out of appropriated funds to HUD for Salaries and Administrative Expenses (S&E) as well as for Working Capital Fund Expenses. In FY 2008, FHA did not receive an appropriation for S&E; instead the FHA amounts were appropriated directly to HUD. In order to recognize the S&E in FHA’s Statement of Net cost, a Transfer In from HUD was recorded with the recognition of FHA S&E costs. FHA continues to make a non-expenditure Transfer Out to HUD for Working Capital Fund Expenses. 63 _____________________________________________________________________________________ 2009-FO-0002 NOTE 18. Budgetary Resources - Collections The following table presents the composition of FHA’s collections for the period ended September 30, 2008 and 2007: (Dollars in Millions) 2008 MMI/CMHI GI/SRI Total Collections: Premiums $ 4,239 $ 1,219 $ 5,458 Notes 9 331 340 Property 2,900 153 3,053 Interest Earned from U.S Treasury 1,273 73 1,346 Subsidy 435 21 456 Reestimates 4,560 301 4,861 Other 71 211 282 Total $ 13,487 $ 2,309 $ 15,796 (Dollars in Millions) 2007 MMI/CMHI GI/SRI Total Collections: Premiums $ 2,148 $ 904 $ 3,052 Notes 39 542 581 Property 3,334 142 3,476 Interest Earned from U.S Treasury 1,264 107 1,371 Subsidy 214 124 338 Reestimates 1,904 109 2,013 Other 101 229 330 Total $ 9,004 $ 2,157 $ 11,161 Note 19. Budgetary Resources – Non-expenditure Transfers The following table presents the composition of FHA’s non-expenditure transfers through September 30, 2008 and 2007: (Dollars in Millions) 2008 MMI/CMHI GI/SRI Total Transfers: Working Capital Expenses $ (25) $ (16) $ (41) Total $ (25) $ (16) $ (41) (Dollars in Millions) 2007 MMI/CMHI GI/SRI Total Transfers: Salaries, Administrative Expense and Working Capital $ (369) $ (240) $ (609) Expenses Total $ (369) $ (240) $ (609) 64 _____________________________________________________________________________________ 2009-FO-0002 Note 20. Budgetary Resources – Obligations The following table presents the composition of FHA’s obligations for the period ended September 30, 2008 and 2007: (Dollars in Millions) September 30, 2008 MMI/CMHI GI/SRI H4H Total Obligations: Claims $ 6,494 $ 1,146 $ - $ 7,640 Single Family Property Management Contracts 411 21 - 432 Contract Obligations 47 79 20 146 Subsidy 435 643 - 1,078 Downward Reestimates 5 897 - 902 Upward Reestimates 4,555 301 - 4,856 Interest on Borrowings 167 134 - 301 Other 94 141 - 235 Total $ 12,208 $ 3,362 $ 20 $ 15,590 (Dollars in Millions) September 30, 2007 MMI/CMHI GI/SRI H4H Total Obligations: Claims $ 5,340 $ 1,003 $ - $ 6,343 Single Family Property Management Contracts 360 17 - 377 Contract Obligations 40 142 - 182 Subsidy 214 1,134 - 1,348 Downward Reestimates 554 1,746 - 2,300 Upward Reestimates 1,351 109 - 1,460 Interest on Borrowings 263 115 - 378 Other 68 170 - 238 Total $ 8,190 $ 4,436 $ - $ 12,626 65 _____________________________________________________________________________________ 2009-FO-0002 NOTE 21. Reconciliation of Net Cost of Operations to Budget This note (formerly the Statement of Financing) links the proprietary data to the budgetary data. Most transactions are recorded in both proprietary and budgetary accounts. However, because different accounting bases are used for budgetary and proprietary accounting, some transactions may appear in only one set of accounts. The Reconciliation of Net Cost of Operations to Budget is as follows for the periods ending September 30, 2008 and 2007: (Dollars in Millions) 2008 2007 RESOURCES USED TO FINANCE ACTIVITIES Obligations Incurred $ 15,590 $ 12,626 Spending Authority from Offsetting Collections and Recoveries (15,820) (11,468) Offsetting Receipts (1,511) (2,759) Transfers In / Out 387 (445) Imputed Financing from Costs Absorbed by Others 14 37 TOTAL RESOURCES USED TO FINANCE ACTIVITIES $ (1,340) $ (2,009) RESOURCES THAT DO NOT FUND THE NET COST OF OPERATIONS Undelivered Orders and Adjustments $ (87) $ 90 Revenue and Other Resources 15,784 12,668 Purchase of Assets (10,419) (9,879) Appropriation for prior year Re-estimate (4,856) (1,460) TOTAL RESOURCES NOT PART OF NET COST OF OPERATIONS $ 422 $ 1,419 TOTAL RESOURCES USED TO FINANCE THE NET COST (SURPLUS) OF OPERATIONS $ (918) $ (590) COMPONENTS OF THE NET COST (SURPLUS) OF OPERATIONS THAT WILL NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD Upward Re-estimate of Credit Subsidy Expense $ 11,611 $ 4,870 Downward Re-estimate of Credit Subsidy Expense (99) (817) Changes in Loan Loss Reserve Expense (192) (127) Changes in Bad Debt Expenses Related to Uncollectible Pre-Credit Reform Receivables (44) (9) Reduction of Credit Subsidy Expense from Endorsements and Modifications of Loan Guarantees (1,047) (1,032) Gains or Losses on Sales of Credit Program Assets 101 56 Other 495 18 TOTAL COMPONENTS OF THE NET COST (SURPLUS) OF OPERATIONS THAT WILL NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD $ 10,825 $ 2,959 NET COST (SURPLUS) OF OPERATIONS $ 9,907 $ 2,369 66 _____________________________________________________________________________________ 2009-FO-0002 Required Supplementary Information Schedule A: Intragovernmental Assets FHA's Intragovernmental assets, by federal entity, are as follows for the periods ending September 30, 2008 and 2007: (Dollars in millions) Fund Balance Investments in with U.S. U.S. Treasury Other Assets Agency Treasury Securities U.S. Treasury $ 12,590 $ 19,254 $ - HUD - - 21 2008 Total $ 12,590 $ 19,254 $ 21 U.S. Treasury $ 9,559 $ 22,481 $ - HUD - - 4 2007 Total $ 9,559 $ 22,481 $ 4 Schedule B: Intragovernmental Liabilities FHA's Intragovernmental liabilities, by federal entity, are as follows on September 30, 2008 and 2007: (Dollars in Millions) Borrowings from Agency Other Liabilities U.S. Treasury U.S. Treasury $ 4,832 $ 1,530 2008 Total $ 4,832 $ 1,530 U.S. Treasury $ 4,573 $ 3,657 2007 Total $ 4,573 $ 3,657 67 _____________________________________________________________________________________ 2009-FO-0002 Required Supplementary Information Schedule C: Comparative Combining Statement of Budgetary Resources by FHA Program September 30, 2008 and 2007: (Dollars in Millions) MMI/CMHI GI/S RI H4H Total 2008 2007 2008 2007 2008 2008 2007 BUDGETARY RESOURCES Unobligated Balance Carried Forward Beginning of p eriod $ 25,499 $ 26,367 $ 1,421 $ 3,055 $ - $ 26,920 $ 29,422 Recoveries of Prior Year Obligations 49 127 42 86 - 91 213 Budget Authority : Ap p rop riations received 77 413 520 841 30 627 1,254 Borrowing Authority 235 2 708 615 - 943 617 Sp ending Authority from Offsetting Collections: Earned Collected 13,487 9,004 2,309 2,157 - 15,796 11,161 Receivable from Federal Sources (29) 63 (38) 35 - (67) 98 Unfilled Customer Orders - - - (4) - - (4) Net T ransfers (25) (369) (16) (240) - (41) (609) Permanently Not Available (252) (1,919) (732) (687) - (984) (2,606) TO TAL BUDGETARY RES O URCES $ 39,041 $ 33,688 $ 4,214 $ 5,858 $ 30 $ 43,285 $ 39,546 STATUS OF BUDGETARY RESOURCES Obligations Incurred $ 12,208 $ 8,190 $ 3,362 $ 4,436 $ 20 $ 15,590 $ 12,626 Unobligated Balance-Ap p ortioned 2,179 537 798 643 10 2,987 1,180 Unobligated Balance Not Available 24,654 24,961 54 779 - 24,708 25,740 TO TAL S TATUS O F BUDGETARY RES O URCES $ 39,041 $ 33,688 $ 4,214 $ 5,858 $ 30 $ 43,285 $ 39,546 CHANGE IN OBLIGATED BALANCES Obligated Balance, Net, Beginning of Period: Unp aid Obligations Carried Forward $ 1,435 $ 1,476 $ 861 $ 881 $ - $ 2,296 $ 2,357 Receivable from Federal Sources Carried Forward (263) (203) (44) (11) - (307) (214) Obligations Incurred 12,208 8,190 3,362 4,436 20 15,590 12,626 Gross Outlay s (12,005) (8,101) (3,311) (4,372) (20) (15,336) (12,473) Obligated Balance T ransfers, Net: - Recoveries of Prior Year Obligations (49) (127) (42) (86) - (91) (213) Change in Receivable from Federal Sources 29 (63) 38 (31) - 67 (94) Obligated Balance, Net, End of Period: - - Unp aid Obligations 1,589 1,435 870 861 - 2,459 2,296 Receivable from Federal Sources (234) (263) (6) (44) - (240) (307) Outlay s: - - Disbursements $ 12,005 $ 8,101 $ 3,311 $ 4,372 $ 20 15,336 12,473 Collections (13,487) (9,004) (2,309) (2,157) - (15,796) (11,161) Subtotal (1,482) (903) 1,002 2,215 20 (460) 1,312 Less: Offsetting Receip ts - - 1,511 2,759 - 1,511 2,759 NET O UTLAYS $ (1,482) $ (903) $ (509) $ (544) $ 20 $ (1,971) $ (1,447) 68 _____________________________________________________________________________________ 2009-FO-0002 Required Supplementary Information Schedule D: Comparative Combining Budgetary Resources by Appropriation for the MMI/CMHI Program September 30, 2008: (Dollars in M illions ) 86x4587 & M M I/CM HI 86 0183 86x4070 86x4242 86x0236 Total BUDGETARY RESOURCES Unobligated Balance Carried Forward Beginning of period $ 47 $ 64 $ 2,993 $ 22,395 $ 25,499 Recoveries of Prior Year Obligations 13 23 13 49 Budget A uthority: A ppropriations received 77 - - - 77 Borrowing A uthority - - 235 - 235 Spending A uthority from Offs etting Collections : Earned Collected - 13 12,185 1,289 13,487 Receivable from Federal Sources - - - (29) (29) Unfilled Cus tomer Orders - - - - - Net Trans fers 4,531 15 - (4,571) (25) Permanently Not A vailable (17) - (235) - (252) TOTAL BUDGETARY RES OURCES $ 4,651 $ 115 $ 15,191 $ 19,084 $ 39,041 STATUS OF BUDGETARY RESOURCES Obligations Incurred $ 4,603 $ 65 $ 7,540 $ - $ 12,208 Unobligated Balance-A pportioned 4 50 2,125 - 2,179 Unobligated Balance Not A vailable 44 - 5,526 19,084 24,654 TOTAL S TATUS OF BUDGETARY RES OURCES $ 4,651 $ 115 $ 15,191 $ 19,084 $ 39,041 CHANGE IN OBLIGATED BALANCES Obligated Balance, Net, Beginning of Period: Unpaid Obligations Carried Forward $ 71 $ 212 $ 1,152 $ - $ 1,435 Receivable from Federal Sources Carried Forward - - (2) (261) (263) Obligations Incurred 4,603 65 7,540 - 12,208 Gros s Outlays (4,595) (49) (7,361) - (12,005) Obligated Balance Trans fers , Net: Recoveries of Prior Year Obligations (13) (23) (13) - (49) Change in Receivable from Federal Sources - - - 29 29 Obligated Balance, Net, End of Period: Unpaid Obligations 66 205 1,318 - 1,589 Receivable from Federal Sources - - (2) (232) (234) Outlays : Dis burs ements $ 4,595 $ 49 $ 7,361 $ - $ 12,005 Collections - (13) (12,185) (1,289) (13,487) Subtotal 4,595 36 (4,824) (1,289) (1,482) Les s : Offs etting Receipts - - - - - NET OUTLAYS $ 4,595 $ 36 $ (4,824) $ (1,289) $ (1,482) 69 _____________________________________________________________________________________ 2009-FO-0002 Required Supplementary Information Schedule D: Comparative Combining Budgetary Resources by Appropriation for the MMI/CMHI Program September 30, 2007 (Dollars in M illions ) 86x4587 & M M I/CM HI 86 0183 86x4070 86x4242 86x0236 Total BUDGETARY RESOURCES Unobligated Balance Carried Forward Beginning of period $ 43 $ 47 $ 4,318 $ 21,959 $ 26,367 Recoveries of Prior Year Obligations 16 26 85 - 127 Budget A uthority: A ppropriations received 413 - - - 413 Borrowing A uthority - - 2 - 2 Spending A uthority from Offs etting Collections : Earned Collected - 59 7,221 1,724 9,004 Receivable from Federal Sources - - - 63 63 Unfilled Cus tomer Orders - - - - - Net Trans fers 981 - - (1,350) (369) Permanently Not A vailable (17) - (1,902) - (1,919) TOTAL BUDGETARY RES OURCES $ 1,436 $ 132 $ 9,724 $ 22,396 $ 33,688 STATUS OF BUDGETARY RESOURCES Obligations Incurred $ 1,390 $ 68 $ 6,732 $ - $ 8,190 Unobligated Balance-A pportioned 4 15 518 - 537 Unobligated Balance Not A vailable 42 49 2,474 22,396 24,961 TOTAL S TATUS OF BUDGETARY RES OURCES $ 1,436 $ 132 $ 9,724 $ 22,396 $ 33,688 CHANGE IN OBLIGATED BALANCES Obligated Balance, Net, Beginning of Period: Unpaid Obligations Carried Forward $ 82 $ 233 $ 1,161 $ - $ 1,476 Receivable from Federal Sources Carried Forward - (1) (2) (200) (203) Obligations Incurred 1,390 68 6,732 - 8,190 Gros s Outlays (1,385) (62) (6,654) - (8,101) Obligated Balance Trans fers , Net: Recoveries of Prior Year Obligations (16) (26) (85) - (127) Change in Receivable from Federal Sources - - - (63) (63) Obligated Balance, Net, End of Period: Unpaid Obligations 71 212 1,152 - 1,435 Receivable from Federal Sources - - (2) (261) (263) Outlays : Dis burs ements $ 1,385 62 6,654 - 8,101 Collections - (59) (7,221) (1,724) (9,004) Subtotal 1,385 3 (567) (1,724) (903) Les s : Offs etting Receipts - - - - - NET OUTLAYS $ 1,385 $ 3 $ (567) $ (1,724) $ (903) 70 _____________________________________________________________________________________ 2009-FO-0002 Required Supplementary Information Schedule E: Comparative Combining Budgetary Resources by Appropriation for the GI/SRI Program September 30, 2008: (Dollars in M illions ) 86x4077 & GI/SRI 86 0200 86x4072 86x4105 Total BUDGETARY RESOURCES Unobligated Balance Carried Forward Beginning of period $ 102 $ 235 $ 1,084 $ 1,421 Recoveries of Prior Year Obligations 9 27 6 42 Budget A uthority: A ppropriations received 407 113 - 520 Borrowing A uthority - 3 705 708 Spending A uthority from Offs etting Collections : Earned Collected - 334 1,975 2,309 Receivable from Federal Sources - 4 (42) (38) Unfilled Cus tomer Orders - - - - Net Trans fers (16) - - (16) Permanently Not A vailable (32) (244) (456) (732) TOTAL BUDGETARY RES OURCES $ 470 $ 472 $ 3,272 $ 4,214 STATUS OF BUDGETARY RESOURCES Obligations Incurred $ 383 $ 203 $ 2,776 $ 3,362 Unobligated Balance-A pportioned 33 269 496 798 Unobligated Balance Not A vailable 54 - - 54 TOTAL S TATUS OF BUDGETARY RES OURCES $ 470 $ 472 $ 3,272 $ 4,214 CHANGE IN OBLIGATED BALANCES Obligated Balance, Net, Beginning of Period: Unpaid Obligations Carried Forward $ 100 $ 571 $ 190 $ 861 Receivable from Federal Sources Carried Forward - - (44) (44) Obligations Incurred 383 203 2,776 3,362 Gros s Outlays (376) (253) (2,682) (3,311) Obligated Balance Trans fers , Net: Recoveries of Prior Year Obligations (9) (27) (6) (42) Change in Receivable from Federal Sources - (5) 43 38 Obligated Balance, Net, End of Period: Unpaid Obligations 98 494 278 870 Receivable from Federal Sources - (5) (1) (6) Outlays : Dis burs ements $ 376 $ 253 $ 2,682 $ 3,311 Collections - (334) (1,975) (2,309) Subtotal 376 (81) 707 1,002 Les s : Offs etting Receipts - - - 1,511 NET OUTLAYS $ 376 $ (81) $ 707 $ (509) 71 _____________________________________________________________________________________ 2009-FO-0002 Required Supplementary Information Schedule E: Comparative Combining Budgetary Resources by Appropriation for the GI/SRI Program September 30, 2007: (Dollars in Millions) 86x4077 & GI/SRI 86 0200 86x4072 86x4105 Total BUDGETARY RESOURCES Unobligated Balance Carried Forward Beginning of period $ 182 $ 160 $ 2,713 $ 3,055 Recoveries of Prior Year Obligations 11 36 39 86 Budget Authority: Appropriations received 426 413 2 841 Borrowing Authority - 15 600 615 Spending Authority from Offsetting Collections: Earned Collected - 274 1,883 2,157 Receivable from Federal Sources - (6) 41 35 Unfilled Customer Orders - - (4) (4) Net Transfers (240) - - (240) Permanently Not Available (101) (173) (413) (687) TOTAL BUDGETARY RESOURCES $ 278 $ 719 $ 4,861 $ 5,858 STATUS OF BUDGETARY RESOURCES Obligations Incurred $ 175 $ 484 $ 3,777 $ 4,436 Unobligated Balance-Apportioned 28 140 475 643 Unobligated Balance Not Available 75 95 609 779 TOTAL STATUS OF BUDGETARY RESOURCES $ 278 $ 719 $ 4,861 $ 5,858 CHANGE IN OBLIGATED BALANCES Obligated Balance, Net, Beginning of Period: Unpaid Obligations Carried Forward $ 102 $ 564 $ 215 $ 881 Receivable from Federal Sources Carried Forward - (6) (5) (11) Obligations Incurred 175 484 3,777 4,436 Gross Outlays (165) (442) (3,765) (4,372) Obligated Balance Transfers, Net: Recoveries of Prior Year Obligations (11) (36) (39) (86) Change in Receivable from Federal Sources - 6 (37) (31) Obligated Balance, Net, End of Period: Unpaid Obligations 100 571 190 861 Receivable from Federal Sources - - (44) (44) Outlays: Disbursements $ 165 442 3,765 4,372 Collections - (274) (1,883) (2,157) Subtotal 165 168 1,882 2,215 Less: Offsetting Receipts - - - 2,759 NET OUTLAYS $ 165 $ 168 $ 1,882 $ (544) 72 _____________________________________________________________________________________ 2009-FO-0002 Required Supplementary Information Schedule F: Comparative Combining Budgetary Resources by Appropriation for the H4H Program September 30, 2008: (Dollars in M illions ) H4H 86x0343 Total BUDGETARY RESOURCES Unobligated Balance Carried Forward Beginning of period $ - $ - Recoveries of Prior Year Obligations - - Budget A uthority: A ppropriations received 30 30 Borrowing A uthority - - Spending A uthority from Offs etting Collections : Earned Collected - - Receivable from Federal Sources - - Unfilled Cus tomer Orders - - Net Trans fers - - Permanently Not A vailable - - TOTAL BUDGETARY RES OURCES $ 30 $ 30 STATUS OF BUDGETARY RESOURCES Obligations Incurred $ 20 $ 20 Unobligated Balance-A pportioned 10 10 Unobligated Balance Not A vailable - - TOTAL S TATUS OF BUDGETARY RES OURCES $ 30 $ 30 CHANGE IN OBLIGATED BALANCES Obligated Balance, Net, Beginning of Period: Unpaid Obligations Carried Forward $ - $ - Receivable from Federal Sources Carried Forward - - Obligations Incurred 20 20 Gros s Outlays (20) (20) Obligated Balance Trans fers , Net: Recoveries of Prior Year Obligations - - Change in Receivable from Federal Sources - - Obligated Balance, Net, End of Period: Unpaid Obligations - - Receivable from Federal Sources - - Outlays : Dis burs ements 20 $ 20 Collections - - Subtotal 20 20 Les s : Offs etting Receipts - - NET OUTLAYS $ 20 $ 20 73
Audit of the Federal Housing Administration’s Financial Statements for Fiscal Years 2008 and 2007
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-11-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)