oversight

Audit of the Federal Housing Administration's Financial Statements for Fiscal Years 2013 and 2012

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-12-13.

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

OFFICE OF AUDIT                                 2013-FO-0001
FINANCIAL AUDITS DIVISION
WASHINGTON, DC




               Federal Housing Administration
                 Fiscal Years 2013 and 2012
                 Financial Statements Audit




2014-FO-0002                               December 13, 2013
                                                       Issue Date: December 13, 2013

                                                       Audit Report Number: 2014-FO-0002




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

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


SUBJECT:      Audit of the Federal Housing Administration’s Financial Statements for Fiscal
              Years 2013 and 2012


    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
CliftonLarsonAllen LLP (CLA) to audit the fiscal year 2013 financial statements of the Federal
Housing Administration (FHA). The contract required that the audit be performed according to
Generally Accepted Government Auditing Standards (GAGAS).

    In connection with the contract, we reviewed CLA’s report and related documentation and
inquired of its representatives. Our review, as differentiated from an audit in accordance with
U.S. GAGAS, was not intended to enable us to express, and we do not express, opinions on
FHA’s financial statements or internal controls or conclusions on compliance with laws and
regulations. CLA is responsible for the attached Independent Auditors’ Report dated December
9, 2013 and the conclusions expressed in the report. Our review disclosed no instances where
CLA did not comply, in all material respects, with U.S. GAGAS.

    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 2013 that conforms to FASAB standards.

    The report contains two significant deficiencies in FHA’s internal control over financial
reporting and one instance of reportable non-compliance with laws and regulations. The report
contains 11 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 11 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 plans will be reviewed and evaluated for OIG concurrence.




                                                i
                                                        Audit Report Number: 2014-FO-0002

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   Within 60 days of this report, CLA expects to issue a separate letter to management dated
December 9, 2013 regarding other matters that came to its attention during the audit.

        We appreciate the courtesies and cooperation extended to the CLA and OIG audit staff
during the conduct of the audit. If you have any questions or comments about this report, please
do not hesitate to call me at 202-402-8216.




                                                ii
                                               December 13, 2013
                                               Federal Housing Administration
                                               Fiscal Years 2013 and 2012
                                               Financial Statements Audit



Highlights
Audit Report 2014-FO-0002


 What CLA Audited and Why                       What We Found

In accordance with the Government              CLA found (1) the financial statements are presented fairly,
Corporation Control Act as amended (31         in all material respects, in conformity with accounting
U.S.C. 9105), HUD OIG engaged                  principles generally accepted in the United States of
CliftonLarsonAllen LLP (CLA) to audit the      America (U.S.); (2) two significant deficiencies in internal
fiscal years 2013 and 2012 financial           control over financial reporting and compliance with laws
statements of FHA. CLA have audited the        and regulations; and (3) one instance of reportable
accompanying balance sheets of FHA as of       noncompliance with selected provisions of laws and
September 30, 2013 and 2012, and the           regulations tested.
related statements of net cost and changes
in net position, and the combined
statements of budgetary resources
(“financial statements”) for the years then
ended.

 What We Recommend

HUD needs to close-out and deobligate
$43 million in expired contracts; implement
HUD Handbook 1830.2, Administrative
Control of Funds, and annually review
undelivered orders; record obligations and
de-obligations for SAMS contracts and
reconcile the procurement system, the
source system, and the general ledger;
deobligate $57 million from the general
ledger; review and assess policies and
procedures on closing agent contract
invoices; perform and review
reconciliations of the HIAMS and SAMS
systems; assess periodic reconciliations for
sufficiency and frequency to identify
potential problems; ensure procedures over
data integrity in place and being followed;
and ensure policies and procedures to
implement new systems that affect the
general ledger sufficient.




                                                     iii
(THIS PAGE LEFT BLANK INTENTIONALLY)
                                                   Audit Report Number: 2014-FO-0002



                             TABLE OF CONTENTS


OIG Transmittal Memo                                                          i

Highlights                                                                   iii

Independent Auditor’s Report                                                  4

      Exhibit A – Significant Deficiencies                                   11

      Exhibit B – Management’s Response                                      15

      Exhibit C – Status of Prior Year Recommendations                       17

Principal Financial Statements                                               20

      Consolidated Balance Sheets                                            22

      Consolidated Statement of Net Cost                                     23

      Consolidated Statement of Net Position                                 24

      Combined Statement of Budgetary Resources                              25

      Notes to the Financial Statements                                      26

      Required Supplementary Information                                     67

      Other Accompanying Information                                         72




                                               2
(THIS PAGE LEFT BLANK INTENTIONALLY)




                 3
                                                                       CliftonLarsonAllen LLP

                                                                       www.cliftonlarsonallen.com




                          INDEPENDENT AUDITORS’ REPORT



Inspector General
United States Department of Housing and Urban Development

Commissioner
Federal Housing Administration


In our audit of the fiscal years (FY) 2013 and 2012 financial statements of the Federal Housing
Administration (FHA), a component of the U.S. Department of Housing and Urban
Development, we found:

   •   The financial statements are presented fairly, in all material respects, in
       accordance with accounting principles generally accepted in the United States of
       America (U.S.);
   •   Two significant deficiencies in internal control over financial reporting; and
   •   One instance of reportable noncompliance with certain provisions of laws and
       regulations tested.

The following sections and Exhibits discuss in more detail: (1) these conclusions including a
matter of emphasis related to the potential range of estimate for the Single Family Liability for
Loan Guarantee, (2) Management’s Discussion and Analysis (MD&A), other required
supplementary information (RSI), and other information included with the financial statements,
(3) management’s responsibilities, (4) our responsibilities, (5) management’s response to
findings, and (3) the current status of prior year findings.

Report on the Financial Statements

We have audited the accompanying financial statements of FHA, which comprise the balance
sheets as of September 30, 2013 and 2012, and the related statements of net cost and changes
in net position, the combined statements of budgetary resources for the years then ended, and
the related notes to the financial statements. The objective of our audits was to express an
opinion on the fairness of these financial statements.

Management’s Responsibilities

FHA management is responsible for the (1) preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the U.S., (2)
preparation, measurement, and presentation of the RSI in accordance with the prescribed
accounting principles generally accepted in the U.S., (3) preparation and presentation of other
information in documents containing the audited financial statements and auditors’ report,


                                               4
                    INDEPENDENT AUDITORS’ REPORT (Continued)


and consistency of that information with the audited financial statements and the RSI; and (4)
design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to
fraud or error.

Auditors’ Responsibilities

Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the U.S.;
and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement. We also conducted our audits in accordance with Office of
Management and Budget (OMB) Bulletin No. 14-02, Audit Requirements for Federal Financial
Statements (OMB Bulletin 14-02).

In order to fulfill these responsibilities, we (1) obtained an understanding of FHA and its
operations, including its internal control over financial reporting; (2) assessed the risk of financial
statement misstatement; (3) evaluated the design and operating effectiveness of internal control
based on the assessed risk; (4) considered FHA’s process for evaluating and reporting on
internal control under the Federal Managers’ Financial Improvement Act (FMFIA); (5) tested
compliance with certain provisions of laws and regulations (6) examined, on a test basis,
evidence supporting the amounts and disclosures in the financial statements; (7) evaluated the
appropriateness of the accounting policies used and the reasonableness of significant
accounting estimates made by management; (8) evaluated the overall presentation of the
financial statements; (9) conducted inquiries of management about the methods of preparing
the RSI and compared this information for consistency with management’s responses to the
auditors’ inquiries, the financial statements, and other knowledge we obtained during the audit
of the financial statements, in order to report omissions or material departures from Federal
Accounting Standards Advisory Board (FASAB) guidelines, if any, identified by these limited
procedures; (10) read the other information included with the financial statements in order to
identify material inconsistencies, if any, with the audited financial statements; and (11)
performed such other procedures as we considered necessary in the circumstances.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.

Opinion on the Financial Statements

In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Federal Housing Administration as of September 30, 2013 and
2012, and its net costs, changes in net position, and budgetary resources for the years then
ended, in accordance with accounting principles generally accepted in the U.S.

Emphasis of Matter

As discussed in Note 6 to the financial statements, the Loan Guarantee Liability (LGL) is an
actuarially determined estimate of the net present value of future claims, net of future premiums
and future recoveries, from loans insured as of the end of the fiscal year. This estimate is
developed using econometric models that integrate historical loan-level program and economic



                                                  5
                   INDEPENDENT AUDITORS’ REPORT (Continued)


data with regional house price appreciation forecasts to develop assumptions about future
portfolio performance. This year’s estimate is the mean value from a series of projections using
numerous economic scenarios. This stochastic analysis projects a 25% probability that the
Single Family Liability for Loan Guarantee may be lower by $10.2 billion or higher by $9.8
billion, depending on which economic outcome ultimately prevails. This forecast method helps
project how the estimate will be affected by different economic scenarios but does not address
the risk that the models may not accurately reflect current borrower behavior or contain
technical errors.

Other Matters

Required Supplementary Information
Accounting principles generally accepted in the U.S. require that FHA’s Management
Discussion and Analysis (MD&A) and other RSI be presented to supplement the financial
statements. Such information, although not a part of the financial statements, is required by
FASAB, who considers it to be an essential part of financial reporting for placing the financial
statements in an appropriate operational, economic, or historical context. We have applied
certain limited procedures to the MD&A and other RSI in accordance with auditing standards
generally accepted in the U.S., which consisted of inquiries of management about the methods
of preparing the information and comparing the information for consistency with management's
responses to our inquiries, the financial statements, and other knowledge we obtained during
our audit of the financial statements. We do not express an opinion or provide any assurance
on this information because the limited procedures do not provide us with sufficient evidence to
express an opinion or provide any assurance.

Other Information
The Message from the Commissioner and the Schedule of Spending are presented for
purposes of additional analysis and are not a required part of the financial statements or RSI.
This information has not been subjected to the auditing procedures applied in the audit of the
financial statements, and accordingly, we do not express an opinion or provide any assurance
on it.


Report on Internal Control over Financial Reporting and on Compliance Based on an
Audit of Financial Statements Performed in Accordance with Government Auditing
Standards

Report on Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered FHA’s internal
control over financial reporting (internal control) to determine the audit procedures that are
appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of FHA’s
internal control.

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 and correct, 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



                                                6
                   INDEPENDENT AUDITORS’ REPORT (Continued)


possibility that a material misstatement of FHA’s financial statements will not be prevented, or
detected and corrected on a timely basis. A significant deficiency is a deficiency, or 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.

Our consideration of internal control was for the limited purpose described in the first paragraph
of this section and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies and therefore, material weaknesses or
significant deficiencies may exist that were not identified. Given these limitations, during our
audit we did not identify any deficiencies in internal control that we consider to be material
weaknesses. However, material weaknesses may exist that were not identified. We identified
two deficiencies in internal control, described below and in Exhibit A, that we consider to be
significant deficiencies.


            Undelivered Orders for Property-Related Contracts Should Be Reviewed
                             Annually and De-obligated Promptly

       Undelivered orders (UDOs) are outstanding orders for goods or services where
       budgeted amounts are obligated but no liability has been accrued because the
       goods or services have not yet been received. When the goods or services
       remain undelivered and remaining unspent funds are no longer needed, the
       contracts should be closed out and the UDOs de-obligated.

       We found:
         • Open obligations for real estate closing agent contracts obligated
             between 2002 and 2011 that showed:
                  o FHA disbursed over $1 million in excess of the obligated amounts
                    for ten contracts.
                  o Approximately $43 million of remaining funds for contracts that
                    had expired during FY2009 through FY2012 but had not been
                    closed and the remaining funds de-obligated.

           •   In 2012, de-obligations for $57 million related to two marketing and
               management contracts were recorded in HUD’s procurement system but
               these de-obligations were not reflected in the SAMS system.

       If open contracts are not reviewed and closed timely, the obligated balances
       carried forward may be overstated. In addition, inaccurate contract information
       may lead to Anti-Deficiency Act violations.


       New System Reporting and Reconciliation Capabilities Need Improvement

       In FY2013, FHA transitioned to a new system (HERMIT) for managing insured
       and assigned Home Equity Conversion Mortgage (HECM) loans. During our
       audit, we identified several discrepancies between the reports generated from
       the new system and reports from the general ledger and other source systems
       that could not be adequately explained during the reconciliation process.
       Specifically, the third quarter general ledger trial balance showed:


                                                7
                   INDEPENDENT AUDITORS’ REPORT (Continued)


           1. HECM upfront and periodic premiums of $12 million in excess of the
              HERMIT transaction files.
           2. Paid claims resulting in the assignment of HECM mortgage notes of $54
              million less than HERMIT.
           3. HECM claims paid of $44 million more than HERMIT.

       In addition, we found a $88 million difference in the maximum claim amount
       (essentially the insurance-in-force) in FHA’s endorsement system versus
       HERMIT.

       These differences raise concerns about the completeness and accuracy of the
       data in the HERMIT system and about the movement of data among various
       source systems (HERMIT, CHUMS, SFDW) and the general ledger. Failure to
       ensure data completeness and accuracy among source systems, management
       information systems, and the general ledger exposes the agency to several risks:
           • Inaccuracies in the financial statements
           • Faulty information in management reports
           • Wasted time needed to reconcile data when differences persist over
              longer periods

Report on Compliance

As part of obtaining reasonable assurance about whether FHA's financial statements are free
from material misstatement, we performed tests of its compliance with certain provisions of laws
and regulations, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance
with those provisions was not an objective of our audit, and accordingly, we do not express such
an opinion. The results of our tests disclosed one instance of noncompliance or other matters,
described below that is required to be reported in accordance with Government Auditing
Standards, issued by the Comptroller General of the United States.

       Capital Ratio: The Cranston-Gonzales National Affordable Housing Act of 1990
       required that FHA’s Mutual Mortgage Insurance (MMI) Fund maintain a minimum
       level of capital sufficient to withstand 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 requires 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 for FY2013 had not yet been
       submitted to Congress, but preliminary FHA data indicated that this ratio
       remained below the required two percent throughout FY2013.




                                               8
                    INDEPENDENT AUDITORS’ REPORT (Continued)


Management’s Responsibility for Internal Control and Compliance

Management is responsible for (1) evaluating the effectiveness of internal control over financial
reporting, (2) providing a statement of assurance on the overall effectiveness on internal control
over financial reporting, including to provide reasonable assurance that the broad control
objectives of FMFIA are met, and (3) ensuring compliance with other applicable laws and
regulations.

Auditors’ Responsibilities

We are responsible for: (1) obtaining a sufficient understanding of internal control over financial
reporting 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 applicable laws
for which OMB Bulletin 14-02 requires testing, and (3) applying certain limited procedures with
respect to the RSI and all other accompanying information included with the financial
statements.

We did not evaluate all internal controls relevant to operating objectives as broadly established
by the FMFIA, such as those controls relevant to preparing statistical reports and ensuring
efficient operations. We limited our internal control testing to testing controls over financial
reporting. Because of inherent limitations in internal control, misstatements due to error or fraud,
losses, or noncompliance may nevertheless occur and not be detected. We also caution that
projecting our audit results to future periods is subject to 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 certain provisions of laws and regulations that have a direct and material effect
on the financial statements and those required by OMB Bulletin 14-02 that we deemed
applicable to FHA’s financial statements for the fiscal year ended September 30, 2013. 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.

Management’s Response to Findings

Management’s response to the findings identified in our report is presented in Exhibit B. We did
not audit FHA’s response and, accordingly, we express no opinion on it.

Status of Prior Year’s Control Deficiencies and Noncompliance Issues

We have reviewed the status of FHA’s corrective actions with respect to the findings included in
the prior year’s Independent Auditors’ Report, dated October 29, 2012. The status of prior year
findings is presented in Exhibit C.




                                                 9
                   INDEPENDENT AUDITORS’ REPORT (Continued)


Purpose of the Report on Internal Control over Financial Reporting and the Report on
Compliance

The purpose of the Report on Internal Control over Financial Reporting and the Report on
Compliance sections of this report is solely to describe the scope of our testing of internal
control and compliance and the result of that testing, and not to provide an opinion on the
effectiveness of FHA’s internal control or on compliance. These reports are an integral part of
an audit performed in accordance with Government Auditing Standards in considering FHA’s
internal control and compliance. Accordingly, these reports are not suitable for any other
purpose.




CliftonLarsonAllen LLP
Arlington, VA
December 9, 2013




                                              10
                                         EXHIBIT A
                                  Significant Deficiencies


    Undelivered Orders for Property-Related Contracts Should Be Reviewed Annually and De-
                                      obligated Promptly

Undelivered orders (UDOs) are outstanding orders for goods or services where budgeted
amounts are obligated but no liability has been accrued because the goods or services have not
yet been received. UDOs are reported within the annual financial statements as obligated
balances carried forward on the Statement of Budgetary Resources. When the goods or
services remain undelivered and remaining unspent funds are no longer needed, the contracts
should be closed out and the UDOs de-obligated.

The Single Family Acquired Asset Management System (SAMS) is used to manage and
account for HUD-owned properties. The status of closing agent and other property-related
contracts is tracked in SAMS. Prior to FY2010, disbursements related to these contracts were
expensed, and there was no UDO tracking and limited funds control. In FY2010, FHA
established a process to record obligations and UDOs relating to these contracts in the general
ledger.

Our testing of UDOs revealed the following:
• Open obligations for SAMS closing agent contracts obligated between 2002 and 2011 that
   showed:
   o FHA disbursed over $1 million in excess of the obligated amounts for seven contracts.
   o Approximately $43 million of remaining funds for contracts that had expired during
       FY2009 through FY2012 but had not been closed and the remaining funds de-obligated.

•   In 2012, de-obligations for $57 million related to two marketing and management contracts
    were recorded in HUD’s procurement system but these de-obligations were not reflected in
    the SAMS system.

HUD’s Administrative Control of Funds Policies and Procedures Handbook No. 1830.2 Rev-5,
Administrative Control of Funds, requires that the Office of Chief Financial Officer (OCFO) to
coordinate a review of obligations whose status has not changed for six months and evaluate
the validity of the contracts along with the allotment holders annually as of May 31. Based on
that review, the budgeted amounts should be de-obligated or kept in an active status.
Furthermore, GAO’s Standards for Internal Control in the Federal Government, GAO/AIMD-00-
21.3.1, states that “Transactions should be promptly recorded to maintain their relevance and
value to management in controlling operations and making decisions. This applies to the entire
process or life cycle of a transaction or event from the initiation and authorization through its
final classification in summary records. In addition, control activities help to ensure that all
transactions are completely and accurately recorded.”

Annually, the FHA Comptroller’s Office reviews the general ledger for contracts with
unliquidated obligated balances and then sends a request for follow up on open contracts to the
operational areas. Based on feedback from the operational areas, contracts are de-obligated.
However, we did not identify any written FHA policies and procedures that provide detailed
guidance for FHA’s implementation of HUD’s annual review of UDOs and obligations. FHA
overlooked performing an UDO review on the closing agent contracts since it was a new
undelivered order type.




                                               11
                                         EXHIBIT A
                                  Significant Deficiencies

In early FY2012, the HUD Integrated Acquisition Management System (HIAMS) became the
procurement system for Housing. The limited reporting capabilities of this new system made
reconciliations between SAMS and HIAMS more difficult. In FY2013, a new interface was
developed which may improve the reconciliation process.

If open contracts are not reviewed and closed timely, the obligated balances carried forward
may be overstated. In addition, inaccurate contract information may lead to Anti-Deficiency Act
violations.

We recommend the FHA Comptroller work with the HUD Office of the Chief Procurement Officer
to:
    1a. Ensure that all expired property-related contracts are reviewed and properly closed out.

We recommend that the FHA Comptroller:
  1b. Ensure HUD Handbook 1830.2, Administrative Control of Funds, policies and
      procedures are fully implemented for property-related contracts, and perform an annual
      review of all property-related undelivered orders to ensure obligations are still valid.

   1c. Review and de-obligate, as appropriate, the $43 million in expired property-related
       contracts once they have been closed out by the contracts office.

   1d. Ensure that obligations and de-obligations for SAMS contracts are recorded and
       promptly reconciled among the procurement system, the source system and the general
       ledger.

   1e. Research and, as necessary, de-obligate any portion of the $57 million identified as de-
       obligated in the procurement system but not in SAMS.

   1f. Review and assess existing current policies and procedures with regard to the review
       and approval of SAMS closing agent contract invoices to ensure adequate funding is
       available.

   1g. Perform and review reconciliations between the HIAMS and SAMS systems to ensure
       the interface between the two systems is operating effectively.




                                              12
                                          EXHIBIT A
                                   Significant Deficiencies


           New System Reporting and Reconciliation Capabilities Need Improvement

In FY2013, FHA transitioned to a new system (HERMIT) for managing insured and assigned
Home Equity Conversion Mortgage (HECM) loans. During our audit, we identified several
discrepancies between the reports generated from the new system and reports from the general
ledger and other source systems. Specifically,

1. The third quarter general ledger trial balance showed HECM upfront and periodic premiums
   of $659 million for the nine-month period, whereas the transaction files from HERMIT
   showed $647 million, for a difference of $12 million.

2. The third quarter general ledger trial balance showed paid claims resulting in the
   assignment of HECM mortgage notes of $966 million for the nine-month period, whereas the
   HERMIT file showed $1,020 million, for a difference of $54 million.

3. The CHUMS system records the insurance endorsements of HECM mortgages and is a
   source system for HERMIT. We found that the maximum claim amount (essentially the
   insurance-in-force) in CHUMS was $10,728 million versus HERMIT’s $10,640 million, for a
   difference of $88 million.

4. The Single Family Data Warehouse (SFDW), which receives data from HERMIT, was the
   source for the all HECM claims paid of $1,729 million for the nine-month period. That
   amount compared to the third quarter general ledger trial balance amount of $1,773 million
   showed a difference of $44 million.

These differences raise concerns about the completeness and accuracy of the data in the
HERMIT system and about the movement of data among source systems (HERMIT, CHUMS,
SFDW) and the general ledger. Furthermore, they indicate a weakness in internal controls
because according to GAO’s Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 “Transactions should be promptly recorded to maintain their relevance
and value to management in controlling operations and making decisions. This applies to the
entire process or life cycle of a transaction or event from the initiation and authorization through
its final classification in summary records. In addition, control activities help to ensure that all
transactions are completely and accurately recorded.”

We worked with management and they were able to explain portions of the differences we
identified. However, we were unable to determine whether the remaining differences were
caused by timing differences among files or reports, interface issues among systems,
conversion problems with HERMIT data, or any combination of these causes. The fact that
such questions remain after nine months of experience with the HERMIT system indicates that
there were weaknesses in the reconciliation of data among the related systems.

Failure to ensure data completeness and accuracy among source systems, management
information systems, and the general ledger exposes the agency to several risks:
• Inaccuracies in the financial statements
• Faulty information in management reports
• Wasted time needed to reconcile data when differences persist over longer periods



                                                13
                                         EXHIBIT A
                                  Significant Deficiencies


We recommend that the FHA Comptroller:

   2a. Complete the reconciliation of the identified differences to determine the causes of those
       differences.

   2b. Determine whether the existing periodic reconciliations are sufficient and frequent
       enough to identify potential problems.

   2c. Consider whether the policies and procedures over data integrity are in place and being
       followed.

   2d. Consider whether the policies and procedures over the implementation of new systems
       that affect the general ledger are sufficient to ensure that the data in the new system is
       complete and accurate, and that the system properly interfaces with any related
       systems.




                                              14
      EXHIBIT B
Management’s Response




         15
      EXHIBIT B
Management’s Response




         16
                                       EXHIBIT 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
              FY 2012 Recommendation                            Type
                                                                             2013 Status
    1a. The Assistant Secretary for Housing should work      Significant    Resolved
        with the HUD CIO to continue the development of      Deficiency
        the IT portfolio management structure and            2012
        establish clear roles and responsibilities for
        remediating the identified control deficiencies in
        Housing’s    applications   and    monitor     the
        effectiveness of that structure in managing IT
        investment.
    1b. The Assistant Secretary for Housing should   Significant            Resolved
        assign a Housing representative to oversee Deficiency
        and report on the remediation of control 2012
        deficiencies in general support systems that
        affect Housing systems and data.
    1c. The Assistant Secretary for Housing clarify the Significant         Resolved
        future role of Housing’s Office of Risk Deficiency
        Management and Assessment with regard to 2012
        the IT risk assessment process for FHA
        applications.
    1d. The HUD Chief Information Officer should Significant                Resolved
        assign a senior OCIO manager to document Deficiency
        the plan of action and to provide regular status 2012
        reports on the progress toward mitigation of
        the outstanding control deficiencies reported
        for the general support systems and the
        applications affecting Housing data.




                                              17
(THIS PAGE LEFT BLANK INTENTIONALLY)




                 18
(THIS PAGE LEFT BLANK INTENTIONALLY)




                 19
                            Audit Report Number: 2014-FO-0002




 FEDERAL HOUSING ADMINISTRATION
Financial Statements for the Fiscal Years Ended
         September 30, 2013 and 2012




                      20
(THIS PAGE LEFT BLANK INTENTIONALLY)




                 21
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS

                       FEDERAL HOUSING ADMINISTRATION
       (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                         CONSOLIDATED BALANCE SHEETS
                           As of September 30, 2013 and 2012
                                  (Dollars in Millions)

                                                                            FY 2013          FY 2012
ASSETS
  Intragovernmental
    Fund Balance with U.S. Treasury (Note 3)                            $      63,481    $      47,640
    Investments (Note 4)                                                            3            2,775
    Accounts Receivable, Net (Note 5)                                               -                -
    Other Assets (Note 7)                                                           1                3
  Total Intragovernmental                                               $      63,485    $      50,418

  Investments (Note 4)                                                  $          56    $          60
  Accounts Receivable, Net (Note 5)                                                13               24
  Loans Receivable and Related Foreclosed Property, Net (Note 6)                7,276            5,441
  Other Assets (Note 7)                                                           379               60
TOTAL ASSETS                                                            $      71,209    $      56,003

LIABILITIES
   Intragovernmental
    Accounts Payable (Note 8)                                           $           8    $           6
    Borrowings from U.S. Treasury (Note 9)                                     25,940           11,527
    Other Liabilities (Note 10)                                                 3,983            3,473
   Total Intragovernmental                                              $      29,931    $      15,006

  Accounts Payable (Note 8)                                             $         404    $         721
  Loan Guarantee Liability (Note 6)                                            41,465           54,984
  Debentures Issued to Claimants (Note 9)                                           -                -
  Other Liabilities (Note 10)                                                     424              396
TOTAL LIABILITIES                                                       $      72,224    $      71,107

NET POSITION
  Unexpended Appropriations (Note 16)                                   $         869    $         862
  Cumulative Results of Operations                                             (1,884)         (15,966)
TOTAL NET POSITION                                                             (1,015)         (15,104)

TOTAL LIABILITIES AND NET POSITION                                      $      71,209    $      56,003

                   The accompanying notes are an integral part of these statements.




                                                 22
FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

                   FEDERAL HOUSING ADMINISTRATION
  (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                CONSOLIDATED STATEMENTS OF NET COST
                For the Periods Ended September 30, 2013 and 2012
                                (Dollars in Millions)

                                                                  FY 2013        FY 2012
    Single Family Forward
     Intragovernmental Gross Costs (Note 12)                  $         727      $      327
     Less: Intragovernmental Earned Revenue (Note 13)                 1,720           2,608
     Intragovernmental Net Costs                                      (993)          (2,281)

     Gross Costs With the Public (Note 12)                           (5,840)       15,455
     Less: Earned Revenues (Note 13)                                     28            50
     Net Costs With the Public                                       (5,868)       15,405
    Single Family Forward Net Cost (Surplus)                  $      (6,861)     $ 13,124

    HECM
     Intragovernmental Gross Costs (Note 12)                  $         53       $       52
     Less: Intragovernmental Earned Revenue (Note 13)                  823              477
     Intragovernmental Net Costs                                      (770)            (425)

     Gross Costs With the Public (Note 12)                             (565)       8,159
     Less: Earned Revenues (Note 13)                                      2            5
     Net Costs With the Public                                         (567)       8,154
    HECM Net Cost (Surplus)                                   $      (1,337)     $ 7,729


    Multifamily/Healthcare
     Intragovernmental Gross Costs (Note 12)                  $         142      $       85
     Less: Intragovernmental Earned Revenue (Note 13)                    62              28
     Intragovernmental Net Costs                                         80              57

     Gross Costs With the Public (Note 12)                    $      (1,927)     $ (1,244)
     Less: Earned Revenues (Note 13)                                     46            58
     Net Costs With the Public                                       (1,973)       (1,302)
    Multifamily/Healthcare Net Cost (Surplus)                 $      (1,893)     $ (1,245)

    Administrative Expenses
     Intragovernmental Gross Costs (Note 12)                  $          22      $       29
     Less: Intragovernmental Earned Revenue (Note 13)                     -               -
     Intragovernmental Net Costs                                         22              29

     Gross Costs With the Public (Note 12)                             671             660
     Less: Earned Revenues (Note 13)                                     -                -
     Net Costs With the Public                                         671             660
    Adminstrative Expenses Net Cost (Surplus)                 $        693       $     689

    Net Cost of Operations                                    $      (9,398)     $ 20,297

              The accompanying notes are an integral part of these statements.




                                               23
     FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

                          FEDERAL HOUSING ADMINISTRATION
         (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                     CONSOLIDATED STATEMENTS OF NET POSITION
                       For the Periods Ended September 30, 2013 and 2012
                                       (Dollars in Millions)

                                            FY 2013             FY 2013         FY 2012              FY 2012
                                          Cumulative                          Cumulative
                                           Results of       Unexpended         Results of        Unexpended
                                          Operations       Appropriations     Operations        Appropriations

BEGINNING BALANCES                       $     (15,966)     $         862     $     4,569        $         850

Budgetary Financing Sources
 Appropriations Received (Note 16)                   -              7,604                  -               983
 Other Adjustments (Note 16)                         -                (39)                 -               (24)
 Appropriations Used (Note 16)                   7,490             (7,490)               875              (875)
 Transfers-Out (Note 15 and Note 16)                 -                (68)              (395)              (72)

Other Financing Sources
 Transfers In/Out (Note 15)                         550                   -             (481)                   -
 Imputed Financing (Note 12)                         18                   -               15                    -
 Other                                           (3,374)                  -             (252)
Total Financing Sources                  $        4,684     $             7   $         (238)   $              12

Net (Cost) Surplus of Operations                 9,398                    -       (20,297)                      -

ENDING BALANCES                          $       (1,884)    $         869     $   (15,966)       $         862

                     The accompanying notes are an integral part of these statements.




                                                   24
          FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

                                 FEDERAL HOUSING ADMINISTRATION
                 (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                           COMBINED STATEMENT OF BUDGETARY RESOURCES
                                   For the Period Ended September 30, 2013
                                             (Dollars in Millions)

                                                                                                       FY 2013          FY 2013       FY 2013
                                                                                                      Budgetary      Non-Budgetary     Total
Budgetary Resources:
Unobligated balance brought forward, October 1                                                              4,074           40,275        44,349
Unobligated balance brought forward, October 1, as adjusted                                                 4,075           40,275        44,350
Recoveries of prior year unpaid obligations                                                                    87              404           491
Other changes in unobligated balance (+ or -)                                                                (208)               -          (208)
Unobligated balance from prior year budget authority, net                                                   3,955           40,678        44,633
Appropriations (discretionary and mandatory)                                                                7,525                -         7,525
Borrowing authority (discretionary and mandatory)                                                               -           19,092        19,092
Spending authority from offsetting collections (discretionary and mandatory)                               22,922           54,696        77,618
Total budgetary resources                                                                                  34,402          114,466       148,868

Status of Budgetary Resources:
Obligations incurred                                                                                       33,564           56,611        90,175
Unobligated balance, end of year:
   Apportioned                                                                                                 77           24,999        25,076
   Unapportioned                                                                                              761           32,856        33,617
Total unobligated balance, end of year                                                                        838           57,855        58,693
Total budgetary resources                                                                                  34,402          114,466       148,868

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                        732            2,472         3,204
Obligated balance, start of year (net), before adjustments (+ or -)                                           732            2,472         3,204
Adjustment to obligated balance, start of year (net) (+ or -)                                                  (1)               -            (1)
Obligated balance, start of year (net), as adjusted                                                           731            2,472         3,203
Obligations incurred                                                                                       33,564           56,611        90,175
Outlays (gross) (-)                                                                                       (33,574)         (56,141)      (89,715)
Change in uncollected customer payments from Federal sources (+ or -)                                          (1)               -            (1)
Recoveries of prior year unpaid obligations (-)                                                               (87)            (404)         (491)
Unpaid obligations, end of year (gross)                                                                       634            2,539         3,173
Uncollected customer payments from Federal sources, end of year                                                (3)               -            (3)
Obligated balance, end of year (net)                                                                          631            2,539         3,170

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                      30,448           73,788       104,236
Actual offsetting collections (discretionary and mandatory) (-)                                           (22,921)         (59,375)      (82,296)
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -)            (1)               -            (1)
Budget authority, net (discretionary and mandatory)                                                         7,526           14,413        21,939
Outlays, gross (discretionary and mandatory)                                                               33,574           56,141        89,715
Actual offsetting collections (discretionary and mandatory) (-)                                           (22,921)         (59,375)      (82,296)
Outlays, net (discretionary and mandatory)                                                                 10,653           (3,234)        7,419
Less Distributed offsetting receipts (-)                                                                    1,442                -         1,442
Agency outlays, net (discretionary and mandatory)                                                           9,211           (3,234)        5,977


                                   The accompanying notes are an integral part of these statements




                                                                               25
           FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

                                  FEDERAL HOUSING ADMINISTRATION
                  (AN AGENCY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT)
                            COMBINED STATEMENT OF BUDGETARY RESOURCES
                                    For the Period Ended September 30, 2012
                                              (Dollars in Millions)

                                                                                                       FY 2012          FY 2012       FY 2012
                                                                                                      Budgetary      Non-Budgetary     Total
Budgetary Resources:
Unobligated balance brought forward, October 1                                                              5,565           36,249        41,814
Unobligated balance brought forward, October 1, as adjusted                                                 5,565           36,249        41,814
Recoveries of prior year unpaid obligations                                                                    26              122           148
Other changes in unobligated balance (+ or -)                                                                (276)               -          (276)
Unobligated balance from prior year budget authority, net                                                   5,315           36,371        41,686
Appropriations (discretionary and mandatory)                                                                  912                -           912
Borrowing authority (discretionary and mandatory)                                                               -            5,760         5,760
Spending authority from offsetting collections (discretionary and mandatory)                               12,737           34,329        47,066
Total budgetary resources                                                                                  18,964           76,460        95,424

Status of Budgetary Resources:
Obligations incurred                                                                                       14,890           36,185        51,075
Unobligated balance, end of year:
  Apportioned                                                                                                  59           18,346        18,405
  Unapportioned                                                                                             4,015           21,929        25,944
Total unobligated balance, end of year                                                                      4,074           40,275        44,349
Total budgetary resources                                                                                  18,964           76,460        95,424

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                        737            2,320         3,057
Uncollected customer payments from Federal sources, brought forward, October 1 (-)                            (20)              (1)          (21)
Obligated balance, start of year (net), before adjustments (+ or -)                                           717            2,319         3,036
Obligated balance, start of year (net), as adjusted                                                           717            2,319         3,036
Obligations incurred                                                                                       14,890           36,185        51,075
Outlays (gross) (-)                                                                                       (14,868)         (35,911)      (50,779)
Change in uncollected customer payments from Federal sources (+ or -)                                          18                1            19
Recoveries of prior year unpaid obligations (-)                                                               (26)            (122)         (148)
Unpaid obligations, end of year (gross)                                                                       733            2,472         3,205
Uncollected customer payments from Federal sources, end of year                                                (2)               -            (2)
Obligated balance, end of year (net)                                                                          731            2,472         3,203

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                      13,649           40,089        53,738
Actual offsetting collections (discretionary and mandatory) (-)                                           (12,766)         (34,595)      (47,361)
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -)            18                1            19
Budget authority, net (discretionary and mandatory)                                                           901            5,495         6,396
Outlays, gross (discretionary and mandatory)                                                               14,868           35,911        50,779
Actual offsetting collections (discretionary and mandatory) (-)                                           (12,766)         (34,595)      (47,361)
Outlays, net (discretionary and mandatory)                                                                  2,102            1,316         3,418
Less Distributed offsetting receipts (-)                                                                    2,611                -         2,611
Agency outlays, net (discretionary and mandatory)                                                            (509)           1,316           807


                                    The accompanying notes are an integral part of these statements.




                                                                               26
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)


                    NOTES TO THE FINANCIAL STATEMENTS
                                             September 30, 2013

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. To comply with the FHA Modernization
Act of 2008, 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.

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.




                                                          27
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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

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.

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 and Multifamily risk sharing debentures. 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.




                                                         28
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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
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.

FHA has two general fund receipt accounts. FHA’s receipt accounts are general fund receipt accounts and
amounts are not earmarked for the FHA’s credit programs. The first 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.
They are available for appropriations only in the sense that all general fund receipts are available for
appropriations. Any assets in these accounts 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.

The second general fund 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. 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.

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.


                                                         29
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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
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
                                                        30
               FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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.

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 appropriations for certain operating expenses for its 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 2013
and $15 million for fiscal year 2012, 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.

                                                          31
              FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)


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.


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, 2013 and 2012 are as follows:

               (Dollars in millions)
                                                                         FY 2013          FY 2012
               Intragovernmental:
                           Fund Balance with Treasury                $        1,671   $        2,894
                           Investments in U.S. Treasury Securities                3                3
               Total Intragovernmental                                        1,674            2,897

               Other Assets                                                      47               54
               Total Non-Entity Assets                                        1,721            2,951
               Total Entity Assets                                           69,488           53,052
               Total Assets                                          $      71,209    $      56,003



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 re-estimates, 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.

                                                          32
              FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)



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, 2013 and 2012:

                      (Dollars in millions)                           FY 2013       FY 2012
                      Fund Balances:
                        Revolving Funds                              $   61,084    $   43,449
                        Appropriated Funds                                  775           790
                        Other Funds                                       1,622         3,401
                             Total                                   $   63,481    $   47,640

                      Status of Fund Balance with U.S. Treasury:
                         Unobligated Balance
                             Available                               $   25,075    $   18,405
                             Unavailable                                 35,233        26,030
                         Obligated Balance Not Yet Disbursed              3,173         3,205
                             Total                                   $   63,481    $   47,640

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

                                                          33
                 FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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.


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. FHA has no
MMI/CMHI investments in U.S. Treasury securities as of September 30, 2013.


(Dollars in millions)

                                                    Amortized (Premium)
FY 2013                              Cost             / Discount, Net         Investments, Net           Market Value
MMI/CMHI Investments          $                 -   $                 -   $                      -   $                  -
GI/SRI Investments                              3                     -                          3                      -
              Subtotal                          3                     -                          3                      -

Total                         $                3    $                -    $                      3   $                  -



The cost, net amortized premium/discount, net investment, and market values as of September 30, 2012
were as follows:


                                                    Amortized (Premium)
FY 2012                              Cost             / Discount, Net       Investments, Net           Market Value
MMI/CMHI Investments          $             2,771   $                 1   $              2,772       $            2,772
GI/SRI Investments                              3                     -                      3                        3
              Subtotal        $             2,774   $                 1   $              2,775       $            2,775

Total                         $             2,774   $                1    $               2,775      $            2,775




                                                        34
         FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Investments in Private-Sector Entities
Investments Risk Sharing Debentures as of September 30, 2013 and 2012 were as follows:

                                                              Share of
                             Beginning      New             Earnings or    Returns of                         Ending
(Dollars in millions)         Balance    Acquisitions          Losses      Investment     Redeemed            Balance
FY 2013
 601 Program and Note Sales $         - $             - $             - $               - $            - $             -
 Risk Sharing Debentures             57               1               -                 -             (2)             56
Total                       $        57 $             1 $             - $               - $           (2) $           56

FY 2012
 601 Program and Note Sales $         6 $          21 $               7 $         (31) $               - $             3
 Risk Sharing Debentures             57             -                 -             -                  -              57
Total                       $        63 $          21 $               7 $         (31) $               - $            60




Note 5. Accounts Receivable, Net

Accounts receivable, net, as of September 30, 2013 and 2012 are as follows:

                                                  Gross                      Allowance                      Net
 (Dollars in millions)                       FY 2013    FY2012            FY 2013     FY2012          FY 2013         FY2012
 With the Public:

 Receivables related to                  $        1     $         16 $         - $            -   $           1   $        16
   credit program assets
 Premiums receivable                              6                6           -            -              6                6
 Generic Debt Receivables                        96               79         (96)         (79)             -                -
 Miscellaneous receivables                        6                2           -            -              6                2
 Total                                   $      109 $            103 $       (96) $       (79) $          13 $             24



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.




                                                            35
       FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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.


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

FHA Direct Loan and Loan Guarantee Programs and the related loans receivable, foreclosed property, and Loan
Guarantee Liability as of September 30, 2013 and 2012 are as follows:

Direct Loan Program

                            (Dollars in Millions)

                            FY 2013                                   Total
                            Direct Loans
                              Loan Receivables                                 15
                              Interest Receivables                             11
                              Allowance                                       (12)
                            Total Direct Loans                                 14



                            (Dollars in Millions)

                            FY2012                                    Total
                            Direct Loans
                              Loan Receivables                                 15
                              Interest Receivables                             11
                              Allowance                                       (11)
                            Total Direct Loans                                 15




                                                     36
       FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for Loss Method):

          (Dollars in Millions)
          FY 2013                                           MMI/CMHI            GI/SRI             Total
          Guaranteed Loans
            Single Family Forward
                  Loan Receivables                                     18                  -                  18
                  Allowance for Loan Losses                           (24)               (10)                (34)
                  Foreclosed Property                                  22                  8                  30
            Subtotal                                                   16                 (2)                 14

             Multifamily/Healthcare
                  Loan Receivables                                      -             2,225                 2,225
                  Interest Receivables                                  -               228                   228
                  Allowance for Loan Losses                             -              (935)                 (935)
                  Foreclosed Property                                   -                 1                     1
             Subtotal                                                   -            1,519                 1,519

             HECM
                  Loan Receivables                                      -                 5                    5
                  Interest Receivables                                  -                 2                    2
                  Allowance for Loan Losses                             -                (2)                  (2)
                  Foreclosed Property                                   -                 7                    7
             Subtotal                                                   -                12                   12

          Total Guaranteed Loans                                      16             1,529                 1,545
          (Dollars in Millions)
          FY2012                                            MMI/CMHI            GI/SRI             Total
          Guaranteed Loans
            Single Family Forward
                  Loan Receivables                                     17                  1                   18
                  Allowance for Loan Losses                           (35)               (16)                 (51)
                  Foreclosed Property                                  24                 10                   34
            Subtotal                                                    6                 (5)                   1

             Multifamily/Healthcare
                  Loan Receivables                                      -             2,338                 2,338
                  Interest Receivables                                  -               219                   219
                  Allowance for Loan Losses                             -            (1,362)               (1,362)
                  Foreclosed Property                                   -                 1                     1
             Subtotal                                                   -            1,196                 1,196

             HECM
                  Loan Receivables                                      -                  5                    5
                  Interest Receivables                                  -                  1                    1
                  Allowance for Loan Losses                             -                 (2)                  (2)
                  Foreclosed Property                                   -                  5                    5
             Subtotal                                                   -                  9                    9

          Total Guaranteed Loans                                        6            1,200                 1,206
       *HECM loans, while not defaulted, have reached 98% of the maximum claim amount and have been assigned to FHA.




                                                           37
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Defaulted Guaranteed Loans from Post-1991 Guarantees:
   (Dollars in Millions)
   FY 2013                                         MMI/CMHI            GI/SRI              H4H                Total
   Guaranteed Loans
     Single Family Forward
           Loan Receivables                                2,957                 67                    -             3,024
           Interest Receivables                                8                  2                    -                10
           Foreclosed Property                             4,499                149                    1             4,649
           Allowance                                      (4,729)              (147)                   1            (4,875)
     Subtotal                                             2,735                  71                    2            2,809

     Multifamily/Healthcare
         Loan Receivables                                        -              619                    -               619
         Interest Receivables                                    -                -                    -                 -
         Foreclosed Property                                     -                1                    -                 1
         Allowance                                               -             (212)                   -              (212)
     Subtotal                                                    -             408                     -              408

     HECM
         Loan Receivables                                    530             2,038                     -             2,568
         Interest Receivables                                155               951                     -             1,106
         Foreclosed Property                                   2                67                     -                69
         Allowance                                          (228)           (1,015)                    -            (1,243)
     Subtotal                                               459             2,041                      -            2,500

   Total Guaranteed Loans                                 3,194             2,520                      2            5,717

     FY2012                                        MMI/CMHI           GI/SRI             H4H               Total
     Guaranteed Loans
       Single Family Forward
           Loan Receivables                                1,582               53                  -             1,635
           Interest Receivables                                3                2                  -                 5
           Foreclosed Property                             4,888              200                  -             5,088
           Allowance                                      (4,410)            (177)                 -            (4,587)
       Subtotal                                           2,063                78                  -            2,141

        Multifamily/Healthcare
            Loan Receivables                                     -            631                  -                631
            Interest Receivables                                 -              -                  -                  -
            Foreclosed Property                                  -              1                  -                  1
            Allowance                                            -           (382)                 -               (382)
        Subtotal                                                 -           250                   -               250

        HECM
            Loan Receivables                                163             1,775                  -             1,938
            Interest Receivables                              38              805                  -               843
            Foreclosed Property                                -               53                  -                53
            Allowance                                        (71)            (934)                 -            (1,005)
        Subtotal                                            130            1,699                   -            1,829

     Total Guaranteed Loans                                2,193           2,027                   -             4,220
       *HECM loans, while not defaulted, have reached 98% of the maximum claim amount and have been assigned to FHA.




                                                            38
      FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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 2013):
         MMI/CMHI
          Single Family Forward                               1,167,089       1,086,647
          Multifamily/Healthcare                                    449             432
         MMI/CMHI Subtotal                                   1,167,538       1,087,079

         GI/SRI
          Single Family Forward                                  14,323          11,265
          Multifamily/Healthcare                                100,911          93,416
         GI/SRI Subtotal                                       115,234         104,681

         H4H
          Single Family - 257                                      117             113
         H4H Subtotal                                              117             113

       Total                                                 1,282,889       1,191,873

       Guaranteed Loans Outstanding (FY 2012):
         MMI/CMHI
          Single Family Forward                               1,141,279       1,069,003
          Multifamily/Healthcare                                    439             417
         MMI/CMHI Subtotal                                   1,141,718       1,069,420

         GI/SRI
          Single Family Forward                                  18,094          14,868
          Multifamily/Healthcare                                 93,492          85,852
         GI/SRI Subtotal                                       111,586         100,720

         H4H
          Single Family - 257                                      124             122
         H4H Subtotal                                              124             122

       Total                                                 1,253,428       1,170,262




                                                 39
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

New Guaranteed Loans Disbursed:

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

          MMI/CMHI
           Single Family Forward                                          240,089                 237,258
           Multifamily/Healthcare                                             187                     185
          MMI/CMHI Subtotal                                              240,276                 237,443

          GI/SRI
           Single Family Forward                                               138                     137
           Multifamily/Healthcare                                           23,206                  23,054
          GI/SRI Subtotal                                                  23,344                  23,191

        Total                                                            263,620                 260,634

        New Guaranteed Loans Disbursed (FY 2012):
          MMI/CMHI
           Single Family Forward                                          213,159                 210,936
           Multifamily/Healthcare                                             108                     107
          MMI/CMHI Subtotal                                              213,267                 211,043

          GI/SRI
           Single Family Forward                                               163                     161
           Multifamily/Healthcare                                           18,643                  18,548
          GI/SRI Subtotal                                                  18,806                  18,709

        Total                                                            232,073                 229,752



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 766,695 HECM loans with a maximum claim amount of $173
billion. Of these 766,695 HECM loans insured by FHA, 586,138 loans with a maximum claim amount of $146
billion are still active. As of September 30, 2013 the insurance-in-force (the outstanding balance of active loans)
was $100 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.




                                                        40
         FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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 2013     MMI/CMHI                   $           14,671                 $          56,936                          $          86,305
            GI/SRI                                      -                            43,933                                     59,613
                             Total     $          14,671                  $        100,869                           $        145,918

FY2012      MMI/CMHI                   $           13,111                 $             48,412                       $          76,220
            GI/SRI                                      -                               45,153                                  63,639
                             Total     $          13,111                  $            93,565                        $        139,859



Loan Guarantee Liability, Net:

     (Dollars in Millions)
     FY 2013                                   MMI/CMHI              GI/SRI                H4H                        Total
       LLR
       Single Family Forward               $                6   $              -   $                     -       $                6
       Multifamily/Healthcare                               -                  2                         -                        2
       Subtotal                            $                6   $              2   $                     -       $                8

        LLG
        Single Family Forward              $       26,189 $                878 $                    21           $       27,088
        Multifamily/Healthcare                        (20)              (2,446)                      -                   (2,466)
         HECM                                       6,038               10,797                       -                   16,835
        Subtotal                           $       32,207 $              9,229 $                    21           $       41,457

     Loan Guarantee Liability Total $              32,213       $        9,231     $                21           $       41,465

      FY2012                                   MMI/CMHI              GI/SRI                H4H                       Total
        LLR
        Single Family Forward              $            11 $                   1 $                   - $                      12
        Multifamily/Healthcare                           -                     5                     -                         5
        Subtotal                           $            11 $                   6 $                   - $                      17

          LLG
          Single Family Forward            $         37,105 $             1,662 $                   20 $                 38,787
          Multifamily/Healthcare                        (17)             (1,593)                     -                   (1,610)
           HECM                                       5,548              12,242                      -                   17,790
          Subtotal                         $         42,636 $            12,311 $                   20 $                 54,967

      Loan Guarantee Liability Total       $        42,647      $       12,317     $                20       $           54,984




                                                                41
      FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Subsidy Expense for Loan Guarantees by Program and Component:

           (Dollars in millions)

           FY 2013                            MMI/CMHI         GI/SRI       H4H       Total
              Single Family Forward
                 Defaults                           7,130            4            -      7,134
                 Fees and Other Collections       (24,191)          (5)           -    (24,196)
                 Other                                 (7)           -            -         (7)
              Subtotal                           (17,068)           (1)           -   (17,069)

               Multifamily/Healthcare
                 Defaults                                 6         567           -        573
                 Fees and Other Collections             (16)     (1,479)          -     (1,495)
                 Other                                    -           -           -          -
               Subtotal                                (10)       (912)           -      (922)

               HECM
                 Defaults                             536               -         -        536
                 Fees and Other Collections          (902)              -         -       (902)
               Subtotal                             (366)               -         -      (366)

           Total                                 (17,444)         (913)           -   (18,357)

           FY2012                             MMI/CMHI         GI/SRI       H4H       Total
              Single Family Forward
                Defaults                           6,825              5           -      6,830
                Fees and Other Collections       (13,194)            (7)          -    (13,201)
                Other                                992              -           -        992
              Subtotal                            (5,377)            (2)          -     (5,379)

               Multifamily/Healthcare
                 Defaults                                4          642           -        646
                 Fees and Other Collections             (9)      (1,035)          -     (1,044)
                 Other                                   1            -           -          1
               Subtotal                                 (4)        (393)          -       (397)

               HECM
                 Defaults                            754                -         -       754
                 Fees and Other Collections         (953)               -         -      (953)
               Subtotal                             (199)               -         -      (199)

           Total                                  (5,580)         (395)           -    (5,975)




                                                  42
       FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Subsidy Expense for Modification and Reestimates:

                      (Dollars in millions)
                                                            Total       Technical
                      FY 2013                            Modifications Reestimate
                         MMI/CMHI                                    -      9,862
                         GI/SRI                                      -     (1,443)
                      Total                                          -      8,419

                      FY2012
                         MMI/CMHI                                   -      16,636
                         GI/SRI                                     -       3,993
                      Total                                         -      20,629

Total Loan Guarantee Subsidy Expense:

                      (Dollars in millions)
                                                           FY 2013       FY2012
                         MMI/CMHI                              (7,582)     11,054
                         GI/SRI                                (2,356)      3,599
                      Total                                    (9,938)     14,653




                                                    43
         FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Subsidy Rates for Loan Guarantee Endorsements by Program and Component:

                                                                           Fees and Other
(Percentage)                                                    Defaults      Collections    Other    Total

Budget Subsidy Rates for FY 2013 Loan Guarantees:

      MMI/CMHI
      Single Family
       Forward - 06/03/2013 - present                               2.96           (12.66)     -      (9.70)
       Forward - 04/01/2013 - 06/02/2013                            2.96            (9.29)     -      (6.33)
       Forward - 10/01/12 - 03/31/2013                              2.96            (8.94)     -      (5.98)
       HECM                                                         2.42            (6.19)     -      (3.77)
       Short Refinance                                             10.22            (7.65)   (2.57)     -
      Multifamily
       Cooperatives - 06/03/2013 - present                          2.96           (12.66)    -       (9.70)
       Cooperatives - 04/01/2013 - 06/02/2013                       2.96            (9.29)    -       (6.33)
       Cooperatives - 10/01/12- 03/31/2013                          2.96            (8.94)    -       (5.98)

      GI/SRI
      Multifamily
        Apartments                                                  4.40            (6.91)    -       (2.51)
       Apartments Refinance                                         1.10            (5.75)    -       (4.65)
       Apartments Refinance                                         1.10            (5.75)    -       (4.65)
      Healthcare
        Residential Care                                            3.08            (7.37)    -       (4.29)
        Hospitals                                                   1.31            (7.72)    -       (6.41)


                                                                           Fees and Other
(Percentage)                                                    Defaults      Collections    Other    Total

Budget Subsidy Rates for FY 2012 Loan Guarantees:

      MMI/CMHI
      Single Family
       Single Family - Forward - 06/11/2012 - present               3.65            (6.40)     -      (2.75)
       Single Family - Forward - 04/09/2012 - 06/10/2012            3.65            (6.65)     -      (3.00)
       Single Family - Forward - 10/01/11 - 04/08/2012              2.67            (5.84)    1.01    (2.16)
       Single Family - HECM                                         5.73            (7.25)     -      (1.52)
       Single Family - Short Refi                                   6.38            (5.99)   (0.39)     -
      Multifamily
       Cooperatives - 06/11/2012 - present                          3.65            (6.40)     -      (2.75)
       Cooperatives - 04/09/2012 - 06/10/2012                       3.65            (6.65)     -      (3.00)
       Cooperatives - 10/01/11 - 04/08/2012                         2.67            (5.84)    1.01    (2.16)

      GI/SRI
      Multifamily
        Apartments - Section 221(d)(4)                              5.32            (6.41)    -       (1.09)
       Apartments Refinance - Section 207/223(f)                    3.45            (5.62)    -       (2.17)
       Apartments Refinance - Section 223(a)(7)                     3.45            (5.62)    -       (2.17)
      Healthcare
       Residential Care - Section 232                               3.60            (5.56)    -       (1.96)
       Hospitals - Section 242                                      1.79            (5.61)    -       (3.82)




                                                           44
         FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Schedule for Reconciling Loan Guarantee Liability Balances:

                                                                              FY 2013                   FY2012
(Dollars in Millions)                                                      LLR      LLG              LLR      LLG
Beginning Balance of the Loan Guarantee Liability                        $    17 $ 54,967          $    34 $ 36,070
Add:       Subsidy Expense for guaranteed loans disbursed during
           the reporting fiscal years by component:
                       Default Costs (Net of Recoveries)                          -      8,243           -      8,230
                       Fees and Other Collections                                 -    (26,593)          -    (15,198)
                       Other Subsidy Costs                                        -          (7)         -        993
           Total of the above subsidy expense components                          -    (18,357)          -     (5,975)
Adjustments:
           Fees Received                                                          -     12,022           -     10,733
           Foreclosed Property and Loans Acquired                                 -     11,809           -       5,857
           Claim Payments to Lenders                                              -    (29,386)          -    (20,260)
           Interest Accumulation on the Liability Balance                         -      1,674           -       1,417
           Other                                                                  -        (14)          -         (36)
Ending Balance before Reestimates                                                17     32,715          34      27,806
Add or Subtract Subsidy Reestimates by Component:
           Technical/Default Reestimate
                       Subsidy Expense Component                                 (9)   1,705           (17)  14,553
                       Interest Expense Component                                       (377)            -    5,616
           Adjustment of prior years' credit subsidy reestimates                  -    7,414             -    6,992
Total Technical/Default Reestimate                                               (9)   8,742           (17)  27,161
Ending Balance of the Loan Guarantee Liability                           $        8 $ 41,457       $    17 $ 54,967


Administrative Expense:

                                     (Dollars in Millions)    FY 2013        FY2012
                                        MMI/CMHI                   647           646
                                     Total                        647            646




                                                             45
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Credit Reform Valuation Methodology

FHA values its Credit Reform LLG and related receivables from notes and property inventories 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 into product groupings, which are referred to as risk categories in federal budget
accounting. Each risk category has characteristics that distinguish it from others, including loan performance
patterns, 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. That second category is for HECM loans, which joined the MMI
Fund group of programs in 2009. The single family GI/SRI loans are grouped into four risk categories. There are
15 different multifamily risk categories and six health care categories.

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 expected magnitude and timing of each
cash flow. 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 the start of 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 interest rates and the discount rates used against the cash flows.

Actuarial Review: An independent actuarial review of the MMI Fund each year produces conditional claim,
prepayment, 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


                                                         46
              FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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-timing-weighted interest rate on U.S. Treasury securities of maturity
comparable to the guaranteed loans term creates 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, and “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 2013. Overall, FHA’s
liability decreased significantly from the fiscal year 2012 estimates.

Mutual Mortgage Insurance (MMI) – On net, the MMI Fund LLG decreased from $42,652 million at the end of
fiscal year 2012 to $31,010 at the end of fiscal year 2013. This decrease is the result of many factors. There are,
however, two primary factors at work this year in the forward-loan portfolio and two in the HECM (reverse
mortgage) portfolio. First for forward loans are the updates to FHA’s mortgage insurance premium (MIP)
schedule. Effective June 3, 2013, FHA eliminated the automatic cancellation of annual Mortgage Insurance
Premiums (MIP) when loan balances reached 78 percent of the original property value. This policy addresses the
risk still present in a loan guarantee even as the loan seasons, as FHA does pay claims on loan defaults throughout
the entire life of each cohort. The second major factor affecting the portfolio LLG is a new policy requiring major
loan servicers to facilitate Third Party Sale sales at foreclosure auctions in order to reduce reliance upon costly
REO activities. HUD ran a limited pilot program in 2012 and then began national implementation in 2013.

The first factor affecting the HECM LLG calculation is that the discounting rates published by OMB. The new
discounting factors are indicative of the historically-low interest rates. Lower interest rates increase the present
value of future cash inflows and outflows. Second, this year’s house price forecast shows a stronger near term
recovery than was predicted last year.

Premium revenues continue to reflect the impacts of five increases from April 2010 through June 2012. To
address the decline in portfolio value indicated by the 2012 actuarial study and the President’s 2014 Budget, FHA
raised forward-loan insurance premiums again in Fiscal Year 2013.




                                                        47
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

FHA continues to face delayed claim actions. This is a result from lender’s holding properties after foreclosure
auctions to assure they have good title to transfer to HUD, and because of significant foreclosure process
bottlenecks in so-called judicial States, where court approval is required to schedule foreclosure auctions. Those
delays are addressed in the loan performance forecasts. This year, the MMI Fund LLG includes an assumption
that 20,000 additional loans will go to conveyance claim in FY 2014, above those otherwise predicted by the
forecasting models. While such adjustments in past years have resulted in over-predictions of near term claims,
the adjustment number this year is much smaller than what was used in 2011 and 2012. In addition, HUD
continues to pursue the clearing of long foreclosure queues through its Distressed Asset Sale Program. That,
alone, could account for the 20,000 loans involved in the adjustment noted here.

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 $12,242 million at the end of FY 2012 to
$10,796 million at the end of FY 2013. This liability is driven more by long term house price appreciation
forecasts than short term forecasts. Although the short-term forecast used (Moody’s Analytics, July 2013) is
generally more favorable this year in the major states where HECM loans are most concentrated, namely,
California, Texas, Florida and New York, the long-term trend is slightly less favorable in 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 multifamily program in the GI/SRI fund with an insurance-in-force of $24 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 $240 million,
from ($526) million to ($766) million, and principally due to lower prepayment 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 $11.6 billion. The Section 221(d)(4) liability decreased
by $62 million this year, from $14 million to ($48) million. This was principally due to lower claim.

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 $3.6 billion. The Section 232 NC liability decreased by
$6.8 million from ($37.8) million in FY 2012 to ($44.6) million in FY 2013 due to a diminished insurance-in-
force and decreased claim 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
$19.2 billion. The Section 232 Refinance liability decreased by $279 million from ($258) million in FY 2012 to
($537) million in FY 2013 due to higher premium revenue caused by a significant decrease in prepayment
expectations.


                                                        48
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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 $8.9 billion. The Section 242 liability decreased by $33 million from ($216) million in FY
2012 to ($249) million in FY 2013 due to higher premium revenue caused by decreased prepayment expectations.

Risks to LLG Calculations

LLG calculations for most major programs now use Monte Carlo simulations and stochastic economic forecasts.
What is booked as an LLG value is the average or arithmetic “mean” value from a series of projections that view
loan portfolio performance under a large variety of possible economic circumstances. The individual economic-
scenario forecasts are designed to mimic the types of movements in factors such as home prices, interest rates,
and apartment vacancy rates that have actually occurred in the historical record. By creating a large number of
these scenarios, each independent of the others, one creates a universe of potential outcomes that define the
possible set of LLG values in an uncertain world. Using the mean value across all forecast scenarios is valuable
for providing some consideration for “tail risk.” Tail risk occurs in most loan guarantee portfolios because
potential losses under the worst scenarios are multiples of potential gains under the best scenarios. The inclusion
of tail events in the mean-value calculation creates an addition to LLG, which is the difference between the mean
value from the simulations and the median value. The median is the point at which half of the outcomes are worse
and half are better. By booking a mean value rather than a median, FHA is essentially providing some additional
protection in its loss reserves against adverse outcomes. At the same time, booking an LLG based on a mean
value results in a better than even chance future revisions will be in the downward direction. Comparisons of
mean-value results to indicators of the range of possible outcomes from the Monte Carlo simulations for Single
Family forward and HECM mortgages in the MMI LLG are shown in the table below. The representative
outcomes shown there are for the inter-quartile range (25th and 75th percentiles), and a standard indicator of “tail”
outcomes (95th percentile).

                        Range of LLG Values Found in Monte Carlo Simulations
                                        (all dollars in millions)
                                   25th                             75th                          95th
          Program Area
                               Percentile             Mean        Percentile                    Percentile
                                               MMI Fund
     Single-Family Forward
     Mortgages                      $ 20,717            $ 28,432      $ 34,805                       $ 45,666
     Single Family Reverse
     Mortgages (HECM)              $ (878)              $ 2,578       $ 6,082                        $ 13,949
     Total                          $ 19,839            $ 31,010      $ 40,887                       $ 59,615

The uncertainty built into Monte Carlo forecasts is only for economic risk, and not for model risk. All LLG values
are fundamentally dependent upon forecasts of insured-loan performance. Those forecasts are developed through
models that apply statistical, economic, financial, or mathematical theories, techniques, and assumptions to create
behavioral-response functions from historical data. All such models involve risk that actual behavior of
borrowers and lenders in the future will differ from the historical patterns embedded in the forecasting
models. Model risk also emanates from the possibility that the computer code used to create the forecasts
has errors or omissions which compromise the integrity and reliability of projections.




                                                         49
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Each year, HUD works with its contractors to evaluate the forecasting models for reasonableness of results on a
number of dimensions. Model risk is also addressed through a continuous cycle of improvement, whereby
lessons learned from the previous round of annual portfolio valuations—in the independent actuarial studies, LLG
valuations, and President’s Budget—are used as a basis for new research and model development in the current
year. Lastly, because of the critical importance of the FHA single-family programs for national housing policy,
and the uncertainty surrounding the final cost of credit expenses resulting from the recent, severe economic
recession, HUD has contracted for a second independent actuarial study of that portfolio. Such a second opinion
directly addresses potential model risk by seeing if a different modeling approach would produce a reasonably
similar economic value. This year, the results of that examination provide a reasonable assurance that any model
risk in the LLG calculations is within a tolerable range for accepting the primary contractor’s loan performance
projections.

At this point in the economic cycle, with demand for rental units high, and loans refinancing to historically low
interest rates, near term risks to the multifamily LLG calculation appear to be low. However, over the longer term,
risks 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, though that is a small share of new
endorsement activity today. To the extent 221(d)(4) projects come into each new cohort, LLG calculations are
subject to risk from their abilities to find viable markets when they do come on-line. New construction loans
approved in 2007 – 2009 have now gone through several annual rounds of rentals to prove market viability. The
combined 2010-2013 cohorts, which are just now starting to come into rent-up, are more than twice as large as
2007-2009, by dollar volume. Valuations of the newer portfolio are dependent upon continued trends in rental
vacancy rates and rental-price growth.

For Healthcare programs (Sections 232 and 242), LLG risk comes principally from health-care reimbursement
rates from Medicare and Medicaid. In addition, the financial health of State and Municipal government entities
also is a source of LLG risk, as many of the FHA-insured projects benefit, in part, from periodic cash infusions
from those entities. Risk also varies as does 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. These are factors for which it is difficult to predict future
trends.

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 $2.9 billion. The aggregate liability for the remaining pre-credit reform loans in FY 2013 is $6 million,
which is a $5 million decrease from the $11.5 million estimate in FY 2012.

GI/SRI Multifamily & Healthcare LLR - For the multifamily and healthcare portfolio, the remaining insurance-in-
force for pre-credit reform loans is $846 million. The aggregate liability for the remaining pre-credit reform loans
in FY 2013 is ($1.7) million, which is a $200 thousand decrease from the ($1.5) million estimate in FY 2012. The
year-over-year decrease in aggregate liability is due to a $363 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 $19.2billion. The Section 223(a)(7) liability is negative, meaning that the
                                                        50
              FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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 $169 million, from ($431) million to ($600) million,
principally due higher premium revenue expectations resulting from decreased projected prepayment speeds.


Note 7. Other Assets

The following table presents the composition of Other Assets held by FHA as of September 30, 2013 and 2012:

               (Dollars in millions)
                                                                               FY 2013         FY2012
               Intragovernmental:
                Advances to HUD for Working Capital Fund Expenses          $             1 $            3
               Total                                                       $             1 $            3

               With the Public:
                Escrow Monies Deposited at Minority-Owned Banks            $        47 $            55
                Deposits in Transit                                                332               5
               Total                                                       $       379 $            60



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

A deposit 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. The majority of Deposits in Transit relates to accelerated claims disposition final
asset sales that occurred the last week in September.




                                                       51
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Note 8. Accounts Payable

Accounts Payable as of September 30, 2013 and 2012 are as follows:

                 (Dollars in millions)

                                                                         FY 2013      FY2012


                 Intragovernmental:
                 Claims Payable to Ginnie Mae                                  $8          $6
                 Total                                                         $8          $6



                                                                          FY 2013     FY2012

                 With the Public:
                  Claims Payable                                             $188        $503
                  Premium Refunds Payable                                     143         143
                  Single Family Property Disposition Payable                   49          42
                  Miscellaneous Payables                                       24          33
                 Total                                                      $404 $       721



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.




                                                          52
          FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Note 9. Debt

The following tables describe the composition of Debt held by FHA as of September 30, 2013 and 2012:

(Dollars in millions)
                                                            FY2012                                           FY 2013
                                         Beginning
                                          Balance       Net Borrowing     Ending Balance       Net Borrowing      Ending Balance

Agency Debt:
    Debentures Issued to Claimants   $               10 $            (10) $                -   $               - $                 -
Other Debt:
    Borrowings from U.S. Treasury               6,032             5,495            11,527               14,413              25,940
    Total                            $         6,042 $           5,485 $          11,527       $       14,413 $            25,940

                                                                                                   FY 2013             FY2012
Classification of Debt:
    Intragovernmental Debt                                                                     $        25,940 $            11,527
    Total                                                                                      $       25,940 $            11,527



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. There are no debentures
outstanding as of September 30, 2013. 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.

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 2013, FHA’s U.S. Treasury borrowings carried interest rates ranging from 1.68 percent to 7.59
percent. In fiscal year 2012, they carried the same interest rates ranging from 1.68 percent to 7.39 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.




                                                              53
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Note 10. Other Liabilities

The following table describes the composition of Other Liabilities as of September 30, 2013 and 2012:

                              (Dollars in millions)

                              FY 2013                                        Current
                              Intragovernmental:
                               Receipt Account Liability                 $        3,983
                              Total                                      $       3,983

                              With the Public:
                               Trust and Deposit Liabilities             $         100
                               Multifamily Notes Unearned Revenue                  243
                               Miscellaneous Liabilities                            81
                              Total                                      $         424

                              FY2012                                         Current
                              Intragovernmental:
                               Receipt Account Liability                 $        3,473
                              Total                                      $       3,473

                              With the Public:
                               Trust and Deposit Liabilities             $          88
                               Multifamily Notes Unearned Revenue                  234
                               Miscellaneous Liabilities                            74
                              Total                                      $         396



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.

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.




                                                           54
       FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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.


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, 2013. As a result, no contingent liability has been recorded.

Related Party

As of September 30, 2013, the Government National Mortgage Association (Ginnie Mae) held defaulted FHA-
insured mortgage loans. These loans, acquired from defaulted mortgage-backed securities issuers, had the
following balances:

                                                                 FY 2013                   FY 2012
                                                               (in millions)             (in millions)
Mortgages Held for Investment                             $                    5,301 $               6,210
Foreclosed Properties (Pre-Claim)                                               479                      829
Short Sale Claims Receivable                                                     44                      15

Ginnie Mae may submit requests for foreclosure on short sale claim payments to FHA for some or all of these
loans. The foreclosure properties represent post foreclosure FHA insured loans where properties have not yet
been conveyed and the claims filled. Subject to all existing claim verification controls, FHA would pay such
claims to Ginnie Mae upon conveyance of the foreclosed property to FHA. Any liability for such claims, and
offsetting recoveries, has been reflected in the Liability for Loan Guarantees on the accompanying financial
statements based on the default status of the insured loans.




                                                     55
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Note 12. Gross Costs

Gross costs incurred by FHA for the period ended September 30, 2013 and 2012 are as follows:
(Dollars in millions)

                                     Single Family                Multifamily/   Administrative
September 30, 2013                      Forward          HECM     Healthcare       Expenses             Total
Intragovernmental:
  Interest Expense                   $         727   $      53    $       142    $              -   $       922
  Imputed Cost                                   -           -              -                  18            18
  Other Expenses                                 -           -              -                   4             4
Total                                $         727   $      53    $       142    $             22   $       944

With the Public:
 Salary and Administrative Expense   $           - $          - $            - $            644 $           644
 Subsidy Expense                           (17,069)        (366)          (922)               -         (18,357)
  Re-estimate Expense                        9,462         (636)          (407)               -           8,419
 Interest Expense                              758         (336)           (99)              (1)            322
 Interest Accumulation Expense                 985          770            (81)               -           1,674
 Bad Debt Expense                              (15)           -           (426)               -            (441)
 Loan Loss Reserve                              (5)           -             (4)               -              (9)
 Other Expenses                                 44            3             12               28              87
Total                                $      (5,840) $      (565) $      (1,927) $           671 $        (7,661)

Total Gross Costs                    $      (5,113) $      (512) $      (1,785) $           693     $     (6,717)


                                     Single Family                Multifamily/   Administrative
September 30, 2012                      Forward          HECM     Healthcare       Expenses             Total
Intragovernmental:
  Interest Expense                   $         327   $      51    $        85    $              -   $       464
  Imputed Cost                                   -           -              -                  15            15
  Other Expenses                                 -           -              -                  14            14
Total                                $         327   $      51    $        85    $             29   $       492

With the Public:
 Salary and Administrative Expense   $           - $          - $            - $            633 $           633
 Subsidy Expense                            (5,379)        (200)          (397)               -          (5,976)
  Re-estimate Expense                       19,733        7,921           (494)               -          27,160
 Interest Expense                                -            -              1               (2)             (1)
 Interest Accumulation Expense               1,048          427            (57)               -           1,417
 Bad Debt Expense                               (5)           1           (299)               -            (303)
 Loan Loss Reserve                              (7)           -            (10)               -             (17)
 Other Expenses                                 65           11             12               29             117
Total                                $      15,455 $      8,160 $       (1,244) $           660 $        23,031

Total Gross Costs                    $      15,782   $    8,211   $     (1,159) $           689     $    23,523




                                                     56
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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.

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
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.




                                                         57
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Loan Loss Reserve Expense

Loan loss reserve expense is recorded to account for the change in the balance of the loan loss reserve liabilities
associated with FHA’s pre-1992 loan guarantees. The loan loss reserve is provided for the estimated losses
incurred by FHA to pay claims on its pre-1992 insured mortgages when defaults have taken place but the claims
have not yet been filed with FHA.

Other Expenses

Other expenses with the public include only those associated with the FHA pre-1992 loan guarantees. They
consist of net losses or gains on sales of FHA credit program assets, insurance claim expenses, fee expenses, and
other miscellaneous expenses incurred to carry out FHA operations. Other intragovernmental expenses include
FHA’s share of HUD expenses incurred in the Working Capital Fund and expenses from intra-agency
agreements.




                                                        58
         FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Note 13. Earned Revenue

Earned revenues generated by FHA for the period ended September 30, 2013 and 2012 are as follows:
(Dollars in millions)

                                                         Single Family                   Multifamily/
September 30, 2013                                          Forward           HECM       Healthcare         Total
Intragovernmental:
 Interest Revenue from Deposits at U.S. Treasury     $            1,712   $      823     $         62   $      2,597
 Interest Revenue from MMI/CMHI Investments                           8            -                -              8
Total Intragovernmental                              $            1,720   $      823     $         62   $      2,605

With the Public:
 Insurance Premium Revenue                           $                -   $          -   $          8   $            8
 Income from Notes and Properties                                    27              2             38               67
 Other Revenue                                                        1              -              -                1
Total With the Public                                $               28   $          2   $         46   $           76

Total Earned Revenue                                 $            1,748   $      825     $        108   $      2,681



                                                         Single Family                   Multifamily/
September 30, 2012                                          Forward           HECM       Healthcare         Total
Intragovernmental:
 Interest Revenue from Deposits at U.S. Treasury     $            1,375   $      478     $         28   $      1,881
 Interest Revenue from MMI/CMHI Investments                         117            -                -   $        117
 Gain on Sale of MMI/CMHI Investments                             1,116            -                -   $      1,116
Total Intragovernmental                              $            2,608   $      478     $         28   $      3,114

With the Public:
 Insurance Premium Revenue                           $                -   $          -   $          9   $         9
 Income from Notes and Properties                                    34              1             47   $        82
 Other Revenue                                                       16              4              1   $        21
Total With the Public                                $               50   $          5   $         57   $       112

Total Earned Revenue                                 $            2,658   $      483     $         85   $      3,226

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.




                                                         59
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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.

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 2013 were:

                                       Upfront Premium Rates
Single Family:
10/01/2012 - 9/30/2013                 1.75%
Multifamily                            0.25%, 0.45%, 0.50%, 0.80% or 1.00%
HECM Standard                          2.00% (Based on Maximum Claim Amount)
HECM Saver                             0.01% (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 2013 were:

                                       Annual Periodic Premium Rates
Single Family:
10/01/2012 - 3/31/2013                 1.20%, 1.25% , 1.45% or 1.50%
4/1/2013 - 9/30/2013                   1.30%, 1.35%, 1.50% or 1.55%
Multifamily                            0.45%, 0.50%, 0.57% or 0.80%
HECM (Standard and 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 2013,
the Title I annual insurance premium is 1.00 percent of the loan amount until maturity.




                                                       60
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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.


Note 15. Transfers Out and Other Financing Sources

Transfers in/out incurred by FHA for the period ended September 30, 2013 and 2012 are as follows:

             (Dollars in millions)

                                                   Cumulative
                                                                      Unexpended
                           FY 2013                  Results of                            Total
                                                                     Appropriations
                                                   Operations
             Budgetary Financing Sources:
             HUD                                                 -             (68)                (68)
             Transfers Out:
             HUD                                            550                   -               550
             Other Financing Sources:
             Treasury                          $         (3,374) $                -   $      (3,374)


                                                   Cumulative
                                                                      Unexpended
                           FY2012                   Results of                            Total
                                                                     Appropriations
                                                   Operations
             Budgetary Financing Sources:
             Treasury                          $            (395) $              - $              (395)
             HUD                                               -               (72)                (72)
             Transfers Out:
             HUD                                            544                   -               544
             Other Financing Sources:
             Treasury                          $         (1,025) $                -   $      (1,025)




                                                       61
          FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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.

Other Financing Sources

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.


Note 16. Unexpended Appropriations

Unexpended appropriation balances at September 30, 2013 and 2012 are as follows:

(Dollars in millions)
                                 Beginning    Appropriations     Other      Appropriations
FY 2013                           Balance       Received      Adjustments       Used       Transfers-Out Ending Balance
Positive Subsidy               $          464 $            - $            - $            - $           - $          464
Working Capital and Contract
Expenses                                309              207           (39)           (111)          (68)           298
Reestimates                               -            7,367             -          (7,367)            -              -
GI/SRI Liquidating                       89               30             -             (12)            -            107
Total                          $        862 $         7,604 $          (39) $      (7,490) $         (68) $         869



                                 Beginning    Appropriations     Other      Appropriations
FY2012                            Balance       Received      Adjustments       Used        Transfers-Out Ending Balance
Positive Subsidy               $          465 $            - $            - $           (1) $           - $          464
Working Capital and Contract
Expenses                                317            207             (24)           (119)          (72)           309
Reestimates                               -            746               -            (746)            -              -
GI/SRI Liquidating                       68             30               -              (9)            -             89
Total                          $        850 $          983 $           (24) $        (875) $         (72) $         862



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 MMI/CMHI,
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.




                                                         62
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Note 17. Budgetary Resources

The SF-133 and the Statement of Budgetary Resources for fiscal year 2012 have been reconciled to the fiscal year
2012 actual amounts included in the Program and Financing Schedules presented in the fiscal year 2014 Budget
of the United States Government. There were no significant reconciling items. Information from the fiscal year
2013 Statement of Budgetary Resources will be presented in the fiscal year 2015 Budget of the U.S. Government.
The Budget will be transmitted to Congress on the first Monday in February 2014 and will be available from the
Government Printing Office and online at that time.

Obligated balances as of September 30, 2013 and 2012 are as follows:

       Unpaid Obligations

                            (Dollars in Millions)
                            Undelivered Orders                 FY 2013    FY2012
                             MMI/CMHI                          $   1,870 $    1,631
                             GI/SRI                                  436        403
                             H4H                                       -          1
                             EI                                       36         40
                             TI                                        2          3
                            Undelivered Orders Subtotal        $ 2,344 $ 2,078

                            Accounts Payable
                             MMI/CMHI                          $    447 $        613
                             GI/SRI                                 382          514
                             H4H                                      -            -
                             EI                                       -            -
                             TI                                       -            -
                            Accounts Payable Subtotal          $    829 $      1,127

                            Total                              $   3,173   $   3,205




                                                          63
         FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Note 18. Budgetary Resources - Collections

During fiscal year 2012, FHA collected funds received from the National Servicing Settlement with the Nation’s
five largest loan servicers, as well as settlements from lenders as a result of increased monitoring and enforcement
actions.

The following table presents the composition of FHA’s collections for the period ended September 30, 2013 and
2012:

(Dollars in Millions)


FY 2013                                         MMI/CMHI          GI/SRI        H4H         Total
Collections:
 Premiums                                        $     11,178 $         842 $         1 $      12,021
 Notes                                                  2,253           601           1         2,855
 Property                                               8,400           319           -         8,719
 Interest Earned from U.S. Treasury                     2,002           603           1         2,606
 Subsidy                                               17,444             -           -        17,444
 Reestimates                                           32,913         5,681           -        38,594
Collections from settlements                                -             -           -             -
 Other                                                     43            13           1            57
Total                                            $    74,233 $       8,059 $          4 $     82,296



FY2012                                          MMI/CMHI          GI/SRI        H4H         Total
Collections:
 Premiums                                        $      8,827 $        803 $          1 $       9,631
 Notes                                                     41          522            -           563
 Property                                               6,656          322            -         6,978
 Interest Earned from U.S. Treasury                     2,747          405            1         3,153
 Subsidy                                                5,582            1            -         5,583
 Reestimates                                           19,523          746            -        20,269
 Collections from settlements                           1,119            -            -         1,119
 Other                                                     54           11            -            65
Total                                            $    44,549 $       2,810 $          2 $     47,361




                                                        64
           FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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, 2013 and 2012:

 (Dollars in Millions)
 FY 2013                                     MMI/CMHI        GI/SRI          H4H            EI          TI              Total
 Transfers:
 Working Capital and Contract Expenses   $          (68) $            - $             - $         - $            - $        (68)


 (Dollars in Millions)
 FY2012                                      MMI/CMHI        GI/SRI          H4H            EI                          Total
 Transfers
 Working Capital and Contract Expenses   $          (72) $            - $             - $         - $            - $        (72)




Note 20. Budgetary Resources – Obligations

The following table presents the composition of FHA’s obligations for the period ended September 30, 2013 and
2012:

(Dollars in Millions)


FY 2013                                                      MMI/CMHI        GI/SRI         H4H         EI/TI            Total
Obligations
 Claims                                                      $    26,766 $       2,596 $          3 $            - $       29,365
 Property Expenses                                                 1,982            78             -             -          2,060
 Interest on Borrowings                                              710           211             -             -            921
 Subsidy                                                          17,446         1,046             -             -         18,492
 Downward Reestimates                                              5,241           529             -             -          5,770
 Upward Reestimates                                               27,673         5,681             -             -         33,354
 Admin, Contract and Working Capital                                 110             -             -            4             114
 Other                                                                12            87             -             -             99
Total                                                        $   79,940 $      10,228 $           3 $           4 $       90,175



FY2012                                                       MMI/CMHI        GI/SRI         H4H         EI/TI            Total
Obligations
 Claims                                                      $    18,104 $       2,196 $          1 $             - $      20,301
 Property Expenses                                                 1,460            80             -              -         1,540
 Interest on Borrowings                                              305           159             -              -           464
 Subsidy                                                           5,582           438             -              -         6,020
 Downward Reestimates                                              5,655         2,216             -              -         7,871
 Upward Reestimates                                               13,868           746             -              -        14,614
 Admin, Contract and Working Capital                                 124             -             -            31            155
 Other                                                                 1           109             -              -           110
Total                                                        $   45,099 $       5,944 $           1 $           31 $      51,075




                                                         65
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

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, 2013 and 2012:

(Dollars in Millions)                                                                            FY 2013       FY 2012
RESOURCES USED TO FINANCE ACTIVITIES
 Obligations Incurred - SBR                                                                  $ 90,175 $ 51,075
 Spending Authority from Offsetting Collections and Recoveries - SBR                         $ (82,297)  (47,490)
 Offsetting Receipts - SBR                                                                   $  (1,442)   (2,611)
 Transfers In / Out - NP                                                                     $       -   (25,267)
 Imputed Financing from Costs Absorbed by Others                                             $      18        15
TOTAL RESOURCES USED TO FINANCE ACTIVITIES                                                   $   6,454 $ (24,278)

RESOURCES THAT DO NOT FUND THE NET COST OF OPERATIONS
Undelivered Orders and Adjustments                                                           $       (266) $    (154)
Revenue and Other Resources                                                                        81,088     46,767
Purchase of Assets                                                                                (55,840)   (10,261)
Resources for prior year Re-estimate                                                              (33,354)   (14,614)
TOTAL RESOURCES NOT PART OF NET COST OF OPERATIONS                                           $     (8,372) $ 21,738

TOTAL RESOURCES USED TO FINANCE THE NET COST (SURPLUS) OF OPERATIONS                         $     (1,918) $     (2,540)

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                                                 $     14,777 $      31,423
Downward Re-estimate of Credit Subsidy Expense                                                     (6,035)       (4,260)
Changes in Loan Loss Reserve Expense                                                                   (3)           (3)
Changes in Bad Debt Expenses Related to Uncollectible Pre-Credit Reform Receivables                  (440)         (303)
Reduction of Credit Subsidy Expense from Endorsements and Modifications of Loan Guarantees        (18,358)       (5,977)
Gains or Losses on Sales of Credit Program Assets                                                      19            31
Other                                                                                               2,560         1,926
TOTAL COMPONENTS OF THE NET COST (SURPLUS) OF OPERATIONS THAT WILL
NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD                                      $     (7,480) $     22,837

NET COST (SURPLUS) OF OPERATIONS                                                             $     (9,398) $     20,297




                                                             66
        FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Required Supplementary Information

Schedule A: Intragovernmental Assets

FHA's Intragovernmental assets, by federal entity, are as follows on September 30, 2013 and 2012:

      (Dollars in Millions)

                                       Fund Balance     Investments in
                                          with U.S.      U.S. Treasury   Accounts
      FY 2013                             Treasury        Securities    Receivable Other Assets           Total
      U.S. Treasury                     $      63,481   $            3 $          - $         - $            63,484
      HUD                                           -                -            -           1                   1
                      Total             $     63,481    $            3 $          - $        1 $           63,485



                                       Fund Balance Investments in
                                         with U.S.   U.S. Treasury         Accounts
      FY2012                             Treasury     Securities           Receivable    Other Assets     Total


      U.S. Treasury                    $      47,640 $               2,775 $            - $        - $         50,415
      HUD                                          -                     -              -          3                3
                      Total            $     47,640 $               2,775 $             - $        3 $        50,418




Schedule B: Intragovernmental Liabilities

FHA's Intragovernmental liabilities, by federal entity, are as follows on September 30, 2013 and 2012:

               (Dollars in Millions)

                                                                 Borrowings
                                                    Accounts       from U.S.     Other
               FY 2013                               Payable       Treasury    Liabilities        Total
               U.S. Treasury                    $              - $     25,940 $       3,983 $        29,923
               HUD                                             8             -             -              8
                               Total           $               8 $    25,940 $       3,983 $       29,931



                                                                 Borrowings
                                                    Accounts       from U.S.      Other
               FY2012                                Payable       Treasury     Liabilities       Total
               U.S. Treasury                    $              - $      11,527 $       3,473 $       15,000
               HUD                                             6             -              -             6
                               Total            $              6 $     11,527 $       3,473 $       15,006




                                                               67
           FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Required Supplementary Information
Schedule C: Comparative Combining Statement of Budgetary Resources by FHA Program for Budgetary
September 30, 2013:

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

Budgetary Resources:
Unobligated balance brought forward, October 1                                         $              3,309      $        72    $       41    $      652    $       4,074
 Adjustment to unobligated balance brought forward, October 1 (+ or -)                                    -                1             -             -                1
Unobligated balance brought forward, October 1, as adjusted                                           3,309               74            41           651            4,075
Recoveries of prior year unpaid obligations                                                               -               11             3            73               87
Other changes in unobligated balance (+ or -)                                                        (3,309)           3,285           (20)         (164)            (208)
Unobligated balance from prior year budget authority, net                                                 -            3,370            23           561            3,954
Appropriations (discretionary and mandatory)                                                              -            1,814         5,681            30            7,525
Borrowing authority (discretionary and mandatory)                                                         -                -             -             1                1
Contract authority (discretionary and mandatory)                                                          -                -             -             -                -
Spending authority from offsetting collections (discretionary and mandatory)                              2           22,694             -           226           22,922
Total budgetary resources                                                              $                  2      $   27,878     $   5,704     $     818     $     34,402

Status of Budgetary Resources:
Obligations incurred                                                                                         -       27,783         5,681            100           33,564
Unobligated balance, end of year:
  Apportioned                                                                                                -           34            16            27               77
  Exempt from apportionment                                                                                  -            -             -             -                -
  Unapportioned                                                                                              2           61             7           691              761
Total unobligated balance, end of year                                                                       2           95            23           718              838
Total budgetary resources                                                              $                     2   $   27,878     $   5,704     $     818     $     34,402

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                    -              157             8           567               732
Uncollected customer payments from Federal sources, brought forward, October 1 (-)                       (1)               -             -             1                 -
Obligated balance, start of year (net), before adjustments (+ or -)                                      (1)             157             8           568               732
Adjustment to obligated balance, start of year (net) (+ or -)                                             -               (1)            -             -                (1)
Obligated balance, start of year (net), as adjusted                                                      (1)             155             8           569               731
Obligations incurred                                                                                      -           27,783         5,681           100            33,564
Outlays (gross) (-)                                                                                       -          (27,780)       (5,682)         (112)          (33,574)
Change in uncollected customer payments from Federal sources (+ or -)                                    (1)               -             -             -                (1)
Actual transfers, unpaid obligations (net) (+ or -)                                                       -                -             -             -                 -
Actual transfers, uncollected customer payments from Federal sources (net) (+ or -)                       -                -             -             -                 -
Recoveries of prior year unpaid obligations (-)                                                           -              (11)           (3)          (73)              (87)
Unpaid obligations, end of year (gross)                                                                   -              147             4           483               634
Uncollected customer payments from Federal sources, end of year                                          (2)               -             -            (1)               (3)
Obligated balance, end of year (net)                                                   $                 (2)     $      147     $        4    $     482     $         631

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                     2          24,508         5,681            257            30,448
Actual offsetting collections (discretionary and mandatory) (-)                                     (22,695)              -             -           (226)          (22,921)
Change in uncollected customer payments from Federal sources (discretionary and
mandatory) (+ or -)                                                                                      (1)               -             -           -                 (1)
Anticipated offsetting collections (discretionary and mandatory) (+ or -)                                 -                -             -           -                  -
Budget authority, net (discretionary and mandatory)                                                 (22,694)          24,508         5,681          31              7,526
Outlays, gross (discretionary and mandatory)                                                              -           27,780         5,682         112             33,574
Actual offsetting collections (discretionary and mandatory) (-)                                     (22,695)               -             -        (226)           (22,921)
Outlays, net (discretionary and mandatory)                                                          (22,695)          27,780         5,682        (114)            10,653
Distributed offsetting receipts (-)                                                                       -                -             -       1,442              1,442
Agency outlays, net (discretionary and mandatory)                                      $           (22,695)      $   27,780     $   5,682     $ 1,328       $     12,095




                                                                                  68
             FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Required Supplementary Information

Schedule C: Comparative Combining Statement of Budgetary Resources by FHA Program for Budgetary
September 30, 2012:
                                                                                                     MMI/CMHI             MMI/CMHI            GI/SRI                    Budgetary Total
                                                                                                    Capital Reserve        Program           Program          Other           Total

Budgetary Resources:
Unobligated balance brought forward, October 1                                                  $              4,685      $       58     $         51     $        771     $     5,565
Unobligated balance brought forward, October 1, as adjusted                                                    4,685              58               51              771           5,565
Recoveries of prior year unpaid obligations                                                                        -              10                6               10              26
Other changes in unobligated balance (+ or -)                                                                 (4,685)          4,677              (16)            (252)           (276)
Unobligated balance from prior year budget authority, net                                                          -           4,744               41              530           5,315
Appropriations (discretionary and mandatory)                                                                       -             135              746               31             912
Spending authority from offsetting collections (discretionary and mandatory)                                   3,309           9,185                -              243          12,737
Total budgetary resources                                                                       $              3,309      $   14,064     $        787     $        804     $    18,964

Status of Budgetary Resources:
Obligations incurred                                                                                                  -       13,991              746             153           14,890
Unobligated balance, end of year:
  Apportioned                                                                                                      -               -               16              43               59
  Unapportioned                                                                                                3,309              72               25             609            4,015
Total unobligated balance, end of year                                                                         3,309              73               41             651            4,074
Total budgetary resources                                                                       $              3,309      $   14,064     $        787     $       804      $    18,964

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                             -              145               16             576              737
Uncollected customer payments from Federal sources, brought forward, October 1 (-)                               (19)               -                -              (1)             (20)
Obligated balance, start of year (net), before adjustments (+ or -)                                              (19)             145               16             575              717
Adjustment to obligated balance, start of year (net) (+ or -)                                                      -                -                -               -                -
Obligated balance, start of year (net), as adjusted                                                              (19)             145               16             575              717
Obligations incurred                                                                                               -           13,991              746             153           14,890
Outlays (gross) (-)                                                                                                -          (13,970)            (749)           (149)         (14,868)
Change in uncollected customer payments from Federal sources (+ or -)                                             18                -                -               -               18
Recoveries of prior year unpaid obligations (-)                                                                    -              (10)              (6)            (10)             (26)
Unpaid obligations, end of year (gross)                                                                            -              157                8             568              733
Uncollected customer payments from Federal sources, end of year                                                   (1)               -                -              (1)              (2)
Obligated balance, end of year (net)                                                            $                 (1)     $       157    $           8    $        567     $        731

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                          3,309           9,320              746              274           13,649
Actual offsetting collections (discretionary and mandatory) (-)                                              (12,510)              -                -             (256)         (12,766)
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+
or -)                                                                                                             18               -                -                -               18
Budget authority, net (discretionary and mandatory)                                                           (9,183)          9,319              746               19              901
Outlays, gross (discretionary and mandatory)                                                                       -          13,970              749              149           14,868
Actual offsetting collections (discretionary and mandatory) (-)                                              (12,510)              -                -             (256)         (12,766)
Outlays, net (discretionary and mandatory)                                                                   (12,510)         13,969              749             (106)           2,102
Distributed offsetting receipts (-)                                                                                -               -                -            2,611            2,611
Agency outlays, net (discretionary and mandatory)                                               $            (12,510)     $   13,969     $        749     $      2,505     $      4,713




                                                                                          69
         FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Required Supplementary Information

Schedule D: Comparative Combining Budgetary Resources by FHA Program for Non-Budgetary
September 30, 2013:

                                                                                                                                                    Non
                                                                                                       MMI/CMHI         GI/SRI                 Budgetary Total
                                                                                                       Financing      Financing      Other         Total

 Budgetary Resources:
 Unobligated balance brought forward, October 1                                                        $    33,167    $     7,082    $   26    $        40,275
  Adjustment to unobligated balance brought forward, October 1 (+ or -)                                          -              -         -                  -
 Unobligated balance brought forward, October 1, as adjusted                                                33,167          7,082        26             40,275
 Recoveries of prior year unpaid obligations                                                                   381             23         -                404
 Other changes in unobligated balance (+ or -)                                                                   -              -         -                  -
 Unobligated balance from prior year budget authority, net                                                  33,548          7,105        25             40,678
 Appropriations (discretionary and mandatory)                                                                    -              -         -                  -
 Borrowing authority (discretionary and mandatory)                                                          17,603          1,488         1             19,092
 Contract authority (discretionary and mandatory)                                                                -              -         -                  -
 Spending authority from offsetting collections (discretionary and mandatory)                               47,304          7,389         3             54,696
 Total budgetary resources                                                                             $   98,455     $   15,982     $   29    $      114,466

 Status of Budgetary Resources:
 Obligations incurred                                                                                      52,121           4,487         3             56,611
 Unobligated balance, end of year:
   Apportioned                                                                                              22,797          2,187        15             24,999
   Exempt from apportionment                                                                                     -              -         -                  -
   Unapportioned                                                                                            23,537          9,308        11             32,856
 Total unobligated balance, end of year                                                                     46,334         11,495        26             57,855
 Total budgetary resources                                                                             $   98,455     $   15,982     $   29    $      114,466

 Change in Obligated Balance:
 Unpaid obligations, brought forward, October 1 (gross)                                                      1,931            541         -              2,472
 Uncollected customer payments from Federal sources, brought forward, October 1 (-)                              -              -         -                  -
 Obligated balance, start of year (net), before adjustments (+ or -)                                         1,931            541         -              2,472
 Adjustment to obligated balance, start of year (net) (+ or -)                                                   -              -         -                  -
 Obligated balance, start of year (net), as adjusted                                                         1,931            541         -              2,472
 Obligations incurred                                                                                       52,121          4,487         3             56,611
 Outlays (gross) (-)                                                                                       (51,651)        (4,486)       (4)           (56,141)
 Change in uncollected customer payments from Federal sources (+ or -)                                           -              -         -                  -
 Actual transfers, unpaid obligations (net) (+ or -)                                                             -              -         -                  -
 Actual transfers, uncollected customer payments from Federal sources (net) (+ or -)                             -              -         -                  -
 Recoveries of prior year unpaid obligations (-)                                                              (381)           (23)        -               (404)
 Unpaid obligations, end of year (gross)                                                                     2,019            520         -              2,539
 Uncollected customer payments from Federal sources, end of year                                                 -              -         -                  -
 Obligated balance, end of year (net)                                                                  $    2,019     $      520     $    -    $        2,539

 Budget Authority and Outlays, Net:
 Budget authority, gross (discretionary and mandatory)                                                      64,907          8,877         4             73,788
 Actual offsetting collections (discretionary and mandatory) (-)                                           (51,514)        (7,859)       (2)           (59,375)
 Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -)             -              -         -                  -
 Anticipated offsetting collections (discretionary and mandatory) (+ or -)                                       -              -         -                  -
 Budget authority, net (discretionary and mandatory)                                                        13,393          1,019         1             14,413
 Outlays, gross (discretionary and mandatory)                                                               51,651          4,486         4             56,141
 Actual offsetting collections (discretionary and mandatory) (-)                                           (51,514)        (7,859)       (2)           (59,375)
 Outlays, net (discretionary and mandatory)                                                                    138         (3,373)        1             (3,234)
 Distributed offsetting receipts (-)                                                                             -              -         -                  -
 Agency outlays, net (discretionary and mandatory)                                                     $      138     $   (3,373)    $    1    $       (3,234)




                                                                                70
             FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Required Supplementary Information

Schedule D: Comparative Combining Budgetary Resources by FHA Program for Non-Budgetary
September 30, 2012:
                                                                                                                                                                     Non
                                                                                                          MMI/CMHI             GI/SRI                           Budgetary Total
                                                                                                           Financing          Financing           Other             Total

Budgetary Resources:
Unobligated balance brought forward, October 1                                                        $         27,044    $          9,181    $           24    $       36,249
Unobligated balance brought forward, October 1, as adjusted                                                     27,044               9,181                24            36,249
Recoveries of prior year unpaid obligations                                                                        103                  19                 -               122
Unobligated balance from prior year budget authority, net                                                       27,147               9,199                25            36,371
Borrowing authority (discretionary and mandatory)                                                                5,200                 560                 -             5,760
Spending authority from offsetting collections (discretionary and mandatory)                                    31,887               2,440                 2            34,329
Total budgetary resources                                                                             $         64,234    $         12,199    $           27    $       76,460

Status of Budgetary Resources:
Obligations incurred                                                                                            31,067               5,117                 1            36,185
Unobligated balance, end of year:
  Apportioned                                                                                                   17,169               1,167                10            18,346
  Unapportioned                                                                                                 15,998               5,915                16            21,929
Total unobligated balance, end of year                                                                          33,167               7,082                26            40,275
Total budgetary resources                                                                             $         64,234    $         12,199    $           27    $       76,460

Change in Obligated Balance:
Unpaid obligations, brought forward, October 1 (gross)                                                           2,007                 313                 -             2,320
Uncollected customer payments from Federal sources, brought forward, October 1 (-)                                   -                  (1)                -                (1)
Obligated balance, start of year (net), before adjustments (+ or -)                                              2,007                 312                 -             2,319
Adjustment to obligated balance, start of year (net) (+ or -)                                                        -                   -                 -                 -
Obligated balance, start of year (net), as adjusted                                                              2,007                 312                 -             2,319
Obligations incurred                                                                                            31,067               5,117                 1            36,185
Outlays (gross) (-)                                                                                            (31,041)             (4,870)                -           (35,911)
Change in uncollected customer payments from Federal sources (+ or -)                                                -                   1                 -                 1
Recoveries of prior year unpaid obligations (-)                                                                   (103)                (19)                -              (122)
Unpaid obligations, end of year (gross)                                                                          1,931                 541                 -             2,472
Obligated balance, end of year (net)                                                                  $          1,931    $            541    $            -    $        2,472

Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory)                                                           37,087               3,000                 2            40,089
Actual offsetting collections (discretionary and mandatory) (-)                                                (32,017)             (2,575)               (3)          (34,595)
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -)                  -                   1                 -                 1
Budget authority, net (discretionary and mandatory)                                                              5,070                 425                 -             5,495
Outlays, gross (discretionary and mandatory)                                                                    31,041               4,870                 -            35,911
Actual offsetting collections (discretionary and mandatory) (-)                                                (32,017)             (2,575)               (3)          (34,595)
Outlays, net (discretionary and mandatory)                                                                        (976)              2,294                (2)            1,316
Agency outlays, net (discretionary and mandatory)                                                     $           (976)   $          2,294    $           (2)   $        1,316




                                                                                         71
       FHA FY 2013 AND 2012 FINANCIAL STATEMENTS (Cont.)

Other Accompanying Information

The Office of Management and Budget (OMB) requires all CFO Act agencies’ to include the Schedule
of Spending in the Other Accompanying Information section of their Annual Financial Report. The
Schedule of Spending presents an overview of how and where agencies are spending money. The
statement discloses FHA’s resources that were available to spend, services or items that were purchased,
with whom the agencies are spending money, and how obligations are issued.

                                                  SCHEDULE OF SPENDING
                                                   As of September 30, 2013
                                                          In millions

                                                                               FY 2013   FY 2012
        What Money is Available to spend?
        Total Resources                                                       $148,867   $95,423
        Less Amount Available but Not Agreed to be Spent                       $25,075   $18,404
        Less Amount Not Available to be Spent                                  $33,617   $25,944
        Total Amounts Agreed to be Spent                                       $90,175   $51,075

        How was the Money Spent?
        Category*
            Claims                                                             $29,656   $20,270
            Property Expenses                                                   $1,414    $1,341
            Interest on Borrowings                                                $921      $464
            Subsidy                                                            $18,358    $5,978
            Downward Reestimates                                                $5,770    $7,872
            Upward Reestimates                                                 $33,354   $14,614
            Admin, Contract and Working Capital                                   $116      $116
            Other                                                                 $126      $125

        Total Spending                                                         $89,714   $50,780
        Amounts Remaining to be Spent                                             $461      $295
        Total Amounts Agreed to be Spent                                       $90,175   $51,075

        Who did the Money go to?
        For Profit                                                             $31,772   $22,147
        Government                                                             $58,403   $28,928
        Total Amounts Agreed to be Spent                                       $90,175   $51,075

        How Was the Money Issued?
            Claims                                                             $29,365   $20,301
            Property Expenses                                                   $2,060    $1,539
            Interest on Borrowings                                                $921      $464
            Subsidy                                                            $18,491    $6,019
            Downward Reestimates                                                $5,770    $7,872
            Upward Reestimates                                                 $33,354   $14,614
            Admin, Contract and Working Capital                                   $114      $155
            Other                                                                 $100      $111
        Total on How Money Was Issued                                          $90,175   $51,075




                                                             72