oversight

Audit of the Federal Housing Administration's Financial Statement for Fiscal Years 2011 and 2010

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-11-07.

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

                                                                                Issue Date
                                                                                      November 7, 2011

                                                                                Audit Case Number
                                                                                      2012-FO-0002




TO:           Carol Galante, Acting Assistant Secretary for Housing - FHA Commissioner, H


                  /s/
FROM:         Thomas R. McEnanly, Director, Financial Audits Division, GAF


SUBJECT:      Audit of the Federal Housing Administration’s Financial Statement for Fiscal Years 2011 and
                 2010


In accordance with the Government Corporation Control Act as amended (31 U.S.C. 9105), the Office of
Inspector General engaged the independent certified public accounting firm of Clifton Gunderson LLP (CG)
to audit the fiscal years 2011 and 2010 financial statements of the Federal Housing Administration (FHA).
The contract required that the audit be performed according to Generally Accepted Government Auditing
Standards (GAGAS).

CG is responsible for the attached auditors’ report dated November 3, 2011 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 and regulations and government-wide policies. Within 60
days of this report, CG expects to issue a separate letter to management dated November 3, 2011 regarding
other matters that came to its attention during the audit.

This report includes both the Independent Auditors’ Report and FHA’s 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) of the financial statements and related information. The MD&A is not included with
this report. FHA plans to separately publish an annual report for fiscal year 2011 that conforms to FASAB
standards.

The report contains one significant deficiency in FHA’s internal control and two reportable instances of non
compliance with laws and regulations. The report contains three new recommendations. Within 120 days of
the report issue date, FHA is required to provide its final management decision which includes the corrective
action plan for each recommendation. As part of the audit resolution process, we will record three new
recommendation(s) in the Department’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. The proposed management decision and corrective action plan will be
reviewed and evaluated with concurrence from the OIG.

We appreciate the courtesies and cooperation extended to the CG and OIG audit staffs during the conduct of
the audit.
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                                                        Table of Contents
OIG Transmittal Memorandum ...................................................................................................................1

Independent Auditor’s Report......................................................................................................................5

   Appendix A-Management’s Response ...................................................................................................12

   Appendix B- CG’s Assessment of Management’s Response ................................................................14

   Appendix C- Status of Prior Year Recommendations ...........................................................................15

Principal Financial Statements ...................................................................................................................17

   Consolidated Balance Sheets..................................................................................................................19

   Consolidated Statements of Net Cost .....................................................................................................20

   Consolidated Statements of Changes in Net Position ............................................................................21

   Combined Statement of Budgetary Resources .......................................................................................22

   Notes to Financial Statements ................................................................................................................24

   Required Supplementary Information ....................................................................................................65




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                                 INDEPENDENT AUDITOR’S REPORT



Inspector General
United States Department of Housing and Urban Development

Acting Commissioner
Federal Housing Administration


In our audit of the Federal Housing Administration (FHA), a wholly owned government corporation
within the United States Department of Housing and Urban Development (HUD), for fiscal year (FY)
2011, we found:

   •   The consolidated balance sheets of FHA as of September 30, 2011 and 2010, and the related
       consolidated statements of net cost, changes in net position, and the combined statement of
       budgetary resources (hereinafter referred to as “Principal Financial Statements”) are presented
       fairly, in all material respects, in accordance with accounting principles generally accepted in the
       United States of America
   •   No material weaknesses in internal control over financial reporting (including safeguarding
       assets) and compliance with laws and regulations
   •   One significant deficiency, entitled “Identified information technology control deficiencies are not
       being effectively analyzed and resolved”
   •   Two reportable instances of noncompliance with laws and regulations related to FHA’s financial
       management systems and the capital requirements for the Mutual Mortgage Insurance Fund
       (MMI Fund).

The following sections (including Appendices A through C) discuss in more detail: (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.




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                          INDEPENDENT AUDITOR’S REPORT, Continued

Opinion on the Principal Financial Statements

The Principal Financial Statements present fairly, in all material respects, the financial position of FHA
as of September 30, 2011 and 2010, and its net cost, changes in net position, and combined budgetary
resources for the years then ended.

As discussed in the footnotes to the Principal Financial Statements, the Loan Guarantee Liability (LGL)
is an actuarially determined estimate of the net present value of future claims, net of premiums and
recoveries, from loans insured as of the end of the fiscal year. This estimate is developed using
econometric models that integrate historical data with regional house price appreciation forecasts to
develop assumptions about future portfolio performance. Deviations from these forecasts or historical
performance relationships could have a material impact on this estimate.

The MMI Fund includes a Capital Reserve account from which increases in funding to cover accrued
claim losses are drawn. As of September 30, 2011, this Capital Reserve account had $4.1 billion
available to cover further increases in the LGL. The Credit Reform Act of 1990 provides for permanent,
indefinite budget authority should future increases in the LGL exceed funds available in the Capital
Reserve account.

Consideration of Internal Control over Financial Reporting and Compliance

In planning and performing our audit, we considered FHA’s internal control over financial reporting and
compliance (internal control) as a basis for designing our auditing procedures and to comply with Office
of Management and Budget (OMB) audit guidance for the purpose of expressing our opinion on the
financial statements, but not for the purpose of expressing an opinion on the effectiveness of FHA’s
internal control over financial reporting and compliance or on management’s assertion on internal
control included in Management’s Discussion and Analysis (MD&A). Accordingly, we do not express an
opinion on the effectiveness of FHA’s internal control over financial reporting or on management’s
assertion on internal control included in the MD&A.

A deficiency in internal control 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 material weakness is a deficiency or a combination of
deficiencies in internal control, such that there is a reasonable possibility that a material misstatement
of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control over financial reporting and compliance was for the limited purpose
described above and would not necessarily identify all deficiencies in internal control over financial
reporting and compliance that might be significant deficiencies or material weaknesses. We did not
identify any deficiencies in internal control over financial reporting that we consider to be material
weaknesses, as defined above. However, we identified one deficiency in internal control over financial
reporting, described below, that we consider to be a significant deficiency. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged with governance.




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Identified information technology control deficiencies are not being effectively analyzed and
resolved

FHA’s financial reporting process receives transaction information from numerous business
applications that are owned by the Office of Single Family Housing or the Office of Multifamily
Housing. Those applications support both HUD and FHA business and financial operations.
The technical infrastructure and general support of FHA and HUD systems are provided by
HUD’s Office of the Chief Information Officer (OCIO). The policies and procedures governing
these applications are the responsibility of OCIO. HUD policy assigns responsibility for
implementing those policies and procedures to the system owners. FHA has designated
senior managers in each of the Housing program offices to serve as system owners of FHA
applications.

In prior audit reports and management letters, we have reported numerous weaknesses in
security and access controls, as well as in configuration management and contingency
planning. Likewise, HUD’s Office of the Inspector General has reported such weaknesses at
the HUD level. This year, we found the following weaknesses.

Security Management
   • HUD’s Information Technology Security Policies and Procedures have not been
       updated to comply with the National Institute of Standards and Technology (NIST)
       Special Publication (SP) 800-53 Revision 3, Recommended Security Controls for
       Federal Information Systems and Organizations as required by Federal Information
       Processing Standard (FIPS) 200, Minimum Security Requirements for Federal
       Information and Information Systems
   • The System Security Plans for FHA applications and general support systems are not
       being reviewed and updated in accordance with HUD policy and NIST standards
   • Vulnerability scanning practices do not comply with written HUD policy and the
       identified vulnerabilities are not being effectively tracked and remediated
   • Specialized security training required by HUD policy and NIST standards is not being
       monitored and enforced
   • Agreements for external information systems and interface control documentation are
       not being maintained in accordance with HUD policy and NIST standards

Access Control
   • Management of user accounts is not being performed in accordance with HUD policy
      and NIST standards
   • Password and security parameter settings are not being consistently applied in
      accordance with HUD policy
   • Remote access authentication does not meet HUD policy and is not in compliance
      with NIST standards
   • Inactive user accounts are not always deactivated as required by HUD policy and in
      compliance with NIST standards

Configuration Management
  • Standard baseline configuration policies for FHA’s general support systems are not
      fully documented and implemented in accordance with HUD policy and NIST
      standards




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   Contingency Planning
      • Systems supporting critical operations are not consistently identified and tested in
         accordance with HUD policy and in compliance with NIST standards
      • Contingency plans for certain systems were incomplete or not updated in accordance
         with HUD policy and NIST standards

   Most of these weaknesses have been observed and reported in prior audits. FHA tracks
   actions to improve controls using corrective action plans (CAPs) and plans of action and
   milestones (POA&Ms). While these plans often result in improvements to the specific
   application weaknesses reported, such remediation does not always occur. Furthermore, we
   find the same type of weaknesses when we examine different applications. This indicates that
   the root causes of the deficiencies are not being effectively addressed for all systems. Relying
   on numerous system owners to implement HUD’s information technology (IT) policies and
   procedures requires strong oversight of those policies and procedures.

   FHA’s ability to improve application controls is complicated by HUD’s complex IT environment.
   FHA’s financial management infrastructure is comprised of numerous aging information
   systems developed over the last thirty years that are connected to each other, customers, and
   the general ledger through hundreds of electronic interfaces. This complex and outdated IT
   environment provides numerous challenges in maintaining the integrity of the environment as
   a whole, as well as appropriate accessibility levels and security controls across the many
   applications.

   Recommendations

   We recommend that the Deputy Assistant Secretary for Finance and Budget:

       1a. Work with OCIO to develop a process to analyze identified systems control
           weaknesses for their root causes. (New)
       1b. Work with OCIO to strengthen the POA&M process by ensuring that the status of plans
           is reviewed regularly by FHA and HUD management with the authority to take action or
           accept the risks related to the weakness. (New)
       1c. Develop and implement procedures for FHA senior management to acknowledge and
           accept system risks that cannot be mitigated within the fiscal year. (New)

Due to the sensitive nature of the specific matters noted, additional detail and the related detailed
recommendations for this finding are being provided to FHA and HUD management in a separate
limited distribution report.

We noted other non-reportable matters involving FHA’s internal control and its operations that we
communicated in a separate letter to FHA management.

Compliance with Laws and Regulations

Our tests of FHA’s compliance with selected provisions of laws and regulations for FY2011 disclosed
two instances of noncompliance that are reportable under United States generally accepted
government auditing standards or OMB audit guidance. However, the objective of our audit was not to
express an opinion on overall compliance with laws and regulations. Accordingly, we do not express
such an opinion.



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      Financial Management Systems: FHA’s financial management infrastructure is
      comprised of numerous aging information systems developed over the last thirty years
      that are connected to each other, customers, and the general ledger through hundreds
      of electronic interfaces. The current IT environment has a mix of old and new software
      languages – from COBOL to Cold Fusion.

      This complex and outdated infrastructure is becoming increasingly difficult and costly to
      maintain. System performance issues are difficult to analyze with a mix of old and new
      software and hardware. The complex environment requires multiple contractors to
      support the systems. Furthermore, the environment limits FHA’s ability to 1) effectively
      adapt and efficiently scale its operations to regulatory and market changes, 2)
      incorporate data management practices that improve the reliability and accuracy of
      information, and 3) enhance data rationalization and enterprise integration for greater
      operational efficiency.

      These limitations present a risk to FHA’s ability to continue to operate in an effective and
      efficient manner and for its financial management system “to support the most current
      Federal business practices and systems requirements” as required by the Office of
      Management and Budget (OMB) Circular No. A-127, Financial Management Systems
      and the Federal Managers Financial Integrity Act of 1982. FHA has also implemented
      numerous expensive and manual compensating controls to ensure the reliability of its
      day-to-day financial transaction processing and reporting.

      FHA is currently undergoing a major systems modernization process that is designed to
      improve efficiency and enhance management analysis and reporting while migrating
      business processes to more modern platforms.

      Capital Ratio: The Cranston-Gonzales National Affordable Housing Act of 1990 required
      that FHA’s MMI Fund maintain a minimum level of capital sufficient to sustain a
      moderate recession. This capital requirement, termed the Capital Ratio, is defined as
      capital resources (assets minus current liabilities) less the liability for future claim costs
      (net of future premiums and recoveries), divided by the value of amortized insurance-in-
      force. The Act required FHA to maintain a minimum Capital Ratio of two percent and
      conduct an annual independent actuarial study to, among other things, calculate this
      ratio. The Housing and Economic Recovery Act of 2008 requires that the Secretary
      submit a report annually to the Congress describing the results of the study, assess the
      financial status of the MMI Fund, recommend program adjustments, and to evaluate the
      quality control procedures and accuracy of information used in the process of
      underwriting loans guaranteed by the MMI Fund. As of the date of our audit, this report
      had not yet been submitted to Congress, but preliminary FHA data indicates that this
      ratio remains substantially below the required two percent through FY2011.

Status of Prior Year Control Deficiencies and Noncompliance Issues

As required by United States generally accepted government auditing standards and OMB audit
guidance, we reviewed the status of FHA’s corrective actions with respect to the recommendations
related to the significant deficiencies included in the FY2010 Independent Auditor’s Report dated
November 3, 2010. Appendix C provides the status of the prior year recommendations.




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Consistency of Other Information

FHA’s MD&A and required supplementary information contain a wide range of information, some of
which is not directly related to the financial statements. We reviewed this information for consistency
with the financial statements and discussed the methods of measurement and presentation with FHA
officials. Based on this limited work, we found no material inconsistencies with the financial statements;
accounting principles generally accepted in the United States, or OMB guidance. However, we do not
express an opinion on this information.

Objectives, Scope and Methodology

FHA management is responsible for (1) preparing the financial statements in conformity with
accounting principles generally accepted in the United States of America, (2) 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, and (3) complying with applicable
laws and regulations.

We are responsible for obtaining reasonable assurance about whether the financial statements are
presented fairly in all material respects, in conformity with accounting principles generally accepted in
the United States of America. We are also responsible for: (1) obtaining a sufficient understanding of
internal control over financial reporting and compliance to plan the audit, (2) testing compliance with
selected provisions of laws and regulations that have a direct and material effect on the financial
statements and laws for which OMB audit guidance requires testing, and (3) performing limited testing
with respect to other information appearing in the Annual Report.

In order to fulfill these responsibilities, we (1) examined, on a test basis, evidence supporting the
amounts and disclosures in the financial statements; (2) assessed the accounting principles used and
significant estimates made by management; (3) evaluated the overall presentation of the financial
statements; (4) obtained an understanding of FHA and its operations, including its internal control over
financial reporting (including safeguarding of assets) and compliance with laws, regulations (including
execution of transactions in accordance with budget authority); (5) tested relevant internal controls over
financial reporting and compliance; (6) considered the design of the process for evaluating and
reporting on internal control and financial management systems under FMFIA; and (7) tested
compliance with selected provisions of certain laws and regulations.

We did not evaluate 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. We
limited our internal control testing to controls over financial reporting and compliance. Because of
inherent limitations in internal control, misstatements due to error, fraud, losses or noncompliance 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. In addition, we caution that our internal control
testing may not be sufficient for other purposes.
We did not test compliance with all laws and regulations applicable to FHA. We limited our tests of
compliance to selected provisions of those laws and regulations that have a direct and material effect
on the financial statements and those required by OMB audit guidance that we deemed applicable to
FHA’s financial statements for the fiscal year ended September 30, 2011. We caution that
noncompliance with laws and regulations may occur and not be detected by these tests and that such
testing may not be sufficient for other purposes.


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We performed 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 audit guidance. We believe that our
audits provide a reasonable basis for our opinion.

FHA Comments and Our Evaluation

FHA management concurred with the significant deficiency and the related recommendations, and
disagreed with our assessment that FHA’s financial management systems do not comply with federal
standards. The full text of FHA management’s response is included in Appendix A. We did not perform
audit procedures on management’s written response and accordingly, we express no opinion on it. Our
assessment of management’s response is included in Appendix B.

Distribution

This report is intended solely for the information and use of the management of FHA and HUD, the
HUD Office of Inspector General, OMB, the Government Accountability Office, and the United States
Congress, and is not intended to be, and should not be, used by anyone other than these specified
parties.




Arlington, Virginia
November 3, 2011




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         Appendix A
    Management’s Response




            Appendix A
Significant Deficiencies, Continued


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                                             Appendix B
                      Clifton Gunderson’s Assessment of Management’s Response

We obtained and reviewed FHA management’s response to the findings and recommendations made
in connection with our audit of FHA’s 2011 Principal Financial Statements, which is included as
Appendix A. We did not perform audit procedures on FHA’s written response to the findings and
recommendations and accordingly, we express no opinion on it. Our assessment of management’s
response is discussed below.

Assessment of management’s response to significant deficiency:

As indicated in Appendix A, 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 the recommendations.

Assessment of management’s response to noncompliance with OMB Circular No. A-127,
Financial Management Systems, and the Federal Managers Financial Integrity Act of 1982:

As indicated in Appendix A, FHA management disagrees with our assessment of the compliance of
their financial management system with federal standards. Management agrees with our description of
the financial management infrastructure and that it poses a risk to effective and efficient operations but
they assess that risk as low at this time. We believe that the risk could have a potentially severe impact
and, therefore, requires additional risk management planning.

Assessment of management’s response to noncompliance with the Cranston-Gonzales National
Affordable Housing Act of 1990:

FHA management did not specifically respond to this finding. However, management is well aware of
this issue.




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                                            Appendix C
                              Status of Prior Year Recommendations

Our assessment of the current status of the recommendations related to significant deficiencies
identified in the prior year audit is presented below:


                                                                              Fiscal Year 2011
                  FY 2010 Recommendation                           Type
                                                                                   Status
       1a. The Chair, FHA Transformation, should further Significant          Resolved
           refine the risk management plan for the FHA Deficiency
           Infrastructure Transformation Initiative to include 2010
           formal risk mitigation strategies, key metrics,
           milestones, and monitoring and reporting
           requirements. The risk management plan should
           also include any potential risks associated with
           achievement of the strategic objectives related to
           the modernization plan. (New)

       1b. Continue developing the initiative specific risk Significant       Resolved
           assessment plans and ensure they address the Deficiency
           risks inherent in the comprehensive nature of the 2010
           modernization project. (Updated)
       1c. Define a project governance structure and key        Significant   Resolved
           success factors (KSFs) for monitoring the            Deficiency
           consultants and measuring the success and            2010
           achievement of the KSFs for the systems
           transformation project over the next phase as well
           as the next three years. (New)
        1d. Perform a formal documented risk assessment on      Significant   Partially resolved
            the sustainability and scalability of the current   Deficiency    (See
            systems and processes during the modernization      2010          Management
            project. Based on the risk assessment, develop a                  Letter)
            risk management plan incorporating the risk
            identified for the sustainability of the legacy
            environment over the next five years. (New)
       2a. FHA’s Deputy Assistant Secretary for Finance and     Significant   Resolved
           Budget and Deputy Assistant Secretary for Risk       Deficiency
           Management and Regulatory Affairs should             2010
           document their specific review and acceptance of
           the key assumptions, including key variables, in
           conjunction with their acceptance of the actuarial
           study. (New)
       2b. Document the final overall management conclusion     Significant   Resolved
           on whether the analyses performed suggest            Deficiency
           whether adjustments to the model, calculated         2010
           assumptions, or projected cash flows are
           warranted, and if so, how those adjustments are
           determined and their resulting value. (Updated)
       2c. Review and monitor the potential impact of delayed   Significant   Resolved


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                                                                       Fiscal Year 2011
           FY 2010 Recommendation                            Type
                                                                            Status
    claims and the growth in loss mitigation programs     Deficiency
    on the counterintuitive model results to ensure the   2010
    anticipated variable relationships will continue.
    (New)
2d. Analyze the risk of redefaults and claims on loans  Significant    Resolved
    that have undergone loss mitigation. (New)          Deficiency
                                                        2010
2e. Investigate potential enhancements to the actuarial Significant    Partially resolved
    model to better communicate the precision of its Deficiency        (See
    estimates. (New)                                    2010           Management
                                                                       Letter)
2f. Ensure the Annual Report and financial statements Significant      Resolved
    effectively present critical factors that may impact Deficiency
    current estimates and management’s views on the 2010
    probability of significant changes in these factors.
    (New)




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 PRINCIPAL
 FINANCIAL
STATEMENTS




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                     FEDERAL HOUSING ADMINISTRATION
     (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                       CONSOLIDATED BALANCE SHEETS
                         As of September 30, 2011 and 2010
                                (Dollars in Millions)


                                                                          FY 2011         FY 2010
ASSETS
  Intragovernmental
    Fund Balance with U.S. Treasury (Note 3)                         $       42,006   $      39,078
    Investments (Note 4)                                                      4,135           4,150
    Other Assets (Note 7)                                                         3               5
  Total Intragovernmental                                             $      46,144   $      43,233

  Investments (Note 4)                                           $               63   $         136
  Accounts Receivable, Net (Note 5)                                              32              16
  Loans Receivable and Related Foreclosed Property, Net (Note 6)              5,460           6,136
  Other Assets (Note 7)                                                          69              76
TOTAL ASSETS                                                     $          51,768    $     49,597

LIABILITIES
   Intragovernmental
     Borrowings from U.S. Treasury (Note 9)                          $        6,032   $       4,749
     Other Liabilities (Note 10)                                              3,051           1,165
   Total Intragovernmental                                           $        9,083   $       5,914

  Accounts Payable (Note 8)                                                     723             647
  Loan Guarantee Liability (Note 6)                                          36,103          34,958
  Debentures Issued to Claimants (Note 9)                                        10              10
  Other Liabilities (Note 10)                                                   430             427
TOTAL LIABILITIES                                                     $     46,349    $     41,956

NET POSITION
  Unexpended Appropriations (Note 16)                                           850             880
  Cumulative Results of Operations                                            4,569           6,761
TOTAL NET POSITION                                                           5,419           7,641

TOTAL LIABILITIES AND NET POSITION                                    $     51,768    $     49,597



                 The accompanying notes are an integral part of these statements.




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                           FEDERAL HOUSING ADMINISTRATION
          (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                        CONSOLIDATED STATEMENTS OF NET COST
                        For the Periods Ended September 30, 2011 and 2010
                                        (Dollars in Millions)


                                                    MMI/CMHI             GI/SRI          H4H            Total
FY 2011
Intragovernmental
 Intragovernmental Gross Costs (Note 12)              $       258    $       176 $              1   $        435
 Less: Intragovernmental Earned Revenue (Note 13)           1,565            540                -          2,105
Intragovernmental Net Costs                                (1,307)          (364)               1         (1,670)

With The Public
 Gross Costs with the Public (Note 12)               $      6,110    $       (862)   $         14   $      5,262
 Less: Earned Revenue from the Public (Note 13)                22    $         51               -             73
Net Costs with the Public                                   6,088            (913)             14          5,189
NET PROGRAM COST (SURPLUS)                            $    4,781     $    (1,277)    $         15   $     3,519

                                                    MMI/CMHI             GI/SRI          H4H            Total
FY 2010
Intragovernmental
 Intragovernmental Gross Costs (Note 12)              $       160    $       144 $              2   $        306
 Less: Intragovernmental Earned Revenue (Note 13)           2,135            412 $              -          2,547
Intragovernmental Net Costs                                (1,975)          (268) $             2         (2,241)

With The Public
 Gross Costs with the Public (Note 12)               $     (2,543) $        3,359    $         10   $       826
 Less: Earned Revenue from the Public (Note 13)                63              70    $          -           133
Net Costs with the Public                                  (2,606)          3,289              10           693
NET PROGRAM COST (SURPLUS)                            $   (4,581) $        3,021     $         12   $    (1,548)




                      The accompanying notes are an integral part of these statements.




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                         FEDERAL HOUSING ADMINISTRATION
        (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                    CONSOLIDATED STATEMENTS OF NET POSITION
                      For the Periods Ended September 30, 2011 and 2010
                                      (Dollars in Millions)



                                         FY 2011     FY 2011       FY 2010     FY 2010
                                        Cumulative                Cumulative
                                        Results of Unexpended     Results of Unexpended
                                        Operations Appropriations Operations Appropriations

BEGINNING BALANCES                      $      6,761     $        880     $      3,261        $       832

Budgetary Financing Sources
 Appropriations Received (Note 16)                  -            3,311                   -           1,231
 Other Adjustments (Note 16)                        3              (25)                  7             (47)
 Appropriations Used (Note 16)                  3,244           (3,244)                981            (981)
 Transfers-Out (Note 15 and Note 16)             (492)             (72)               (559)           (155)

Other Financing Sources
 Transfers In/Out (Note 15)                    (1,229)               -            1,504                 -
 Imputed Financing (Note 12)                       18                -               19                 -
 Other                                           (217)               -                -                 -
Total Financing Sources                 $      1,327     $         (30)   $      1,952        $        48

Net (Cost) Surplus of Operations              (3,519)                -           1,548                   -

ENDING BALANCES                         $      4,569     $        850     $      6,761        $       880



                   The accompanying notes are an integral part of these statements.




                                                  21
                                                                                                                                      2012-FO-0002



                                 FEDERAL HOUSING ADMINISTRATION
                 (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                           COMBINED STATEMENT OF BUDGETARY RESOURCES
                                   For the Period Ended September 30, 2011
                                             (Dollars in Millions)

                                                                                                       FY 2011          FY 2011           FY 2011
                                                                                                      Budgetary      Non-Budgetary         Total
Budgetary Resources:
Unobligated balance brought forward, October 1                                                              5,257           34,649            39,906
Unobligated balance brought forward, October 1, as adjusted                                                 5,257           34,649            39,906
Recoveries of prior year unpaid obligations                                                                    84               26               110
Other changes in unobligated balance (+ or -)                                                                (227)             (16)             (243)
Unobligated balance from prior year budget authority, net                                                   5,114           34,659            39,773
Appropriations (discretionary and mandatory)                                                                3,239                4             3,243
Borrowing authority (discretionary and mandatory)                                                               -            3,838             3,838
Spending authority from offsetting collections (discretionary and mandatory)                                8,165           25,316            33,481
Total budgetary resources                                                                                  16,518           63,817            80,335

Status of Budgetary Resources:
Obligations incurred                                                                                       10,952           27,569            38,521
Unobligated balance, end of year:
   Apportioned                                                                                                222           13,170            13,392
   Unapportioned                                                                                            5,344           23,078            28,422
Total unobligated balance, end of year                                                                      5,566           36,248            41,814
Total budgetary resources                                                                                  16,518           63,817            80,335

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                        772            1,891             2,663
Uncollected customer payments from Federal sources, brought forward, October 1 (-)                            (24)               -               (24)
Obligated balance, start of year (net), before adjustments (+ or -)                                           748            1,891             2,639
Obligated balance, start of year (net), as adjusted                                                           748            1,891             2,639
Obligations incurred                                                                                       10,952           27,569            38,521
Outlays (gross) (-)                                                                                       (10,904)         (27,113)          (38,017)
Change in uncollected customer payments from Federal sources (+ or -)                                           4               (1)                3
Recoveries of prior year unpaid obligations (-)                                                               (84)             (26)             (110)
Unpaid obligations, end of year (gross)                                                                       736            2,321             3,057
Uncollected customer payments from Federal sources, end of year                                               (20)              (1)              (21)
Obligated balance, end of year (net)                                                                          716            2,320             3,036

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                      11,404           29,158            40,562
Actual offsetting collections (discretionary and mandatory) (-)                                            (8,169)         (27,869)          (36,038)
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -)             4               (1)                3
Budget authority, net (discretionary and mandatory)                                                         3,239            1,288             4,527
Outlays, gross (discretionary and mandatory)                                                               10,904           27,113            38,017
Actual offsetting collections (discretionary and mandatory) (-)                                            (8,169)         (27,869)          (36,038)
Outlays, net (discretionary and mandatory)                                                                  2,735             (756)            1,979
Less Distributed offsetting receipts (-)                                                                    1,033                -             1,033
Agency outlays, net (discretionary and mandatory)                                                           1,702             (756)              946




                                    The accompanying notes are an integral part of these statements




                                                                               22
                                                                                                                                      2012-FO-0002



                                 FEDERAL HOUSING ADMINISTRATION
                 (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                           COMBINED STATEMENT OF BUDGETARY RESOURCES
                                   For the Period Ended September 30, 2010
                                             (Dollars in Millions)


                                                                                                       FY 2010          FY 2010           FY 2010
                                                                                                      Budgetary      Non-Budgetary         Total
Budgetary Resources:
Unobligated balance brought forward, October 1                                                             11,401           26,799            38,200
Recoveries of prior year unpaid obligations                                                                    58               70               128
Other changes in unobligated balance (+ or -)                                                                (396)            (452)             (848)
Appropriations (discretionary and mandatory)                                                                1,231                7             1,238
Borrowing authority (discretionary and mandatory)                                                              10              790               800
Spending authority from offsetting collections (discretionary and mandatory)                                3,970           28,184            32,154
Total budgetary resources                                                                                  16,274           55,398            71,672

Status of Budgetary Resources:
Obligations incurred                                                                                       11,017           20,749            31,766
Unobligated balance, end of year:
   Apportioned                                                                                                513            4,064             4,577
   Unapportioned                                                                                            4,744           30,585            35,329
Total unobligated balance, end of year                                                                      5,257           34,649            39,906
Total budgetary resources                                                                                  16,274           55,398            71,672

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                        840            1,464             2,304
Uncollected customer payments from Federal sources, brought forward, October 1 (-)                            (86)              (3)              (89)
Obligations incurred                                                                                       11,017           20,749            31,766
Outlays (gross) (-)                                                                                       (11,027)         (20,252)          (31,279)
Change in uncollected customer payments from Federal sources (+ or -)                                          62                3                65
Recoveries of prior year unpaid obligations (-)                                                               (58)             (70)             (128)
Unpaid obligations, end of year (gross)                                                                       772            1,891             2,663
Uncollected customer payments from Federal sources, end of year                                               (24)               -               (24)
Obligated balance, end of year (net)                                                                          748            1,891             2,639

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                       5,211           28,981            34,192
Actual offsetting collections (discretionary and mandatory) (-)                                             3,970           28,184            32,154
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -)            62                3                65
Outlays, gross (discretionary and mandatory)                                                               11,027           20,252            31,279
Actual offsetting collections (discretionary and mandatory) (-)                                            (3,970)         (28,185)          (32,155)
Less Distributed offsetting receipts (-)                                                                      619                -               619
Agency outlays, net (discretionary and mandatory)                                                           6,438           (7,933)           (1,495)




                                   The accompanying notes are an integral part of these statements.




                                                                               23
                                                                                                        2012-FO-0002


                    NOTES TO THE FINANCIAL STATEMENTS
                                              September 30, 2011
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 (31 U.S.C.
§ 9101 et seq.), 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 Mortgages (HECM). The objectives of the activities
carried out by FHA relate directly to developing affordable housing.

FHA categorizes its insurance programs 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 supports its insurance operations through five 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. Activities related to most Single Family
programs, including HECM, endorsed in Fiscal Year 2009 and going forward, are in the MMI fund. The Single
Family activities in the GI fund from Fiscal Year 2008 and prior remain in the GI fund. The HOPE for
Homeowners (H4H) program began on October 1, 2008 for Fiscal Year 2009 as a result of The Housing and
Economic Recovery Act of 2008. This legislation required FHA to modify existing programs and initiated the
H4H program and fund.

In fiscal year 2010, FHA received appropriations for the Energy Innovation and Transformation Initiative
programs. The Energy Innovation program is intended to catalyze innovations in the residential energy efficiency
sector that have the ability to be replicated and to help create a standardized home energy efficient retrofit market.
The appropriation for the Transformation Initiative is for combating mortgage fraud.




                                                          24
                                                                                                      2012-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 and the Federal Credit Reform Act of 1990. The format of the SBR is based on the SF
133, Report on Budget Execution and Budgetary Resources.

Basis of Consolidation

The accompanying principal financial statements include all Treasury Account Fund Symbols (TAFSs)
designated to FHA, which consist of principal program funds, revolving funds, 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 required by OMB Circular A-136, Financial Reporting
Requirements, Revised.

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 interest
method in accordance with the Statement of Federal Financial Accounting Standards (SFFAS) No. 1 Accounting
for Selected Assets and Liabilities, paragraph 71.

In connection with an Accelerated Claims Disposition Demonstration program (the 601 program), FHA transfers
assigned mortgage notes to private sector entities in exchange for cash and equity interest. FHA uses the equity
method of accounting to measure the value of its investments in these entities.

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 the claim amount paid by FHA on defaulted insured loans.

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


                                                         25
                                                                                                      2012-FO-0002


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 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 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.

In FY 2011, FHA began reporting on a second general fund receipt account. This receipt account is used for the
unobligated balance transferred from GI/SRI liquidating account and loan modifications. Similar to the general
fund receipt account used for the GI/SRI negative subsidy and downward reestimates, the amounts in this account
are not earmarked for FHA’s credit programs and are returned to Treasury at the beginning of the next fiscal year.
Any assets in this account are non-entity assets and are offset by intragovernmental liabilities.

Loans Receivable and Related Foreclosed Property, Net

FHA’s loans receivable include mortgage notes assigned (MNA), also described as Secretary-held notes, purchase
money mortgages (PMM), and notes related to partial claims. 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 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. Partial claims notes arise when FHA pays a loss mitigation amount to keep a borrower
current on their loan. FHA, in turn, records a loan receivable which takes a second position to the primary
mortgage.

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


                                                         26
                                                                                                      2012-FO-0002


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. Pre-Credit Reform loans
receivable and related foreclosed property in inventory are recorded at net realizable value which is based on
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 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.

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.



                                                         27
                                                                                                        2012-FO-0002



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.

Appropriations

FHA receives annual appropriations for certain operating expenses for its MMI/CMHI, GI/SRI, and H4H program
activities, some of which are transferred to HUD. 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.

Full Cost Reporting

SFFAS No. 4, Managerial Cost Accounting Concepts and Standards and SFFAS No. 30, Inter-Entity Cost
Implementation: Amending SFFAS 4, Managerial Cost Accounting Standards and Concepts to account for costs
assumed by other Federal organizations on their behalf, require 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.
HUD allocates 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 $18 million for fiscal year 2011
and $19 million for fiscal year 2010, 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.

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. 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.




                                                          28
                                                                                                    2012-FO-0002




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.




                                                        29
                                                                                                        2012-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, 2011 and 2010 are as follows:

                Note 2: Non-Entity Assets
                (Dollars in millions)
                                                                          FY 2011          FY 2010
                Intragovernmental:
                            Fund Balance with Treasury                $        1,292   $         668
                            Investments in U.S. Treasury Securities                3               -
                Total Intragovernmental                                        1,295             668

                Other Assets                                                      66               70
                Total Non-Entity Assets                                        1,361              738
                Total Entity Assets                                           50,407           48,859
                Total Assets                                          $      51,768    $      49,597


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 GI/SRI negative credit subsidy from new endorsements, downward credit
subsidy reestimates, loan modifications, and unobligated balances from the liquidating account to the GI/SRI
general fund receipt accounts. At the beginning of each fiscal year, fund balances in the GI/SRI general fund
receipt accounts are 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.




                                                            30
                                                                                                       2012-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, 2011 and 2010:

                       Note 3: Fund Balance with U.S. Treasury

                       (Dollars in millions)                             FY 2011         FY 2010
                       Fund Balances:
                         Revolving Funds                             $      39,386   $      37,404
                         Appropriated Funds                                    795             790
                         Other Funds                                         1,825             884
                              Total                                  $     42,006    $     39,078

                       Status of Fund Balance with U.S. Treasury:
                          Unobligated Balance
                              Available                              $      13,392   $       4,577
                              Unavailable                                   25,557          31,838
                         Obligated Balance Not Yet Disbursed                 3,057           2,663
                              Total                                  $     42,006    $     39,078

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 annual or multi-year program accounts that 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, the
capital reserve account is included with these funds and 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.


                                                           31
                                                                                                             2012-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, 2011 were as follows:
(Dollars in millions)

                                                     Amortized (Premium)
FY 2011                               Cost             / Discount, Net            Investments, Net         Market Value
MMI/CMHI Investments          $              4,091   $                 23     $                4,114   $              5,106
GI/SRI Investments                               3                      -                          3                      3
              Subtotal                       4,094                     23                      4,117                  5,109

MMI/CMHI Accrued Interest                                                                        18                      18
Total                         $              4,094    $               23      $               4,135    $              5,127



The cost, net amortized premium/discount, net investment, and market values as of September 30, 2010 were as
follows:

                                                     Amortized (Premium)
FY 2010                               Cost             / Discount, Net            Investments, Net         Market Value
MMI/CMHI Investments          $              4,086   $                 41     $                4,127   $              5,117
GI/SRI Investments                               -                      -                          -                      -
              Subtotal                       4,086                     41                      4,127                  5,117

MMI/CMHI Accrued Interest                                                                        23                      23
Total                         $              4,086   $$               41      $               4,150 $ $               5,140

Investments in Private-Sector Entities

Investments in Section 601 and Risk Sharing Debentures as of September 30, 2011 and 2010 were as follows:

                                                               Share of
                               Beginning        New          Earnings or    Returns of                          Ending
  (Dollars in millions)         Balance      Acquisitions       Losses      Investment        Redeemed          Balance
  FY 2011
   601 Program                $         9 $               - $         (1) $             (2) $            - $           6
   Risk Sharing Debentures            127                 1            -                 -             (71)           57
  Total                       $       136 $               1 $         (1) $             (2) $          (71) $         63

  FY 2010
   601 Program                $        12 $                - $         - $              (3) $            - $           9
   Risk Sharing Debentures            133                 38           -                 -             (44)          127
  Total                       $       145 $               38 $         - $              (3) $          (44) $        136

The joint venture partner reporting period for the Section 601 Program investments was from December 1, 2009
to December 31, 2010. The condensed financial statements reported $41 million in assets, $41 million in
liabilities and partner’s capital, and $167 thousand in net gain for these investments.

                                                            32
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Note 5. Accounts Receivable, Net

Accounts receivable, net, as of September 30, 2011 and 2010 are as follows:

                                           Gross                Allowance                        Net
      (Dollars in millions)           FY 2011    FY2010      FY 2011     FY2010            FY 2011      FY2010
      With the Public:

      Receivables related to      $       16   $      11 $          -   $        (3) $         16 $         8
        credit program assets
      Premiums receivable                  4           1             -            -    $        4   $       1
      Generic Debt Receivables            80         103           (80)        (103)   $        -   $       -
      Miscellaneous receivables           12           7             -            -    $       12   $       7
      Total                       $      112 $       122 $        (80) $      (106)    $       32   $      16



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 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 Indemnifications, 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.




                                                       33
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Note 6. Direct Loans and Loan Guarantees, Non-Federal Borrowers


  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
  H4H 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. The H4H fund only contains Single Family activity.

To comply with the FHA Modernization Act of 2008, activities related to most Single Family programs, including
HECM and Section 234(c), endorsed in Fiscal Year 2009 and going forward, are now in the MMI fund. The
Single Family activities in the GI fund from Fiscal Year 2008 and prior remain in the GI fund. The following
table illustrates how the primary Single Family program activities for FHA are now distributed between
MMI/CMHI and GI/SRI funds based on the year of endorsement:

     Fund          Loans Endorsed in Fiscal Years          Loans Endorsed in Fiscal Years
                          2008 and Prior                         2009 and Onward
      GI                  234(c), HECM                                  N/A
     MMI                      203(b)                           203(b), 234(c), HECM

FHA Direct Loan and Loan Guarantee Programs and the related loans receivable, foreclosed property, and Loan
Guarantee Liability as of September 30, 2011 and 2010 are as follows:

Direct Loan Program

                    (Dollars in Millions)
                    FY 2011                                               Total
                    Direct Loans
                      Loan Receivables                                                 16
                      Interest Receivables                                             10
                      Allowance                                                       (11)
                    Total Direct Loans                                                 15



                    (Dollars in Millions)
                    FY2010                                                Total
                    Direct Loans
                      Loan Receivables                                                20
                      Interest Receivables                                            10
                      Allowance                                                      (16)
                    Total Direct Loans                                                14




                                                      34
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Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for Loss Method):
      (Dollars in Millions)
      FY 2011                                       MMI/CMHI             GI/SRI          Total
      Guaranteed Loans
        Single Family Forward
              Loan Receivables                                    17                3                20
              Interest Receivables                                 -                1                 1
              Allowance for Loan Losses                          (43)             (13)              (56)
              Foreclosed Property                                 32               11                43
        Subtotal                                                   6                2                 8

        Multifamily
             Loan Receivables                                      -          2,459               2,459
             Interest Receivables                                  -            215                 215
             Allowance for Loan Losses                             -         (1,660)             (1,660)
             Foreclosed Property                                   -              1                   1
        Subtotal                                                   -         1,015               1,015

        HECM
             Loan Receivables                                      -                5                 5
             Interest Receivables                                  -                1                 1
             Allowance for Loan Losses                             -               (1)               (1)
             Foreclosed Property                                   -                4                 4
        Subtotal                                                   -                9                 9

      Total Guaranteed Loans                                      6          1,026               1,032

       (Dollars in Millions)
       FY2010                                       MMI/CMHI             GI/SRI          Total
       Guaranteed Loans
         Single Family Forward
               Loan Receivables                                  16                 7               23
               Interest Receivables                                -                1                1
               Allowance for Loan Losses                          (9)              (5)             (14)
               Foreclosed Property                               16                 2               18
         Subtotal                                                23                 5               28

         Multifamily
              Loan Receivables                                     -          2,571               2,571
              Interest Receivables                                 -            213                 213
              Allowance for Loan Losses                            -         (1,825)             (1,825)
              Foreclosed Property                                  -              -                   -
         Subtotal                                                  -           959                 959

         HECM
              Loan Receivables                                     -                4                 4
              Interest Receivables                                 -                1                 1
              Allowance for Loan Losses                            -               (1)               (1)
              Foreclosed Property                                  -                2                 2
         Subtotal                                                  -                6                 6

       Total Guaranteed Loans                                    23           970                 993

*HECM loans, while not defaulted, have reached 98% of the maximum claim amount and have been assigned to
FHA.



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Defaulted Guaranteed Loans from Post-1991 Guarantees:
     (Dollars in Millions)
     FY 2011                                        MMI/CMHI              GI/SRI          Total
     Guaranteed Loans
       Single Family Forward
             Loan Receivables                                    1,116            43            1,159
             Interest Receivables                                    -             2                2
             Foreclosed Property                                 5,199           277            5,476
             Allowance                                          (3,859)         (199)          (4,058)
       Subtotal                                                 2,456           123            2,579

       Multifamily
           Loan Receivables                                          -           681                681
           Interest Receivables                                      -             -                  -
           Foreclosed Property                                       -             -                  -
           Allowance                                                 -          (448)              (448)
       Subtotal                                                      -          233                233

       HECM
           Loan Receivables                                        26           1,395           1,421
           Interest Receivables                                      5            643             648
           Foreclosed Property                                       -             61              61
           Allowance                                                (8)          (521)           (529)
       Subtotal                                                    23          1,578           1,601

     Total Guaranteed Loans                                     2,479          1,934           4,413

    (Dollars in Millions)
    FY2010                                          MMI/CMHI              GI/SRI           Total
    Guaranteed Loans
      Single Family Forward
            Loan Receivables                                       728             39             767
            Interest Receivables                                     -              2               2
            Foreclosed Property                                  6,833            379           7,212
            Allowance                                           (4,282)          (241)         (4,523)
      Subtotal                                                  3,279            179           3,458

       Multifamily
           Loan Receivables                                          -            641               641
           Interest Receivables                                      -              -                 -
           Foreclosed Property                                       -              -                 -
           Allowance                                                 -           (353)             (353)
       Subtotal                                                      -           288               288

       HECM
           Loan Receivables                                          -          1,103           1,103
           Interest Receivables                                      -            524             524
           Foreclosed Property                                       -             44              44
           Allowance                                                 -           (288)           (288)
       Subtotal                                                      -         1,383           1,383

    Total Guaranteed Loans                                      3,279          1,850           5,129

*HECM loans, while not defaulted, have reached 98% of the maximum claim amount and have been assigned to
FHA.

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Guaranteed Loans Outstanding:

     (Dollars in Millions)
                                                      Outstanding        Amount of
                                                       Principal of     Outstanding
                                                    Guaranteed Loans,    Principal
     Loan Guarantee Programs                           Face Value       Guaranteed

     Guaranteed Loans Outstanding (FY 2011):
       MMI/CMHI
        Single Family Forward                               1,062,363       1,002,724
        Multifamily                                               407             384
       MMI/CMHI Subtotal                                   1,062,770       1,003,108

        GI/SRI
         Single Family Forward                                 20,678          17,538
         Multifamily                                           83,556          76,058
        GI/SRI Subtotal                                      104,234          93,596

        H4H
         Single Family - 257                                     125             124
        H4H Subtotal                                             125             124

     Total                                                 1,167,129       1,096,828

     Guaranteed Loans Outstanding (FY 2010):
       MMI/CMHI
        Single Family Forward                                 925,016         878,209
        Multifamily                                               420             403
       MMI/CMHI Subtotal                                     925,436         878,612

        GI/SRI
         Single Family Forward                                 22,931          20,028
         Multifamily                                           76,709          69,294
        GI/SRI Subtotal                                       99,640          89,322

        H4H
         Single Family - 257                                      24              24
        H4H Subtotal                                              24              24

     Total                                                 1,025,100         967,958




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New Guaranteed Loans Disbursed:

(Dollars in Millions)
                                                   Outstanding        Amount of
                                                    Principal of     Outstanding
Loan Guarantee Programs                          Guaranteed Loans,    Principal


  MMI/CMHI
   Single Family Forward                                   217,629         215,282
   Multifamily                                                  85              85
  MMI/CMHI Subtotal                                       217,714         215,367

  GI/SRI
   Single Family Forward                                       177             176
   Multifamily                                              16,512          16,442
  GI/SRI Subtotal                                          16,689          16,618

  H4H
   Single Family - 257                                        101             100
  H4H Subtotal                                                101             100

Total                                                     234,504         232,085

New Guaranteed Loans Disbursed (FY 2010):
  MMI/CMHI
   Single Family Forward                                   296,418         293,710
   Multifamily                                                  68              68
  MMI/CMHI Subtotal                                       296,486         293,778

  GI/SRI
   Single Family Forward                                       230             228
   Multifamily                                              14,760          14,711
  GI/SRI Subtotal                                          14,990          14,939

  H4H
   Single Family - 257                                         20              20
  H4H Subtotal                                                 20              20

Total                                                     311,496         308,737




                                            38
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Home Equity Conversion Mortgage (HECM)

HECM (reverse mortgages) are not included in the previous tables due to the unique nature of the program. Since
the inception of the program, FHA has insured 706,740 HECM loans with a maximum claim amount of $158
billion. Of these 723,588 HECM loans insured by FHA, 560,843 loans with a maximum claim amount of $132
billion are still active. As of September 30, 2011 the insurance-in-force (the outstanding balance of active loans)
was $85 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 Millions)
                                                                                       Cumulative
                                                                        Current                         Maximum
                                      Current Year                     Outstanding                      Potential
 Loan Guarantee Programs              Endorsements                      Balance                         Liability

 FY 2011     MMI/CMHI                $         18,141              $          39,686                $         65,624
             GI/SRI                                 -                         44,949                          66,151
                            Total    $        18,141               $         84,635                 $       131,775

 FY 2010     MMI/CMHI                $         21,023              $          28,351                $         49,388
             GI/SRI                                 -                         44,906                          69,407
                            Total    $        21,023               $         73,257                 $       118,795




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Loan Guarantee Liability, Net:

(Dollars in Millions)
FY 2011                              MMI/CMHI           GI/SRI              H4H            Total
  LLR
   Single Family Forward         $           18 $                 - $              - $             18
   Multifamily                                -                  16                -               16
  Subtotal                       $           18 $                16 $              - $             34

  LLG
   Single Family Forward         $        26,305 $               799 $            19 $         27,123
   Multifamily                               (12)             (1,055)              -           (1,067)
   HECM                                    2,149               7,864               -           10,013
  Subtotal                       $       28,442 $             7,608 $             19 $        36,069

Loan Guarantee Liability Total   $       28,460     $         7,624     $         19   $      36,103




FY2010                               MMI/CMHI           GI/SRI              H4H            Total
  LLR
   Single Family Forward                     10 $                 1 $              - $             11
   Multifamily                   $            - $                42 $              -               42
  Subtotal                       $           10 $                43 $              - $             53

  LLG
   Single Family Forward         $        23,362    $            609    $          5 $         23,976
   Multifamily                   $            (7)   $           (429)   $          -             (436)
   HECM                          $         2,673    $          8,692    $          -           11,365
  Subtotal                       $       26,028     $         8,872     $          5 $        34,905

Loan Guarantee Liability Total   $       26,038     $         8,915     $          5   $      34,958




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Subsidy Expense for Loan Guarantees by Program and Component:

         (Dollars in millions)
         FY 2011                             MMI/CMHI       GI/SRI       H4H          Total
            Single Family Forward
                Defaults                          5,199           6            16         5,221
                Fees and Other Collections      (14,103)         (8)            (6)    (14,117)
                Other                             2,170           -              1        2,171
            Subtotal                            (6,734)          (2)           11       (6,725)

            Multifamily
              Defaults                                 2         424             -         426
              Fees and Other Collections              (5)       (874)            -        (879)
              Other                                    1           -             -           1
            Subtotal                                  (2)      (450)             -       (452)

            HECM
              Defaults                             931               -           -        931
              Fees and Other Collections          (933)              -           -       (933)
            Subtotal                                (2)              -           -         (2)

         Total                                  (6,738)        (452)           11      (7,179)

         FY 2010                             MMI/CMHI       GI/SRI       H4H          Total
            Single Family Forward
               Defaults                           9,601           11            4        9,616
               Fees and Other Collections       (15,522)         (12)          (1)     (15,535)
               Other                              3,376            1            -        3,377
            Subtotal                            (2,545)            -            3      (2,542)

            Multifamily
              Defaults                                 2         428             -         430
              Fees and Other Collections              (3)       (856)            -        (859)
              Other                                    1           -             -           1
            Subtotal                                   -       (428)             -       (428)

            HECM
              Defaults                            1,078              -           -       1,078
              Fees and Other Collections         (1,184)             -           -      (1,184)
            Subtotal                              (106)              -           -       (106)

         Total                                  (2,651)        (428)            3      (3,076)




                                                 41
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Subsidy Expense for Modifications and Reestimates:

                        (Dollars in millions)
                                                             Total      Technical
                        FY 2011                           Modification Reestimate
                            MMI/CMHI                                 -       8,395
                            GI/SRI                                 (37)       (574)
                        Total                                     (37)       7,821

                        FY 2010
                            MMI/CMHI                                 -        (2,161)
                           GI/SRI                                   (5)        3,195
                        Total                                       (5)        1,034




Total Loan Guarantee Subsidy Expense:

                        (Dollars in millions)
                                                            FY 2011       FY 2010
                            MMI/CMHI                             1,657        (4,812)
                            GI/SRI                              (1,063)        2,762
                            H4H                                     11             3
                        Total                                      605        (2,047)




                                                     42
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Subsidy Rates for Loan Guarantee Endorsements by Program and Component:

                                                                                      Fees and Other
(Percentage)                                                       Defaults            Collections       Other             Total

Budget Subsidy Rates for FY 2011 Loan Guarantees:

      MMI/CMHI
       Single Family - Forward - (4/18/2011 - 9/30/2011)                       2.10             (6.90)           1.02              (3.78)
       Single Family - Forward (10/1/2010 - 4/17/2011)                         2.61             (6.17)           0.98              (2.58)
       Single Family - HECM                                                    5.11             (5.12)            -                (0.01)
       Single Family - Short Refi                                               -                 -               -                  -
       Multifamily - Section 213 - (4/18/2011 - 9/30/2011)                     2.63             (6.50)           1.02              (2.85)
       Multifamily - Section 213 (10/1/2010 - 4/17/2011)                       2.61             (6.17)           0.98              (2.58)

      GI/SRI
        Multifamily - Section 221(d)(4) (1/1/2011 - 9/30/2011)                 3.59             (5.50)           -                 (1.91)
       Multifamily - Section 221(d)(4) (10/1/2010 - 12/31/2010)                3.71             (5.49)           -                 (1.78)
       Multifamily - Section 207/223(f) (1/1/2011 - 9/30/2011)                 1.95             (5.35)           -                 (3.40)
       Multifamily - Section 207/223(f) (10/1/2010 - 12/31/2010)               1.97             (5.32)           -                 (3.35)
       Multifamily - Section 223(a)(7) (1/1/2011 - 9/30/2011)                  1.95             (5.35)           -                 (3.40)
       Multifamily - Section 223(a)(7) (10/1/2010 - 12/31/2010)                1.97             (5.32)           -                 (3.35)
       Multifamily - Section 232 (11/17/2010 - 9/30/2011)                      4.49             (6.00)           -                 (1.51)
       Multifamily - Section 232 (10/1/2010 - 11/16/2010)                      4.62              5.94            -                 10.56
       Section 242                                                             1.81             (5.48)           -                 (3.67)

      H4H
       Single Family - Section 257                                            15.95             (6.14)           1.09              10.90

                                                                                      Fees and Other
(Percentage)                                                       Defaults            Collections       Other             Total

Budget Subsidy Rates for FY 2010 Loan Guarantees:

      MMI/CMHI
       Single Family - Forward (10/1/2009 - 4/4/2010)                          3.22             (4.97)           1.13              (0.62)
       Single Family - Forward (4/5/2010 - present)                            3.23             (5.50)           1.14              (1.13)
       Single Family - HECM                                                    5.11             (5.61)            -                (0.50)
       Multifamily - Section 213 (10/1/2009 - 4/4/2010)                        3.22             (4.96)           1.12              (0.62)
       Multifamily - Section 213 (4/5/2010 - present)                          3.23             (5.50)           1.14              (1.13)

      GI/SRI
       Multifamily - Section 221(d)(4)                                         4.23             (5.86)           -                 (1.63)
       Multifamily - Section 207/223(f)                                        1.45             (5.32)           -                 (3.87)
       Multifamily - Section 223(a)(7)                                         1.45             (5.32)           -                 (3.87)
       Multifamily - Section 232                                               3.67             (5.96)           -                 (2.29)
       Section 242                                                             1.55             (5.83)           -                 (4.28)

      H4H
        Single Family - Section 257 (10/1/2009 - 12/31/2009)              24.26                 (1.91)           0.37              22.72
        Single Family - Section 257 (1/1/2010 - present)                  22.26                 (5.89)           0.54              16.91




                                                                   43
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Schedule for Reconciling Loan Guarantee Liability Balances:

                                                                          FY 2011                  FY2010
(Dollars in Millions)                                                  LLR       LLG            LLR       LLG
Beginning Balance of the Loan Guarantee Liability                    $     53 $ 34,905        $    136 $ 33,886
Add:        Subsidy Expense for guaranteed loans disbursed during
            the reporting fiscal years by component:
                          Default Costs (Net of Recoveries)                 -         6,578         -       11,124
                          Fees and Other Collections                        -      (15,929)         -      (17,578)
                          Other Subsidy Costs                               -         2,172         -         3,378
             Total of the above subsidy expense components                  -       (7,179)         -       (3,076)
Adjustments:
             Fees Received                                                           8,582                  10,082
             Foreclosed Property and Loans Acquired                                  5,082                   6,814
             Claim Payments to Lenders                                             (17,200)                (16,478)
             Interest Accumulation on the Liability Balance                          1,388                   1,344
             Other                                                                      11                      16
Ending Balance before Reestimates                                          53      25,589         136      32,588
Add or Subtract Subsidy Reestimates by Component:
            Technical/Default Reestimate
                          Subsidy Expense Component                       (19)      (1,647)       (83)      (2,607)
                          Interest Expense Component                        -        1,397          -        1,113
             Adjustment of prior years' credit subsidy reestimates          -       10,730          -        3,811
Total Technical/Default Reestimate                                        (19)     10,480         (83)      2,317

Ending Balance of the Loan Guarantee Liability                       $     34    $ 36,069     $    53    $ 34,905




Administrative Expense:


                                  (Dollars in Millions)      FY 2011     FY2010
                                     MMI/CMHI                     663        543
                                     GI/SRI                         6         30
                                     H4H                            4          9
                                  Total                          673         582




                                                           44
                                                                                                       2012-FO-0002


Credit Reform Valuation Methodology

FHA values its Credit Reform LLG and related receivables from notes and properties in inventory at the net
present value of their estimated future cash flows.

To apply the present value computations, FHA divides loans into cohorts and risk categories. Multifamily and
Health Care 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. For
activity related to fiscal years 1992-2008, the MMI fund has one risk category, and for activity related to fiscal
years 2009 and onward, the MMI fund has two risk categories, with HECM loans considered a separate category
from standard forward loans. The single family GI/SRI loans are grouped into four risk categories. There are
thirteen different multifamily risk categories and six health care categories. Health Care programs are subsumed
in the single, aggregate, multifamily category reported in this note.

The cash flow estimates that underlie present value calculations are determined using the significant assumptions
detailed below.

Significant Assumptions – FHA developed economic and 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:

    •   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.

    •   Claim Amount: The estimated amount of the claim payment relative to the unpaid principal balance at the
        time the claim occurs.

    •   Recovery Rates: The estimated percentage of a claim payment or defaulted loan balance that is recovered
        through disposition of a mortgage note or underlying property.


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 internal business systems.

Economic assumptions: Independent forecasts of economic conditions are used in conjunction with loan-level
data to generate Single Family, Multifamily, and Health Care claim and prepayment rates. Sources of forecast
data include IHS Global Insight and Moody’s Analytics. 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 and loss severity rates that are used as inputs to the Single Family LLG calculation, both for
forward and (post-2008) HECM loans.

Reliance on historical performance: FHA relies on the historical performance of its insured portfolio to generate
behavioral response functions that are applied to economic forecasts to generate future performance patterns for
the outstanding portfolio. Changes in legislation, program requirements, tax treatment, and economic factors all
influence loan performance. FHA assumes that its portfolio will continue to perform consistently with its


                                                         45
                                                                                                     2012-FO-0002


historical experience, respecting differences due to current loan characteristics and forecasted economic
conditions.

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. Such 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
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 maturities comparable to cash flow timing for the
loan guarantee is used in the present value calculation. This latter 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 reported on LLG calculations since fiscal year 1992. Over this time, FHA’s reported LLG
values have shown measurable year-to-year variance. That variance is caused by four factors: (1) adding a new
year of insurance commitments each year; (2) an additional year of actual loan performance data used to calibrate
forecasting models, (3) revisions to the methodologies employed to predict future loan performance, and (4)
programmatic/policy changes that affect the characteristics of insured loans or potential credit losses.

Described below are the programs that comprise the majority of FHA’s loan guarantee business. These
descriptions highlight the factors that contributed to changing LLG estimates for FY 2011. Overall, FHA’s
liability decreased slightly from the fiscal year 2010 estimates.

Mutual Mortgage Insurance (MMI) – During fiscal year 2011, FHA experienced better than anticipated credit
quality of borrowers, but worse than expected declines in home prices. Updated house-price forecasts call for
continued weakness in the near term, but better long-term appreciation rates than were predicted last year. At the
start of 2011, FHA raised insurance premiums for both forward and reverse (HECM) loans, and then raised
premium rates for forward loans a second time at mid-year. Some forward loan claims that would normally have
been paid in 2011 have been delayed because of problems major loan servicers are facing with verification that
foreclosure processes have been properly documented and that agents initiating foreclosure had legal standing to
do so. On net, the MMI LLG increased from $26,035 million at the end of fiscal year 2010 to $28,454 million at
the end of fiscal year 2011.

GI/SRI Home Equity Conversion Mortgage (HECM) - HECM endorsements from fiscal years 1990-2008 remain
in the GI/SRI Fund. The liability for these loans decreased from $8,692 million at the end of FY 2010 to $7,865
million at the end of FY 2011. This liability is driven more by long term house price appreciation forecasts than
short term forecasts, and the long-term forecast used (Moody’s Analytics, July 2011) is slightly more favorable
this year in the major states where HECM loans are most concentrated, namely, California, Texas, and Florida.
The HECM loans remaining in the GI/SRI fund also benefited from slower UPB (Unpaid Principal Balance)
growth due to lower current and future (projected) interest rates for adjustable-rate mortgages. Over 99 percent of
the remaining GI/SRI HECM loans have adjustable interest rates.

GI/SRI Section 223(f) - Section 223(f) of the National Housing Act permits FHA mortgage insurance for the
refinance or acquisition of existing multifamily rental properties consisting of five or more units. Under this
program, FHA may insure up to 85 percent of the lesser of the project’s appraised value or its replacement cost.
Projects insured under the program must be at least three years old. The Section 223(f) program is the largest


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multifamily program in the GI/SRI fund with an insurance-in-force of $14 billion. The Section 223(f) liability is
negative, meaning that the present value of expected future premium revenues is greater than the present value of
expected future (net) claim expenses. The 223(f) liability decreased this year by $174 million, from ($106)
million to ($280) million, and principally due to lower claim expectations.

GI/SRI Section 221(d)(4) - Section 221(d)(4) of the National Housing Act authorizes FHA mortgage insurance for
the construction or substantial rehabilitation of multifamily rental properties with five or more units. Under this
program, FHA may insure up to 90 percent of the total project cost. This is the second largest multifamily
program in the GI/SRI fund with an insurance-in-force of $12 billion. The Section 221(d)(4) liability increased
by $61 million this year, from ($71) million to ($10) million. This was principally due to lower premium revenue
expectations resulting from increased projected prepayment speeds.

GI/SRI Section 232 Health Care New Construction - The Section 232 NC program provides mortgage insurance
for construction or substantial rehabilitation of nursing homes and assisted-living facilities. FHA insures a
maximum of 90 percent of the estimated value of the physical improvements and major movable equipment. The
Section 232 NC program has an insurance-in-force of $4.6 billion. The Section 232 NC liability increased by $6
million from ($22) million in FY 2010 to ($16) million in FY 2011 due to slightly diminished insurance-in-force
and recovery rate expectations.

GI/SRI Section 232 Health Care Purchasing or Refinancing - The Section 232 Refinance program provides
mortgage insurance for two purposes: purchasing or refinancing of projects that do not need substantial
rehabilitation, and installation of fire safety equipment for either private, for-profit businesses or non-profit
associations. For existing projects, FHA insures a maximum of 85 percent of the estimated value of the physical
improvements and major movable equipment. The Section 232 Refinance program has an insurance-in-force of
$13 billion. The Section 232 Refinance liability decreased by $98 million from ($45) million in FY 2010 to
($143) million in FY 2011 due to lower claim expectations and significantly increased insurance-in-force as a
result of roughly $2.6 billion in FY 2011 endorsements.

GI/SRI Section 242 Hospitals - The Section 242 Hospitals program provides mortgage insurance for the
construction, substantial rehabilitation, or refinance of hospitals and/or the purchase of major hospital equipment
to either private, for-profit businesses or non-profit associations. FHA insures a maximum of 90 percent of the
estimated replacement cost of the hospital, including the installed equipment. The Section 242 program has an
insurance-in-force of $8.3 billion. The Section 242 liability decreased by $82 million from ($111) million in FY
2010 to ($193) million in FY 2011 due to higher premium revenue caused by decreased prepayment expectations.

Risks to LLG Calculations

LLG calculations for MMI loans use loan-performance projections based upon a single, base-case economic
forecast. That forecast can be considered a median expectation, meaning there are equal probabilities of economic
conditions being more or less favorable than what is used in the LLG calculation.

The current MMI Fund LLG calculation includes a provision for what could be a substantial influx of claims in
FY 2012 resulting from large numbers of loans currently in the foreclosure process, and more loans that have
gone through foreclosure auction but for which lenders have been reluctant to transfer properties to FHA so that
they can file insurance claims. These issues are a result of foreclosure documentation problems in the mortgage
servicing industry that surfaced in 2010 and that are still, in many cases, unresolved. The FY 2011 MMI Fund
LLG assumes that nearly all of the post-foreclosure cases will result in claims during FY 2012. Thus, FHA does
not believe that there is any negative risk to the LLG calculation from this situation.

Continued bottlenecks in processing foreclosure actions in judicial states, as a result simply of large volumes of
cases, do not affect FHA’s estimates of the number of future claims, but they can affect timing and cost of those


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claims. Thus, to the extent that court backlogs persist for long periods of time there can be a risk of upward
revisions to the LLG. Issues for FHA appear to be in a small number of States, with the most problematic being
Florida. As of August 31, 2011, there were close to 22,000 open foreclosure actions on FHA loans in Florida,
which is nearly twice that of the next State (Illinois). The share of cases in Florida that have been in-process for
more than 18 months is now 44 percent. The only State with a worse backlog is New Jersey, where 53 percent of
active foreclosures have been open for over 18 months. Nationwide, the share of in-foreclosure actions that have
been open for more than 18 months has increased over the past year from under 8 percent to nearly 23 percent.
FHA cannot foresee when this situation will improve, but foreclosure actions are being processed on a more
normal schedule in most States. The actual number of FHA loans in foreclosure processing peaked in the second
quarter of FY 2011 and has been on a gradual decline since then.

Risks to the multifamily LLG calculation come from many sources--changes in population growth and household
formation, the supply of rental housing in each market where FHA has a presence, and local employment
conditions. Risks also come from FHA’s policy of insuring loans pre-construction in its 221(d)(4) program. LLG
calculations are then subject to risk from the abilities of new projects to find viable markets when they do come
on-line. New construction loans approved in 2008 – 2009 are just coming on-line and facing rent-up risk, while
2010 and 2011 commitments have not yet resulted in new units being available for rent.

For health care programs (Sections 232 and 242), LLG risk comes principally from health-care reimbursement
rates from Medicare and Medicaid. It also emanates from the quality of business management at each facility, and
from the supply of medical care in each community relative to demand and the abilities of facility management to
adapt to changing technologies and the competitive landscape.

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.

MMI Single Family LLR - For the single family portfolio, the remaining insurance-in-force for pre-credit reform
loans is $4.5 billion. The aggregate liability for the remaining pre-credit reform loans in FY 2011 is $18 million,
which is an $8 million increase from the $10 million estimate in FY 2010.

GI/SRI Multifamily & Healthcare LLR - For the multifamily and healthcare portfolio, the remaining insurance-in-
force for pre-credit reform loans is $1.7 billion. The aggregate liability for the remaining pre-credit reform loans
in FY 2011 is $5 million, which is a $25 million decrease from the $30 million estimate in FY 2010. The year-
over-year decrease in aggregate liability is due to an $800 million decline in insurance-in-force.

GI/SRI Section 223(a)(7) - Section 223(a)(7) gives FHA authority to refinance FHA-insured loans. Under this
program, the refinanced principal amount of the mortgage may be the lesser of the original amount of the existing
mortgage or the remaining unpaid principal balance of the loan. Loans insured under any sections of the National
Housing Act may be refinanced under 223(a)(7), including those already under 223(a)(7). The Section 223(a)(7)
program has an insurance-in-force of $11.5 billion. The Section 223(a)(7) liability is negative, meaning that the
present value of expected future premium revenues is greater than the present value of expected future (net) claim
expenses. The 223(a)(7) liability decreased this year by $184 million, from ($89) million to ($273) million,
principally due to lower claim expectations.




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Note 7. Other Assets

The following table presents the composition of Other Assets held by FHA as of September 30, 2011 and 2010:

             (Dollars in millions)
                                                                              FY 2011         FY2010
             Intragovernmental:
              Advances to HUD for Working Capital Fund Expenses           $             3 $            5
             Total                                                        $             3 $            5

             With the Public:
              Escrow Monies Deposited at Minority-Owned Banks             $         66 $           70
              Deposits in Transit                                                    3              6
             Total                                                        $         69 $           76


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.

Deposits in Transit

Deposits in Transit is cash that has not been confirmed as being received by the U.S. Treasury. Once the U.S.
Treasury has confirmed that this cash has been received, the cash will be moved from Deposits in Transit to Fund
Balance with U.S. Treasury.




.




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Note 8. Accounts Payable

Accounts Payable as of September 30, 2011 and 2010 are as follows:

             (Dollars in millions)                                   FY 2011        FY2010

             With the Public:
              Claims Payable                                          $       474    $      351
              Premium Refunds Payable                                         142    $      143
              Single Family Property Disposition Payable                       79    $      128
              Miscellaneous Payables                                           28    $       25
             Total                                                    $       723    $      647


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

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.

Single Family Property Disposition Payable

Single family property disposition payable includes management and marketing contracts and other property
disposition expenses related to foreclosed property.

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.




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Note 9. Debt

The following tables describe the composition of Debt held by FHA as of September 30, 2011 and 2010:


(Dollars in millions)                                        FY2010                                          FY 2011
                                         Beginning
                                          Balance         Net Borrowing      Ending Balance    Net Borrowing      Ending Balance

Agency Debt:
    Debentures Issued to Claimants                   14                (4)               10    $               - $              10
Other Debt:
    Borrowings from U.S. Treasury               4,420                 329              4,749             1,283               6,032
    Total                            $         4,434 $                325 $           4,759    $        1,283 $             6,042

                                                                                                   FY 2011             FY2010
Classification of Debt:
    Intragovernmental Debt                                                                     $         6,032 $             4,749
    Debt Held by the Public                                                                                 10                  10
    Total                                                                                      $        6,042 $             4,759


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 13.375 percent in fiscal year 2011 and from 4.00 percent to
13.375 percent in fiscal year 2010. 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, as of September 30th was $10 million and
$10 million in fiscal year 2010. The fair value for both fiscal years 2011 and 2010 is $21 million.

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 2011, FHA’s U.S. Treasury borrowings carried interest rates ranging from 1.68 percent to 7.59
percent. In fiscal year 2010, they carried interest rates ranged from 1.68 percent to 7.59 percent. The maturity
dates for these borrowings occur from September 2017 – September 2030. Loans may be repaid in whole or in
part without penalty at any time prior to maturity.




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Note 10. Other Liabilities

The following table describes the composition of Other Liabilities as of September 30, 2011 and 2010:

                             (Dollars in millions)

                             FY 2011                                     Current
                             Intragovernmental:
                              Receipt Account Liability                       3,051
                             Total                                   $       3,051

                             With the Public:
                              Trust and Deposit Liabilities          $         111
                              Multifamily Notes Unearned Revenue               230
                              Disbursements in Transit                          75
                              Miscellaneous Liabilities                         14
                             Total                                   $         430

                             FY2010                                      Current
                             Intragovernmental:
                              Receipt Account Liability              $        1,165
                             Total                                   $       1,165

                             With the Public:
                              Trust and Deposit Liabilities          $         120
                              Multifamily Notes Unearned Revenue     $         227
                              Disbursements in Transit               $          74
                              Miscellaneous Liabilities              $           6
                             Total                                   $         427



Receipt Account Liability

The receipt account liability is created from negative credit subsidy from new endorsements, downward credit
subsidy reestimates, loan modifications, and unobligated balances from the liquidating account in the GI/SRI
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.




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Disbursements in Transit
Disbursements in Transit is cash that has not been confirmed as being disbursed by the U.S. Treasury. Once the U.S.
Treasury has confirmed that this cash has been disbursed, the cash will be removed from Disbursements in Transit
and taken out of Fund Balance with U.S. Treasury.

Multifamily Notes Unearned Revenue

Multifamily Notes Unearned Revenue primarily includes the deferred interest revenue on Multifamily notes that
are based on work out agreements with the owners. The workout agreements defer payments from the owners for
a specified time but, the interest due on the notes is still accruing and will also be deferred until payments resume.

Miscellaneous Liabilities

Miscellaneous liabilities mainly include unearned premium revenue and may include loss contingencies that are recognized
by FHA for past events that warrant a probable, or likely, future outflow of measurable economic resources.




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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 will not have an effect on FHA’s consolidated
financial statements as of September 30, 2011. As a result, no contingent liability has been recorded.




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Note 12. Gross Costs

Gross costs incurred by FHA for the period ended September 30, 2011 and 2010 are as follows:

 (Dollars in millions)                            FY 2011                                     FY 2010
                                       MMI/CMHI      GI/SRI         H4H        MMI/CMHI          GI/SRI            H4H
 Intragovernmental:
   Interest Expense                   $       236 $       176 $           -    $     140      $      144       $         -
   Imputed Cost                                18           -             -    $      19      $        -       $         -
   Other Expenses                               4           -             1    $       1      $        -       $         2
 Total                                $       258 $       176 $           1    $     160      $      144       $         2

 With the Public:
  Salary and Administrative Expense   $        659 $          6 $          3   $      542     $         30     $          7
  Subsidy Expense                            1,657       (1,063)          11   $   (4,812)    $      2,762     $          3
  Interest Expense                           2,690          (32)           -   $      595     $        695     $          -
  Interest Accumulation Expense              1,023          365            -   $    1,076     $        268     $          -
  Bad Debt Expense                              13         (173)           -           (7)    $       (342)    $          -
  Loan Loss Reserve                              7          (27)           -   $        (4)   $        (79)    $          -
  Other Expenses                                61           62            -   $       67     $         25     $          -
 Total                                $     6,110 $       (862) $         14   $   (2,543)    $     3,359      $         10

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.

Interest Accumulation Expense

Interest accumulation expense is the net of interest expense on borrowing and interest revenue in the financing
accounts for MMI/CMHI and GI/SRI.

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 to report imputed costs under SFFAS No. 4, Managerial Cost
Accounting Concepts and Standards, and SFFAS No. 30, Inter-Entity Cost Implementation: Amending SFFAS 4,
Managerial Cost Accounting Standards and Concepts 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. Beginning in fiscal year 2010 and going



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forward, FHA is only using the MMI annual program fund to record salaries and related expenses other than those
relating to the H4H program.

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.

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.




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Note 13. Earned Revenue

Earned revenues generated by FHA for the period ended September 30, 2011 and 2010 are as follows:

(Dollars in millions)                                               FY 2011                        FY2010
                                                             MMI/CMHI       GI/SRI          MMI/CMHI      GI/SRI
Intragovernmental:
 Interest Revenue from Deposits at U.S. Treasury         $         1,259 $        540   $         1,215   $       412
 Interest Revenue from MMI/CMHI Investments                          173            -   $           366   $         -
 Gain on Sale of MMI/CMHI Investments                                133            -   $           554   $         -
Total Intragovernmental                                  $        1,565 $         540   $        2,135    $       412

With the Public:
 Insurance Premium Revenue                               $            1 $            12 $           28 $             16
 Income from Notes and Properties                                    21              34             35               54
 Other Revenue                                                        -               5              -                -
Total With the Public                                    $           22 $            51 $           63 $             70

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 Capital Reserve account 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.

Gain on Sale of MMI/CMHI Investments

This gain occurred as a result of the sale of investments before maturity in the MMI/CMHI Capital Reserve
account because the sales price of the investments was greater than the book value of the investments at the time
of the sale.

Premium Revenue

According to the FCRA accounting, FHA’s premium revenue includes only premiums associated with the pre-1992 loan
guarantee business. Premiums for post-1991 guarantee loans are included in the balance of the LLG. The FHA premium
structure includes both up-front premiums and annual periodic premiums.




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Up-front Premiums

The up-front premium rates vary according to the mortgage type and the year of origination. The FHA up-front
premium rates in fiscal year 2011 were:


                                              Upfront Premium Rates

                       Single Family       1.00%
                       Multifamily         0.25%, 0.45 %, 0.50%, 0.57% , 0.80% or 1.00%
                       HECM Standard       2.00% (Based on Maximum Claim Amount)
                       HECM Saver           .01% (Based on Maximum Claim Amount)

Annual Periodic Premiums

The periodic premium rate is used to calculate monthly or annual premiums. These rates also vary by mortgage
type and program. The FHA annual periodic premium rates in fiscal year 2011 were:

                                                Annual Periodic Premium Rates

                       Single Family           0.85% or 0.90%
                       Single Family           1.10% or 1.15% (as of April 18th)
                       Multifamily             0.45 %, 0.50%, 0.57% or 0.80%
                       HECM (Standard & Saver) 1.25%

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 year 2011,
the Title I annual insurance premium is 1.00 percent of the loan amount until maturity.

Income from Notes and Property

Income from Notes and Property includes revenue associated with FHA pre-1992 loan guarantees. This income
includes revenue from Notes and Properties held, sold, and gains associated with the sale.

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.




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Note 15. Transfers

Transfers in/out incurred by FHA for the period ended September 30, 2011 and 2010 are as follows:

   (Dollars in millions)
   Budgetary Financing Sources     Cumulative Results of
                                                             Unexpended Appropriations          Total
                                       Operations
   Treasury                      $                     (492) $                         - $                    (492)
   HUD                                                    -                          (72)                      (72)
   FY 2011 Total                 $                    (492) $                       (72) $                   (564)



                                     Cumulative Results of
      Other Financing Sources                                     Unexpended Appropriations     Total
                                         Operations
   Treasury                      $                     (1,796) $                          - $               (1,796)
   HUD                                                    567                             -                    567
   FY 2011 Total                 $                    (1,229) $                           - $              (1,229)



   (Dollars in millions)
   Budgetary Financing Sources     Cumulative Results of       Unexpended Appropriations        Total
                                       Operations
   Treasury                      $                      (559) $                        (83) $                 (642)
   HUD                           $                         -                           (72) $                  (72)
   FY2010 Total                  $                     (559) $                       (155) $                 (714)



   Other Financing Sources         Cumulative Results of     Unexpended Appropriations          Total
                                       Operations
   Treasury                      $                    1,020 $                          - $                   1,020
   HUD                                                   484                           -                       484
   FY2010 Total                  $                   1,504 $                           - $                  1,504



Transfers Out to U.S. Treasury

Transfers out to U.S. Treasury consist of negative subsidy from new endorsements, modifications and downward
credit subsidy reestimates in the GI/SRI general fund receipt account.

Transfers In/Out From HUD

FHA does not receive an appropriation for salaries and expense; instead the FHA amounts are appropriated
directly to HUD. In order to recognize these costs in FHA’s Statement of Net Cost, a Transfer In from HUD is
recorded based on amounts computed by HUD. FHA continues to make a non-expenditure Transfer Out to HUD
for Working Capital Fund expenses.




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Note 16. Unexpended Appropriations


Unexpended appropriation balances at September 30, 2011 and 2010 are as follows:

(Dollars in millions)
                                 Beginning    Appropriations     Other      Appropriations
FY 2011                           Balance       Received      Adjustments       Used        Transfers-Out Ending Balance
Positive Subsidy               $          468 $            9 $            - $          (12) $           - $          465
Working Capital and Contract
Expenses                                314              207           (25)           (106)          (72)           318
Reestimates                               -            3,024             -          (3,024)            -              -
GI/SRI Liquidating                       98               71             -            (102)            -             67
Total                          $        880 $         3,311 $          (25) $      (3,244) $         (72) $         850



                                 Beginning    Appropriations     Other      Appropriations
FY2010                            Balance       Received      Adjustments       Used        Transfers-Out Ending Balance
Positive Subsidy               $          478 $            9 $            - $          (19) $           - $          468
Working Capital and Contract
Expenses                                272             259            (47)            (96)           (72)          316
Reestimates                               -             863              -            (863)             -             -
GI/SRI Liquidating                       82             100              -              (3)           (83)           96
Total                          $        832 $         1,231 $          (47) $        (981) $        (155) $         880



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 program accounts for administrative and contract expenses. The GI/SRI and
H4H no-year program accounts also receive 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; appropriations are rescinded; or other miscellaneous adjustments are required.




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Note 17. Budgetary Resources

The SF-133 and the Statement of Budgetary Resources for fiscal year 2010 have been reconciled to the fiscal year
2010 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 2011
Statement of Budgetary Resources will be presented in the fiscal year 2013 Budget of the U.S. Government. The
Budget will be transmitted to Congress on the first Monday in February 2013 and will be available from the
Government Printing Office and online at that time.

Obligated balances as of September 30, 2011 and 2010 are as follows:

        Unpaid Obligations

                  (Dollars in Millions)
                  Undelivered Orders                           FY 2011             FY2010
                   MMI/CMHI                                  $        1,495 $               1,139
                   GI/SRI                                               403                   454
                   H4H                                                    1                     1
                   EI                                                    12
                   TI                                                    12
                  Undelivered Orders Subtotal                $       1,923 $            1,594

                  Accounts Payable
                   MMI/CMHI                                  $           813 $               719
                   GI/SRI                                                321                 350
                   H4H                                                     -                   -
                   EI                                                      -
                   TI                                                      -
                  Accounts Payable Subtotal                  $         1,134 $          1,069

                  Total                                      $         3,057   $        2,663




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Note 18. Budgetary Resources - Collections

The following table presents the composition of FHA’s collections for the period ended September 30, 2011 and
2010:

     (Dollars in Millions)
     FY 2011                                         MMI/CMHI          GI/SRI         H4H               Total
     Collections:
      Premiums                                        $      7,745 $          784 $               2 $       8,531
      Notes                                                    123            438                 -           561
      Property                                               6,158            310                 -         6,468
      Interest Earned from U.S. Treasury                     1,588            540                 -         2,128
      Subsidy                                                6,739              1                11         6,751
      Reestimates                                            8,449          3,024                 -        11,473
      Other                                                     48             77                 1           126
     Total                                            $    30,850 $        5,174 $               14 $     36,038



     FY2010                                          MMI/CMHI          GI/SRI         H4H               Total
     Collections:
      Premiums                                        $      9,282 $         768 $                1 $      10,051
      Notes                                                      9           490                  -           499
      Property                                               5,038           269                  -         5,307
      Interest Earned from U.S. Treasury                     2,238           412                  -         2,650
      Subsidy                                                2,651            15                  3         2,669
      Reestimates                                            9,894           863                  -        10,757
      Other                                                     48           165                  9           222
     Total                                            $    29,160 $        2,982 $               13 $     32,155



Note 19. Budgetary Resources – Non-expenditure Transfers

The following table presents the composition of FHA’s non-expenditure transfers for the period ended
September 30, 2011 and 2010:

                   (Dollars in Millions)
                   FY 2011                                 MMI/CMHI         EI           Total
                   Transfers:
                   Working Capital and Contract Expenses $        (72) $          - $        (72)



                   (Dollars in Millions)
                   FY2010                                  MMI/CMHI         EI           Total
                   Transfers
                   Working Capital and Contract Expenses $       (71) $          (1) $       (72)




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Note 20. Budgetary Resources – Obligations

The following table presents the composition of FHA’s obligations for the period ended September 30, 2011 and
2010:

(Dollars in Millions)
FY 2011                                                    MMI/CMHI       GI/SRI        H4H           EI/TI           Total
Obligations
 Claims                                                 $      15,130 $       1,840 $           - $             - $     16,970
 Property Disposition                                           1,505            89             -               -        1,594
 Interest on Borrowings                                           236           177             -               -          413
 Subsidy                                                        6,740           511           11                -        7,262
 Downward Reestimates                                             847           542             -               -        1,389
 Upward Reestimates                                             7,601         3,024             -               -       10,625
 Admin, Contract and Working Capital                              113             -             -             29           142
 Other                                                             (1)          127             -               -          126
Total                                                   $     32,171 $       6,310 $          11 $            29 $     38,521



FY2010                                                     MMI/CMHI       GI/SRI        H4H           EI/TI           Total
Obligations
 Claims                                                 $      14,017 $       2,007 $          - $             - $      16,024
 Property Disposition                                             808            21            -               -           829
 Interest on Borrowings                                           112             6            -               -           118
 Subsidy                                                        2,651           521           3                -         3,175
 Downward Reestimates                                              26           164            -               -           190
 Upward Reestimates                                             9,868           863            -               -        10,731
 Admin, Contract and Working Capital                              139           151            -               -           290
 Other                                                            257           150           2                -           409
Total                                                   $     27,878 $       3,883 $          5 $              - $     31,766




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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 period ended September
30, 2011 and 2010:

(Dollars in Millions)                                                                            FY 2011         FY 2010
RESOURCES USED TO FINANCE ACTIVITIES
 Obligations Incurred                                                                        $  38,521 $ 31,766
 Spending Authority from Offsetting Collections and Recoveries                                 (33,481)  (32,217)
 Offsetting Receipts                                                                            (1,033)     (619)
 Transfers In / Out                                                                             (1,229)    1,504
 Imputed Financing from Costs Absorbed by Others                                                    18        19
TOTAL RESOURCES USED TO FINANCE ACTIVITIES                                                   $   2,796 $     453

RESOURCES THAT DO NOT FUND THE NET COST OF OPERATIONS
Undelivered Orders and Adjustments                                                           $    (327) $            (468)
Revenue and Other Resources                                                                     34,926             30,073
Purchase of Assets                                                                             (11,781)           (21,497)
Appropriation for prior year Re-estimate                                                       (10,625)           (10,731)
TOTAL RESOURCES NOT PART OF NET COST OF OPERATIONS                                           $ 12,193 $            (2,623)

TOTAL RESOURCES USED TO FINANCE THE NET COST (SURPLUS) OF OPERATIONS $                             14,989    $     (2,170)

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                                                 $     14,973 $         8,183
Downward Re-estimate of Credit Subsidy Expense                                                     (4,494)         (5,865)
Changes in Loan Loss Reserve Expense                                                                  (28)            (83)
Changes in Bad Debt Expenses Related to Uncollectible Pre-Credit Reform Receivables                  (159)           (349)
Reduction of Credit Subsidy Expense from Endorsements and Modifications of Loan Guarantees         (7,228)         (3,100)
Gains or Losses on Sales of Credit Program Assets                                                      85              46
Other                                                                                             (14,619)          1,790
TOTAL COMPONENTS OF THE NET COST (SURPLUS) OF OPERATIONS THAT WILL
NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD                                      $    (11,470) $          622

NET COST (SURPLUS) OF OPERATIONS                                                             $      3,519    $     (1,548)




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Required Supplementary Information

Schedule A: Intragovernmental Assets

FHA's Intragovernmental assets, by federal entity, are as follows on September 30, 2011 and 2010:

              (Dollars in Millions)
                                                            Investments
                                             Fund Balance      in U.S.
                                                with U.S.     Treasury
              FY 2011                           Treasury     Securities Other Assets          Total
              U.S. Treasury                   $      42,006 $       4,135 $        - $           46,141
              HUD                                         -             -          3                  3
                              Total           $     42,006 $       4,135 $        3 $           46,144

                                                            Investments
                                             Fund Balance      in U.S.
                                                with U.S.     Treasury
              FY2010                            Treasury     Securities Other Assets          Total
              U.S. Treasury                   $      39,078 $       4,150 $        - $           43,228
              HUD                                         -             -          5                  5
                              Total           $     39,078 $       4,150 $        5 $           43,233



Schedule B: Intragovernmental Liabilities

FHA's Intragovernmental liabilities, by federal entity, are as follows on September 30, 2011 and 2010:

              (Dollars in Millions)

                                                              Borrowings
                                                 Accounts       from U.S.      Other
              FY 2011                             Payable       Treasury     Liabilities      Total
              U.S. Treasury                  $              - $       6,032 $       3,051 $       9,083
                              Total          $              - $      6,032 $       3,051 $       9,083



                                                          Borrowings
                                               Accounts     from U.S.      Other
              FY2010                            Payable     Treasury     Liabilities          Total
              U.S. Treasury                  $          - $       4,749 $       1,165 $           5,914
                              Total          $          - $      4,749 $       1,165 $           5,914




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Required Supplementary Information

Schedule C: Comparative Combining Statement of Budgetary Resources by FHA Program for Budgetary
September 30, 2011:

                                                                                    MMI/CMHI                 MMI/CMHI           GI/SRI                              Budgetary
                                                                                   Capital Reserve            Program          Program            Other              Total

Budgetary Resources:
Unobligated balance brought forward, October 1                                 $               4,375     $           35    $           57     $        790      $       5,257
Unobligated balance brought forward, October 1, as adjusted                                    4,375                 35                57              790              5,257
Recoveries of prior year unpaid obligations                                                        -                  8                 5               71                 84
Other changes in unobligated balance (+ or -)                                                 (4,375)             4,368               (18)            (202)              (227)
Unobligated balance from prior year budget authority, net                                          -              4,411                45              658              5,114
Appropriations (discretionary and mandatory)                                                       -                135             3,033               71              3,239
Spending authority from offsetting collections (discretionary and mandatory)                   4,685              3,226                 -              254              8,165
Total budgetary resources                                                      $              4,685      $       7,772     $       3,078      $       983       $     16,518

Status of Budgetary Resources:
Obligations incurred                                                                                 -            7,714            3,026                  213          10,953
Unobligated balance, end of year:
  Apportioned                                                                                      -                22                17                  183             222
  Unapportioned                                                                                4,685                36                35                  587           5,343
Total unobligated balance, end of year                                                         4,685                58                52                  770           5,565
Total budgetary resources                                                      $              4,685      $       7,772     $       3,078      $           983   $     16,518

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                               -             132                   27               613             772
Uncollected customer payments from Federal sources, brought forward,
October 1 (-)                                                                                     (23)                -                  -              (1)                (24)
Obligated balance, start of year (net), before adjustments (+ or -)                               (23)              132                27              612                 748
Adjustment to obligated balance, start of year (net) (+ or -)                                       -                 -                  -               -                   -
Obligated balance, start of year (net), as adjusted                                               (23)              132                27              612                 748
Obligations incurred                                                                                -             7,714             3,026              213              10,953
Outlays (gross) (-)                                                                                 -            (7,693)           (3,031)            (180)            (10,904)
Change in uncollected customer payments from Federal sources (+ or -)                               4                 -                  -               -                   4
Recoveries of prior year unpaid obligations (-)                                                     -                (8)                (5)            (71)                (84)
Unpaid obligations, end of year (gross)                                                             -               145                16              576                 737
Uncollected customer payments from Federal sources, end of year                                  (19)                 -                  -              (1)                (20)
Obligated balance, end of year (net)                                           $                 (19)    $         145     $           16     $       575       $         717

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                          4,685              3,361            3,033               325             11,404
Actual offsetting collections (discretionary and mandatory) (-)                               (7,915)                 -                -              (254)            (8,169)
Change in uncollected customer payments from Federal sources (discretionary
and mandatory) (+ or -)                                                                             4                 -                 -                 -                 4
Budget authority, net (discretionary and mandatory)                                            (3,226)            3,361             3,033                71             3,239
Outlays, gross (discretionary and mandatory)                                                        -             7,693             3,031               180            10,904
Actual offsetting collections (discretionary and mandatory) (-)                                (7,915)                -                 -              (254)           (8,169)
Outlays, net (discretionary and mandatory)                                                     (7,915)            7,693             3,031               (74)            2,735
Distributed offsetting receipts (-)                                                                 -                 -                 -             1,033             1,033
Agency outlays, net (discretionary and mandatory)                              $              (7,915)    $       7,693     $       3,031      $     (1,107)     $      1,702




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Required Supplementary Information

Schedule C: Comparative Combining Statement of Budgetary Resources by FHA Program for Budgetary
September 30, 2010:

                                                                                    MMI/CMHI                 MMI/CMHI           GI/SRI                              Budgetary
                                                                                   Capital Reserve            Program          Program            Other              Total

Budgetary Resources:
Unobligated balance brought forward, October 1                                              10,604.00                28    $         51       $        681      $      11,364
 Adjustment to unobligated balance brought forward, October 1 (+ or -)                              -                 -               -       $          -      $           -
Unobligated balance brought forward, October 1, as adjusted                                   10,604                 28              51       $        681      $      11,364
Recoveries of prior year unpaid obligations                                                         -                 2              12       $         33      $          47
Other changes in unobligated balance (+ or -)                                                 (9,868)             9,868               -       $       (213)     $        (187)
Unobligated balance from prior year budget authority, net                                        737              9,898              63                501      $      11,198
Appropriations (discretionary and mandatory)                                                        -               117             871                171      $       1,159
Borrowing authority (discretionary and mandatory)                                                   -                 -               -       $          9      $          10
Spending authority from offsetting collections (discretionary and mandatory)                   3,638                  -               -       $        269      $       3,907
Total budgetary resources                                                      $              4,375      $      10,015     $        934       $       950       $     16,274

Status of Budgetary Resources:
Obligations incurred                                                                               -              9,980              877                  160   $      11,017
Unobligated balance, end of year:                                                                  -
  Apportioned                                                                                      -                 5                9                   499   $         513
  Unapportioned                                                                                4,375                30               48                   291   $       4,744
Total unobligated balance, end of year                                                         4,375                35               57                   790   $       5,257
Total budgetary resources                                                      $              4,375      $      10,015     $        934       $           950   $     16,274

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                               -              81                   76               672   $         829
Uncollected customer payments from Federal sources, brought forward,
October 1 (-)                                                                                    (84)                 -                -                (1)     $          (85)
Obligated balance, start of year (net), before adjustments (+ or -)                              (84)                81               68               679      $          744
Obligated balance, start of year (net), as adjusted                                              (84)                81               76               671      $          744
Obligations incurred                                                                               -              9,980              877               160      $       11,017
Outlays (gross) (-)                                                                                              (9,928)            (914)             (185)         (11,027.00)
Change in uncollected customer payments from Federal sources (+ or -)                             61                  -                -                 -      $           61
Recoveries of prior year unpaid obligations (-)                                                    -                 (2)             (12)              (33)     $          (47)
Unpaid obligations, end of year (gross)                                                            -                132               27               613      $          772
Uncollected customer payments from Federal sources, end of year                                  (23)                 -                -                (1)     $          (24)
Obligated balance, end of year (net)                                           $                 (23)    $         132     $          27      $       612       $         748

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                          3,639               117               871               450      $        5,077
Actual offsetting collections (discretionary and mandatory) (-)                               (3,700)                -                 -              (270)     $       (3,970)
Change in uncollected customer payments from Federal sources (discretionary
and mandatory) (+ or -)                                                                            61                 -               -                   -     $          61
Budget authority, net (discretionary and mandatory)                                                 -               117             871                 180     $       1,168
Outlays, gross (discretionary and mandatory)                                                        -             9,928             914                 185     $      11,027
Actual offsetting collections (discretionary and mandatory) (-)                                (3,700)                -               -                (270)    $      (3,970)
Outlays, net (discretionary and mandatory)                                                     (3,700)            9,928             914                 (85)    $       7,057
Distributed offsetting receipts (-)                                                                 -                 -               -                 619     $         619
Agency outlays, net (discretionary and mandatory)                              $              (3,700)    $       9,928     $        914       $       (704)     $      6,438




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Required Supplementary Information

Schedule D: Comparative Combining Budgetary Resources by FHA Program for Non-Budgetary
September 30, 2011:
                                                                                                                                                                         Non
                                                                                                          MMI/CMHI               GI/SRI                             Budgetary Total
                                                                                                          Financing            Financing            Other               Total

Budgetary Resources:
Unobligated balance brought forward, October 1                                                        $         27,321     $           7,319    $            9      $        34,649
Unobligated balance brought forward, October 1, as adjusted                                                     27,321                 7,319                 9               34,649
Recoveries of prior year unpaid obligations                                                                         18                     8                 -                   26
Other changes in unobligated balance (+ or -)                                                                        -                   (16)                -                  (16)
Unobligated balance from prior year budget authority, net                                                       27,338                 7,311                10               34,659
Appropriations (discretionary and mandatory)                                                                         -                     3                 1                    4
Borrowing authority (discretionary and mandatory)                                                                3,010                   828                 -                3,838
Spending authority from offsetting collections (discretionary and mandatory)                                    21,098                 4,204                14               25,316
Total budgetary resources                                                                             $        51,446      $         12,346     $           25      $       63,817

Status of Budgetary Resources:
Obligations incurred                                                                                            24,402                 3,165                  1              27,568
Unobligated balance, end of year:
  Apportioned                                                                                                   12,488                   671                11               13,170
  Unapportioned                                                                                                 14,556                 8,510                13               23,079
Total unobligated balance, end of year                                                                          27,044                 9,181                24               36,249
Total budgetary resources                                                                             $        51,446      $         12,346     $           25      $       63,817

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                            1,558                  333                  -               1,891
Obligated balance, start of year (net), before adjustments (+ or -)                                               1,558                  333                  -               1,891
Obligated balance, start of year (net), as adjusted                                                               1,558                  333                  -               1,891
Obligations incurred                                                                                             24,402                3,165                  1              27,568
Outlays (gross) (-)                                                                                             (23,935)              (3,178)                 -             (27,113)
Change in uncollected customer payments from Federal sources (+ or -)                                                 -                   (1)                 -                  (1)
Recoveries of prior year unpaid obligations (-)                                                                     (18)                  (8)                 -                 (26)
Unpaid obligations, end of year (gross)                                                                           2,007                  313                  -               2,320
Uncollected customer payments from Federal sources, end of year                                                       -                   (1)                 -                  (1)
Obligated balance, end of year (net)                                                                  $          2,007     $            314     $            (2)    $        2,319

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                            24,108                5,035                  15             29,158
Actual offsetting collections (discretionary and mandatory) (-)                                                 (22,913)              (4,941)               (15)            (27,869)
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -)                   -                   (1)                  -                 (1)
Budget authority, net (discretionary and mandatory)                                                               1,195                   93                   -              1,288
Outlays, gross (discretionary and mandatory)                                                                     23,935                3,178                   -             27,113
Actual offsetting collections (discretionary and mandatory) (-)                                                 (22,913)              (4,941)               (15)            (27,869)
Outlays, net (discretionary and mandatory)                                                                        1,022               (1,763)                (15)              (756)
Agency outlays, net (discretionary and mandatory)                                                     $          1,022     $         (1,763)    $           (15)    $         (756)




                                                                                         68
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Required Supplementary Information

Schedule D: Comparative Combining Budgetary Resources by FHA Program for Non-Budgetary
September 30, 2010:
                                                                                                          MMI/CMHI                GI/SRI                           Budgetary Total
                                                                                                          Financing             Financing            Other             Total

Budgetary Resources:
Unobligated balance brought forward, October 1                                                        $         19,936      $           6,859    $            4             26,799
Unobligated balance brought forward, October 1, as adjusted                                                     11,147                  6,859    $       11,152             29,158
Recoveries of prior year unpaid obligations                                                                         62                      8    $            -                 70
Other changes in unobligated balance (+ or -)                                                                    8,788                           $      (11,154)            (2,359)
Unobligated balance from prior year budget authority, net                                                       19,998      $           6,867    $            4             26,869
Appropriations (discretionary and mandatory)                                                                         -                      7    $            -                  7
Borrowing authority (discretionary and mandatory)                                                                    -                    790    $            1                791
Spending authority from offsetting collections (discretionary and mandatory)                                    25,177                  2,548    $            5             27,731
Total budgetary resources                                                                             $        45,175       $         10,212     $           11    $       55,398

Status of Budgetary Resources:
Obligations incurred                                                                                  $         17,854      $           2,893    $            2             20,749
  Apportioned                                                                                                    3,998                     57    $            9              4,064
  Unapportioned                                                                                                 23,323                  7,262    $            -             30,585
Total unobligated balance, end of year                                                                          27,321                  7,319    $            9             34,649
Total budgetary resources                                                                             $        45,175       $         10,212     $           11    $       55,398

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                $           1,209     $             255    $            -              1,464
Uncollected customer payments from Federal sources, brought forward, October 1 (-)                                    -                    (2)   $            -                 (2)
Obligated balance, start of year (net), before adjustments (+ or -)                                   $           1,209                   253    $            -              1,462
Obligated balance, start of year (net), as adjusted                                                               1,209                   253    $            -              1,462
Obligations incurred                                                                                             17,854                 2,893    $            2             20,749
Outlays (gross) (-)                                                                                             (17,444)               (2,807)   $           (1)           (20,252)
Change in uncollected customer payments from Federal sources (+ or -)                                                 2                     2    $            -                  4
Recoveries of prior year unpaid obligations (-)                                                                     (62)                   (8)   $            -                (70)
Unpaid obligations, end of year (gross)                                                                           1,558                   333    $           (2)             1,889
Uncollected customer payments from Federal sources, end of year                                                       -                     -    $            2                  2
Obligated balance, end of year (net)                                                                  $          1,558      $            333     $            -    $        1,891

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                            25,178                 3,345                               28,529
Actual offsetting collections (discretionary and mandatory) (-)                                                 (25,440)               (2,740)   $           (5)           (28,185)
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -)                    2                    2    $            -                   4
Budget authority, net (discretionary and mandatory)                                                                 (260)                 608    $            -                 348
Outlays, gross (discretionary and mandatory)                                                                     17,444     $           2,807    $            1             20,252
Actual offsetting collections (discretionary and mandatory) (-)                                                 (25,440)               (2,740)   $           (5)           (28,185)
Outlays, net (discretionary and mandatory)                                                                        (7,995)                  66    $           (4)             (7,933)
Distributed offsetting receipts (-)                                                                                    -                    -    $            -                   -
Agency outlays, net (discretionary and mandatory)                                                     $          (7,995)    $              66    $           (4)   $        (7,933)




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