oversight

Independent Auditor's Report on HUD's Consolidated Financial Statements and Reports on Internal Controls Over Financial Reporting and Compliance with Laws and Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-03-06.

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

     U.S Department of Housing and
   Urban Development,Washington, DC
     Fiscal Years 2014 and 2013 Consolidated Financial
                     Statements Audit




Office of Audit, Financial Audits Division   Audit Report Number: 2015-FO-0004
Washington, DC                                                    March 6, 2015
                                             March 6, 2015




To:            Bradford Huther, Chief Financial Officer, F



From:          Thomas R. McEnanly, Director, Financial Audits Division, Washington DC, GAF
Subject:       Independent Auditor’s Report on HUD’s Consolidated Financial Statements and
               Reports on Internal Controls Over Financial Reporting and Compliance with
               Laws and Regulations


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) Independent Auditor’s Report on HUD’s Consolidated Financial Statements
and Reports on Internal Controls Over Financial Reporting and Compliance with Laws and
Regulations.
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.
If you have any questions or comments about this report, please do not hesitate to call me at
202-402-8216.
                    Audit Report Number: 2015-FO-0004
                    Date: March 6, 2015

                    Audit of the U.S. Department of Housing and Urban Development’s
                    Consolidated Financial Statements for Fiscal Years 2014 and 2013




Highlights
What We Audited and Why
In accordance with the Chief Financial Officers Act of 1990, as amended, we are required to
annually audit the consolidated financial statements of the U.S. Department of Housing and
Urban Development (HUD) and the stand alone financial statements of Federal Housing
Administration (FHA) and the Government National Mortgage Administration (Ginnie Mae).
Our objective was to express an opinion on the fairness of the financial statements in accordance
with U.S. generally accepted accounting principles applicable to the Federal government. This
report presents the results of our audit of fiscal year 2014 and fiscal year 2013 HUD
Consolidated Financial Statements, including our report on HUD’s internal control and test of
compliance with applicable laws and regulations.

What We Found
We expressed a disclaimer of opinion on HUD’s fiscal year 2014 consolidated financial
statements because of the significant effects of certain unresolved audit matters, which restricted
our ability to obtain sufficient appropriate evidence to express an opinion. These unresolved
audit matters relate to (1) HUD’s improper use of cumulative and first-in, first-out budgetary
accounting methods of disbursing Community Planning and Development program funds and (2)
$6.6 billion in nonpooled loan assets from Ginnie Mae’s stand-alone financial statements that we
could not audit because Ginnie Mae could not provide adequate support for us to test these asset
balances. This audit report contains eight material weaknesses, and eight significant deficiencies
in internal controls, and five instances of noncompliance with applicable laws and regulations.
These weaknesses were due to an inability to establish a compliant control environment,
implement adequate financial accounting systems, retain key financial management staff and
identify appropriate accounting principles and policies.

What We Recommend
HUD OIG’s recommendations to each of the components’findings were made in Audit Report
2015-FO-0002, Interim Report on HUD’s Internal Controls Over Financial Reporting, issued
December 8, 2014; Audit Report 2015-FO-0001, Federal Housing Administration Financial
Statements Audit, issued November 14, 2014; and Audit Report 2015-FO-0003, Government
National Mortgage Association Financial Statement Audit, issued February 27, 2015.
Table of Contents
Highlights .................................................................................................................................... 2
Independent Auditor’s Report ............................................................................................ 4

Appendixes .............................................................................................................. 19
           A. Schedule of Funds to be Put to Better Use ...................Error! Bookmark not defined.

           B. HUD’s Fiscal Years 2014 and 2013 Consolidated Financial Statements and Notes
              ..................................................................................................................................... 20




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                                              U.S. DEPARTMENT OF
                                  HOUSING AND URBAN DEVELOPMENT
                                         OFFICE OF INSPECTOR GENERAL




                             Independent Auditor’s Report
To the Secretary
U.S. Department of Housing and Urban Development

Report on the Financial Statements
The Chief Financial Officers Act of 1990 requires the U.S. Department of Housing and Urban
Development (HUD) to prepare the accompanying consolidated balance sheets as of September
30, 2014 and 2013 (restated), and the related consolidated statements of net cost, changes in net
position, and combined statement of budgetary resources for the fiscal years then ended, and the
related notes to the financial statements. We were engaged to audit those financial statements in
accordance with generally accepted government auditing standards accepted in the United States
of America and Office of Management and Budget (OMB) Bulletin 14-02.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal controls relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
We are required by the Chief Financial Officers Act of 1990, as amended by the Government
Management Reform Act of 1994 and implemented by OMB Bulletin 14-02, Audit
Requirements for Federal Financial Statements, to audit HUD’s principal financial statements or
select an independent auditor to do so. With respect to fiscal year 2013, we did not audit the
financial statements of the Federal Housing Administration (FHA) and the Government National
Mortgage Association (Ginnie Mae) for the period ending September 30, 2013, that reflected
total assets of 58 percent of the related consolidated totals. Another independent auditor, whose
reports have been furnished to us, audited those statements, and our opinion on the fiscal years
2014 and 2013 financial statements related to the amounts included for FHA and Ginnie Mae as
of September 30, 2013, is based solely on the reports of the other auditor.
Our responsibility is to express an opinion on the fair presentation of these principal financial
statements in all material respects, in conformity with accounting principles generally accepted
in the United States of America. Because of the matters described in the Basis for Disclaimer of
Opinion on 2014 Financial Statements section, however, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion. The audit was conducted in
accordance with government auditing standards generally accepted in the United States of
America, which require the auditor to plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.


                                                 4
Basis for Disclaimer of Opinion on 2014 Financial Statements
Our audit identified two areas in which we were unable to obtain adequate audit evidence to
provide a basis of opinion on the fiscal year 2014 financial statements. When evaluating these
two areas and their impacts on the financial statements as a whole, we determined, in the
aggregate, that they were both material and pervasive to the fiscal year 2014 consolidated
financial statements. There were no other satisfactory audit procedures that we could adopt to
obtain sufficient appropriate evidence with respect to these unresolved matters. Readers are
cautioned that amounts reported in the financial statements and related notes may not be reliable.
     Improper budgetary accounting. HUD continues to perform budgetary accounting for the
     Office of Community Planning and Development (CPD) that is not in accordance with
     Federal generally accepted accounting principles (GAAP) and has resulted in a material
     misstatement in HUD’s combined statement of budgetary resources. HUD uses cumulative
     and first-in, first-out (FIFO) methods to disburse, which are both unacceptable and not in
     accordance with GAAP for grants in the Federal Government, to determine the amount of
     uncommitted HOME Investment Partnerships Program grant funds that would be subject to
     reallocation or recapture under section 218(g) of the HOME Investment Partnership Act
     and to process disbursements for CPD formula programs, respectively. Given the dollar
     risk exposure and volume of CPD grant activities from several thousand grantees
     (approximately $5 billion in annual appropriations to support CPD-related programs,
     including the HOME Investment Partnerships, Community Development Block Grant,
     Housing Opportunities for Persons With AIDS, and Emergency Shelter Grant) and the
     system limitations of HUD’s grant management and mixed accounting system to properly
     account for these grant transactions in accordance with the statutory requirements and
     GAAP), we determined that financial transactions related to these CPD programs that
     entered HUD’s accounting system were being processed incorrectly. Thus, based on the
     pervasiveness of their effects, in our opinion, the obligated and unobligated balances
     brought forward and obligated and unobligated balances reported in HUD’s combined
     statement of budgetary resources for fiscal year 2014 and in prior years were materially
     misstated. The related amount of material misstatements for these CPD programs in the
     accompanying combined statement of budgetary resources cannot be readily determined to
     reliably support the budgetary balances reported by HUD at yearend due to the inadequacy
     of evidence available from HUD’s mixed accounting and grants management system.

     Disclaimer of opinion on Ginnie Mae financial statements. Despite multiple attempts, we
     were unable to obtain sufficient appropriate evidence to express an opinion on the fairness
     of the $6.6 billion in nonpooled loan assets from Ginnie Mae’s defaulted issuers’ portfolio.
     The nonpooled loan assets arose from the acquisition of nonperforming loans (typically
     over 120 days old delinquent) from Ginnie Mae’s defaulted issuers’ portfolio. These
     assets, which represent 26 percent of Ginnie Mae’s total assets, were made up of a number
     of asset line items in the balance sheet. These are (1) mortgage loans held for investment
     ($5.3 billion), (2) advances against defaulted mortgage-backed security pools ($193
     million), (3) short sale claims receivable ($50 million), (4) foreclosed-upon property ($616
     million), (5) accrued interest on mortgage loans held for investment ($414 million), and (6)
     properties held for sale ($17 million). Ginnie Mae was unable to provide relevant

                                                 5
     documents and data, which we needed to complete our audit testing of these asset balances,
     because of the functional limitations of financial management systems to perform loan-
     level accounting as well as poor accounting and record-keeping practices. Additionally,
     Ginnie Mae improperly accounted for FHA reimbursable costs as an expense. These costs
     were charged to the mortgage-backed security loss liability account instead of being
     capitalized as an asset. This error resulted in the misstatement of the asset and net income
     and may require a restatement of previous years’ financial statements, depending on the
     materiality of misstatements, resulting from multiple years of incorrect accounting. We
     were not able to determine with sufficient accuracy a proposed adjustment to correct the
     error due to insufficient available data. Using Ginnie Mae’s limited data, our estimate of
     the error was between $144 million and $248 million. Ginnie Mae also had an insufficient
     basis to support the fairness of the $735 million in the mortgage-backed security loss
     liability account. The loss liability represents Ginnie Mae’s estimated non-recoverable
     servicing and foreclosure costs to be incurred from its defaulted issuers’ portfolio of
     nonpooled loans. This loss liability account was based on estimates and consisted of
     multiple assumptions. The foreclosure cost and loan redefault rate assumptions were two
     areas of audit concern.

We identified another matter that would have required a modification to the opinion because of
materiality; however, it was not pervasive.

     Unvalidated grant accrual estimates. In reporting on HUD’s liabilities, HUD’s principal
     financial statements were not prepared in accordance with the requirements of the Federal
     Government and Federal Accounting Standards Advisory Board (FASAB) Technical
     Release (TR) 12. FASAB TR 12 provides guidance to agencies on how to develop a
     reasonable estimate to report on the financial statements. For the first time, HUD prepared
     an estimate to accrue for these liabilities on its financial statements, which totaled $1.501
     billion and $2.213 billion for fiscal years 2014 and 2013, respectively. While we obtained
     sufficient appropriate audit evidence indicating that fiscal year 2013’s estimate was likely
     to have been misstated and did not represent a reasonable estimate, we were unable to do so
     for the fiscal year 2014 estimate. This lack of evidence was due to HUD’s not adequately
     validating its estimates with grantee reporting to substantiate the assumptions used to
     develop the accrued grant liability estimates and insufficient time to perform all of the audit
     procedures we deemed necessary to obtain sufficient appropriate audit evidence to form an
     opinion on the estimate in lieu of adequate validation procedures by HUD. Therefore, we
     could not form an opinion on HUD’s grant accrual estimate for fiscal year 2014.
Disclaimer of Opinion on the Fiscal Year 2014 Financial Statements
Because of the significance of the matters described in the Basis for Disclaimer of Opinion on
2014 Financial Statements section above, we were not able to obtain sufficient appropriate audit
evidence to provide an audit opinion on HUD’s principal financial statements and accompanying
notes as of September 30, 2014, and its net costs, changes in net position, and budgetary
resources for the fiscal year then ended. Accordingly, we do not express an opinion on the
financial statements.


                                                 6
Qualified Opinion on Fiscal Year 2013 (Restated) Financial Statements
In our opinion, based on our audit and the reports of other auditors, except for the discussion
related to improper budgetary accounting included in the Basis for Disclaimer of Opinion on
2014 Financial Statements section, the principal financial statements and accompanying notes
presented fairly, in all material respects, the financial position of HUD as of September 30, 2013,
and its net costs, changes in net position, and budgetary resources for the fiscal year then ended
in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
In our prior-year reported opinion, dated December 16, 2013, we reported a modified opinion
due to scope limitations related to improper budgetary accounting for Ginnie Mae and the lack of
accounting for cash management. During the current year, we obtained sufficient appropriate
audit evidence in these areas to support the clearance of these two basses’ for qualification.
Accordingly, our present opinion on the restated fiscal year 2013 financial statements has been
updated to reflect the removal of these bases for qualification. However, the qualification related
to improper budgetary accounting related to CPD’s use of the FIFO and cumulative methods
remains.
At the time of issuance of this auditor’s report and as discussed in Note 30 to the financial
statements, the 2013 financial statements have been restated for the correction of two material
misstatements, the accounting for Office of Public and Indian Housing (PIH) Prepayments and
the accrual of liabilities related to grantee expenses incurred but not reimbursed. Additionally,
another restatement was made to accurately classify Ginnie Mae’s resources as budgetary and
non-budgetary. There were other material misstatements in the fiscal year 2014 financial
statements related to the current use of the FIFO method to liquidate obligations under CPD’s
formula grant programs, and no adjustments had been made related to the use of FIFO because
the specific amount of misstatements and their related effects were unknown. A restatement
related to CPD’s programs will occur once HUD determines the appropriate adjustments needed
to correct the errors. Additional details can be found in Note 30 to the financial statements.
Other Matters
Prior-Period Financial Statements Audited by a Predecessor Auditor
Ginnie Mae’s financial statements as of September 30, 2013, were audited by
CliftonLarsonAllen LLP (CLA), which expressed in a report on November 25, 2013, an
unqualified opinion on those statements. In fiscal year 2014, we communicated to CLA material
misstatements in the financial statements that we identified during our audit that affected
previously issued financial statements. CLA reviewed the issues raised and concurred with our
conclusion. Accordingly, CLA notified OIG that CLA is withdrawing the opinion rendered in
connection with its audit of Ginnie Mae’s 2013 financial statements because the opinion can no
longer be relied upon.
Required Supplementary Information
U.S. GAAP requires that certain information be presented to supplement the basic general-
purpose financial statements. Such information, although not a part of the basic general-purpose
financial statements, is required by FASAB, which considers it to be an essential part of financial
reporting for placing the basic general-purpose financial statements into an appropriate

                                                 7
operational, economic, or historical context. We were unable to apply certain limited procedures
to the required supplementary information in accordance with government auditing standards
generally accepted in the United States because management could not provide the information
within the timeframe required to allow for us to perform the necessary procedures. We do not
express an opinion or provide any assurance on the information.
In its Fiscal Year 2014 Agency Financial Report, HUD presents “required supplemental
stewardship information” and “required supplementary information.” The required supplemental
stewardship information presents information on investments in non-Federal physical property
and human capital and investments in research and development. In the required supplementary
information, HUD presents a “management discussion and analysis of operations” and
combining statements of budgetary resources. HUD also elected to present consolidating
balance sheets and related consolidating statements of changes in net position as required
supplementary information. The consolidating information is presented for purposes of
additional analysis of the financial statements rather than to present the financial position and
changes in net position of HUD’s major activities. This information is not a required part of the
basic financial statements but is supplementary information required by FASAB and OMB
Circular A-136.
Other Information
Our audit was conducted for the purpose of forming an opinion on the basic financial statements
as a whole. HUD’s Agency Financial Report contains other information that is not a required
part of the basic financial statements. Such information has not been subjected to the auditing
procedures applied in the audit of the principal financial statements, and, accordingly, we do not
express an opinion or provide any assurance on it.



Additional details on our findings regarding HUD’s, FHA’s, and Ginnie Mae’s internal controls
are summarized below and were provided in separate reports to HUD management. 1 These
additional details also augment the discussions of instances in which HUD had not complied
with applicable laws and regulations; the information regarding our audit objectives, scope, and
methodology; and recommendations to HUD management resulting from our audit.
Report on 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 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. A material
weakness is a deficiency or combination of deficiencies in internal control, such that there is a

1
  Audit Report 2015-FO-0002, Interim Report on HUD’s Internal Controls Over Financial Reporting, issued
December 8, 2014; Audit Report 2015-FO-0001, Federal Housing Administration Financial Statements Audit,
issued November 14, 2014; Audit Report 2015-FO-0003, Government National Mortgage Association Financial
Statement Audit, issued February 27, 2015)

                                                     8
reasonable possibility that a material misstatement of the entity’s financial statements will not be
prevented or detected and corrected on a timely basis.
Our consideration of internal control was for the limited purpose described above and was not
designed to identify all deficiencies in internal control that might be significant deficiencies or
material weaknesses. However, we noted in our reports the following eight material weaknesses
and eight significant deficiencies.

Material Weaknesses

CPD’s Fomula Grant Accounting Did not Comply with GAAP, Resulting in Misstatements on
the Financial Statements
HUD’s CPD formula grant program accounting continued to be a departure from GAAP due to
its use of the FIFO method to disburse obligations. As reported in fiscal year 2013, the
information system used, Integrated Disbursement Information System (IDIS) Online, a grants
management system, was not designed to comply with Federal financial management system
requirements. Further, HUD’s plan to eliminate FIFO from IDIS Online will only be applied to
fiscal year 2015 and future grants and will not be applied retroactively for fiscal years 2014 and
earlier. As a result, budget year grant obligation balances continued to be misstated, and
disbursements made using an incorrect U.S. standard general ledger attribute resulted in
additional misstatements. Due to the inability of IDIS Online to provide an audit trail of all of
the financial events affected by the FIFO method, the financial affects of FIFO, which were
applied to its consolidated financial statements, could not be quantified. Further, due to the
amount and pervasiveness of the funds susceptible to the FIFO method and the noncompliant
internal control structure in IDIS Online, the combined statement of budgetary resources and the
consolidated balance sheet were not prevented from being materially misstated. The effects of
not removing the FIFO method retroactively will continue to have implications on future years’
financial statement audit opinions until the impact is assessed to be immaterial.
Weaknesses in PIH’s Cash Management Process Continued to Effect Financial Reporting and
HUD’s Compliance with Treasury Requirements
In fiscal year 2014, HUD attempted to bring its cash management process for the Section 8
Housing Choice Voucher program into compliance with GAAP and U.S. Department of the
Treasury requirements; however, weaknesses in the process continued to impact HUD’s
compliance with the requirements. To attempt compliance in fiscal year 2014, The Office of the
Chief Financial Officer (OCFO) began reporting financial activity related to the cash
management process, but the activity was not recorded in the general ledger completely,
accurately, or in a timely manner. Additionally, PIH had begun transitioning most of the pre-
cash-management net restricted asset (NRA) funds; however, since it did not perform cash
reconciliations, public housing agencies (PHA) accumulated new NRA funds in excess of their
immediate disbursement needs. These issues were the result of HUD’s weak internal controls
over the cash management process, including the lack of an automated process. Since HUD’s
general ledger did not sufficiently capture cash management events and PHAs continued to hold
funds in excess of their immediate disbursement needs, HUD remained in violation of U.S.
Department of the Treasury cash management regulations, and the PIH prepayment financial
statement line item reported on HUD’s balance sheet was at high risk for misstatement.

                                                  9
HUD’s Grant Accrual Estimates Were Not Validated
HUD did not validate its grant accrual estimates, and CPD did not include grants that were
recorded and tracked in HUD’s Disaster Recovery Grant Reporting (DRGR) system in its
estimate. This deficiency was due to a lack of proper validation procedures in HUD’s estimation
methodologies, CPD’s excluding DRGR system grants in its methodologies, and a lack of
relevant grantee reporting. As a result, CPD’s fiscal year 2013 grant accrual estimate was
overstated by at least $378 million. Further, for fiscal year 2014, we were unable to perform all
of the audit procedures we deemed necessary to obtain sufficient appropriate audit evidence to
form an opinion on HUD’s estimate because of the internal control weaknesses in HUD’s
accrued grant liability estimates.

Financial Management System Weaknesses Continued to Challenge HUD
Although efforts were underway in fiscal year 2014 to address our concerns, HUD’s financial
management system limitations and deficiencies remained a material weakness. Existing
financial systems lacked key functionality, and in some cases, HUD did not have financial
systems in place to meet financial management needs. As a result of HUD’s inherent system
limitations and weaknesses, its financial management systems could not be readily accessed and
used by financial and program managers without extensive manipulation and excessive manual
processing. This situation negatively impacted management’s ability to perform necessary
financial management functions and efficiently and effectively manage financial operations of
the agency, resulting in lost opportunities for achieving mission goals and improving mission
performance.
FHA Did Not Recognize Accounts Receivable When Claims to Cash Were Established
In fiscal year 2014, FHA was awarded seven cash settlements totaling $1.2 billion and collected
$466.6 million of those settlements. Additionally, during fiscal year 2014, as part of its loss
mitigation efforts to bring delinquent loans current, FHA paid $4.4 billion to lenders for partial
claims; however, FHA did not receive promissory notes from the mortgagee for $1.5 billion of
the claim payments as required. In the absence of a promissory note, the mortgagee was required
to return the claim payment to FHA. Due to the nonroutine nature of legal settlements for FHA
and the its contractor’s backlog for recording promissory notes for partial claim payments, FHA
did not properly recognize these receivables. As a result, as of September 30, 2014, adjustments
were needed to (1) recognize FHA’s anticipated collections of $722.2 million in settlement fees
and (2) reclassify $703.2 million in net loans receivable related to partial claims paid without the
corresponding promissory note.

Material Asset Balances Related to Nonpooled Loans Were Not Auditable
Due to deficiencies in Ginnie Mae’s control environment, accounting practices used, and
financial systems deployed, we encountered problems related to the auditability of the
accounting data and records used to support the completeness, accuracy, and reliability of the
$6.6 billion in nonpooled loan assets reported in Ginnie Mae’s financial statements as of
September 30, 2014. These assets included (1) mortgage loans held for investment ($5.3
billion), (2) advances against defaulted mortgage-backed security pools ($193 million), (3) short
sale claims receivable ($50 million), (4) foreclosed-upon property ($616 million), (5) accrued


                                                 10
interest on mortgage loans held for investment ($414 million), and (6) properties held for sale
($17 million).
Factors contributing to these issues included the inability of Ginnie Mae’s master-subservicers’
servicing systems to handle loan-level transaction accounting at a granular level and the poor
servicing performance of its previous master-subservicers as well as a weak and ineffective
financial management governance structure. As a result, we were unable to perform all of the
audit procedures that we determined necessary for obtaining sufficient appropriate evidence to
express an opinion on Ginnie Mae’s $6.6 billion in assets as of September 30, 2014.
Ginnie Mae’s Internal Controls Over Financial Reporting Had Weaknesses
Ginnie Mae had ineffective internal controls over its financial reporting processes. The material
weaknesses in internal controls were issues related to the (1) improper accounting for FHA
reimbursable costs incurred and accrued interests earned on Ginnie Mae’s $6.6 billion portfolio
of nonpooled loans, (2) errors in the preparation of financial reports, (3) nonreporting of escrow
deposits held in trust by Ginnie Mae for the borrowers in its financial statements, and (4)
improper classification and presentation of financial information in Ginnie Mae’s balance sheet
and statement of cash flows. Contributing factors were Ginnie Mae’s inadequate monitoring,
governance, and oversight of its accounting and reporting functions by executive management
staff and system limitations in tracking accounting transactions at a loan level. These
deficiencies resulted in material misstatements in Ginnie Mae’s financial statements.
HUD’s and Ginnie Mae’s Financial Management Governance Were Ineffective 2
Overall, we determined that HUD’s financial management governance was
ineffective. Weaknesses in program and component internal control that impacted financial
reporting were able to develop in part due to a lack of financial management governance
processes that could detect or prevent significant program and component-level internal control
weaknesses.

While HUD took steps in fiscal year 2014 to address some of the weaknesses in its financial
management governance structure and internal controls over financial reporting, deficiencies
continued to exist. Specifically, stronger direction and involvement with program accounting
was needed from OCFO; front-end risk assessments were not completed in a timely manner; and
while accounting policies were developed during fiscal year 2014, there were deficiencies in
their implementation. These conditions stemmed from HUD’s inadequate implementation of the
Chief Financial Officers Act of 1990 and the lack of a senior management council, which limited
the ability of the Chief Financial Officer to facilitate and stress the importance of financial
management and internal control over financial reporting throughout HUD. Additionally, as we
have reported in prior-year audits, HUD did not have reliable financial information for reporting,
did not have an integrated financial management system, and had not replaced its outdated
legacy financial systems. As a result, multiple deficiencies existed in HUD’s internal controls
over financial reporting, resulting in misstatements on the financial statements and instances of
noncompliance with laws and regulations.
2
 This was classified as a material weakness, based on the findings on financial management governance reported in
Audit Report 2015-FO-0002, Interim Report on HUD’s Internal Controls Over Financial Reporting, and Audit
Report 2015-FO-0003, Fiscal Years 2014 and 2013 Financial Statements Audit for Ginnie Mae.
                                                        11
Our audit of Ginnie Mae found that it had failed to establish an appropriate financial
management governance structure to ensure that it was capable of producing accurate, timely
information and accounting records to plan, monitor, and report on its business operations. This
failure in governance was the underlying cause of the problems cited in the Ginnie Mae financial
statement audit report. We noted a number of problems in the oversight, management, and
operations of Ginnie Mae’s OCFO. Specifically, Ginnie Mae (1) left a number of critical
financial management positions unfilled, which weakened its organizational structure and
created a gap in its internal control system for monitoring a more than $6 billion portfolio of
nonperforming loans; (2) failed to adequately identify, analyze, and respond to changes in the
control environment and risk associated with the acquisition of a multi-billion-dollar servicing
portfolio; and (3) failed to adequately establish accounting policies, procedures, and accounting
systems to manage and control the loan accounting and processing of the activities related to its
defaulted issuers’ portfolio. This condition occurred because of Ginnie Mae executive
management’s failure to respond appropriately to changes in its business environment and risks
and the void in HUD’s senior leadership created by the extended absence of a permanent HUD
Chief Financial Officer. The combination of these failures in governance contributed to Ginnie
Mae’s inability to produce auditable financial statements for use by its external and internal
users.
Significant Deficiencies

Weaknesses in HUD’s Administrative Control of Funds System Continue
HUD did not have a fully implemented and complete administrative control of funds system,
which provided oversight of both obligations and disbursements. Our review noted instances in
which (1) disbursements were made before the legal point of obligation was documented in the
funds control plan, which authorized the use of funds; (2) program offices did not follow HUD’s
administrative control of funds; (3) program codes were not included in funds control plans; and
(4) funds control plans were out of date or did not reflect the controls and procedures in place.
These conditions existed because of (1) decisions made by HUD OCFO, (2) failures by HUD’s
allotment holders to update their funds control plans and notify OCFO of changes in their
obligation process before implementation, (3) a lack of compliance reviews in prior years, and
(4) timing issues related to the issuance of obligating documents. As a result, HUD could not
ensure that its obligations and disbursements were within authorized budget limits and complied
with the Antideficiency Act.
HUD Continued To Report Significant Amounts of Invalid Obligations
Deficiencies in HUD’s process for monitoring its unliquidated obligations and deobligating
balances tied to invalid obligations continued to exist. Specifically, three program offices did not
complete their obligation reviews and verifications, which resulted in a total of $952.7 million in
obligations not being reviewed. Additionally, we identified $210.5 million in invalid obligations
not previously identified by HUD and $27.3 million in obligations that HUD determined needed
to be closed out and deobligated during the fiscal year, which remained on the books as of
September 30, 2014. These deficiencies were attributed to ineffective monitoring efforts and
HUD’s inability to promptly process contract closeouts. We also noted that as of September 30,
2014, HUD had not implemented prior-year recommendations to deobligate funds totaling
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$135.4 million. As a result, HUD’s unpaid obligation balances on the statement of budgetary
resources were potentially overstated by a total of $373.2 million. Additionally, HUD lacked an
established process to reconcile the subsidiary and general ledger obligation controlling
accounts, causing differences of up to $466.1 million to not be identified on a timely basis or at
all, resulting in balances in the general ledger that were at risk of being unsupported or
incomplete.
Weaknesses in HUD’s Rental Housing Assistance Program Monitoring Continued
While weakness in HUD’s rental assistance program continued, HUD was working through
previous Office of Inspector General (OIG) recommendations to improve monitoring of its more
than 2,200 PHAs to ensure that they (1) report accurate financial data in a timely manner, (2) use
their funds and leasing capacity, (3) comply with statutory objectives, and (4) verify tenant data
to reasonably ensure correct housing subsidy payments. Although HUD had improved some
aspects of its internal controls from previous years, more improvements are needed to ensure that
these objectives are met. Specifically, (1) PIH continued to lack adequate assurance that the
Voucher Management System self-reported data were accurate, (2) PHAs did not fully use their
available funding, (3) PHAs continued to make significant amounts of improper payments, and
(4) compliance with Moving to Work Demonstration program statutory requirements could not
be evaluated because newly required reporting metrics were still under review. We attribute the
majority of these shortcomings to agency priorities and the effects of sequestration.
The Emergency Homeowner’s Loan Program Data in HUD’s Loan Accounting System Were
Not Reliable 3
Data entered into HUD’s Loan Accounting System (LAS) for the Emergency Homeowner’s
Loan Program (EHLP) were not reliable. Specifically, (1) the EHLP loan data initially entered
into LAS were inaccurate, (2) the EHLP loan data in LAS were incomplete, (3) the data
correction process used by HUD did not result in accurate data, (4) loan-level detail of
accounting transactions processed on the EHLP loans in LAS was lost during the rebuild
process, and (5) internal control weaknesses in EHLP contributed to the data inaccuracies. These
conditions occurred because EHLP was implemented quickly, using existing systems and
processes, and did not have a centralized office responsible for the administration and
management of the program in its entirety. As a result, the EHLP data in LAS at the 2014 fiscal
yearend were unreliable, did not support the loan receivable balances in the general ledger, and
did not have the loan-level transaction detail required for a subsidiary ledger. Approximately
$116 million in EHLP loans was not recorded in HUD’s general ledger and financial statements.
HUD’s Computing Environment Controls Had Weaknesses 4
HUD’s computing environment, data centers, networks, and servers provide critical support to
all facets of its programs, mortgage insurance, financial management, and administrative
operations. In prior years, we reported on various weaknesses with general system controls and
controls over certain applications as well as weak security management. These deficiencies
increased risks associated with safeguarding funds, property, and assets from waste, loss,
unauthorized use, or misappropriation.
3
 Audit Report 2015-DP-0004, Loan Accounting System, issued December 9, 2014
4
 Audit Report 2015-DP-0005, Fiscal Year 2014 Review of Information Systems Controls in Support of the
Financial Statements Audit, issued February 24, 2015
                                                      13
We audited general and application controls over selected information systems that support the
preparation of HUD’s financial statements. We also followed up on the status of previously
reported application control weaknesses. Our review found information systems control
weaknesses that could negatively affect HUD’s ability to accomplish its assigned mission,
protect its data and information technology assets, fulfill its legal responsibilities, and maintain
its day-to-day functions.

Liabilities Were Not Recognized for Unearned Premium Collections or Unpaid Supplemental
Claims
Regulations require FHA to collect upfront mortgage insurance premiums before the
endorsement of Single Family Forward loans and before providing insurance coverage. FHA
recognized the premiums collected before loan endorsement as earned rather than deferred
revenue, although it did not provide insurance coverage. This condition occurred because FHA’s
policy is to recognize cash collection as an inflow when received. Recognition of revenue at this
point is a departure from GAAP. The inclusion of premium collections in the single-family
liability for loan guarantee (LLG) balance for loans closed but not endorsed causes the LLG
balance to be overstated and the annual reestimate expense to be understated.
In addition, FHA did not have a process to accrue the estimated liability for unpaid single-family
suspended supplemental claims filed. FHA assumed that the liability for supplemental claims
was accounted for under the LLG. Under that assumption, FHA’s accrual process excluded an
accrual for unpaid supplemental claims filed but not processed or approved and understated the
liability.
Weaknesses Identified in Selected FHA Information Technology Systems
Our review of the general and application controls over the FHA Single Family Housing
Enterprise Data Warehouse and the FHA subsidiary ledger system found weaknesses in the data
warehouse and the FHA subsidiary ledger information systems. These conditions occurred
because some application controls were not sufficient. As a result, the appropriate
confidentiality, integrity, and availability of critical information may have been negatively
impacted. The information used to provide input to the FHA financial statements could be
adversely affected.


Ginnie Mae’s Financial Management System Information Security Controls Did Not Fully
Comply With Federal Requirements and Its Own Security Policies
Ginnie Mae did not ensure that information security controls over the Ginnie Mae Financial
Accounting System (GFAS) fully complied with Federal requirements and Ginnie Mae’s own
security policies in its financial management system. GFAS is a financial management system
that tracks, records, and reports on the agency’s accounting information. This process involves
information used in the aggregate set of accounting practices and procedures to allow for
accurate and effective handling of government revenues, funding, and expenditures. GFAS
supports the financial functions required to track financial events and provides financial
information significant to the financial management of the agency. It also maintains financial


                                                   14
information that is used for the preparation of OMB and U.S. Government Accountability Office
(GAO) reporting requirements.
Report on Compliance With Laws and Regulations
In connection with our audit, we performed tests of HUD’s compliance with certain provisions
of laws and regulations. The results of our tests disclosed five instances of noncompliance that
are required to be reported in accordance with Government Auditing Standards, issued by the
Comptroller General of the United States, or OMB Bulletin No. 14-02, Audit Requirements for
Federal Financial Statements. However, the objective of our audit was not to provide an opinion
on compliance with laws and regulations. Accordingly, we do not express such an opinion.
HUD Did Not Substantially Comply with Federal Financial Management
We noted instances in which HUD’s financial management system did not substantially comply
with the Federal Financial Management Improvement Act (FFMIA). HUD’s continued
noncompliance was largely due to a reliance on legacy financial systems and information
security weaknesses. Additionally, we noted FFMIA noncompliance in Ginnie Mae systems.
Ginnie Mae was unable to provide adequate support for nonpooled loan asset balances due to the
financial system limitations. Manual procedures implemented to compensate for system
weaknesses were insufficient to ensure the completeness and accuracy of these account balances,
resulting in noncompliance with Federal financial system requirements, an element of FFMIA.
This matter is discussed further in the Material Weaknesses section. While HUD continued to
work toward financial management system modernization and FFMIA compliance, significant
challenges remained.
Despite Substantial Progress, HUD Did Not Comply with the Antideficiency Act
In fiscal year 2014, HUD made demonstrable progress in moving older Antideficiency Act cases
from OCFO to OMB for review and approval. However, for the sixth consecutive year, no
Antideficiency Act violation was reported to the President, Congress, and the Comptroller
General at the end of fiscal year 2014 as required. Of the 12 cases that had been open at least 1
year on September 30, 2014, 9 probable violations were at OMB for review, and 3 potential
violations were still under review at HUD. Untimely disposition of Antideficiency Act cases
could delay the implementation of corrective actions, including any needed safeguards required
to prevent recurrence of the same violations. While HUD management had committed to
reporting all violations when the HUD and OMB clearance processes are complete, the lack of
timeliness led us to conclude that HUD did not fully comply with the Act.
HUD Did Not Comply with the Home Investment Partnership Act
HUD continued to not comply with section 218(g) of the HOME Investment Partnership Act
(also known as the HOME Statute) regarding grant commitment requirements. HUD’s
misinterpretation of the plain language in the Act, the implementation of the cumulative method
and the FIFO technique, and the current recapture policies resulted in HUD’s noncompliance
with HOME Statute requirements. Further, HUD’s corrective action to assess compliance on a
grant-by-grant basis would apply only to fiscal year 2015 grants. Therefore, HUD incorrectly
permitted some jurisdictions to retain and commit HOME Investment Partnerships Program
grant funds beyond the statutory deadline. Additionally, HUD will continue to be noncompliant


                                                15
with related laws and regulations until the cumulative method is no longer used to determine
whether grantees meet commitment deadlines required by the HOME Statute.
HUD Did Not Comply With the Improper Payments Elimination and Recovery Act of 2010
OMB Circular A-123 defines compliance with the Improper Payments Elimination and Recovery
Act of 2010 (IPERA) as meeting all seven of its requirements. For fiscal year 2013, HUD OIG’s
IPERA audit 5 deemed HUD not to be in compliance with IPERA because it did not meet the
following three requirements: to (1) publish corrective action plans in the annual financial
report, (2) meet its annual reduction target, and (3) report information on its recapture efforts.
The audit found that HUD inaccurately reported on its corrective actions in its agency financial
report, did not meet its annual reduction target rate, and did not accurately and sufficiently report
on its recapture efforts.
FHA Did Not Comply With the Cranston-Gonzalez National Affordable Housing Act of 1990
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 the ratio of
capital to unamortized insurance-in-force. The Act requires FHA to maintain a minimum capital
ratio of 2 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 HUD
Secretary submit a report annually to Congress describing the results of the study, assess the
financial status of the MMI Fund, recommend program adjustments, and evaluate the quality
control procedures and accuracy of information used in the process for underwriting loans
guaranteed by the MMI Fund. This report for fiscal year 2014 reported the capital reserve ratio
at 0.41 percent, which is below the required 2 percent.
Results of the Audit of FHA’s Financial Statements
We performed a separate audit of FHA’s fiscal years 2014 and 2013 financial statements. Our
report on FHA’s financial statements, dated November 14, 2014, 6 includes an unqualified
opinion on FHA’s financial statements, along with discussion of one material weakness, two
significant deficiencies in internal controls, and one instance of noncompliance with laws and
regulations.
Results of the Audit of Ginnie Mae’s Financial Statements
We performed a separate audit of Ginnie Mae’s fiscal years 2014 and 2013 financial statements.
Our report on Ginnie Mae’s financial statements, dated February 27, 2015, 7 includes a disclaimer
of opinion on these financial statements, along with discussion of four material weaknesses and
one significant deficiency in internal control.



5
  Audit Report 2014-FO-004, Compliance With the Improper Payments Elimination and Recovery Act of 2010,
issued April 15, 2014
6
  Audit Report 2015-FO-0001, Audit of Federal Housing Administration Financial Statements for Fiscal Years 2014
and 2013, issued November 14, 2014, was incorporated into this report.
7
  Audit Report 2015-FO-0003, Audit of Government National Mortgage Association Financial Statements for Fiscal
Years 2014 and 2013, issued February 27, 2015, was incorporated into this report.
                                                       16
Objectives, Scope, and Methodology
As part of our audit, we considered HUD’s internal controls over financial reporting. We are not
providing assurance on those internal controls. Therefore, we do not provide an opinion on
internal controls. We conducted our audit in accordance with Government Auditing Standards
and the requirements of OMB Bulletin 14-02. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement.
We also tested HUD’s compliance with laws, regulations, governmentwide policies, and
provisions of contract and grant agreements that could have a direct and material effect on the
financial statements. However, our consideration of HUD’s internal controls and our testing of
its compliance with laws, regulations, governmentwide policies, and provisions of contract and
grant agreements were not designed to and did not provide sufficient evidence to allow us to
express an opinion on such matters and would not necessarily disclose all matters that might be
material weaknesses; significant deficiencies; or noncompliance with laws, regulations,
governmentwide policies, and provisions of contract and grant agreements. Accordingly, we do
not express an opinion on HUD’s internal controls or its compliance with laws, regulations,
governmentwide policies, and provisions of contract and grant agreements.
As stated in “other matters”, we were not able to perform limited procedures related to
management’s discussion and analysis and HUD’s Fiscal Year 2014 Agency Financial Report.
We do not provide an opinion or provide any assurance on the information.
Because of the matters described in the Basis for Disclaimer of Opinion on 2014 Financial
Statements section above, we were not able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion.
Agency Comments and Our Evaluation
On November 3, 2014, we provided a draft of the internal control and compliance sections of our
report to the OCFO, appropriate assistant secretaries, and other departmental officials and
requested that the OCFO coordinate a departmentwide response. The OCFO responded in a
memorandum dated November 25, 2014, which is included in its entirety in our separate report,
along with our complete evaluation of the response. We provided another opportunity for HUD
to provide comments to our draft Independent Auditor’s Report issued February 23, 2015. HUD
did not provide any additional comments for consideration. HUD’s response to our separate
report was considered in preparing the final version of this report. While HUD did not provide
formal comments to all reported control deficiencies and compliance with laws and regulations,
management indicated agreement with most of OIG’s findings and conclusions. Comments to
the FHA and GNMA audit reports were evaluated separately and are included in their standalone
audit reports.

HUD has implemented a new module within IDIS Online to address the material weakness
regarding the Office of Community Planning and Development’s use of the FIFO method for
formula grant accounting. However, this implementation will not eliminate FIFO retroactively
and the Department disagrees that such a change is warranted. Additionally, HUD disagrees

                                                17
with the statement that non-compliance with the HOME Statute will remain until the cumulative
method of accounting for commitments is no longer used. OIG will continue to take exception
with the continued use of the FIFO method and the cumulative method for determining
compliance with the HOME statute until the effects on HUD’s financial statements are
determined to be immaterial.

HUD generally agreed with our findings regarding weaknesses in HUD’s grant accrual
estimation process. While CPD has revised its methodology for estimating grant accruals, PIH
disagrees that their validation methodology was not sufficient. OIG continues to take the
position that PIH’s validation procedures were not sufficient in accordance with the accounting
standards, which requires subsequent grantee reporting to be used to validate any estimates.

Lastly, HUD stated that they will address the material weakness regarding financial management
systems with the conversion to a shared service provider, known as New Core. However HUD
objects to the characterization of the financial statement consolidation process as costly and
inefficient. OIG’s position is supported by the increase in the number of material weaknesses
reported over the past several years related to weaknesses in accurate financial reporting. OIG
will evaluate and monitor progress in implementing New Core.



This report is intended for the information and use of the management of HUD, OMB, GAO, and
Congress and is not intended to be and should not be used by anyone other than these specified
parties. However, this report is a matter of public record, and its distribution is not limited. In
addition to a separate report detailing the internal control and compliance issues included in this
report and providing specific recommendations to HUD management, we noted other matters
involving internal control over financial reporting and HUD’s operations that we are reporting to
HUD management in a separate management letter.




Randy W. McGinnis
Assistant Inspector General for Audit

February 27, 2015




                                                 18
Appendixes

Appendix A
           Schedule of Questioned Costs and Funds To Be Put to Better Use
                Audit report                         Funds to be put
                                  Unsupported 1/      to better use 2/
                  number
                 2015-FO-0001.       $1,486,544,478          $5,500,000
                 2015-FO-0002.                              660,810,336
                     Totals          $1,486,544,478         $666,310,336



1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.
2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified.




                                              19
Appendix B
   HUD’s Fiscal Years 2014 and 2013 Consolidated Financial Statements and Notes




                                        20
Financial Statements
Introduction
The principal financial statements have been prepared to report the financial position and results of
operations of HUD, pursuant to the requirements of 31 U.S.C. 3515(b). While the statements have been
prepared from HUD’s books and records in accordance with GAAP for Federal entities and the formats
prescribed by OMB, the statements are in addition to the financial reports used to monitor and control
budgetary resources, which are prepared from the same books and records. The statements should be read
with the realization that they are for a component of the U.S. Government, a sovereign entity.
The following financial statements are presented:
The Consolidated Balance Sheet, as of September 30, 2014 and 2013, which presents those resources
owned or managed by HUD that are available to provide future economic benefits (assets), amounts owed
by HUD that will require payments from those resources or future resources (liabilities), and residual
amounts retained by HUD comprising the difference (net position).
The Consolidated Statement of Net Cost, which presents the net cost of HUD operations for the years
ended September 30, 2014, and 2013. HUD’s net cost of operations includes the gross costs incurred by
HUD less any exchange revenue earned from HUD activities.
The Consolidated Statement of Changes in Net Position, which presents the change in HUD’s net
position resulting from the net cost of HUD operations, budgetary financing sources other than exchange
revenues, and other financing sources for the years ended September 30, 2014, and 2013.
The Combined Statement of Budgetary Resources, which presents the budgetary resources available to
HUD during FY 2014 and 2013, the status of these resources at September 30, 2014, and 2013, and the
outlay of budgetary resources for the years ended September 30, 2014, and 2013.
The Notes to the Financial Statements provide important disclosures and details related to information
reported on the statements.




                                                    21
                                     U.S . Department of Housing and Urban Development
                                                 Consolidated Balance S heet
                                     For the Period Ending S eptember 30, 2014, and 2013
                                                     (Dollars in Millions)

                                                                                2014                    2013 (Restated)
AS S ETS
 Intragovernmental
  Fund Balance with Treasury (Note 4)                                   $              121,703      $               135,596
  Investments (Note 5)                                                                   6,529                        1,825
  Accounts Receivable Net (Note 6)                                                           -                            1
  Other Assets (Note 11)                                                                    33                           15
 Total Intragovernmental Assets                                                        128,265                      137,437
  Investments (Note 5)                                                                      41                           56
  Accounts Receivable, Net (Note 6)                                                      1,901                          180
  Direct Loan and Loan Guarantees, Net (Note 7)                                         10,868                        9,986
  Other Non Credit Reform Loans (Note 8)                                                 3,569                        4,001
  General Property Plant and Equipment, Net (Note 9)                                       297                          351
  PIH Prepayments (10)                                                                     423                          552
  Other Assets (Note 11)                                                                    48                          378
TOTAL AS S ETS                                                          $              145,412      $               152,941



LIABILITIES
 Intragovernmental Liabilities
  Accounts Payable (Note 12)                                                                   16                        17
  Debt (Note 13)                                                                           27,661                    26,078
  Other Intragovernmental Liabilities (Notes 16)                                            1,802                     4,660
 Total Intragovernmental Liabilities                                                       29,479                    30,755
  Accounts Payable (Note 12)                                                                  863                       803
  Accrued Grant Liabilities (Note 12)                                                       1,501                     2,213
  Loan Guarantee Liability (Note 7)                                                        31,779                    39,306
  Debt Held by the Public (Note 13)                                                             8                        20
  Federal Employee and Veteran Benefits (Note 14)                                              74                        77
  Loss Reserves (Note 15)                                                                     735                       700
  Other Governmental Liabilities (Notes 16)                                                   918                       709
TOTAL LIABILITIES                                                       $                  65,357   $                74,583

  Commitments and Contingencies (Note 17)                                                     15                              -

NET POS ITION
 Unexpended Appropriations - Funds From Dedicated Collections                               (224)                         (215)
 (Note 19)
 Unexpended Appropriations - Other Funds                                                   56,442                    59,995
 Cumulative Results of Operations - Funds From Dedicated Collections                       19,773                    18,151
 (Note 19)
 Cumulative Results of Operations - Other Funds                                          4,064                          427
 TOTAL NET POS ITION - Funds From Dedicated Collections                                 19,549                       17,936
 TOTAL NET POS ITION - All Other Funds                                                  60,506                       60,422
TOTAL NET POS ITION                                                                     80,055                       78,358
TOTAL LIABILITIES AND NET POS ITION                                     $              145,412      $               152,941

The accompanying notes are an integral part of these statements.



                                                                   22
                    U.S . Department of Housing and Urban Development
                             Consolidated S tatement of Net Cost
                    For the Period Ending S eptember 30, 2014, and 2013
                                    (Dollars in Millions)

                                                                   2014            2013 (Restated)
COS TS
Federal Housing Administration
 Gross Cost (Note 22)                                        $        (3,108)      $       (6,718)
 Less: Earned Revenue                                                 (2,181)              (2,680)
 Net Program Costs                                                    (5,289)              (9,398)
 Gain/Loss from Assumption Changes (Note 15)                                -                    -
 Net Program Costs including Assumption Changes                       (5,289)              (9,398)

Government National Mortgage Association
 Gross Cost (Note 22)                                                    (59)                  602
 Less: Earned Revenue                                                 (1,543)              (1,225)
 Net Program Costs                                                    (1,602)                (623)
 Gain/Loss from Assumption Changes (Note 15)                                -                    -
 Net Program Costs including Assumption Changes                       (1,602)                (623)

S ection 8
 Gross Cost (Note 22)                                                 28,772                28,690
 Less: Earned Revenue                                                      -                     -
 Net Program Costs                                                    28,772                28,690
 Gain/Loss from Assumption Changes (Note 15)                               -                     -
 Net Program Costs including Assumption Changes                       28,772                28,690

Low Rent Public Housing Loans and Grants
 Gross Cost (Note 22)                                                     2,995              2,941
 Less: Earned Revenue                                                         -                  -
 Net Program Costs                                                        2,995              2,941
 Gain/Loss from Assumption Changes (Note 15)                                  -                  -
 Net Program Costs including Assumption Changes                           2,995              2,941

Homeless Assistance Grants
 Gross Cost (Note 22)                                                     1,881              1,915
 Less: Earned Revenue                                                        -                   -
 Net Program Costs                                                        1,881              1,915
 Gain/Loss from Assumption Changes (Note 15)                                 -                   -
 Net Program Costs including Assumption Changes                           1,881              1,915

Housing for the Elderly and Disabled
 Gross Cost (Note 22)                                                     1,196              1,161
 Less: Earned Revenue                                                     (178)              (192)
 Net Program Costs                                                        1,018                969
 Gain/Loss from Assumption Changes (Note 15)                                  -                  -
 Net Program Costs including Assumption Changes                           1,018                969

Community Development Block Grants
 Gross Cost (Note 22)                                                     5,905              5,675
 Less: Earned Revenue                                                         -                  -
 Net Program Costs                                                         5,905             5,675
 Gain/Loss from Assumption Changes (Note 15)                                  -                  -
 Net Program Costs including Assumption Changes                            5,905             5,675

HOME
 Gross Cost (Note 22)                                                     1,064              1,407
 Less: Earned Revenue                                                        -                   -
 Net Program Costs                                                        1,064              1,407
 Gain/Loss from Assumption Changes (Note 15)                                 -                   -
 Net Program Costs including Assumption Changes                           1,064              1,407

Other
 Gross Cost (Note 22)                                                     6,504              6,620
 Less: Earned Revenue                                                      (40)               (34)
 Net Program Costs                                                        6,464              6,586
 Gain/Loss from Assumption Changes (Note 15)                                 -                   -
 Net Program Costs including Assumption Changes                           6,464              6,586

Costs Not Assigned to Programs                                              218                200
Earned Revenue Not Attributed to Programs                                     -                  -

Consolidated
 Gross Cost (Note 22)                                                 45,368                42,489
 Less: Earned Revenue                                                 (3,942)              (4,127)
NET COS T OF OPERATIONS                                     $         41,426       $        38,362

The accompanying notes are an integral part of these statements.




                                                23
                                                              U.S . Department of Housing and Urban Development
                                                              Consolidated S tatement of Changes in Net Position
                                                              For the Period Ending S eptember 30, 2014, and 2013
                                                                              (Dollars in Millions)



                                                                                2014                                              2013 (Restated)

                                                    FUNDS FROM                                                      FUNDS FROM
                                                     DEDICATED                ALL OTHER       CONS OLIDATED          DEDICATED        ALL OTHER CONS OLIDATED
                                                          COLL.                   FUNDS               TOTAL               COLL.           FUNDS         TOTAL

CUMULATIVE RES ULTS OF OPERATIONS :
 Beginning of Period                                $        18,151       $            426    $       18,577        $    17,525   $     (13,360)    $     4,165
 Adjustments:
  Corrections of Errors                                              -               (99)                (99)                -               (1)             (1)
 Beginning Balances, As Adjusted                             18,151                    327            18,478             17,525         (13,361)          4,164

 BUDGETARY FINANCING S OURCES :
  Appropriations Used                                               28            49,341              49,368               456           56,215          56,670
  Non-exchange Revenue                                               1                 -                   1                 1                -               1
  Transfers In/Out Without Reimbursement                             1                (1)                  -                 2               (2)              -

 OTHER FINANCING S OURCES (NON-EXCHANGE):
  Transfers In/Out Without Reimbursement                            (5)                 5                   -               (1)             (13)            (14)
  Imputed Financing                                                  1                 78                  79                 1              76               77
  Other                                                              -            (2,663)             (2,663)                -           (3,959)         (3,959)

 Total Financing Sources                                          26               46,760              46,785              459           52,317           52,776
 Net Cost of Operations                                        1,596             (43,023)            (41,427)              167          (38,529)        (38,362)
 Net Change                                                    1,622                3,737               5,358              626           13,788           14,414


CUMULATIVE RES ULTS OF OPERATIONS                   $        19,773       $        4,064      $       23,836        $    18,151   $         427     $    18,578



UNEXPENDED APPROPRIATIONS :
 Beginning of Period                                $          (215)      $       59,995      $       59,780        $      240    $      52,229     $    52,469
 Adjustments:
  Corrections of Errors                                             21                 22                 43                 -           (1,151)         (1,151)
 Beginning Balances, As Adjusted                               (194)              60,017              59,823               240           51,078          51,318

 BUDGETARY FINANCING S OURCES :
  Appropriations Received                                            -            46,103               46,103                 1           68,574          68,575
  Other Adjustments                                                 (2)             (337)               (339)                -           (3,442)         (3,442)
  Appropriations Used                                              (28)          (49,341)            (49,369)             (456)         (56,215)        (56,671)
  Total Budgetary Financing Sources                                (30)           (3,575)             (3,605)             (455)           8,917           8,462

UNEXPENDED APPROPRIATIONS                                      (224)              56,442              56,218              (215)          59,995          59,780


NET POS ITION                                       $        19,549       $       60,506      $       80,054        $    17,936   $      60,422     $    78,358


The accompanying notes are an integral part of these statements.




                                                                                             24
                                                   U.S . Department of Housing and Urban Development
                                                       Combined S tatement of Budgetary Resources
                                                   For the Period Ending S eptember 30, 2014, and 2013
                                                                   (Dollars in Millions)



                                                                                                2014                            2013 (Restated)

                                                                                                   NonBudgetary                           NonBudgetary
                                                                                                  Credit Program                         Credit Program
                                                                           Budgetary            Financing Accounts     Budgetary       Financing Accounts
Budgetary Resources:
  Unobligated Balance Brought Foward, October                              $          28,153     $           60,416    $    17,483     $           41,267
  Adjustments to Unobligated Balance, Brought Forward, October 1                           -                       -             3                     (3)
  Unobligated balance brought forward, October 1, adjusted                            28,153                 60,416         17,486                 41,264
  Recoveries of prior year unpaid obligations                                            643                    781            627                    404
  Other changes in unobligated balance                                                 (611)                     (8)         (496)                       -
Unobligated balance from prior year budget authority, net                             28,185                 61,189         17,617                 41,668

  Appropriations (discretionary and mandatory)                                        45,790                      -         65,002                      -
  Borrowing Authority (discretionary and mandatory)                                        -                  8,770              -                 19,194
  Spending Authority from offsetting collections                                      14,305                 27,683         24,315                 59,366
Total Budgetary Resources                                                  $          88,280     $           97,642    $   106,934     $          120,228


S tatus of Budgetary Resources:
Obligations Incurred (Note 31)
    Direct                                                                            53,277                 45,866         78,117                  56,673
    Reimbursable                                                                         270                  2,018            449                   3,139
S ubtotal                                                                             53,547                 47,884         78,566                  59,812

Unobligated Balances
  Apportioned                                                                        16,096                 13,580          17,581                 25,128
  Unapportioned                                                                       18,637                 36,178         10,787                 35,288
Unobligated balance, end of year                                                      34,733                 49,758         28,368                 60,416
Total S tatus of Budgetary Resources                                       $          88,280     $           97,642    $   106,934     $          120,228


Change in Obligated Balance
 Unpaid Obligations:
   Unpaid obligations, brought forward, Oct 1                                         44,234                  2,691          49,196                  2,634
   Adjustments to unpaid obligations, start of year (+ or -) (Note 28)                    10                      -              (4)                      -
   Obligations Incurred                                                               53,547                 47,884          78,566                 59,812
   Outlays, (gross) (-)                                                             (55,950)               (47,395)        (82,897)               (59,352)
   Actual Transfers, unpaid obligations (net) (+ or -)                                 (114)                    115                -                      -
   Recoveries of prior year unpaid obligations (-)                                     (643)                  (781)           (627)                  (404)
 Unpaid obligations, end of year (gross)                                              41,084                  2,514         44,234                  2,690

  Uncollected Payments:
    Uncollected payments, Fed sources, brought forward, Oct 1 (-)                       (17)                   (66)             (16)                   (74)
    Change in uncollected customer payments, Fed sources (+ or -)                          5                     13              (1)                      8
  Uncollected payments, Fed sources, end of year (-)                                    (12)                   (53)            (17)                   (66)

Obligated balance, start of year (+ or -)                                  $          44,228     $            2,625    $    49,176     $             2,560
Obligated balance, end of year (net)                                       $          41,072     $            2,461    $    44,217     $             2,625


Budget Authority and Outlays, Net:
  Budget authority, gross (discretionary and mandatory)                               60,095                 36,453          89,318                 78,560
  Actual offsetting collections (discretionary and mandatory) (-)                   (14,706)               (34,876)        (24,826)               (64,054)
  Change in uncollected customer payments from Federal Sources
  (discretionary and mandatory) (+ or -)                                                  5                     12              (1)                     9
Budget Authority, net (discretionary and mandatory)                        $          45,394     $            1,589    $    64,491     $           14,515


 Outlays, gross (discretionary and mandatory)                                         55,950                 47,395          82,897                 59,352
 Actual offsetting collections (discretionary and mandatory) (-)                    (14,706)               (34,877)        (24,826)               (64,054)
Outlays, net (discretionary and mandatory)                                             41,244                 12,518         58,071                (4,702)

  Distributed offsetting receipts                                                    (2,719)                     -          (1,495)                      -
Agency Outlays, net (discretionary and mandatory)                          $          38,525     $           12,518    $    56,576     $           (4,702)


The accompanying notes are an integral part of these statements.




                                                                               25
Notes to Financial Statements
September 30, 2014 and 2013
Note 1: Entity and Mission
HUD was created in 1965 to (1) provide housing subsidies for low and moderate income
families, (2) provide grants to states and communities for community development activities,
(3) provide direct loans and capital advances for construction and rehabilitation of housing
projects for the elderly and persons with disabilities, and (4) promote and enforce fair housing
and equal housing opportunity. In addition, HUD insures mortgages for single family and
multifamily dwellings; insures loans for home improvements and manufactured homes; and
facilitates financing for the purchase or refinancing of millions of American homes.
HUD’s major programs are as follows:
The Federal Housing Administration (FHA) administers active mortgage insurance programs
which are designed to make mortgage financing more accessible to the home-buying public and
thereby to develop affordable housing. FHA insures private lenders against loss on mortgages
which finance single family homes, multifamily projects, health care facilities, property
improvements, and manufactured homes.
The Government National Mortgage Association (Ginnie Mae) guarantees the timely payment of
principal and interest on Mortgage-Backed Securities (MBS) issued by approved private
mortgage institutions and backed by pools of mortgages insured or guaranteed by FHA, the
Department of Agriculture (USDA), the Department of Veterans Affairs (VA), and the HUD
Office of Public and Indian Housing (PIH).
The Section 8 Rental Assistance programs assist low- and very low-income families in obtaining
decent and safe rental housing. HUD makes up the difference between what a low- and very
low-income family can afford and the approved rent for an adequate housing unit funded by the
Housing Choice Voucher (HCV) Program.
The Low Rent Public Housing Grants program provides grants to Public Housing Agencies
(PHAs) and Tribally Designated Housing Entities (TDHEs) for construction and rehabilitation of
low-rent housing. This program is a continuation of the Low Rent Public Housing Loan program
which pays principal and interest on long-term loans made to PHAs and TDHEs for construction
and rehabilitation of low-rent housing.
The Homeless Assistance Grants program provides grants to localities to implement innovative
approaches to address the diverse facets of homelessness. The grants provide funds for the
Emergency Solutions Grant and Continuum of Care which award funds through formula and
competitive processes.

                                                 26
The Section 202/811 Supportive Housing for the Elderly and Persons with Disabilities programs
provided 40-year loans to nonprofit organizations sponsoring rental housing for the elderly or
disabled. During FY 1992, the program was converted to a grant program. The grant program
provides capital for long-term supportive housing for the elderly (Section 202) and the disabled
(Section 811).
The Community Development Block Grant (CDBG) programs provide funds for metropolitan
cities, urban counties, and other communities to use for neighborhood revitalization, economic
development, and improved community facilities and services. The United States Congress
appropriated $17.5 billion in FY 2008 and $150 million in emergency supplemental
appropriations in FY 2005 for the “Community Development Fund” for emergency expenses to
respond to various disasters such as Hurricane Katrina and IKE. Funds of $3.1 billion were
disbursed in FY 2014 and $1.5 billion in FY 2013. Any remaining un-obligated balances remain
available until expended.
The Home Investments Partnerships program provides grants to states, local governments, and
Indian tribes to implement local housing strategies designed to increase home ownership and
affordable housing opportunities for low- and very low-income families.
Other Programs not included above consist of other smaller programs which provide grant,
subsidy funding, and direct loans to support other HUD objectives such as fair housing and equal
opportunity, energy conservation, rehabilitation of housing units, removal of lead hazards, and
for maintenance costs of PHAs and TDHEs housing projects. The programs provided 14 percent
of HUD’s consolidated revenues and financing sources for FY 2014 and 9 percent of HUD’s
consolidated revenues and financing sources for FY 2013.

Note 2: Summary of Significant Accounting Policies
A. Basis of Consolidation
The accompanying principal financial statements include all Treasury Account Fund Symbols
(TAFSs) designated to the Department of Housing and Urban Development, which consist of
principal program funds, revolving funds, general funds and deposit funds. All inter-fund
accounts receivable, accounts payable, transfers in and transfers out within these TAFSs have
been eliminated to prepare the consolidated balance sheet, statement of net cost, and statement of
changes in net position. The SBR is prepared on a combined basis as required by OMB Circular
A-136, Financial Reporting Requirements.
The Department’s FY 2014 financial statements do not include the accounts and transactions of
one transfer appropriation, the Appalachian Regional Commission. Some laws require
departments (parent) to allocate budget authority to another department (child). Allocation
means a delegation, authorized by law, by one department of its authority to obligate and outlay
funds to another department. HUD, the child account, receives budget authority and then
obligates and outlays sums of up to the amount included in the allocation. As required by OMB
                                                 27
Circular A-136, financial activity is in the parent account which is also accountable for and
maintains the responsibility for reporting while the child performs on behalf of the parent and
controls how the funds are expended. Consequently, these balances are not included in HUD’s
consolidated financial statements as specified by OMB Circular A-136.
B. Basis of Accounting
The Department’s FY 2014 financial statements include the accounts and transactions of FHA,
Ginnie Mae, and its grant, subsidy and loan programs.
The financial statements are presented in accordance with the OMB Circular No. A-136,
Financial Reporting Requirements, and in conformance with the Federal Accounting Standards
Advisory Board’s (FASAB) Statements of Federal Financial Accounting Standards (SFFAS).
The financial statements are presented on the accrual and budgetary bases of accounting. Under
the accrual method, HUD recognizes revenues when earned, and expenses when a liability is
incurred, without regard to receipt or payment of cash. Generally, procedures for HUD’s major
grant and subsidy programs require recipients to request periodic disbursement concurrent with
incurring eligible costs. Budgetary accounting facilitates compliance with legal requirements on
the use of Federal funds.
The Department’s disbursement policy permits grantees/recipients to request funds to meet
immediate cash needs to reimburse themselves for eligible incurred expenses and eligible
expenses expected to be received and paid within three days or as subsidies payable in
accordance with the Cash Management Improvement Act of 1990. Except for PIH programs,
HUD’s disbursement of funds for these purposes are not considered advance payments but are
viewed as sound cash management between the Department and the grantees. In the event it is
determined that the grantee/recipient did not disburse the funds within the three-day time frame,
interest earned must be returned to HUD and deposited into one of Treasury’s miscellaneous
receipt accounts.
C. Use of Estimates
The preparation of the principal financial statements in conformity with generally accepted
accounting principles (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at 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 the Department’s best estimates based on pertinent information available.
To estimate the Allowance for Subsidy (AFS) associated with loans receivable and related
foreclosed property and the Liability for Loan Guarantees (LLG), the Department uses cash flow
model assumptions associated with the loan guarantees subject to the Federal Credit Reform Act

                                                 28
of 1990 (FCRA), as described in Note 7, to estimate the cash flows associated with future loan
performance. To make reasonable projections of future loan performance, the Department
develops assumptions 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 the Department. The Department accounts for these risks through the assumptions used
in the liabilities for loan guarantee estimates. HUD develops the assumptions based on historical
performance and management's judgments about future loan performance.
The Department relies on estimates by PIH to determine the amount of funding needs for
PHAs/IHAs under the PIH Housing Choice Voucher Program. Under the Department’s cash
management program, PIH evaluates the program needs of PHAs/IHAs to minimize excess cash
balances maintained by these entities. The Department implemented a cash management policy
in calendar year 2012 over the voucher program given its significant funding levels and the
excess cash balances which PHAs/IHAs had accumulated over the years. The cash reserves,
referred to as net restricted assets (NRA) are monitored by the Department and estimated by
HUD on a recurring basis. The NRA balances are the basis for PIH prepayments recorded by the
Department in its comparative financial statements for FY 2013 and FY 2014.
In response to the OIG finding, HUD implemented a grant accrual policy on September 4, 2014,
and restated its FY 2013 financial statements. The Department continues to refine its
methodologies and the underlying assumptions used by program offices to develop the estimates.
Described below are the methodologies used by our major program offices which are CPD, PIH
and the Office of Housing.
    x   CPD developed a statistical model for its grant programs based on recent historical data
        in the Integrated Disbursement Information System (IDIS). Utilizing activity type,
        funding and disbursement information in IDIS, CPD was able to extrapolate the
        relationship between accrued expenses over a specified period of time and when the
        services are generally billed to the government by the grantees.

    x   PIH administrative programs use disbursement data from the Department’s Electronic
        Line of Credit Control Systems (ELOCCS) and evaluated it for reasonableness based on
        unauditied data using the Financial Subsystem for Public Housing (FASS-PIH).

    x   The Office of Housing, similar to the PIH administered programs, utilizes disbursement
        data recorded in ELOCCS over a 12 month period and assumes a 30 day processing time
        from when the entity incurs eligible expenses and the associated drawdown of funds by
        the grantee occurs.



                                                 29
D. Credit Reform Accounting
The primary purpose of the Federal Credit Reform Act of 1990 (FCRA), which became effective
on October 1, 1991, is to more accurately measure the cost of Federal credit programs and to
place the cost of such credit programs on a basis equivalent with other Federal spending. OMB
Circular A-11, Preparation, Execution, and Submission of the Budget, Part 5, Federal Credit
Programs defines loan guarantee as any guarantee, insurance or other pledge with respect to the
payment of all or a part of the principal or interest on any debt obligation of a non-Federal
borrower (Issuer) to a non-Federal lender (Investor). FHA practices Credit Reform accounting.
The FCRA establishes the use of the program, financing, and general fund receipt accounts for
loan guarantees committed and direct loans obligated after September 30, 1991, (Credit Reform).
It also establishes 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.
The program account is a budget account that 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 records all of the cash flows resulting from
Credit Reform direct loans or loan guarantees. It disburses loans, collects repayments and fees,
makes claim payments, holds balances, borrows from U.S. Treasury, earns or pays interest, and
receives the subsidy cost payment from the program account.
The general fund receipt account is a budget account used for the receipt of amounts paid from
the financing account when there are negative subsidies from the original estimate or a
downward re-estimate. In most cases, the receipt account is a general fund receipt account and
amounts are not earmarked for the credit program. They are available for appropriations only in
the sense that all general fund receipts are available for appropriations. Any assets in this
account are non-entity assets and are offset by intragovernmental liabilities. At the beginning of
the following fiscal year, the fund balance in the general fund receipt account is transferred to the
U.S. Treasury General Fund. The FHA general fund receipt accounts of the General Insurance
(GI) and Special Risk Insurance (SRI) funds are in this category.
In order to resolve the different requirements between the FCRA and the National Affordable
Housing Act of 1990 (NAHA), OMB instructed FHA to create the capital reserve account to
retain the Mutual Mortgage Insurance/Cooperative Management Housing Insurance
(MMI/CMHI) negative subsidy and subsequent downward re-estimates. Specifically, the NAHA
required that FHA’s MMI fund achieve a Capital Ratio of 2.0 percent by FY 2000. The Capital
Ratio is defined as the ratio of economic net worth (current cash plus the present value of all
future net cash flows) of the MMI fund to unamortized insurance in force (the unpaid balance of
                                                  30
insured mortgages). Therefore, to ensure that the calculated capital ratio reflects the actual
strength of the MMI fund, the resources of the capital reserve account, which are considered
FHA assets, are included in the calculation of the MMI fund’s economic net worth.
The liquidating account is a budget account that records 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 the GI/SRI liquidating account with permanent indefinite
authority to cover any resource shortages.
E. Operating Revenue and Financing Sources
HUD finances operations principally through appropriations, collection of premiums and fees on
its FHA and Ginnie Mae programs, and interest income on its mortgage notes, loans, and
investments portfolio.
Appropriations for Grant and Subsidy Programs
HUD receives both annual and multi-year appropriations and recognizes those appropriations as
revenue when related program expenses are incurred. Accordingly, HUD recognizes grant-
related revenue and related expenses as recipients perform under the contracts. HUD recognizes
subsidy-related revenue and related expenses when the underlying assistance (e.g., provision of a
Section 8 rental unit by a housing owner) is provided or upon disbursal of funds to PHAs.
Ginnie Mae Fees
Fees received for Ginnie Mae’s guaranty of MBS are recognized as earned. Commitment fees
represent income that Ginnie Mae earns for providing approved issuers with authority to pool
mortgages into Ginnie Mae MBS. The authority Ginnie Mae provides issuers expires 12 months
from issuance for single family issuers and 24 months from issuance for multifamily issuers.
Ginnie Mae receives commitment fees as issuers request commitment authority and recognizes
the commitment fees as earned as issuers use their commitment authority, with the balance
deferred until earned or expired, whichever occurs first. Fees from expired commitment
authority are not returned to issuers.

F. Appropriations and Moneys Received from Other HUD Programs
The National Housing Act of 1990, as amended, provides for appropriations from Congress to
finance the operations of GI and SRI funds. For Credit Reform loan guarantees, appropriations
to the GI and SRI funds are provided at the beginning of each fiscal year to cover estimated
losses on insured loans during the year. For pre-Credit Reform loan guarantees, FHA has


                                                 31
permanent indefinite appropriation authority to finance any shortages of resources needed for
operations.
Monies received from other HUD programs, such as interest subsidies and rent supplements, are
recorded as revenue for the liquidating accounts when services are rendered. Monies received
for the financing accounts are recorded as additions to the Liability for Loan Guarantee or the
Allowance for Subsidy when collected.
G. Investments
HUD limits its investments, principally comprised of investments by FHA’s MMI/CMHI Fund
and by Ginnie Mae, to non-marketable market-based Treasury interest-bearing obligations (i.e.,
investments not sold in public markets). The market value and interest rates established for such
investments are the same as those for similar Treasury issues, which are publicly marketed.
HUD’s investment decisions are limited to Treasury policy which: (1) only allows investment in
Treasury notes, bills, and bonds; and (2) prohibits HUD from engaging in practices that result in
“windfall” gains and profits, such as security trading and full scale restructuring of portfolios in
order to take advantage of interest rate fluctuations.
FHA’s normal policy is to hold investments in U.S. Government securities to maturity.
However, in certain circumstances, FHA may have to liquidate its U.S. Government securities
before maturity to finance claim payments.
HUD reports investments in U.S. Government securities at amortized cost. Premiums or
discounts are amortized into interest income over the term of the investment. HUD intends to
hold investments to maturity, unless needed for operations. No provision is made to record
unrealized gains or losses on these securities because, in the majority of cases, they are held to
maturity.
In connection with an Accelerated Claims Disposition Demonstration program (the 601
program), FHA transfers assigned mortgage notes to private sector entities in exchange for cash
and equity interest. FHA uses the equity method of accounting to measure the value of its
investments in these entities.
Multifamily Risk Sharing Debentures [Section 542(c)] is a program available to lenders where
the lender shares the risk in a property by issuing debentures for the claim amount paid by FHA
on defaulted insured loans.

H. Credit Program Receivables and Related Foreclosed Property
HUD finances mortgages and provides loans to support construction and rehabilitation of low
rent housing, principally for the elderly and disabled under the Section 202/811 program. Prior
to April 1996, mortgages were also assigned to HUD through FHA claims settlement (i.e.,
Mortgage Notes Assigned (MNAs). Single family mortgages were assigned to FHA when the
mortgagor defaulted due to certain “temporary hardship” conditions beyond the control of the
                                                  32
mortgagor, and when, in management's judgment, it is likely that the mortgage could be brought
current in the future. FHA’s loans receivable include MNAs, also described as Secretary-held
notes, Purchase Money Mortgages (PMM) and notes related to partial claims. Under the
requirements of the FCRA, PMM notes are considered to be direct loans while MNA notes are
considered to be defaulted guaranteed loans. The PMM loans are generated from the sales on
credit of FHA’s foreclosed properties to qualified non-profit organizations. The MNA notes are
created when FHA pays the lenders for claims on defaulted guaranteed loans and takes
assignment of the defaulted loans for direct collections. In addition, multifamily mortgages are
assigned to FHA when lenders file mortgage insurance claims for defaulted notes.
Credit program receivables for direct loan programs and defaulted guaranteed loans assigned for
direct collection are valued differently based on the direct loan obligation or loan guarantee
commitment date. These valuations are in accordance with the FCRA and SFFAS No. 2,
“Accounting for Direct Loans and Loan Guarantees,” as amended by SFFAS No. 18. Those
obligated or committed on or after October 1, 1991, (post-Credit Reform) are valued at the net
present value of expected cash flows from the related receivables.
Credit program receivables resulting from obligations or commitments prior to October 1, 1991,
(pre-Credit Reform) are recorded at the lower of cost or fair value (net realizable value). Fair
value is estimated based on the prevailing market interest rates at the date of mortgage
assignment. When fair value is less than cost, discounts are recorded and amortized to interest
income over the remaining terms of the mortgages or upon sale of the mortgages. Interest is
recognized as income when earned. However, when full collection of principal is considered
doubtful, the accrual of interest income is suspended and receipts (both interest and principal) are
recorded as collections of principal. Pre-Credit Reform loans are reported net of allowance for
loss and any unamortized discount. The estimate for the allowance on credit program
receivables is based on historical loss rates and recovery rates resulting from asset sales and
property recovery rates, and net of cost of sales.
Foreclosed property acquired as a result of defaults of loans obligated or loan guarantees
committed on or after October 1, 1991, is valued at the net present value of the projected cash
flows associated with the property. Foreclosed property acquired as a result in defaulted loans
obligated or loan guarantees committed prior to 1992 is valued at net realizable value. The
estimate for the allowance for loss related to the net realizable value of foreclosed property is
based on historical loss rates and recovery rates resulting from property sales, and net of cost of
sales.
I. Borrowings
As further discussed in Note 11, several of HUD’s programs have the authority to borrow funds
from the U.S. Treasury for program operations. These borrowings, representing unpaid principal
balances and future accrued interest is reported as debt in HUD’s consolidated financial
statements. The PIH Low Rent Public Housing Loan Program and the Housing for the Elderly
                                                  33
or Handicapped fund were financed through borrowings from the Federal Financing Bank or the
U.S. Treasury prior to the Department’s conversion of these programs to grant programs. The
Department also borrowed funds from the private sector to assist in the construction and
rehabilitation of low rent housing projects under the PIH Low Rent Public Housing Loan
Program. Repayments of these long-term borrowings have terms up to 40 years.
In accordance with Credit Reform accounting, FHA also 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 amount related to new loan disbursements, and existing loan
modifications from the financing accounts to the general fund receipts account (for cases in
GI/SRI funds) or the liquidating account (for cases in MMI/CMHI funds). In some instances,
borrowings are also needed to transfer the credit subsidy related to downward re-estimates from
the GI/SRI financing account to the GI/SRI receipt account or when available cash is less than
claim payments due.

J. Liability for Loan Guarantees
The net potential future losses related to FHA’s central business of providing mortgage insurance
are accounted for as 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).
The LLG is calculated as the net present value of anticipated cash outflows for defaults, such as
claim payments, premium refunds, property costs to maintain foreclosed properties less
anticipated cash inflows such as premium receipts, proceeds from asset sales and principal and
interest on Secretary-held notes.
HUD records loss estimates for its single family LLR and multifamily LLR mortgage insurance
programs operated through FHA. FHA records loss estimates for its single family programs 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 estimates to incorporate management assumptions about current economic
factors. FHA records loss estimates for its multifamily programs 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.
Ginnie Mae also establishes loss reserves to the extent management believe issue defaults are
probable and FHA, USDA, and PIH insurance or guarantees are insufficient to recoup Ginnie
Mae expenditures.




                                                 34
K. Full Cost Reporting
Beginning in FY 1998, SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for
the Federal Government, required that full costing of program outputs be included in Federal
agency financial statements. Full cost reporting includes direct, indirect, and inter-entity costs.
For purposes of the consolidated department financial statements, HUD identified each
responsible segment’s share of the program costs or resources provided by HUD or other Federal
agencies.
L. Accrued Unfunded Leave and Federal Employees Compensation Act
(FECA) Liabilities
Annual leave and compensatory time are accrued as earned and the liability is reduced as leave is
taken. The liability at year-end reflects cumulative leave earned but not taken, priced at current
wage rates. Earned leave deferred to future periods is to be funded by future appropriations. To
the extent that current or prior year appropriations are not available to fund annual leave earned
but not taken, funding will be obtained from future financing sources. Sick leave and other types
of leave are expensed as taken.
M. Retirement Plans
The majority of HUD’s employees participate in either the Civil Service Retirement System
(CSRS) or the Federal Employees Retirement System (FERS). FERS went into effect pursuant
to Public Law 99-335 on January 1, 1987. Most employees hired after December 31, 1983, are
automatically covered by FERS and Social Security. Employees hired before January 1, 1984,
can elect to either join FERS and Social Security or remain in CSRS. HUD expenses its
contributions to the retirement plans.
A primary feature of FERS is that it offers a savings plan whereby HUD automatically
contributes one percent of pay and matches any employee contribution up to five percent of an
individual’s basic pay. Under CSRS, employees can contribute up to $16,500 of their pay to the
savings plan, but there is no corresponding matching by HUD. Although HUD funds a portion
of the benefits under FERS relating to its employees and makes the necessary withholdings from
them, it has no liability for future payments to employees under these plans, nor does it report
CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities applicable to its
employees’ retirement plans.

Note 3: Entity and Non-Entity Assets
Non-entity assets consist of assets that belong to other entities but are included in the
Department’s consolidated financial statements and are offset by various liabilities to accurately
reflect HUD’s net position. The Department’s non-entity assets principally consist of: (1) U.S.
deposit of negative credit subsidy in the GI/SRI general fund receipt account, (2) escrow monies
collected by FHA that are either deposited at the U.S. Treasury, Minority-Owned banks or
                                                 35
invested in U.S. Treasury securities, and (3) cash remittances from Section 8 bond refunding
deposited in the General Fund of the Treasury.
HUD’s assets as of September 30, 2014, and 2013, were as follows (dollars in millions):
Description                                                                      2014                                  2013
                                                                    Entity     Non-Entity      Total      Entity     Non-Entity     Total
Intragovernmental
  Fund Balance with Treasury (Note 4)                              $ 121,668   $       35    $ 121,703   $ 133,310   $    2,286   $ 135,596
  Investments (Note 5)                                                 6,529            -        6,529       1,822            3       1,825
  Accounts Receivable, Net (Note 6)                                        -            -            -           1            -           1
  Other Assets (Note 11)                                                  33            -           33          15            -          15
Total Intragovernmental Assets                                     $ 128,230   $       35    $ 128,265   $ 135,148   $    2,289   $ 137,437
  Investments (Note 5)                                                    41            -           41          56            -          56
  Accounts Receivable, Net (Note 6)                                    1,856           45        1,901         159           21         180
  Loan Receivables and Related Foreclosed Property, Net (Note 7)      10,868            -       10,868       9,986            -       9,986
  Other Non-Credit Reform Loans Receivable, Net (Note 8)               3,569            -        3,569       4,001            -       4,001
  General Property, Plant and Equipment, Net (Note 9)                    297            -          297         351            -         351
  PIH Prepayments (Note 10)                                              423            -          423         552            -         552
  Other Assets (Note 11)                                                   7           41           48         331           47         378
Total Assets                                                       $ 145,291   $      121    $ 145,412   $ 150,584   $   2,357    $ 152,941


Note 4: Fund Balance with the U.S. Treasury
The U.S. Treasury, which, in effect, maintains HUD’s bank accounts, processes substantially all
of HUD’s receipts and disbursements. HUD’s fund balances with the U.S. Treasury as of
September 30, 2014, and 2013, were as follows (dollars in millions):
                                          Description                      2014             2013

                                          Revolving Funds              $     62,861   $      64,404
                                          Appropriated Funds                 57,780          61,889
                                          Trust Funds                            13           7,066
                                          Other                               1,049           2,237
                                          Total - Fund Balance         $ 121,703      $ 135,596


The Department’s Fund Balance with Treasury includes receipt accounts established under
current Federal Credit Reform legislation and cash collections deposited in restricted accounts
that cannot be used by HUD for its programmatic needs. These designated funds established by
the Department of Treasury are classified as suspense and/or deposit funds and consist of
accounts receivable balances due from the public. A Statement of Budgetary Resources is not
prepared for these funds since any cash remittances received by the Department are not defined
as a budgetary resource.
In addition to fund balance, contract and investment authority are also a part of HUD’s funding
sources. Contract authority permits an agency to incur obligations in advance of an
appropriation, offsetting collections, or receipts to make outlays to liquidate the obligations.
HUD has permanent indefinite contract authority. Since Federal securities are considered the
equivalent of cash for budget purposes, investments in them are treated as a change in the mix of
assets held, rather than as a purchase of assets.



                                                                     36
HUD’s fund balances with the U.S. Treasury as reflected in the entity’s general ledger as of
September 30, 2014, and 2013, were as follows (dollars in millions):
S tatus of Resources - 2014

                                                          Obligated      Unfilled       S tatus of
                              Unobligated Unobligated      Not Yet      Customer           Total                       Other          Total
Description                    Available  Unavailable     Disbursed      Orders         Resources      Fund Balance   Authority     Resources

FHA                           $   13,579    $   40,142    $    2,816    $         (8)   $     56,529   $     50,158   $     6,371   $   56,529
Ginnie M ae                            4        12,777           546              (2)         13,325         13,175           150       13,325
Section 8 Rental Assistance          687            49         8,865               -           9,601          9,601             -        9,601
PIH Loans and Grants                 116            33         4,871               -           5,020          5,020             -        5,020
Homeless Assistance Grants         2,039           422         2,605               -           5,066          5,066             -        5,066
Section 202/811                      324           246         2,303               -           2,873          2,873             -        2,873
CDBG                              12,158            19        12,861               -          25,038         25,038             -       25,038
Home                                 177            23         3,568               -           3,768          3,768             -        3,768
Section 235/236                       34             7         1,216               -           1,257          1,072           185        1,257
All Other                            557         1,096         3,948             (54)          5,547          5,547            12        5,559
Total                         $   29,675    $   54,814    $   43,599    $        (64)   $ 128,024      $    121,318   $     6,718   $ 128,036


S tatus of Resources Covered by Fund Balance
                                                                                                           Non-
                                                                                                       Budgetary:
                                                                                                        S uspense,
                                                          Obligated      Unfilled                      Deposit and
                              Unobligated Unobligated      Not Yet      Customer             Fund        Receipt      Total Fund
Description                    Available  Unavailable     Disbursed      Orders             Balance     Accounts       Balance

FHA                           $   13,579    $   33,771    $    2,816    $         (8)         50,158   $        74    $    50,232
Ginnie M ae                            4        12,627           546              (2)         13,175           295         13,470
Section 8 Rental Assistance          687            49         8,865               -           9,601             -          9,601
PIH Loans and Grants                 116            33         4,871               -           5,020             -          5,020
Homeless Assistance Grants         2,039           422         2,605               -           5,066             -          5,066
Section 202/811                      324           246         2,303               -           2,873             -          2,873
CDBG                              12,158            19        12,861               -          25,038             -         25,038
Home                                 177            23         3,568               -           3,768             -          3,768
Section 235/236                       19             5         1,048               -           1,072             -          1,072
All Other                            557         1,096         3,948             (54)          5,547            16          5,563
Total                         $   29,660    $   48,291    $   43,431    $        (64)   $ 121,318      $       385    $   121,703


S tatus of Resources Covered by Other Authority

                                                          Obligated      Unfilled       Permanent
                              Unobligated Unobligated      Not Yet      Customer        Indefinite      Investment    Borrowing
Description                    Available  Unavailable     Disbursed      Orders          Authority       Authority    Authority

FHA                           $        -    $     6,371   $         -   $          -    $          -   $      6,371   $        -
Ginnie M ae                            -            150             -              -               -            150            -
Section 8 Rental Assistance            -              -             -              -               -              -            -
PIH Loans and Grants                   -              -             -              -               -              -            -
Section 202/811                        -              -             -              -               -              -            -
Section 235/236                       15              2           168              -             185              -            -
All Other                              -             12             -              -               -              -           12
Total                         $       15    $     6,535   $       168   $          -    $        185   $      6,521   $       12


S tatus of Receipt Account Balances                       Breakdown of All Other
                                 Fund                                                                                    Fund
Description                     Balance                   Description                                                   Balance
FHA                           $       74                  All Other HUD suspense/deposit funds                        $       16
Ginnie M ae                   $      295                                                                                        -
Section 8 Rental Assistance             -                 Total                                                       $       16
All Other                             16
Total                         $      385




                                                                            37
S tatus of Resources - 2013

                                                      Obligated Unfilled            S tatus of
                              Unobligated Unobligated  Not Yet  Customer               Total                       Other          Total
Description                    Available  Unavailable Disbursed  Orders             Resources      Fund Balance   Authority     Resources

FHA                           $   25,075    $   33,617    $    3,170   $      (3)   $     61,859   $     61,856   $        3    $   61,859
Ginnie M ae                            2        10,953           480         (19)         11,416          9,622            -         9,622
Section 8 Rental Assistance          561            40         8,363           -           8,964          8,964            -         8,964
PIH Loans and Grants                 115            29         5,257           -           5,401          5,401            -         5,401
Homeless Assistance Grants         1,871           400         2,691           -           4,962          4,962            -         4,962
Section 202/811                      391           158         2,863           -           3,412          3,412            -         3,412
CDBG                              13,875            15        14,419           -          28,309         28,309            -        28,309
Home                                 190            16         3,819           -           4,025          4,025            -         4,025
Section 235/236                       27            14         1,566           -           1,607          1,140          467         1,607
All Other                            604           845         4,289         (61)          5,677          5,665           12         5,677
Total                         $   42,711    $   46,087    $   46,917   $     (83)   $ 135,632      $    133,356   $      482    $ 133,838


S tatus of Resources Covered by Fund Balance
                                                                                                       Non-
                                                                                                   Budgetary:
                                                                                                    S uspense,
                                                      Obligated Unfilled                           Deposit and
                              Unobligated Unobligated  Not Yet  Customer                 Fund        Receipt      Total Fund
Description                    Available  Unavailable Disbursed  Orders                 Balance     Accounts       Balance

FHA                           $   25,075    $   33,614    $    3,170   $      (3)         61,856   $      1,625   $    63,481
Ginnie M ae                            2         9,159           480         (19)          9,622              -         9,622
Section 8 Rental Assistance          561            40         8,363           -           8,964             11         8,975
PIH Loans and Grants                 115            29         5,257           -           5,401              -         5,401
Homeless Assistance Grants         1,871           400         2,691           -           4,962              -         4,962
Section 202/811                      391           158         2,863           -           3,412              -         3,412
CDBG                              13,875            15        14,419           -          28,309              -        28,309
Home                                 190            16         3,819           -           4,025              -         4,025
Section 235/236                        3             6         1,131           -           1,140              -         1,140
All Other                            604           833         4,289         (61)          5,665            604         6,269
Total                         $   42,687    $   44,270    $   46,482   $     (83)   $ 133,356      $      2,240   $   135,596


S tatus of Resources Covered by Other Authority

                                                      Obligated Unfilled            Permanent
                              Unobligated Unobligated  Not Yet  Customer            Indefinite      Investment    Borrowing
Description                    Available  Unavailable Disbursed  Orders              Authority       Authority    Authority

FHA                           $        -    $         3   $       -    $       -    $          -   $          3   $        -
Ginnie M ae                            -          1,794           -            -               -          1,794            -
Section 8 Rental Assistance            -              -           -            -               -              -            -
PIH Loans and Grants                   -              -           -            -               -              -            -
Section 202/811                        -              -           -            -               -              -            -
Section 235/236                       24              8         435            -             467              -            -
All Other                              -             12           -            -               -              -           12
Total                         $       24    $     1,817   $     435    $       -    $        467   $      1,797   $       12


S tatus of Receipt Account Balances                       Breakdown of All Other
                                 Fund                                                                                Fund
Description                     Balance                   Description                                               Balance
FHA                           $     1,625                 Other Repayments of Capital Investments and Recoveries
Section 8 Rental Assistance            11                   and M anufactured Housing Fees Trust Fund             $      545
All Other                             604                 Negative Subsidies and Downward Restimates of Subsidies         59
Total                         $    2,240                  Total                                                   $      604




                                                                       38
An immaterial difference exists between HUD’s recorded Fund Balances with the U.S. Treasury
and the U.S. Department of Treasury’s records. It is the Department’s practice to adjust its
records to agree with Treasury’s balances at the end of the fiscal year. The adjustments are
reversed at the beginning of the following fiscal year.

Note 5: Investments
The U.S. Government securities are non-marketable intra-governmental securities. Interest rates
established by the U.S. Treasury as of September 30, 2014, were 0.01 percent. During FY 2013,
interest rates ranged from 1.88 percent to 2.00 percent. The amortized cost and estimated market
value of investments in debt securities as of September 30, 2014, and 2013, were as follows
(dollars in millions):
                                                           Amortized
                                                           (Premium)/          Accrued               Net             Market
                                        Cost           Discount, Net           Interest          Investments          Value

                   FY 2014          $        6,521     $              1 $                    7   $       6,529   $        6,530
                   FY 2013          $        1,816     $             (1) $                  10   $       1,825   $        1,868


Investments in Private-Sector Entities
These investments in private-sector entities are the result of FHA’s participation in the
Accelerated Claims Disposition Demonstration program and Risk Sharing Debentures as
discussed in Note 2G. The following table presents financial data on FHA’s investments in Risk
Sharing Debentures as of September 30, 2014, and 2013, (dollars in millions):
                                                                             Share of
                                        Beginning              New       Earnings or         Return of                         Ending
                                            Balance    Acquisitions          Losses          Investment      Redeemed          Balance

              2014
              601 Program               $         56       $         -   $              -    $           -   $        (15) $         41
              Risk Sharing Debentures              -                 -                  -                -              -             -
              Total                     $         56       $         -   $              -    $           -   $       (15) $          41

              2013
              601 Program               $          -       $         -   $              -    $           -   $         - $            -
              Risk Sharing Debentures             57                 1                  -                -            (2)            56
              Total                     $         57       $         1   $              -    $           -   $        (2) $          56



Note 6: Accounts Receivable (Net)
The Department’s accounts receivable represents Section 8 year-end settlements, claims to cash
from the public, state and local authorities for bond refunding, Section 236 excess rental income,
sustained audit findings, refunds of overpayment, FHA insurance premiums, and foreclosed
property proceeds.
A 100 percent allowance for loss is established for all delinquent accounts 90 days and over for
bond refunding. The allowance for loss methodology is the total delinquencies greater than
90 days plus/or minus economic stress factors. The economic stress factors include payoff,

                                                                         39
foreclosure, bankruptcy and hardship of the project. Adjustments to the bond refunding
allowance for loss account are done every quarter to ensure they are deemed to be necessary.
For Section 236 excess rental income, the allowance for loss consists of 10 percent of the
receivables with a repayment plan plus 95 percent of the receivables without a repayment plan.
Adjustments to the excess rental income allowance for loss account are done biannually to
ensure they are deemed necessary.
Section 8 Settlements
Prior to January 1, 2005, the Housing Choice Voucher (HCV) Program’s Section 8 subsidies
were disbursed based on estimated amounts due under the contracts. At the end of each year, the
actual amount due under the contracts was determined. The excess of subsidies paid to PHAs
during the year over the actual amount due was reflected as an accounts receivable in the balance
sheet. These receivable amounts were “collected” by offsetting such amounts with subsidies due
to the PHAs in subsequent periods. On January 1, 2005, Congress changed the basis of the
program funding from a “unit-based” process with program variables that affected the total
annual Federal funding need, to a “budget-based” process that limits the Federal funding to
PHAs to a fixed amount. Under this “budget-based” process, a year-end settlement process to
determine actual amounts due is no longer applicable. Effective January 1, 2012, PIH reinstated
the year-end settlement process for the HCV Program in accordance with its cash management
policies. However, as reported by the OIG’s Internal Control Report, the results of PIH’s cash
reconciliation reviews are not reflected in the Department’s financial statements. The PIH
reviews have not been completed on a timely basis and the required standard general ledger
transactions have not been recorded in the Department’s accounting systems.

Bond Refunding
Many of the Section 8 projects constructed in the late 1970s and early 1980s were financed with
tax exempt bonds with maturities ranging from 20 to 40 years. The related Section 8 contracts
provided that the subsidies would be based on the difference between what tenants could pay
pursuant to a formula, and the total operating costs of the Section 8 project, including debt
service. The high interest rates during the construction period resulted in high subsidies. When
interest rates came down in the 1980s, HUD was interested in getting the bonds refunded. One
method used to account for the savings when bonds are refunded (PHAs sell a new series of
bonds at a lower interest rate, to liquidate the original bonds), is to continue to pay the original
amount of the bond debt service to a trustee. The amounts paid in excess of the lower
“refunded” debt service and any related financing costs, are considered savings. One-half of
these savings are provided to the PHA, the remaining one-half is returned to HUD. As of
September 30, 2014, and 2013, HUD was due $15 million and $17 million, respectively.




                                                  40
Section 236 Excess Rental Income
The Excess Rental Income receivable account represents the difference between the amounts that
projects reported to HUD’s Lockbox as owing (in use prior to August 2008) and the actual
amount collected. On a monthly basis, projects financed under Section 236 of the National
Housing Act must report the amount of rent collected in excess of basic rents and remit those
funds to the Department. Unless written authorization is given by the Department to retain the
excess rental income, the difference must be remitted to HUD. Generally, the individual
amounts owing under Excess Rental Income receivables represents monthly reports remitted
without payment. After 2008, any remittances owed by individuals are collected through
PAY.GOV as well as the required HUD documents.
Other Receivables
Sustained audit costs include sustained audit findings, refunds of overpayment, FHA insurance
premiums and foreclosed property proceeds due from the public.
The following shows accounts receivable as reflected in the Balance Sheet as of
September 30, 2014, and 2013, (dollars in millions):
                                                            2014                                    2013
                                                 Gross                                   Gross
                                               Accounts Allowance                      Accounts Allowance
            Description                        Receivable for Loss Total, Net          Receivable for Loss Total, Net

            Intragovernmental                   $        -   $        -   $        -   $      1    $      -   $     1
            Public
               Sustained Audit Costs            $       64   $      - $          64    $      10   $      - $      10
               Bond Refundings                          15          -            15           17          -        17
               Section 8 Settlements                     4          1             5            9          -         9
               Section 236 Excess Rental Income          5         (1)            4            6         (2)        4
               Other Receivables:                        -
                 FHA                                 2,328        (868)        1,460        109          (96)      13
                 Ginnie Mae                            692        (360)          332        121            -      121
                 Other Receivables                      24          (3)           21          8           (2)       6
            Total Accounts Receivable           $   3,132    $ (1,231) $      1,901    $    281    $   (100) $    181



Note 7: Direct Loans and Loan Guarantees, Non-Federal Borrowers
HUD reports direct loan obligations or loan guarantee commitments made prior to FY 1992 and
the resulting direct loans or defaulted guaranteed loans, net of allowance for estimated
uncollectible loans or estimated losses.
The FHA insures Home Equity Conversion Mortgages (HECM), also known as reverse
mortgages. These loans are used by senior homeowners age 62 and older to convert the equity in
their home into monthly streams of income and/or a line of credit to be repaid when they no
longer occupy the home. Unlike ordinary home equity loans, a HUD reverse mortgage does not
require repayment as long as the home is the borrower’s principal residence.




                                                                 41
The FHA also administers the HOPE for Homeowners (H4H) program. The program was
established by Congress to help those at risk of default and foreclosure refinance into more
affordable, sustainable loans.
The allowance for loan losses for the Flexible Subsidy Fund and the Housing for the Elderly and
Disabled Program is determined as follows:
Flexible Subsidy Fund
There are four parts to the calculation of allowance for loss: (1) loss rate for loans written-off,
(2) loss rate for restructured loans, (3) loss rate for loans paid-off, and (4) loss rate for loans
delinquent or without repayment activity for 30 years. Loss rates for parts 1 and 3 are based on
actual historical data derived from the previous three years. The loss rates for parts 2 and 4 are
provided by or agreed to by the Housing Office of Evaluation.
Housing for the Elderly and Disabled Program
There are three parts to the calculation of allowance for loss: (1) loss rate for loans issued a
Foreclosure Hearing Letter, (2) loss rate for the estimated number of foreclosures in the current
year, and (3) loss rate for loans delinquent for more than 180 days. Loss rates for parts 1 and 2
are determined by actual historical data from the previous five years. Loss rate for part 3 is
determined or approved by the Housing Office of Evaluation.
Direct loan obligations or loan guarantee commitments made after FY 1991, and the resulting
direct loans or defaulted guaranteed loans, are governed by the FCRA and are recorded as the net
present value of the associated cash flows (i.e., interest rate differential, interest subsidies,
estimated delinquencies and defaults, fee offsets, and other cash flows).
The following is an analysis of loan receivables, loan guarantees, liability for loan guarantees,
and the nature and amounts of the subsidy costs associated with the loans and loan guarantees for
FY 2014 and FY 2013:
A. List of HUD’s Direct Loan and/or Guarantee Programs:
   1. FHA
       a) MMI/CMHI Direct Loan Program
       b) GI/SRI Direct Loan Program
       c) MMI/CMHI Loan Guarantee Program
       d) GI/SRI Loan Guarantee Program
       e) H4H Loan Guarantee Program
       f) HECM Program
   2. Housing for the Elderly and Disabled

                                                  42
    3. All Other
         a) CPD Revolving Fund
         b) Flexible Subsidy Fund
         c) Section 108 Loan Guarantees
         d) Indian Housing Loan Guarantee Fund
         e) Loan Guarantee Recovery Fund
         f) Native Hawaiian Housing Loan Guarantee Fund
         g) Title VI Indian Housing Loan Guarantee Fund
         h) Green Retrofit Direct Loan Program
         i) Emergency Homeowners’ Loan Program
B. Direct Loans Obligated Pre-1992 (Allowance for Loss Method) (dollars in
millions):
                                                                                   2014
                                                                                                                       Value of
                                             Loans                                                                Assets Related
                                           Receivable,         Interest        Allowance for     Foreclosed           to Direct
Direct Loan Programs                         Gross         Receivable          Loan Losses         Property           Loans, Net

FHA
 a) MMI/CHMI Direct Loan Program       $              -    $           -       $           (6) $              -                 (6)
 b) GI/SRI Direct Loan Program                       14               12                   (7)                -                 19
Housing for the Elderly and Disabled              1,778               19                  (10)                -              1,787
All Other
 a) CPD Revolving Fund                                 5               -                   (5)                2                 2
 b) Flexible Subsidy Fund                            451              82                  (32)                -               501
Total                                  $          2,248    $         113       $          (60) $              2   $         2,303

                                                                                   2013
                                                                                                                       Value of
                                             Loans                                                                Assets Related
                                           Receivable,         Interest        Allowance for     Foreclosed           to Direct
Direct Loan Programs                         Gross         Receivable          Loan Losses         Property           Loans, Net

FHA
 a) MMI/CHMI Direct Loan Program       $              -    $           -       $           (5) $              -                 (5)
 b) GI/SRI Direct Loan Program                       15               11                   (7)                -                 19
Housing for the Elderly and Disabled              2,096               22                  (10)                -              2,108
All Other
 a) CPD Revolving Fund                                 5               -                   (5)                2                 2
 b) Flexible Subsidy Fund                            479              84                  (42)                -               521
Total                                  $          2,595    $         117       $          (69) $              2   $         2,645




                                                                          43
C. Direct Loans Obligated Post-1991 (dollars in millions):
                                                                                                             2014
                                                                                                                                                      Value of
                                                             Loans                                                                                        Assets
                                                     Receivable,              Interest             Allowance for              Foreclosed              Related to
Direct Loan Programs                                         Gross           Receivable            Loan Losses                 Property           Direct Loans

All Other
 a) Green Retrofit Program                           $               70   $               1        $                  (66) $                -     $                 5
 b) Emergency Homeowners' Loan Program                               82                    -                          (81)                  -                       1
 c) EHLP Receipt Account                                             39                    -                            -                   -                      39
Total                                                $             191    $               1        $              (147) $                   -     $                45

                                                                                                             2013
                                                                                                                                                      Value of
                                                             Loans                                                                                        Assets
                                                         Receivable,          Interest             Allowance for              Foreclosed              Related to
Direct Loan Programs                                         Gross           Receivable            Loan Losses                 Property           Direct Loans

All Other
 a) Green Retrofit Program                               $           75   $                1       $                  (70) $                -     $                 6
 b) Emergency Homeowners' Loan Program                               82                    1                          (81)                  -                       2
 c) EHLP Receipt Account                                             40                    -                            -                   -                      40
Total                                                    $         197    $               2        $              (151) $                   -     $                48


D. Total Amount of Direct Loans Disbursed (Post-1991) (dollars in millions):
                                                                                                   Current                   Prior
                              Direct Loan Programs                                                     Year                  Year

                              All Other
                               a) Green Retrofit Program                                       $                  -     $             -
                               b) Emergency Homeowners' Loan Program                                              5                  19
                              Total                                                            $               5        $            19


E. Subsidy Expense for Direct Loans by Program and Component (dollars in
millions):
E1. Subsidy Expense for New Direct Loans Disbursed (dollars in millions):
                                                                                       2014
                                              Interest                            Fees and Other
Direct Loan Programs                      Differential            Defaults             Collections                    Other               Total

All Other
 a) Green Retrofit Program                $              -    $               -    $                     -    $                 -    $                -
 b) Emergency Homeowners' Loan Program                   -                    -                          -                      5                     5
Total                                     $              -    $               -    $                     -    $                 5    $                5

                                                                                       2013
                                              Interest                            Fees and Other
Direct Loan Programs                      Differential            Defaults             Collections                    Other               Total

All Other
 a) Green Retrofit Program                $              -    $               -    $                     -    $                 -    $             -
 b) Emergency Homeowners' Loan Program                   -                    -                          -                     18                 18
Total                                     $              -    $               -    $                     -    $                18    $            18



                                                                              44
E2. Modifications and Re-estimates (dollars in millions):
                                                                         2014
                                             Total          Interest Rate   Technical                   Total
Direct Loan Programs                     Modification Re-estimates                Re-stimates       Re-estimates

All Other
 a) Green Retrofit Program               $            -     $                -   $              -   $           -
 b) Emergency Homeowners' Loan Program                -                      -                  -               -
Total                                    $            -     $                -   $              -   $           -

                                                                         2013
                                             Total          Interest Rate   Technical                   Total
Direct Loan Programs                     Modification Re-estimates                Re-stimates       Re-estimates

All Other
 a) Green Retrofit Program               $            -     $                -   $              -   $           -
 b) Emergency Homeowners' Loan Program                -                      -                  -               -
Total                                    $            -     $                -   $              -   $           -


E3. Total Direct Loan Subsidy Expense (dollars in millions):
                                                  Current
Direct Loan Programs                                 Year           Prior Year

All Other
a) Green Retrofit Program                     $                 -   $                 -
b) Emergency Homeowners' Loan Program                           5                    18
Total                                         $                 5   $                18


F. Subsidy Rates for Direct Loans by Program and Component:
Budget Subsidy Rates for Direct Loans
                                                                                                2014
                                                    Interest                               Fees and Other
Direct Loan Programs                              Differential           Defaults            Collections             Other       Total

All Other
 a) Green Retrofit Program                                  41.0%                42.7%                   0.0%          (1.3%)       82.3%
 b) Emergency Homeowners' Loan Program                       0.0%                 0.0%                   0.0%           97.7%       97.7%

                                                                                               2013
                                                 Interest                                 Fees and Other
Direct Loan Programs                           Differential             Defaults            Collections             Other       Total

All Other
 a) Green Retrofit Program                                41.0%                  42.7%                  0.0%          (1.3%)       82.3%
 b) Emergency Homeowners' Loan Program                     0.0%                   0.0%                  0.0%           97.7%       97.7%




                                                                        45
G. Schedule for Reconciling Subsidy Cost Allowance Balances (Post-1991
Direct Loans) (dollars in millions):
Beginning Balance, Changes, and Ending Balance                            FY 2014                 FY 2013

Beginning balance of the subsidy cost allowance                       $             151       $         137

Add: subsidy expense for direct loans disbursed
during the reporting years by component:                                              -                      -
 a) Interest rate differential costs                                                  -                      -
 b) Default costs (net of recoveries)                                                 -                      -
 c) Fees and other collections                                                        -                      -
 d) Other subsidy costs                                                               5                     18
Total of the above subsidy expense components                                         5                     18
Adjustments:
 a) Loan modifications                                                                -                   -
 b) Fees received                                                                     -                   -
 c) Foreclosed properties acquired                                                    -                   -
 d) Loans written off                                                                (5)                 (5)
 e) Subsidy allowance amortization                                                    1                   1
 f) Other                                                                             -                   -
Ending balance of the subsidy cost allowance before re-estimates                    152                 151
Add or subtract subsidy re-estimates by component:
 a) Interest rate re-estimate                                                         (5)                -
 b) Technical/default re-estimate                                                      -                 -
Total of the above re-estimate components                                             (5)                -
Ending balance of the subsidy cost allowance                          $             147       $        151


H. Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for
Loss Method) (dollars in millions):
                                                                                            2014
                                              Defaulted                                                                       Value of Assets
                                              Guaranteed                                                                           Related to
                                                Loans                                                        Foreclosed            Defaulted
                                              Receivable,        Interest       Allowance for Loan           Property,       Guaranteed Loans
                                                Gross           Receivable and Interest Losses                   Net             Receivable, Net
FHA
 a) Single Family                         $               21    $           -   $                    (13) $            20    $                  28
 b) Multi Family                                        2,078         231                           (857)               1                   1,453
 c) HECM                                                    5           2                             (2)              (2)                      3
Total                                     $          2,104      $     233       $                  (872) $             19    $             1,484


                                                                                            2013
                                              Defaulted                                                                       Value of Assets
                                              Guaranteed                                                                           Related to
                                                Loans                                                        Foreclosed            Defaulted
                                              Receivable,        Interest       Allowance for Loan           Property,       Guaranteed Loans
                                                Gross           Receivable and Interest Losses                   Net             Receivable, Net
FHA
 a) Single Family                         $               18    $           -   $                    (33) $            30    $                  15
 b) Multi Family                                        2,225         228                           (935)               1                   1,519
 c) HECM                                                    5           2                             (2)               7                      12
Total                                     $          2,248      $     230       $                  (970) $             38    $             1,546




                                                                       46
I. Defaulted Guaranteed Loans from Post-1991 Guarantees (dollars in millions):
                                                                                          2014
                                                Defaulted                                                              Value of Assets
                                                Guaranteed                         Allowance for                            Related to
                                                  Loans                            Subsidy Cost       Foreclosed            Defaulted
                                                Receivable,        Interest            (Present       Property,       Guaranteed Loans
                                                  Gross           Receivable            Value)          Gross             Receivable, Net

FHA
 a) Single Family                          $              5,423 $              1   $       (4,332) $       2,510 $                   3,602
 b) Multi Family                                            818                -             (319)             1                       500
 c) HECM                                                  3,506            1,563           (2,246)            85                     2,908
All Other                                                     -                -                -              -                         -
 a) Indian Housing Loan Guarantee                             -                -                -             26                        26
 b) Native Hawaiian Housing Loan Guarantee                    -                -                -              1                         1
Total                                      $             9,747    $    1,564       $       (6,897) $      2,623       $             7,037


                                                                                          2013
                                                Defaulted                                                              Value of Assets
                                                Guaranteed                         Allowance for                            Related to
                                                  Loans                            Subsidy Cost       Foreclosed            Defaulted
                                                Receivable,        Interest            (Present       Property,       Guaranteed Loans
                                                  Gross           Receivable            Value)          Gross             Receivable, Net

FHA
 a) Single Family                          $              3,023 $             10   $       (4,875) $       4,651 $                   2,809
 b) Multi Family                                            619                -             (212)             1                       408
 c) HECM                                                  2,568            1,106           (1,243)            69                     2,500
All Other
 a) Indian Housing Loan Guarantee                             -                -                  -             30                       30
 b) Native Hawaiian Housing Loan Guarantee                    -                -                  -              1                        1
Total                                      $             6,210    $    1,116       $       (6,330) $      4,752       $             5,748


                                                                                                                       2014               2013
Total Credit Program Receivables and Related Foreclosed Property, Net                                                $10,868             $9,986
J. Guaranteed Loans Outstanding (dollars in millions):
J1. Guaranteed Loans Outstanding (dollars in millions):
                                                 2014
                             Outstanding
                              Principal,
                           Guaranteed Loans,         Amount of Outstanding
Loan Guarantee Programs       Face Value              Principal Guaranteed

FHA Programs
 a) MMI/CMHI Funds          $       1,168,919        $                 1,075,208
 b) GI/SRI Funds                      121,597                            110,436
 c) H4H Progam                            109                                104
All Other                               6,338                              6,333
  Total                     $      1,296,963         $                1,192,081




                                                                      47
                                               2013
                            Outstanding
                             Principal,
                          Guaranteed Loans,         Amount of Outstanding
Loan Guarantee Programs      Face Value              Principal Guaranteed

FHA Programs
 a) MMI/CMHI Funds        $        1,167,538        $              1,087,079
 b) GI/SRI Funds                     115,234                         104,680
 c) H4H Progam                           117                             113
All Other                              5,718                           5,713
  Total                   $       1,288,607         $             1,197,585


J2. Home Equity Conversion Mortgage Loans Outstanding (dollars in millions):
                                                                         Cumulative
                              2014 Current Year           Current Outstanding     Maximun Potential
Loan Guarantee Programs         Endorsements                   Balance                Liability

FHA Programs                  $            13,473        $                 105,523     $           149,885

                                                                        Cumulative
                              2013 Current Year          Current Outstanding     Maximun Potential
Loan Guarantee Programs         Endorsements                  Balance                Liability

FHA Programs                  $            14,671        $                 100,869    $            145,918


J3. New Guaranteed Loans Disbursed (dollars in millions):
                                                               2014
                                 Outstanding Principal,                    Amount of Outstanding
Loan Guarantee Programs       Guaranteed Loans, Face Value                  Principal Guaranteed

FHA Programs
 a) MMI/CMHI Funds            $                         135,235       $                     133,955
 b) GI/SRI Funds                                         14,227                              14,147
 c) H4H Program                                               -                                   -
All Other                                                   656                                 656
  Total                       $                         150,118       $                    148,758


                                                               2013
                                 Outstanding Principal,                    Amount of Outstanding
Loan Guarantee Programs       Guaranteed Loans, Face Value                  Principal Guaranteed

FHA Programs
 a) MMI/CMHI Funds            $                         240,276       $                     237,443
 b) GI/SRI Funds                                         23,344                              23,191
 c) H4H Program                                               -                                   -
All Other                                                   794                                 793
  Total                       $                         264,414       $                    261,427




                                                               48
K. Liability for Loan Guarantees (Estimated Future Default Claims,
Pre-1992) (dollars in millions):
                                                                   2014
                          Liabilities for Losses on         Liabilities for Loan
                           Pre-1992 Guarantees,             Guarantees for Post-
                          Estimated Future Default           1991 Guarantees              Total Liabilities For Loan
Loan Guarantee Programs             Claims                    (Present Value)                    Guarantees

FHA Programs              $                      9      $                      31,494      $                 31,503
All Other                                        -                                276                           276
  Total                   $                      9      $                      31,770      $                31,779

                                                                   2013
                          Liabilities for Losses on         Liabilities for Loan
                           Pre-1992 Guarantees,             Guarantees for Post-
                          Estimated Future Default           1991 Guarantees              Total Liabilities For Loan
Loan Guarantee Programs             Claims                    (Present Value)                    Guarantees

FHA Programs              $                      8      $                      39,124      $                 39,132
All Other                                        -                                173                           173
  Total                   $                      8      $                      39,297      $                39,305


L. Subsidy Expense for Post-1991 Guarantees:
L1. Subsidy Expense for Current Year Loan Guarantees (dollars in millions):
                                                                                  2014
                                        Endorsement            Default             Fees             Other              Subsidy
Loan Guarantee Programs                   Amount              Component          Component        Component            Amount

FHA
 a) MMI/CMHI Funds, Excluding HECM     $       135,235        $        3,953     $      (13,747) $            -   $        (9,794)
 b) MMI/CMHI Funds, HECM                        13,473                   878               (934)              -               (56)
 c) GI/SRI Funds                                14,227                   263               (871)              -              (608)
 d) H4H Program                                      -                     -                  -               -                 -
All Other                                            -                     7                  -               -                 7
Total                                  $      162,935         $        5,101     $      (15,552) $            -   $      (10,451)


L2. Subsidy Expense for Prior Year Loan Guarantees (dollars in millions):
                                                                                  2013
                                        Endorsement            Default             Fees             Other              Subsidy
Loan Guarantee Programs                   Amount              Component          Component        Component            Amount

FHA
 a) MMI/CMHI Funds, Excluding HECM     $       240,276        $        7,135     $      (24,207) $           (7) $        (17,079)
 b) MMI/CMHI Funds, HECM                        14,671                   536               (902)              -              (366)
 c) GI/SRI Funds                                23,344                   571             (1,484)              -              (913)
 d) H4H Program                                      -                     -                  -               -                 -
All Other                                            -                    14                  -               -                14
Total                                  $      278,291         $        8,256     $      (26,593) $          (7) $        (18,344)




                                                                  49
L3. Modification and Re-estimates (dollars in millions):
                                                                         2014

                                   Total              Interest Rate                Technical                 Total
Loan Guarantee Programs         Modifications         Re-estimates                Re-estimates           Re-estimates

FHA
 a) MMI/CMHI Funds              $              -      $                  -        $         3,380        $       3,380
 b) GI/SRI Funds                               -                         -                    544                  544
All Other                                      -                         -                     94                   94
Total                           $              -      $                  -        $         4,018        $      4,018

                                                                         2013

                                   Total              Interest Rate                Technical                 Total
Loan Guarantee Programs         Modifications         Re-estimates                Re-estimates           Re-estimates

FHA
 a) MMI/CMHI Funds              $              -      $                  -        $          9,862       $       9,862
 b) GI/SRI Funds                               -                         -                  (1,443)             (1,443)
All Other                                      -                         -                      (2)                 (2)
Total                           $              -      $                  -        $         8,417        $      8,417


L4. Total Loan Guarantee Subsidy Expense (dollars in millions):
Loan Guarantee Programs              Current Year             Prior Year
FHA
 a) MMI/CMHI Funds                   $      (6,470)       $            (7,582)
 b) GI/SRI Funds                               (64)                    (2,356)
 c) H4H Program                                  -                          -
All Other                            $        101         $                  11
Total                                $     (6,433)        $         (9,927)


M. Subsidy Rates for Loan Guarantees by Programs and Component:
Budget Subsidy Rates for Loan Guarantees for FY 2014 Cohorts
                                                                         Fees and Other
Loan Guarantee Program                                    Default          Collections                Other      Total

FHA Programs
 MMI/CMHI
   Single Family - Forward                                      2.9%                   (10.2%)                     (7.3%)
   Single Family - HECM                                         6.5%                    (6.9%)                     (0.4%)
   Single Family - Refinancing                                 11.4%                   (11.4%)          0.0%         0.0%
   Multi Family - Section 213                                   0.0%                      0.0%                       0.0%
 GI/SRI
  Multifamily
   Section 221(d)(4)                                            2.5%                    (6.1%)                     (3.6%)
   Section 207/223(f)                                           0.4%                    (4.6%)                     (4.2%)
   Section 223(a)(7)                                            0.4%                    (4.6%)                     (4.2%)
   Section 232                                                  2.8%                    (6.8%)                     (4.0%)
   Section 242                                                  3.2%                    (7.3%)                     (4.1%)
 H4H
  Single Family - Section 257                                                                                       0.0%
All Other Programs
 CDBG, Section 108(b)                                           2.6%                                                2.6%
 Loan Guarantee Recovery                                       50.0%                                               50.0%
 Indian Housing (weighted average)                              0.5%                                                0.5%
 Native Hawaiian Housing                                        0.1%                                                0.1%
 Title VI Indian Housing                                       12.1%                                               12.1%




                                                                                  50
Budget Subsidy Rates for Loan Guarantees for FY 2013 Cohorts
                                                            Fees and Other
Loan Guarantee Program                         Default        Collections      Other        Total

FHA Programs
 MMI/CMHI
   Single Family - Forward                           3.0%             (9.4%)                 (6.5%)
   Single Family - HECM                              2.4%             (6.2%)                 (3.8%)
   Single Family - Refinancing                      10.2%             (7.7%)    (2.6%)         0.0%
   Multi Family - Section 213                        3.0%             (9.4%)                 (6.5%)
 GI/SRI
  Multifamily
   Section 221(d)(4)                                4.4%              (6.9%)                 (2.5%)
   Section 207/223(f)                               1.1%              (5.8%)                 (4.7%)
   Section 223(a)(7)                                1.1%              (5.8%)                 (4.7%)
   Section 232                                      3.1%              (7.4%)                 (4.3%)
   Section 242                                      1.3%              (7.7%)                 (6.4%)
 H4H
  Single Family - Section 257                                                                 0.0%
All Other Programs
 CDBG, Section 108(b)                                2.5%                                     2.5%
 Loan Guarantee Recovery                            50.0%                                    50.0%
 Indian Housing                                      1.4%                                     1.4%
 Native Hawaiian Housing                             0.5%                                     0.5%
 Title VI Indian Housing                            10.9%                                    10.9%


N. Schedule for Reconciling Loan Guarantee Liability Balances (Post-1991
Loan Guarantees) (dollars in millions):
Beginning Balance, Changes, and Ending Balance                                 2014                   2013

Beginning balance of the loan guarantee liability                          $      41,638      $          55,144
Add: subsidy expense for guaranteed loans disbursed during
the reporting years by component:
      (a) Interest supplement costs                                                     -                      -
      (b) Default costs (net of recoveries)                                        5,101                  8,256
      (c) Fees and other collections                                             (15,552)               (26,593)
      (d) Othe subsidy costs                                                           -                     (7)
    Total of the above subsidy expense components                          $     (10,451)     $         (18,344)
Adjustments:
    (a) Loan guarantee modifications                                                    -                      -
    (b) Fees Received                                                             12,233                 12,029
    (c) Interest supplemental paid                                                      -                      -
    (d) Foreclosed property and loans acquired                                    11,871                 11,835
    (e) Claim payments to lenders                                                (27,960)               (29,417)
    (f) Interest accumulation on the liability balance                             1,165                  1,687
    (g) Other                                                                        524                    (27)
Ending balance of the subsidy cost allowance before re-estimates           $      29,020      $          32,907
Add or Subtract subsidy re-estimates by component:
    (a) Interest rate re-estimate                                                       -                     -
    (b) Technical/default re-estimate                                              5,387                  1,316
    (c) Adjustment of prior years credit subsidy re-estimates                       (658)                 7,414
      Total of the above re-estimate components                                    4,729                  8,730
Ending balance of the subsidy cost allowance                               $     33,749       $         41,637
Less: unrealized Ginnie Mae claims from defaulted loans                    $      (1,970)     $          (2,332)
Ending balance of the subsidy cost allowance                               $     31,779       $         39,305




                                                                 51
O. Administrative Expenses (dollars in millions):
Loan Guarantee Program                       2014                2013

FHA                                      $      576          $     647
All Other                                         -                  -
Total                                    $      576          $     647


Note 8: Other Non-Credit Reform Loans
The following shows HUD’s Other Non-Credit Reform Loans Receivable as of September 30,
2014 and September 30, 2013, (dollars in millions):
                                                                                                              2014
                                                                                              Allowance for Loan Losess Due
                                                                       Ginnie Mae Reported    to Payment of Probable Claims         Value of Assets Related to
Description                                                                 Balances                      by FHA                              Loans

Mortgage Loans Held for Investment                                 $                  4,844   $                      (1,747)    $                          3,097
Advances Against Defaulted Mortgage-Backed Security Pools, net                           82                                -                                  82
Properties Held for Sale, net                                                            14                                -                                  14
Foreclosed Property                                                                     577                            (204)                                 373
Short Sale Claims Receivable                                                             22                              (19)                                  3
Total                                                              $                  5,539   $                     (1,970)     $                         3,569


                                                                                                              2013
                                                                                              Allowance for Loan Losess Due
                                                                       Ginnie Mae Reported    to Payment of Probable Claims         Value of Assets Related to
Description                                                                 Balances                      by FHA                              Loans

Mortgage Loans Held for Investment                                 $                  5,668   $                      (2,332)    $                          3,336
Advances Against Defaulted Mortgage-Backed Security Pools, net                           99                                                                   99
Properties Held for Sale, net                                                            23                                                                   23
Foreclosed Property                                                                     481                                                                  481
Short Sale Claims Receivable                                                             62                                -                                  62
Total                                                              $                  6,333   $                     (2,332)     $                         4,001



Other Non-Credit Reform Loans consists of Ginnie Mae Advances Against Defaulted Mortgage-
Backed Security Pools, Mortgage Loans Held for Investment, Short Sale Claims Receivable, and
Foreclosed Property. Below is a description of each type of asset recorded by Ginnie Mae.
Mortgage Loans Held for Investment
When a Ginnie Mae issuer defaults, Ginnie Mae is required to step into the role of the issuer and
make the timely pass-through payments to investors, and subsequently, assumes the servicing
rights and obligations of the issuer’s entire Ginnie Mae guaranteed, pooled loan portfolio of the
defaulted issuer. Ginnie Mae utilizes the MSSs to service these portfolios. There are currently
two MSSs for Single Family and one MSS for Manufactured Housing defaulted issuers. These
MSSs currently service 100 percent of all non-pooled loans.
In its role as servicer, Ginnie Mae assesses individual loans within its pooled portfolio to
determine whether the loan must be purchased out of the pool as required by the Ginnie Mae
MBS Guide. Ginnie Mae purchases mortgage loans out of the MBS pool when:
    A. Mortgage loans are uninsured by the FHA, USDA, VA or PIH


                                                                                52
   B. Mortgage loans were previously insured but insurance is currently denied (collectively
      with B), referred to as uninsured mortgage loans)
   C. Mortgage loans are insured but are delinquent for more than 90 and 120 days based on
      management discretion for manufactured housing and single family loans, respectively.
During FY 2013, the majority of purchased mortgage loans were bought out due to borrower
delinquency of more than 90 or 120 days depending on loan type (i.e., Single Family or
Manufactured Housing).
Ginnie Mae evaluates the collectability of all purchased loans and assesses whether there is
evidence of credit deterioration subsequent to the loan’s origination and it is probable, at
acquisition, that Ginnie Mae will be unable to collect all contractually required payments
receivable. Ginnie Mae considers guarantees and insurance from FHA, USDA, VA and PIH in
determining whether it is probable that Ginnie Mae will collect all amounts due according to the
contractual terms.
For FHA insured loans, Ginnie Mae expects to collect the full amount of the unpaid principal
balance and debenture rate interest (only for months allowed in the insuring agency’s timeline),
when the insurer reimburses Ginnie Mae subsequent to filing a claim. As a result, these loans
are accounted for under ASC Subtopic 310-20, Receivables – Nonrefundable Fees and Other
Costs. In accordance with ASC 310-20-30-5, these loans are recorded at the unpaid principal
balance which is the amount Ginnie Mae pays to repurchase these loans. Accordingly, Ginnie
Mae recognizes interest income on these loans on an accrual basis at the debenture rate for the
number of months allowed under the insuring agency’s timeline. After the allowed timeline,
Ginnie Mae considers these loans to be non-performing as the collection of interest is no longer
reasonably assured, and places these loans on nonaccrual status. Ginnie Mae recognizes interest
income for loans on nonaccrual status when cash is received.
Ginnie Mae separately assesses the collectability of mortgage loans bought out of the defaulted
portfolios that are uninsured and loans that are non-FHA insured for which Ginnie Mae only
receives a portion of the outstanding principal balance. If the principal and interest payments are
not fully guaranteed from the insurer (i.e., there is a lack of insurance), or loans are delinquent at
acquisition, it is probable that Ginnie Mae will be unable to collect all contractually required
payments receivable. Accordingly, these loans are considered to be credit impaired and are
accounted for under ASC Subtopic 310-30, Receivables – Loans and Debt Securities Acquired
with Deteriorated Credit Quality. At the time of acquisition, these loans are recorded at the
lower of their acquisition cost or present value of expected amounts to be received. As non-
performing loans, these loans are placed on nonaccrual status.
Ginnie Mae has the ability and the intent to hold these acquired loans for the foreseeable future
or until maturity. Therefore, Ginnie Mae classifies the mortgage loans as held for investment
(HFI). The mortgage loans HFI are reported net of allowance for loan losses. Mortgage loans
HFI also includes mortgage loans that are undergoing the foreclosure process.

                                                   53
Ginnie Mae performs periodic and systematic reviews of its loan portfolios to identify credit
risks and assess the overall collectability of the portfolios for the estimated uncollectible portion
of the principal balance of the loan. The allowance for loss on mortgage loans HFI represents
management’s estimate of probable credit losses inherent in Ginnie Mae’s mortgage loan
portfolio. The allowance for loss on mortgage loans HFI is netted against the balance of
mortgage loans HFI. Ginnie Mae records a charge-off as a reduction to the allowance for loan
losses when losses are confirmed through the receipt of assets in full satisfaction of a loan, such
as the receipt of claims proceeds from an insuring agency or underlying collateral upon
foreclosure. Mortgage loans HFI, net as of September 30, 2014, and 2013, was $4,844 billion
and $3,336 billion, respectively based on probable claims paid by FHA and recognized as an
elimination in the Department’s financial statements.
Advances against Defaulted Mortgage-Backed Security Pools
Advances against defaulted MBS pools represent pass-through payments made to fulfill Ginnie
Mae’s guarantee of timely principal and interest payments to MBS security holders. The
advances are reported net of an allowance to the extent that management believes that they will
not be recovered. The allowance for uncollectible advances is estimated based on actual and
expected recovery experience including expected recoveries from FHA, USDA, VA and PIH.
Other factors considered in the estimate include market analysis and appraised value of the loans.
These loans are still accruing interest because they have not reached the required delinquency
thresholds and purchased from the defaulted issuer pools.
Once Ginnie Mae purchases the loans from the pools after the 90 and 120 day delinquency
thresholds for Manufactured Housing and Single Family loans, respectively, the loans are
reclassified as Mortgage Loans Held for Investment discussed above. Ginnie Mae records a
charge-off as a reduction to the allowance for loan losses when losses are confirmed through the
receipt of assets in full satisfaction of a loan, such as the receipt of claims proceeds from an
insuring agency or underlying collateral upon foreclosure. The advances against defaulted MBS
pools balance is $82 million in FY 2014 and $99 million in FY 2013.
Properties Held for Sale, Net
Properties held for sale represent assets that Ginnie Mae has received the title of the underlying
collateral (e.g. completely foreclosed upon and repossessed) and intends to sell the collateral.
For instances in which Ginnie Mae does not convey the property to the insuring agency, Ginnie
Mae holds the title until the property is sold. As the properties are available for immediate sale
in their current condition and are actively marketed for sale. The Properties held for sale are
reported at the lower of the carrying amount or fair value less estimated cost to sell. The
properties are appraised by independent entities on a regular basis throughout the year. Ginnie
Mae expects sale of the property to occur prior to one year from the date of the foreclosure. As a
result, Ginnie Mae does not depreciate these assets. Ginnie Mae records an allowance to account
for potential sale costs including maintenance and miscellaneous expenses, along with a loss
                                                   54
percentage based on historical data, which includes declines in the fair value of foreclosed
properties. Properties Held for Sale, net, as of September 30, 2014 and 2013 was $14 and
$23 million, respectively.
Foreclosed Property
Ginnie Mae records foreclosed property when a MSS receives marketable title to a property
which has completed the foreclosure process in the respective state. The asset is measured as the
principal and interest of a loan which is in the process of being conveyed to an insuring agency,
net of an allowance. These assets are conveyed to the appropriate insuring agency within six
months. Foreclosed property has previously been placed on nonaccrual status after the loan was
repurchased from a pool. These properties differ from properties held for sale because they will
be conveyed to an insuring agency, and not sold by the MSS.
The allowance for foreclosed property is estimated based on actual and expected recovery
experience including expected recoveries from FHA, USDA, VA, and PIH. The aggregate of the
foreclosed property and the allowance for foreclosed property is the amount that Ginnie Mae
determines to be collectible. Ginnie Mae records a charge-off as a reduction to the allowance for
loan losses when losses are confirmed through the receipt of assets in full satisfaction of a loan,
such as the receipt of claims proceeds from an insuring agency. Foreclosed Property, net as of
September 30, 2014, was $577 million.
Short Sale Claims Receivable
As an alternative to foreclosure, a property may be sold for its appraised value even if the sale
results in a short sale where the proceeds are not sufficient to pay off the mortgage. Ginnie
Mae’s MSSs analyze mortgage loans HFI for factors such as delinquency, appraised value of the
loan, and market in locale of the loan to identify loans that may be short sale eligible. These
transactions are analyzed and approved by Ginnie Mae’s MBS program office.
For FHA insured loans, for which the underlying property was sold in a short sale, the FHA
typically pays Ginnie Mae the difference between the proceeds received from the sale and the
total contractual amount of the mortgage loan and interest at the debenture rate. Hence, Ginnie
Mae does not incur any losses as a result of the short sale of an FHA insured loan. Ginnie Mae
records a short sale claims receivable while it awaits repayment of this amount from the insurer.
For short sales claims receivable for which Ginnie Mae believes that collection is not probable,
Ginnie Mae records an allowance for short sales claims receivable. The allowance for short
sales claims receivable is estimated based on actual and expected recovery experience including
expected recoveries from FHA, USDA, VA, and PIH. The aggregate of the short sales
receivable and the allowance for short sales receivable is the amount that Ginnie Mae determines
to be collectible. Ginnie Mae records a charge-off as a reduction to the allowance for loan losses
when losses are confirmed through the receipt of claims in full satisfaction of a loan from an
insuring agency. Short Sale Claims Receivable, net as of September 30, 2014, and 2013, was
$22 and $62 million, respectively.
                                                 55
Note 9: General Property, Plant, and Equipment (Net)
General property, plant, and equipment consists of furniture, fixtures, equipment and data
processing software used in providing goods and services that have an estimated useful life of
two or more years. Purchases of $100,000 or more are recorded as an asset and depreciated over
their estimated useful life on a straight-line basis with no salvage value. Capitalized replacement
and improvement costs are depreciated over the remaining useful life of the replaced or
improved asset. Generally, the Department’s assets are depreciated over a four-year period,
unless it can be demonstrated that the estimated useful life is significantly greater than four
years.
The following shows general property, plant, and equipment as of September 30, 2014, and
September 30, 2013, (dollars in millions):
Description                                                  2014                                                       2013
                                                         Accumulated                                                Accumulated
                                                        Depreciation and            Book                           Depreciation and             Book
                                           Cost          Amortization               Value             Cost          Amortization                Value

Equipment                              $        3       $                 -     $          3      $        3       $             (1)        $          2
Leasehold Improvements                          -                         -                -               -                      -                    -
Internal Use Software                         166                      (132)              34             186                   (158)                  28
Internal Use Software in Development          260                           -            260             321                        -                321
Total                                  $      429       $              (132)    $        297      $     510        $           (159)        $        351



Note 10: PIH Prepayments
HUD’s assets include the Department’s estimates for net restricted assets (NRA) balances
maintained by Public Housing Authorities under the Housing Choice Voucher Program. NRA
balances represent disbursements to PHAs that are in excess of their expenses. PHAs can use
NRA to cover any valid HAP expenses. Since the recognization of NRA in the FY 2013
financial statements, approximately $1 billion has either been transitioned to HUD project
reserves or spent by the PHAs on program expenses. PIH has estimated NRA balances of $423
million and $552 million for FY 2014 and FY 2013 respectively.

Note 11: Other Assets
The following shows HUD’s Other Assets as of September 30, 2014, and September 30, 2013,
(dollars in millions):
                                                                                                 2014
Description                                                 FHA         Ginnie Mae             Section 8       All Other                Total

Intragovernmental Assets:
   Other Assets                                     $              1    $            -      $              2   $         30     $               33
Total Intragovernmental Assets                                    1                  -                   2               30                     33

  Mortgagor Reserves for Replacement - Cash         $             41    $            -      $             -    $           -    $               41
  Other Assets                                                     6                 -                   -                1                      7
Total                                               $             48    $            -      $            2     $         31     $               81



                                                                        56
                                                                                               2013
Description                                                 FHA          Ginnie Mae          Section 8            All Other            Total

Intragovernmental Assets:
   Other Assets                                       $           1      $           -       $           -     $         14        $           15
Total Intragovernmental Assets                                    1                  -                   -               14                    15

  Mortgagor Reserves for Replacement - Cash           $         47       $           -       $           -     $           -       $        47
  Other Assets                                                 331                   -                   -                -                331
Total                                                 $        379       $           -       $           -     $         14        $       393



Note 12: Liabilities Covered and Not Covered by Budgetary
Resources
The following shows HUD’s liabilities as of September 30, 2014, and 2013, (dollars in millions):
Description                                                       2014                                                 2013
                                                  Covered     Not-Covered         Total              Covered       Not-Covered         Total
Intragovernmental
   Accounts Payable                           $          16   $           -   $         16       $           17    $           -   $         17
   Debt                                              27,661               -         27,661               26,078                -         26,078
   Other Intragovernmental Liabilities                1,786              16          1,802                4,643               17          4,660
Total Intragovernmental Liabilities           $      29,463   $        16     $     29,479       $       30,738    $          17   $     30,755
  Accounts Payable                                      863             -              863                  803                -            803
  Accrued Grant Liabilities                           1,501             -            1,501                2,213                -          2,213
  Liabilities for Loan Guarantees                    31,779             -           31,779               39,306                -         39,306
  Debt                                                    8             -                8                   20                -             20
  Federal Employee and Veterans' Benefits                 -            74               74                    -               77             77
  Loss Liability                                        735             -              735                  700                -            700
  Other Liabilities                                     816           102              918                  627               82            709
Total Liabilities                             $     65,165    $       192     $    65,357        $     74,407      $      176      $    74,583


HUD’s other governmental liabilities principally consists of Ginnie Mae’s deferred revenue,
FHA’s special receipt account and the Department’s payroll costs. Further disclosures of
HUD’s other liabilities are also found in Note 16.

Note 13: Debt
Several HUD programs have the authority to borrow funds from the U.S. Treasury for program
operations. Additionally, the National Housing Act authorizes FHA, in certain cases, to issue
debentures in lieu of cash to pay claims. Also, PHAs and TDHEs borrowed funds from the
private sector and from the Federal Financing Bank (FFB) to finance construction and
rehabilitation of low rent housing. HUD is repaying these borrowings on behalf of the PHAs and
TDHEs.




                                                                         57
The following shows HUD borrowings, and borrowings by PHAs/TDHEs for which HUD is
responsible for repayment, as of September 30, 2014, (dollars in millions):
                              Beginning       Net             Ending
Description                    Balance     Borrowings         Balance

 Debt to the U.S. Treasury    $   26,079   $     1,582    $      27,661
 Held by the Public                   20           (12)               8
   Total                      $   26,099   $     1,570    $      27,669

Classification of Debt:
 Intragovernmental Debt                                   $      27,661
 Debt held by the Public                                              8
Total                                                     $     27,669


The following shows HUD borrowings, and borrowings by PHAs/TDHEs for which HUD is
responsible for repayment, as of September 30, 2013, (dollars in millions):
                              Beginning       Net             Ending
Description                    Balance     Borrowings         Balance

 Debt to the U.S. Treasury    $   11,566   $    14,512    $      26,078
 Held by the Public                   60           (40)              20
   Total                      $   11,626   $   14,472     $      26,098

Classification of Debt:
 Intragovernmental Debt                                   $      26,078
 Debt held by the Public                                             20
Total                                                     $     26,098


Interest paid on borrowings as of September 30, 2014, and 2013, was $963 million and
$921 million, respectively. The purpose of these borrowings is discussed in the following
paragraphs.
Borrowings from the U.S. Treasury
In FY 2014 and FY 2013, FHA borrowed $27,528 million and $25,940 million, respectively,
from the 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
re-estimates when available cash is less than claim payments due. These borrowings carried
interest rates ranging from 0.75 percent to 7.59 percent during FY 2014 and FY 2013.
Borrowings from the Federal Financing Bank (FFB) and the Public
During the 1960s, 1970s, and 1980s, PHAs obtained loans from the private sector and from the
FFB to finance development and rehabilitation of low rent housing projects. HUD is repaying

                                                 58
these borrowings on behalf of the PHAs, through the Low Rent Public Housing program. For
borrowings from the Public, interest is payable throughout the year.
Before July 1, 1986, the FFB purchased notes issued by units of general local government and
guaranteed by HUD under Section 108. These notes had various maturities and carried interest
rates that were one-eighth of one percent above rates on comparable Treasury obligations. The
FFB held substantially all outstanding notes, and no note purchased by the FFB has ever been
declared in default. In March of FY 2010, HUD repaid all FFB borrowings for the Low Rent
Public Housing program.

Debentures Issued To Claimants
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 were no debentures issued in FY 2013. Interest rates related to the outstanding debentures
ranged from 4.00 percent to 13.375 percent in FY 2011. Debentures may be redeemed by
lenders prior to maturity to pay mortgage insurance premiums to FHA, or they may be called
with the approval of the Secretary of the U. S. Treasury.

Note 14: Federal Employee and Veterans’ Benefits
HUD is a non-administering agency; therefore, it relies on cost factors and other actuarial
projections provided by the Department of Labor (DOL) and Office of Personnel Management
(OPM). HUD’s imputed costs consist of two components, pension and health care benefits.
During FY 2014, HUD recorded imputed costs of $79 million which consisted of $42 million for
pension and $37 million for health care benefits. During FY 2013, HUD recorded imputed costs
of $78 million which consisted of $39 million for pension and $39 million for health care
benefits. These amounts are reported by OPM and charged to expense with a corresponding
amount considered as an imputed financing source in the Statement of Changes in Net Position.
HUD also accrues the portion of the estimated liability for disability benefits assigned to the
agency under the Federal Employee Compensation Act (FECA), administered and determined by
the DOL. The liability, based on the net present value of estimated future payments based on a
study conducted by DOL, was $74 million as of September 30, 2014, and $77 million as of
September 30, 2013. Future payments on this liability are to be funded by future financing
sources.
In addition to the imputed costs of $79 million noted above, HUD recorded benefit expenses
totaling $170 million for FY 2014 and $172 million for FY 2013.

Note 15: MBS Loss Liability
For FY 2014 and FY 2013, Ginnie Mae’s MBS loss liability was $735 million and $700 million,
respectively. The estimate is established to the extent management believes losses due to
defaults are probable and estimable and FHA, USDA, VA, and PIH insurance or guarantees are
                                                59
insufficient to recoup Ginnie Mae expenditures. The MBS loss liability represents probable and
estimable losses net of recoveries for currently defaulted issuers as well as probable and
estimable future defaults by issuers of MBS. An increase to the loss liability is established
through a provision charged to operations while a decrease is a recapture of expense charged to
operations. The loss liability is relieved as losses are realized from the disposal of the defaulted
issuers’ portfolios. Ginnie Mae recovers part of its losses through servicing fees on the
performing portion of the portfolios.
In estimating losses, management utilizes a statistically-based model that evaluates numerous
factors, including but not limited to, general and regional economic conditions, mortgage
characteristics, and actual and expected future default and loan loss experience. Based on its
analysis of its loss exposure, Ginnie Mae increased its MBS loss liability balance in FY 2013.
Ginnie Mae management believes that its MBS loss liability is adequate to cover probable and
estimable losses of default-related losses due to Ginnie Mae guaranteed MBS.

Note 16: Other Liabilities
The following shows HUD’s Other Liabilities as of September 30, 2014, (dollars in millions):
                                                     Non-
Description                                         Current         Current        Total
Intragovernmental Liabilities
   FHA Special Receipt Account Liability        $       1,689   $          -   $      1,689
   Unfunded FECA Liability                                 16              -             16
   Employer Contributions and Payroll Taxes                 -              5              5
   Miscellaneous Receipts Payable to Treasury               -             82             82
   Advances to Federal Agencies                             -             10             10
Total Intragovernmental Liabilities             $       1,705   $         97   $      1,802
Other Liabilities
  FHA Other Liabilities                         $        323    $          -   $       323
  FHA Escrow Funds Related to Mortgage Notes             307               -           307
  Ginnie Mae Deferred Income                             107              22           129
  Deferred Credits                                         -              18            18
  Deposit Funds                                            -              15            15
  Accrued Unfunded Annual Leave                           80               -            80
  Accrued Funded Payroll Benefits                          -              29            29
  Contingent Liability                                     -              15            15
  Other                                                    -               2             2
Total Other Liabilities                         $      2,522    $        198   $     2,720




                                                      60
The following shows HUD’s Other Liabilities as of September 30, 2013, (dollars in millions):
                                                     Non-
Description                                         Current         Current        Total
Intragovernmental Liabilities
   FHA Special Receipt Account Liability        $       3,983   $          -   $      3,983
   Unfunded FECA Liability                                 17              -             17
   Employer Contributions and Payroll Taxes                 -              3              3
   Miscellaneous Receipts Payable to Treasury               -            642            642
   Advances to Federal Agencies                             -             15             15
Total Intragovernmental Liabilities             $       4,000   $        660   $      4,660
Other Liabilities
  FHA Other Liabilities                         $         81    $          -   $        81
  FHA Escrow Funds Related to Mortgage Notes             343               -           343
  Ginnie Mae Deferred Income                               -             139           139
  Deferred Credits                                         -              18            18
  Deposit Funds                                            -              17            17
  Accrued Unfunded Annual Leave                           82               -            82
  Accrued Funded Payroll Benefits                          -              27            27
  Contingent Liability                                     -               -             -
  Other                                                    -               2             2
Total Other Liabilities                         $      4,506    $        863   $     5,369



Special Receipt Account Liability
The special receipt account liability is created from negative subsidy endorsements and
downward credit subsidy in the GI/SRI special receipt account.

Note 17: Financial Instruments with Off-Balance Sheet Risk
Some of HUD’s programs, principally those operated through FHA and Ginnie Mae, enter into
financial arrangements with off-balance sheet risk in the normal course of their operations.
A. FHA Mortgage Insurance
The outstanding principal of FHA’s guaranteed loans (face value) as of September 30, 2014,
and 2013, was $1,291 billion and $1,283 billion, respectively. The amount of outstanding
principal guaranteed (insurance-in-force) as of September 30, 2014, and 2013, was $1,186 billion
and $1,192 billion, respectively, as disclosed in Note 7J. The maximum claim amount (MCA)
outstanding for FHA’s reverse mortgage insurance program (HECM) as of September 30, 2014,
and 2013, was $150 billion and $146 billion, respectively. As of September 30, 2014, and 2013,
the insurance-in-force (the outstanding balance of active loans) was $106 billion and
$101 billion, respectively as disclosed in Note 7J. The HECM 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.
B. Ginnie Mae Mortgage-Backed Securities
Ginnie Mae financial instruments with off-balance sheet risk include guarantees of MBS and
commitments to guarantee MBS. The securities are backed by pools of FHA, USDA, VA and
PIH mortgage loans. Ginnie Mae is exposed to credit loss in the event of non-performance by

                                                      61
other parties to the financial instruments. The total amount of Ginnie Mae guaranteed securities
outstanding at September 30, 2014, and 2013, was approximately $1,526 billion and
$1,457 billion, respectively. However, Ginnie Mae’s potential loss is considerably less because
of the financial strength of the Department’s issuers. Additionally, in the event of default, the
underlying mortgages serve as primary collateral and FHA, USDA, VA and PIH insurance or
guarantee indemnifies Ginnie Mae for most losses.
During the mortgage closing period and prior to granting its guaranty, Ginnie Mae enters into
commitments to guarantee MBS. The commitment ends when the MBS are issued or when the
commitment period expires. Ginnie Mae’s risks related to outstanding commitments are much
less than for outstanding securities due, in part, to Ginnie Mae’s ability to limit commitment
authority granted to individual issuers of MBS. Outstanding commitments as of
September 30, 2014, and 2013, were $98 billion and $118 billion, respectively. Generally,
Ginnie Mae’s MBS pools are diversified among issuers and geographic areas. No significant
geographic concentrations of credit risk exist; however, to a limited extent, securities are
concentrated among issuers.
In FY 2014 and FY 2013, Ginnie Mae issued a total of $114 billion and $99 billion, respectively,
in its multi-class securities program. The estimated outstanding balance for the complete multi-
class securities program (REMICs, Platinum’s, etc.) at September 30, 2014, and 2013, were
$487 billion and $468 billion, respectively. These guaranteed securities do not subject Ginnie
Mae to additional credit risk beyond that assumed under the MBS program.
C. Section 108 Loan Guarantees
Under HUD’s Loan Guarantee (Section 108) program, recipients of the CDBG Entitlement
Grant program funds may pledge future grant funds as collateral for loans guaranteed by HUD
(these loans were provided from private lenders since July 1, 1986). Section 108 provides
entitlement communities with a source of financing for projects that are too large to be financed
from annual grants. The amount of loan guarantees outstanding as of September 30, 2014, and
2013, was $2 billion and $2 billion, respectively. HUD’s management believes its exposure in
providing these loan guarantees is limited, since loan repayments can be offset from future
CDBG Entitlement Program Funds and, if necessary, other funds provided to the recipient by
HUD. HUD has never had a loss under this program since its inception in 1974.

Note 18: Contingencies
Lawsuits and Other
FHA is party in various legal actions and claims brought by or against it. There are pending or
threatened legal actions where judgment against FHA is reasonably possible with an estimated
potential loss of $24 million or more. 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, 2014. As a result, no contingent liability has been recorded.
                                                 62
Ginnie Mae 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 have an
effect on Ginnie Mae’s consolidated financial statements as of September 30, 2014. As a result,
a contingent liability of $14.9 million has been recorded.
HUD is party to a number of claims and tort actions related to lawsuits brought against it
concerning the implementation or operation of its various programs. The potential loss related to
an ongoing case related be HUD’s assisted housing programs is probable at this time and as a
result, the Department has recorded a contingent liability of $117 thousand in its financial
statements. Other ongoing suits cannot be reasonably determined at this time and in the opinion
of management and general counsel, the ultimate resolution of pending litigation will not have a
material effect on the Department’s financial statements.

Note 19: Funds from Dedicated Collections
Funds from dedicated collections are financed by specifically identified revenues and are
required by statute to be used for designated activities or purposes.
Ginnie Mae
Ginnie Mae is a self-financed government corporation, whose program operations are financed
by a variety of fees, such as guaranty, commitment, new issuer, handling, and transfer servicing
fees, which are to be used only for Ginnie Mae’s legislatively authorized mission. In FY 2014,
Ginnie Mae was authorized to use $19.5 million for payroll and payroll related expense, funded
by commitment fees.
Rental Housing Assistance Fund
The Housing and Urban Development Act of 1968 authorized the Secretary to establish a
revolving fund into which rental collections in excess of the established basic rents for units in
Section 236 subsidized projects would be deposited. The Housing and Community Development
Amendment of 1978 authorized the Secretary, subject to approval in appropriation acts, to
transfer excess rent collections received after 1978 to the Troubled Projects Operating Subsidy
program, renamed the Flexible Subsidy Fund. Prior to that time, collections were used for
paying tax and utility increases in Section 236 projects. The Housing and Community
Development Act of 1980 amended the 1978 Amendment by authorizing the transfer of excess
rent collections regardless of when collected.
Flexible Subsidy
The Flexible Subsidy Fund assists financially troubled subsidized projects under certain FHA
authorities. The subsidies are intended to prevent potential losses to the FHA fund resulting
from project insolvency and to preserve these projects as a viable source of housing for low and
moderate-income tenants. Priority was given with Federal insurance-in-force and then to those
with mortgages that had been assigned to the Department.
                                                 63
American Recovery and Reinvestment Act Programs (Recovery Act)
The Recovery Act includes $14 billion for 17 programs at HUD which are distributed across
three themes that align with the broader Recovery goals. A further discussion of HUD’s
accomplishments under the Recovery Act program can be found at www.hud.gov/recovery.
Manufactured Housing Fees Trust Fund
The National Manufactured Housing Construction and Safety Standards Act of 1974, as
amended by the Manufactured Housing Improvement Act of 2000, authorizes development and
enforcement of appropriate standards for the construction, design, and performance of
manufactured homes to assure their quality, durability, affordability, and safety.
Fees are charged to the manufacturers for each manufactured home transportable section
produced and will be used to fund the costs of all authorized activities necessary for the
consensus committee (HUD) and its agents to carry out all aspects of the manufactured housing
legislation. The fee receipts are permanently appropriated and have helped finance a portion of
the direct administrative expenses incurred in program operations. Activities are initially
financed via transfer from the Manufactured Housing General Fund.




                                                64
The following shows funds from dedicated collections as of September 30, 2014 (dollars in
millions):
                                                                        Rental                       Manufactued                                                    Total
                                                                    Housing          Flexible        Housing Fees   Recovery                                    Earmarked
                                                   Ginnie Mae Assistance             Subsidy          Trust Fund    Act Funds       Other        Eliminations       Funds
Balance Sheet

Fund Balance w/Treasury                            $   13,470       $            6   $         337   $        12    $     134   $            -   $          - $      13,959
Investments                                               151                    -               -             -            -                -              -           151
Accounts Receivable                                       333                    4               -             -           21                -             (4)          354
Loans Receivable                                            -                    -             501             -            6                -              -           507
Other Non-Credit Reform Loans Receivable                5,539                    -               -             -            -                -              -         5,539
General Property, Plant and Equipment                      32                    -               -             -            -                -              -            32
Other                                                       -                    -               -             -            -                -              -             -
Total Assets                                       $ 19,525         $        10      $         838   $        12    $    161    $            -   $         (4) $ 20,542

Debt - Intragovernmental                           $            -   $            -   $           -   $          -   $       9   $            -   $          - $           9
Accounts Payable - Intragovernmental                                             -               -              -           -                -             (2)           (2)
Accounts Payable - Public                                    108                 -               -              -           -                -              -           108
Loan Guarantees                                                -                 -               -              -           -                -              -             -
Loss Liability                                               735                 -               -              -           -                -              -           735
Other Liabilities - Intragovernmental                          -                 -               -              -           -                -             (2)           (2)
Other Liabilities - Public                                   145                 -               -              -           -                -              -           145
            Total Liabilities                      $         988    $            -   $           -   $          -   $       9   $            -   $         (4) $        993

Unexpended Appropriations                          $        1       $         -      $         (377) $         -    $     152   $            -   $          -   $      (224)
Cumulative Results of Operations                       18,536                10               1,215           12            -                -              -        19,773
            Total Net Position                     $   18,537       $        10      $         838   $        12    $     152   $            -   $          -   $    19,549
Total Liabilities and Net Position                 $ 19,525         $        10      $         838   $        12    $    161    $            -   $         (4) $ 20,542

Statement of Net Cost For the Period Ended

Gross Costs                                        $       (59) $                 - $          (14) $           9 $        23 $              3 $            -   $        (38)
Less Earned Revenues                                    (1,543)                  (2)            (6)            (5)         (1)              (1)             -         (1,558)
Net Costs                                          $   (1,602) $             (2) $             (20) $          4    $     22    $           2    $          -   $    (1,596)

Statement of Changes in Net Position for the Period Ended

Net Position Beginning of Period                   $   16,935 $                  8   $         817   $        15 $        179 $              2 $            -   $    17,956
Appropriations Received                                     -                    -               -             1            -                -              -             1
Transfers In/Out Without Reimbursement                      -                    -               -             -           (4)               -              -            (4)
Imputed Costs                                               1                    -               -             -           (1)               -              -             -
Other Adjustments                                          (1)                   -               -             -            -                -              -            (1)
Donations and Forfeitures of Cash & Cash Equivalen          -                    -               -             -            -                -              -             -
Penalties, Fines, and Administrative Fees Revenue           -                    -               1             -            -                -              -             1
Net Cost of Operations                                  1,602                    2              20            (4)         (22)              (2)             -         1,596
Change in Net Position                             $        1,602   $            2   $          21   $         (3) $      (27) $            (2) $           -   $     1,593
Net Position End of Period                         $ 18,537         $        10      $         838   $        12    $    152    $            -   $          -   $ 19,549




                                                                                         65
The following shows funds from dedicated collections as of September 30, 2013, (dollars in
millions):
                                                                        Rental                       Manufactued                                                    Total
                                                                    Housing          Flexible        Housing Fees   Recovery                                    Earmarked
                                                   Ginnie Mae Assistance             Subsidy          Trust Fund    Act Funds       Other       Eliminations        Funds
Balance Sheet

Fund Balance w/Treasury                            $        9,622 $              4 $           296 $          13 $        168 $             2 $            -    $    10,105
Investments                                                 1,821                -               -              -           -               -              -          1,821
Accounts Receivable                                           129                4               -              -           3               -            (11)           125
Loans Receivable                                                -                -             523              -           5               -              -            528
Other Non-Credit Reform Loans Receivable                    6,333                -               -              -           -               -              -          6,333
General Property, Plant and Equipment                          37                -               -              -           -               -              -             37
Other                                                           -                -               -              -           -               -              -              -
Total Assets                                       $ 17,942         $            8   $         819   $        13    $    176    $           2   $        (11) $ 18,949

Debt - Intragovernmental                           $            -   $            -   $           -   $          -   $      15 $             -   $          - $           15
Accounts Payable - Intragovernmental                                             -               -              -           1               -            (10)            (9)
Accounts Payable - Public                                    167                 -               -              -           -               -              -            167
Loan Guarantees                                                -                 -               -              -           -               -              -              -
Loss Liability                                               700                 -               -              -           -               -              -            700
Other Liabilities - Intragovernmental                          -                 -               -              -           1               -             (1)             -
Other Liabilities - Public                                   140                 -               -              -           -               -              -            140
            Total Liabilities                      $        1,007 $              -   $           -   $          -   $      17 $             -   $        (11) $       1,013

Unexpended Appropriations                          $        1 $                  - $           (376) $         - $        160 $             - $            -    $      (215)
Cumulative Results of Operations                       16,934                    8            1,195           13           (1)              2              -         18,151
            Total Net Position                     $   16,935 $                  8 $           819 $          13 $        159 $             2 $            -    $    17,936
Total Liabilities and Net Position                 $ 17,942         $            8   $         819   $        13    $    176    $           2   $        (11) $ 18,949

Statement of Net Cost For the Period Ended

Gross Costs                                        $       602 $                  3 $            7 $            7 $       456 $              1 $          (4) $        1,072
Less Earned Revenues                                    (1,225)                  (3)           (10)            (3)         (1)              (1)            4          (1,239)
Net Costs                                          $        (623) $              -   $          (3) $          4    $    455    $           -   $          -    $      (167)

Statement of Changes in Net Position for the Period Ended

Net Position Beginning of Period                   $   16,311 $                  8 $           815 $          15 $        614 $             2 $            -    $    17,765
Appropriations Received                                     -                    -               -             -            1               -              -              1
Transfers In/Out Without Reimbursement                      -                    -               -             2           (1)              -              -              1
Imputed Costs                                               1                    -               -             -            -               -              -              1
Other Adjustments                                           -                    -               -             -            -               -              -              -
Donations and Forfeitures of Cash & Cash Equivalen          -                    -               -             -            -               -              -              -
Penalties, Fines, and Administrative Fees Revenue           -                    -               1             -            -               -              -              1
Net Cost of Operations                                    623                    -               3            (4)        (455)              -              -            167
Change in Net Position                             $         624 $               -   $           4 $           (2) $     (455) $            -   $          -    $       171
Net Position End of Period                         $ 16,935         $            8   $         819   $        13    $    159    $           2   $          -    $ 17,936




Note 20: Intragovernmental Costs and Exchange Revenue
The data below shows HUD’s intragovernmental costs and earned revenue separately from
activity with the public. Intragovernmental transactions are exchange transactions made between
two reporting entities within the Federal government. Intragovernmental costs are identified by
the source of the goods and services; both the buyer and seller are Federal entities. Revenues
recognized by the Department may also be reported as non-Federal if the goods or services are
subsequently sold to the public. Public activity involves exchange transactions between the
reporting entity and a non-Federal entity.
                                                                                         66
The following shows HUD’s intragovernmental costs and exchange revenue (dollars in
millions):
                                                                             Low Rent
                              Federal                   Section 8 Public Housing                 Homeless       Housing for    Community                                     Financial
           2014
                              Housing                       Rental           Loans and       Assistance         the Elderly    Development                               Statement
                          Administration Ginnie Mae Assistance                Grants              Grants        and Disabled Block Grants        HOME       All Other Eliminations Consolidating

Intragovernmental
  Costs                   $          980 $        3 $             65     $            34     $          11      $        47    $        15   $        9     $     308    $               -    $    1,472
Public Costs                      (4,088)       (62)          28,707               2,961             1,870            1,149          5,890        1,055         6,196                    -        43,678
       Subtotal Costs     $       (3,108) $     (59) $        28,772     $         2,995     $       1,881      $     1,196    $     5,905   $    1,064     $   6,504 $                  -    $   45,150
Unassigned Costs                                                                                                                                                  $218                               $218
       T otal Costs                                                                                                                                                                           $   45,368

Intragovernmental
  Earned Revenue          $       (2,119) $     (153) $              -   $               -   $              -   $          - $           -   $          -   $     (25) $                 -    $   (2,297)
Public Earned Revenue                (62)     (1,390)                -                   -                  -          (178)             -              -         (15)                   -        (1,645)
   Total Earned Revenue           (2,181)     (1,543)                -                   -                  -          (178)             -              -         (40)                   -        (3,942)
Net Cost of Operations    $       (5,289) $   (1,602) $       28,772 $             2,995 $           1,881      $     1,018    $     5,905   $    1,064     $   6,682    $               - $      41,426




                                                                             Low Rent
                              Federal                   Section 8 Public Housing                 Homeless       Housing for    Community                                     Financial
           2013
                              Housing                       Rental           Loans and       Assistance         the Elderly    Development                               Statement
                          Administration Ginnie Mae Assistance                Grants              Grants        and Disabled Block Grants        HOME       All Other Eliminations Consolidating

Intragovernmental
  Costs                   $          943 $        3     $         71     $            34     $          30      $        61    $        19   $       10     $     309    $          (4) $          1,476
Public Costs                      (7,661)       599           28,619               2,907             1,885            1,100          5,656        1,397         6,311                 -           40,813
       Subtotal Costs     $       (6,718) $     602     $     28,690     $         2,941     $       1,915      $     1,161    $     5,675   $    1,407     $   6,620 $             (4) $         42,289
Unassigned Costs                                                                                                                                                  $200                               $200
       T otal Costs                                                                                                                                                                           $   42,489

Intragovernmental
  Earned Revenue          $       (2,604) $      (99) $              -   $               -   $              -   $          - $           -   $          -   $     (20) $                 4    $   (2,719)
Public Earned Revenue                (76)     (1,126)                -                   -                  -          (192)             -              -         (14)                    -       (1,408)
   Total Earned Revenue           (2,680)     (1,225)                -                   -                  -          (192)             -              -         (34)                   4        (4,127)
Net Cost of Operations    $       (9,398) $     (623) $       28,690 $             2,941 $           1,915      $       969    $     5,675   $    1,407     $   6,786    $               - $      38,362




                                                                                                     67
Note 21: Total Cost and Earned Revenue by Budget Functional
Classification
The following shows HUD’s total cost and earned revenue by budget functional classification for
FY 2014 (dollars in millions):
               Budget Functional Classification       Gross Cost     Earned Revenue    Net Cost
               Intragovernmental:
                 Commerce and Housing Credit          $      983     $       (2,272)   $   (1,289)
                 Community and Regional Development           71                 (7)           64
                 Income Security                             422                (11)          411
                 Other Multiple Functions                     (2)                (8)          (10)
                 Financial Statement Eliminations     $        -     $            -    $        -
                 Total Intragovernmental                    1,474            (2,298)         (824)
               With the Public:
                Commerce and Housing Credit           $    (4,041)   $       (1,621)   $   (5,662)
                Community and Regional Development          6,057                (1)        6,056
                Income Security                            41,271               (22)       41,249
                Administration of Justice                      64                 -            64
                Other Multiple Functions                      325                 -           325
                 Total with the Public                $ 43,676       $       (1,644)   $ 42,032

               Not Assigned to Programs:
                Income Security                              218                  -          218
                 Total with the Public                $      218     $            -    $     218

               TOTAL:
                Commerce and Housing Credit           $  (3,058)     $       (3,893)   $  (6,951)
                Community and Regional Development        6,128                  (8)       6,120
                Income Security                          41,911                 (33)      41,878
                Administration of Justice                    64                   -           64
                Other Multiple Functions                    323                  (8)         315
                Financial Statement Eliminations              -                   -            -
               TOTAL:                                 $ 45,368       $      (3,942)    $ 41,426




                                                      68
The following shows HUD’s total cost and earned revenue by budget functional classification for
FY 2013 (dollars in millions):
               Budget Functional Classification       Gross Cost     Earned Revenue    Net Cost
               Intragovernmental:
                 Commerce and Housing Credit          $      946     $       (2,704)   $   (1,758)
                 Community and Regional Development           91                 (6)           85
                 Income Security                             446                (12)          434
                 Other Multiple Functions                     (3)                (2)           (5)
                 Financial Statement Eliminations     $       (3)    $            3    $        -
                 Total Intragovernmental                    1,477            (2,721)       (1,244)
               With the Public:
                Commerce and Housing Credit           $    (7,084)   $       (1,396)   $   (8,480)
                Community and Regional Development          5,794                (1)        5,793
                Income Security                            41,657               (10)       41,647
                Administration of Justice                      72                 -            72
                Other Multiple Functions                      374                 -           374
                 Total with the Public                $ 40,813       $       (1,407)   $ 39,406

               Not Assigned to Programs:
                Income Security                              200                  -          200
                 Total with the Public                $      200     $            -    $     200

               TOTAL:
                Commerce and Housing Credit           $  (6,138)     $       (4,100)   $ (10,238)
                Community and Regional Development        5,885                  (7)       5,878
                Income Security                          42,303                 (22)      42,281
                Administration of Justice                    72                   -           72
                Other Multiple Functions                    371                  (2)         369
                Financial Statement Eliminations             (3)                  3            -
               TOTAL:                                 $ 42,490       $      (4,128)    $ 38,362


Note 22: Expenditures by Strategic Goals
As HUD updated its Strategic Plan to address the economic and community development issues
the nation is facing, five Strategic Goals were identified. This note presents the expenditures
incurred by HUD’s various programs in achieving these goals. A description of each Strategic
Goal is presented below and additional information is found in the Strategic Plan section of the
AFR.
Goal 1: Strengthen the nation’s housing market to bolster the economy and protect consumers
Goal 2: Meet the need for quality affordable rental homes
Goal 3: Utilize housing as a platform for improving quality of life
Goal 4: Build inclusive and sustainable communities free from discrimination
Goal 5: Transform the way HUD does business




                                                      69
The following table shows the expenditures allocated to HUD’s Strategic Goals for FY 2014
(dollars in millions):

                                           Goal 1      Goal 2      Goal 3    Goal 4       Goal 5        Total
                Programs
FHA                                        $ (3,438)   $ (793)     $ (212)   $ (846)      $    -    $ (5,289)
Ginnie Mae                                   (1,201)      (401)          -         -           -      (1,602)
Section 8 Rental Assistance                       -     23,528         188     5,056           -     28,772
Low Rent Public Housing Loans and Grants        418      2,198          75       304           -       2,995
Homeless Assistance Grants                        -      1,317         564         -           -       1,881
Housing for the Elderly and Disabled              -        634          89       295           -       1,018
Community Development Block Grants            1,181        295         886     3,543           -       5,905
HOME                                            287        575           -       202           -       1,064
All Other Programs                              308      3,901         797     1,428          30       6,464
                    Total                    (2,445)    31,254       2,387     9,982          30     41,208

                                                        Costs Not Assigned To Programs              $      218

                                                                                  Total                 41,426


The following table shows the expenditures allocated to HUD’s Strategic Goals for FY 2013
(dollars in millions):

                                           Goal 1      Goal 2      Goal 3    Goal 4       Goal 5     Total
                Programs
FHA                                        $ (6,109)   $ (1,410)   $ (376)   $ (1,503)    $    -    $ (9,398)
Ginnie Mae                                     (467)       (156)         -          -          -        (623)
Section 8 Rental Assistance                       -     23,461         187      5,042          -     28,690
Low Rent Public Housing Loans and Grants        410       2,158         74        299          -       2,941
Homeless Assistance Grants                        -       1,340        575          -          -       1,915
Housing for the Elderly and Disabled              -         603         85        281          -         969
Community Development Block Grants            1,135         284        851      3,405          -       5,675
HOME                                            380         760          -        267          -       1,407
All Other Programs                              412       3,788        799      1,591         (4)      6,586
                    Total                    (4,239)    30,828       2,195      9,382         (4)    38,162

                                                        Costs Not Assigned To Programs              $     200

                                                                                  Total                 38,362


Note 23: Net Costs of HUD’s Cross-Cutting Programs
This note provides a categorization of net costs for several major program areas whose costs
were incurred among HUD’s principal organizations previously discussed under Section 1 of the
report. Costs incurred under HUD’s other programs represent activities which support the
Department’s strategic goal to develop and preserve quality, healthy, and affordable homes.




                                                                   70
The following table shows the Department’s cross-cutting costs among its major program areas
for FY 2014 (dollars in millions):
                                               Public and                  Community
                                                 Indian                   Planning and
HUD's Cross-Cutting Programs                    Housing     Housing       Development        Other       Consolidated


S ection 8
Intragovernmental Gross Costs                  $      33    $     33       $        -    $           -   $        66
Intragovernmental Earned Revenues                      -           -                -                -             -
Intragovernmental Net Costs                    $      33    $     33       $        -    $           -   $        66

Gross Costs with the Public                    $   18,686   $   9,936      $       80    $           4   $    28,706
Earned Revenues                                         -           -               -                -             -
Net Costs with the Public                      $   18,686   $   9,936      $       80    $           4        28,706

Net Program Costs                              $   18,719   $   9,969      $       80    $           4   $    28,772


Low Rent Public Housing Loans & Grants
Intragovernmental Gross Costs                  $      34    $         -    $        -    $           -   $        34
Intragovernmental Earned Revenues                      -              -             -                -             -
Intragovernmental Net Costs                    $      34    $         -    $        -    $           -   $        34

Gross Costs with the Public                    $    2,960   $         -    $        -    $           1   $     2,961
Earned Revenues                                         -             -             -                -             -
Net Costs with the Public                      $    2,960   $         -    $        -    $           1   $     2,961

Net Program Costs                              $    2,994   $         -    $        -    $           1   $     2,995


Homeless Assistance Grants
Intragovernmental Gross Costs                  $        -   $         -    $        -    $       12      $        12
Intragovernmental Earned Revenues                       -             -             -             -                -
Intragovernmental Net Costs                    $        -   $         -    $        -    $       12      $        12

Gross Costs with the Public                    $        -   $         -    $    1,845    $       25      $     1,870
Earned Revenues                                         -             -             -             -                -
Net Costs with the Public                      $        -   $         -    $    1,845    $       25      $     1,870

Net Program Costs                              $        -   $         -    $    1,845    $       37      $     1,882


CDBG
Intragovernmental Gross Costs                  $        -   $         -    $       15    $         -     $        15
Intragovernmental Earned Revenues                       -             -             -             (1)             (1)
Intragovernmental Net Costs                    $        -   $         -    $       15    $        (1)    $        14

Gross Costs with the Public                    $      67    $         -    $    5,742    $       81      $     5,890
Earned Revenues                                        -              -             -             -                -
Net Costs with the Public                      $      67    $         -    $    5,742    $       81      $     5,890

Net Program Costs                              $      67    $         -    $    5,757    $       80      $     5,904


All Other
Intragovernmental Gross Costs                  $      84    $    144       $       47    $        33     $       308
Intragovernmental Earned Revenues                     (1)          -                -            (24)            (25)
Intragovernmental Net Costs                    $      83    $    144       $       47    $           9   $       283

Gross Costs with the Public                    $    4,755   $    497       $      903    $       41      $     6,196
Earned Revenues                                         -        (13)               -            (1)             (14)
Net Costs with the Public                      $    4,755   $    484       $      903    $       40      $     6,182

Direct Program Costs                           $    4,838   $    628       $      950    $       49      $     6,465

Costs Not Assigned to Programs                 $      69    $     93       $       56    $           -   $       218

Net Program Costs (including indirect costs)   $    4,907   $    721       $    1,006    $       49      $     6,683


                                                                          71
The following table shows the cross-cutting of HUD’s major program areas that incur costs that
cross multiple program areas for FY 2013 (dollars in millions):
                                               Public and                   Community
                                                 Indian                    Planning and
HUD's Cross-Cutting Programs                    Housing     Housing        Development        Other       Consolidated


S ection 8
Intragovernmental Gross Costs                  $      44    $     27       $         -    $           -   $        71
Intragovernmental Earned Revenues                      -           -                 -                -             -
Intragovernmental Net Costs                    $      44    $     27       $         -    $           -   $        71

Gross Costs with the Public                    $   18,872   $   9,666      $        78    $           3   $    28,619
Earned Revenues                                         -           -                -                -             -
Net Costs with the Public                      $   18,872   $   9,666      $        78    $           3        28,619

Net Program Costs                              $   18,916   $   9,693      $        78    $           3   $    28,690


Low Rent Public Housing Loans & Grants
Intragovernmental Gross Costs                  $      34    $         -    $         -    $           -   $        34
Intragovernmental Earned Revenues                      -              -              -                -             -
Intragovernmental Net Costs                    $      34    $         -    $         -    $           -   $        34

Gross Costs with the Public                    $    2,904   $         -    $         -    $           3   $     2,907
Earned Revenues                                         -             -              -                -             -
Net Costs with the Public                      $    2,904   $         -    $         -    $           3   $     2,907

Net Program Costs                              $    2,938   $         -    $         -    $           3   $     2,941


Homeless Assistance Grants
Intragovernmental Gross Costs                  $        -   $         -    $         -    $       30      $        30
Intragovernmental Earned Revenues                       -             -              -             -                -
Intragovernmental Net Costs                    $        -   $         -    $         -    $       30      $        30

Gross Costs with the Public                    $        -   $         -    $     1,830    $       55      $     1,885
Earned Revenues                                         -             -              -             -                -
Net Costs with the Public                      $        -   $         -    $     1,830    $       55      $     1,885

Net Program Costs                              $        -   $         -    $     1,830    $       85      $     1,915


CDBG
Intragovernmental Gross Costs                  $        -   $         -    $        19    $           -   $        19
Intragovernmental Earned Revenues                       -             -              -                -             -
Intragovernmental Net Costs                    $        -   $         -    $        19    $           -   $        19

Gross Costs with the Public                    $      77    $         -    $     5,494    $       85      $     5,656
Earned Revenues                                        -              -              -             -                -
Net Costs with the Public                      $      77    $         -    $     5,494    $       85      $     5,656

Net Program Costs                              $      77    $         -    $     5,513    $       85      $     5,675


All Other
Intragovernmental Gross Costs                  $      92    $    154       $        41    $        23     $       310
Intragovernmental Earned Revenues                      -           -                 -            (20)            (20)
Intragovernmental Net Costs                    $      92    $    154       $        41    $           3   $       290

Gross Costs with the Public                    $    4,468   $    559       $     1,332    $       (48)    $     6,311
Earned Revenues                                         -        (14)                -              -             (14)
Net Costs with the Public                      $    4,468   $    545       $     1,332    $       (48)    $     6,297

Direct Program Costs                           $    4,560   $    699       $     1,373    $       (45)    $     6,587

Costs Not Assigned to Programs                 $      64    $     91       $        45    $           -   $       200

Net Program Costs (including indirect costs)   $    4,624   $    790       $     1,418    $       (45)    $     6,787




                                                                      72
Note 24: FHA Net Costs
FHA reports its insurance operations in three overall program areas: Single Family Forward
mortgages, Multifamily/Healthcare mortgages, and Home Equity Conversion Mortgages
(HECM). FHA operates these programs primarily through four insurance funds: Mutual
Mortgage Insurance (MMI), General Insurance (GI), Special Risk Insurance (SRI), and
Cooperative Management Housing Insurance (CMHI), with the MMI fund being the largest.
There is a fifth fund, Hope for Homeowners (H4H), which became operational in fiscal
year 2009 which contains minimal activity.
FHA encourages homeownership through its Single Family Forward programs (Section 203(b),
which is the largest program, and Section 234) by making loans readily available with its
mortgage insurance programs. These programs insure mortgage lenders against losses from
default, enabling those lenders to provide mortgage financing on favorable terms to homebuyers.
Multifamily Housing Programs (Section 213, Section 221(d)(4), Section 207/223(f), and
Section 223(a)(7)) provide FHA insurance to approved lenders to facilitate the construction,
rehabilitation, repair, refinancing, and purchase of multifamily housing projects such as
apartment rentals, and cooperatives. Healthcare programs (Section 232 and Section 242) enable
low cost financing of health care facility projects and improve access to quality health care by
reducing the cost of capital. The HECM program provides eligible homeowners who are
62 years of age and older access to the equity in their property with flexible terms.
The following table shows Net Cost detail for the FHA (dollars in millions):
                                                                             Fiscal Year 2014
                                      Single Family                      Multifamily/Healthcare            Administrative
                                    Forward Program     HECM Program            Program                       Costs              Total
Costs
Intragovernmental Gross Costs       $            736    $          59    $                      168    $                17   $              980
Intragovernmental Earned Revenues             (1,340)            (712)                          (66)                     -               (2,118)
Intragovernmental Net Costs         $          (604)    $        (653)   $                      102    $                17   $           (1,138)

Gross Costs with the Public         $         (6,350)   $       2,673    $                 (1,023)     $               612   $           (4,088)
Earned Revenues                                  (17)              (1)                        (45)                       -                  (63)
Net Costs with the Public           $         (6,367)   $       2,672    $                 (1,068)     $               612   $           (4,151)

Net Program Costs                   $        (6,971)    $       2,019    $                  (966)      $              629    $           (5,289)


                                                                           Fiscal Year 2013
                                      Single Family                      Multifamily/Healthcare            Administrative
                                    Forward Program     HECM Program            Program                       Costs              Total
Costs
Intragovernmental Gross Costs       $            727    $          53    $                      142    $                21   $              943
Intragovernmental Earned Revenues             (1,720)            (823)                          (62)                     -               (2,605)
Intragovernmental Net Costs         $          (993)    $        (770)   $                       80    $                21   $           (1,662)

Gross Costs with the Public         $         (5,839)   $        (565)   $                 (1,927)     $               671   $           (7,660)
Earned Revenues                                  (28)              (2)                        (46)                       -                  (76)
Net Costs with the Public           $         (5,867)   $        (567)   $                 (1,973)     $               671   $           (7,736)

Net Program Costs                   $        (6,860)    $      (1,337)   $                (1,893)      $              692    $           (9,398)


                                                                   73
Note 25: Commitments under HUD’s Grant, Subsidy, and Loan
Programs
A. Contractual Commitments
HUD has entered into extensive long-term commitments that consist of legally binding
agreements to provide grants, subsidies or loans. Commitments become liabilities when all
actions required for payment under an agreement have occurred. The mechanism for funding
subsidy commitments generally differs depending on whether the agreements were entered into
before or after 1988.
With the exception of the Housing for the Elderly and Disabled and Low Rent Public Housing
Loan Programs (which have been converted to grant programs), Section 235/236, and a portion
of “all other” programs, HUD management expects all of the programs to continue to incur new
commitments under authority granted by Congress in future years. However, estimated future
commitments under such new authority are not included in the amounts below.
Prior to fiscal 1988, HUD’s subsidy programs, primarily the Section 8 program and the
Section 235/236 programs, operated under contract authority. Each year, Congress provided
HUD the authority to enter into multiyear contracts within annual and total contract limitation
ceilings. HUD then drew on and continues to draw on permanent indefinite appropriations to
fund the current year’s portion of those multiyear contracts. Because of the duration of these
contracts (up to 40 years), significant authority exists to draw on the permanent indefinite
appropriations. Beginning in FY 1988, the Section 8 and the Section 235/236 programs began
operating under multiyear budget authority whereby the Congress appropriates the funds “up-
front” for the entire contract term in the initial year.
HUD’s commitment balances are based on the amount of unliquidated obligations recorded in
HUD’s accounting records with no provision for changes in future eligibility, and thus are equal
to the maximum amounts available under existing agreements and contracts. Unexpended
appropriations and cumulative results of operations shown in the Consolidated Balance Sheet
comprise funds in the U.S. Treasury available to fund existing commitments that were provided
through “up-front” appropriations and also include permanent indefinite appropriations received
in excess of amounts used to fund the pre-1988 subsidy contracts and offsetting collections.
FHA enters into long-term contracts for both program and administrative services. FHA funds
these contractual obligations through appropriations, permanent indefinite authority, and
offsetting collections. The appropriated funds are primarily used to support administrative
contract expenses while the permanent indefinite authority and the offsetting collections are used
for program services.




                                                 74
The following shows HUD’s obligations and contractual commitments under its grant, subsidy,
and loan programs as of September 30, 2014, (dollars in millions):
                                                                                    Undelivered Orders

                                                Unexpended        Permanent             Investment          Offsetting        Undelivered Orders -
Programs                                   Appropriations         Indefinite            Authority           Collections       Obligations, Unpaid

FHA                                        $           160 $               80 $                     - $            1,679       $            1,919
Ginnie Mae                                               4                     -                    -               418                       422
Section 8 Rental Assistance                           8,833                    -                    -                     -                 8,833
Low Rent Public Housing Loans and Grants              4,624                    -                    -                     -                 4,624
Homeless Assistance Grants                            2,406                    -                    -                     -                 2,406
Housing for the Elderly and Disabled                  2,264                    -                    -                     -                 2,264
Community Development Block Grants                   12,267                    -                    -                     -                12,267
HOME Partnership Investment Program                   3,233                    -                    -                     -                 3,233
Section 235/236                                       1,031               185                       -                     -                 1,216
All Other                                             3,540                 -                       -                     -                 3,540
Total                                       $       38,362    $           265       $          -        $         2,097        $          40,724


The following shows HUD’s obligations and contractual commitments under its grant, subsidy,
and loan programs as of September 30, 2013, (dollars in millions):
                                                                                    Undelivered Orders

                                               Unexpended     Permanent             Investment              Offsetting        Undelivered Orders -
Programs                                   Appropriations         Indefinite         Authority          Collections           Obligations, Unpaid

FHA                                        $           174 $              109 $                    - $            2,061       $            2,344
Ginnie Mae                                               -                  -                      -                428                      428
Section 8 Rental Assistance                          8,360                  -                      -                  -                    8,360
Low Rent Public Housing Loans and Grants             5,010                  -                      -                  -                    5,010
Homeless Assistance Grants                           2,455                  -                      -                  -                    2,455
Housing for the Elderly and Disabled                 2,824                  -                      -                  -                    2,824
Community Development Block Grants                  13,316                  -                      -                  -                   13,316
HOME Partnership Investment Program                  3,274                  -                      -                  -                    3,274
Section 235/236                                      1,100                466                      -                  -                    1,566
All Other                                            3,962                  -                      -                  -                    3,962
Total                                      $        40,475    $          575        $         -         $        2,489        $          43,539


B. Administrative Commitments
In addition to the above contractual commitments, HUD has entered into administrative
commitments which are reservations of funds for specific projects (including those for which a
contract has not yet been executed) to obligate all or part of those funds. Administrative
commitments become contractual commitments upon contract execution.




                                                                               75
The following chart shows HUD’s administrative commitments as of September 30, 2014,
(dollars in millions):
                                                                           Reservations
                                                                    Permanent
                                                Unexpended          Indefinite               Offsetting             Total
Programs                                   Appropriations Appropriations                     Collections       Reservations

Section 8 Rental Assistance                 $          154      $                    -   $                -    $            154
Low Rent Public Housing Loans and Grants                    7                        -                    -                      7
Homeless Assistance Grants                             140                           -                    -                 140
Housing for the Elderly and Disabled                    96                           -                    -                  96
Community Development Block Grants                    8,428                          -                    -            8,428
HOME Partnership Investment Program                    170                           -                    -                 170
Section 235/236                                          -                           -                    -                   -
All Other                                              168                           -                    -                 168
Total                                       $        9,163      $                    -   $                -    $       9,163


The following chart shows HUD’s administrative commitments as of September 30, 2013,
(dollars in millions):
                                                                          Reservations
                                                                    Permanent
                                               Unexpended           Indefinite               Offsetting            Total
Programs                                   Appropriations Appropriations                 Collections          Reservations

Section 8 Rental Assistance                $           185      $                -       $            -       $            185
Low Rent Public Housing Loans and Grants                24                       -                    -                     24
Homeless Assistance Grants                             124                       -                    -                    124
Housing for the Elderly and Disabled                    66                       -                    -                     66
Community Development Block Grants                   4,234                       -                    -               4,234
HOME Partnership Investment Program                    186                       -                    -                    186
Section 235/236                                          -                       -                    -                      -
All Other                                              145                       -                    -                    145
Total                                      $         4,964      $                -       $            -       $      4,964



Note 26: Disaster Recovery Relief Efforts
Over the past years, the Department has developed an allocation process which focuses on
unanticipated disaster recovery needs. Administered by the Office of Community Planning and
Development, disaster recovery funds supplements the Federal Management Agency, the Small
Business Administration, and the United States Army Corps of Engineers. The Department’s
funds must supplement, not replace, other sources of federal disaster recovery assistance. The
funding is provided by grants to assist cities, counties, and States recover from Presidentially-
declared disasters. Recent disaster recovery events include severe flooding in the upper
Midwest, hurricanes in the Gulf Costs and severe weather systems, including Hurricane Sandy
devastating the Mid-Atlantic region.




                                                                    76
The following table shows the status of budgetary resources information for HUD’s programs
funded under the Community Development Block Grant Program to support disaster relief as of
September 30, 2014, (dollars in millions):
                                                         Total
Unobligated Balance, beginning of period         $           13,217
Recoveries                                                        -
Budget Authority                                                  -
Spending Authority from Offsetting Collections                    -
Non-Expenditure Transfers, net                                    -
Other Balances Withdrawn                                          -
Total Budgetary Resources                                   13,217

Status of Budgetary Resources
Obligations Incurred                             $            1,598
Unobligated Balance, available                               11,619
Unobligated Balance, not available                                -
Total Status of Budgetary Resources              $          13,217


Change in Obligated Balance
Obligated Balance, net beginning of period       $                7,480
Obligations Incurred                                              1,598
Gross Outlays                                                    (3,066)
Recoveries                                                            -
Obligated Balance, net end of period             $               6,012

Net Outlays                                      $               3,066


The data below displays cumulative activity for the four largest state recipients of HUD disaster
assistance since the inception of the program. The obligations incurred and gross outlays shown
above represent fiscal year activity (dollars in millions).
                                                         Obligations               Outlays           Unliquidated

              Louisiana                              $                14,571   $        13,050   $            1,521
              Mississippi                                              5,539             4,866                  673
              Texas                                                    3,752             2,139                1,613
              Florida                                                    393               356                   37
              Other States                                             2,287             2,304                  (17)
              Total                                  $             26,542      $       22,715    $           3,827




                                                                 77
The following table shows the status of budgetary resources information for HUD’s programs
funded under the Community Development Block Grant Program to support disaster relief as of
September 30, 2013, (dollars in millions):
                                                     Total
Unobligated Balance, beginning of period         $            241
Recoveries                                                      -
Budget Authority                                           15,181
Spending Authority from Offsetting Collections                  -
Non-Expenditure Transfers, net                                  -
Other Balances Withdrawn                                        -
Total Budgetary Resources                                 15,422

Status of Budgetary Resources
Obligations Incurred                             $          2,205
Unobligated Balance, available                             13,217
Unobligated Balance, not available                              -
Total Status of Budgetary Resources              $        15,422


Change in Obligated Balance
Obligated Balance, net beginning of period       $           2,698
Obligations Incurred                                         2,205
Gross Outlays                                                 (858)
Recoveries                                                       -
Obligated Balance, net end of period             $           4,045


Net Outlays                                      $            858


The data below displays cumulative activity for the four largest state recipients of HUD disaster
assistance since the inception of the program. The obligations incurred and gross outlays shown
above represent fiscal year activity (dollars in millions).
                                                         Obligations            Outlays           Unliquidated

               Louisiana                             $             14,571   $        12,585   $            1,986
               Mississippi                                          5,539             4,678                  861
               Texas                                                3,751             1,756                1,995
               Florida                                                393               328                   65
               Other States                                         2,288             2,059                  229
               Total                                 $          26,542      $       21,406    $           5,136




                                                              78
Note 27: Apportionment Categories of Obligations Incurred
Budgetary resources are usually distributed in an account or fund by specific time periods,
activities, projects, objects, or a combination of these categories. Resources apportioned by
fiscal quarters are classified as Category A apportionments. Apportionments by any other
category would be classified as Category B apportionments.
HUD’s categories of obligations incurred were as follows (dollars in millions):
                                                            Category A         Category B           Total
                                     2014
                                     Direct                 $          929     $     98,214     $      99,143
                                     Reimbursable                        -            2,288             2,288
                                     Total                  $         929      $ 100,502        $ 101,431


                                                             Category A        Category B           Total
                                     2013
                                     Direct                  $         893     $    133,898     $    134,791
                                     Reimbursable                        -            3,587            3,587
                                     Total                   $        893      $ 137,485        $ 138,378


Note 28: Explanation of Differences between the Statement of
Budgetary Resources and the Budget of the United States
Government
The following shows the difference between Budgetary Resources reported in the Statement of
Budgetary Resources and the President’s Budget for FY 2013 (dollars in millions):
                                                                                                                               Distributed
                                                                                            Budgetary Obligations              Offsetting        Net
                                                                                          Resources             Incurred        Receipts       Outlays
   Combined Statement of Budgetary Resources                                                  $ 227,163     $     138,378      $   (1,493) $     53,369
   Difference #1 - Resources related to HUD's expired accounts
                   not reported in the President's Budget                                           (694)             (31)                 -             -
   Difference #2 - The negative subsidy reported by Ginnie Mae as an offsetting receipt
                   is reported as a negative outlay in the President's Budget                          -                   -               -             -
   Difference #3 - Activity not included in the President's Budget related to the
                   general fund receipts account                                                       -                   -           28                -
   Difference #4 - Ginnie Mae amounts precluded from obligation                                     (216)                  -               -             -
   Difference #5 - Rounding issues                                                                    (6)                  -               -             3
   United States Budget                                                                       $ 226,247     $ 138,347          $   (1,465) $ 53,372




                                                                          79
Note 29: Reconciliation of Net Cost of Operations to Budget
This note (formerly the Statement of Financing) links the proprietary data to the budgetary data.
Most transactions are recorded in both proprietary and budgetary accounts. However, because
different accounting bases are used for budgetary and proprietary accounting, some transactions
may appear in only one set of accounts. The Reconciliation of Net Cost of Operations to Budget
is as follows for the periods ending September 30, 2014, and September 30, 2013, (dollars in
millions):
                                                                                            2014              2013

Budgetary Resources Obligated
Obligations Incurred                                                                   $    101,431       $   138,378
Spending Authority from Offsetting Collections and Recoveries                               (43,412)          (84,712)
Obligations Net of Offsetting Collections                                              $        58,019    $    53,666
Offsetting Receipts                                                                             (2,719)        (1,495)
Net Obligations                                                                        $        55,300    $    52,171

Other Resources
Transfers In/Out Without Reimbursement                                                 $        (2,663)   $    (3,959)
Imputed Financing from Costs Absorbed by Others                                                     79               77
Other Resources                                                                                      -                1
Net Other Resources Used to Finance Activities                                         $        (2,584)   $    (3,881)
Total Resources Used to Finance Activities                                             $        52,716    $    48,290

Resources Used to Finance Items Not Part of the Net Cost of Operations
Change in Budgetary Resources Obligated for Goods/Services/Benefits
 Services Ordered but Not Yet Provided                                                 $         2,801    $     4,826
Credit Program Resources that Increase LLG or Allowance for Subsidy                                  -         80,982
Credit Program Resources not Included in Net Cost (Surplus) of Operations                       45,001        (55,840)
Resources that Finance the Acquisition of Assets or Liquidation of Liabilities              (45,435)          (33,354)
Resources that Fund Expenses from Prior Periods                                                 (6,025)           (21)
Other Changes to Net Obligated Resources Not Affecting Net Cost of Operations                     (947)           (51)
Total Resources Used to Finance Items Not Part of Net Cost of Operations               $        (4,605)   $    (3,458)


Total Resources Used to Finance the Net Cost of Operations                             $        48,111    $    44,832
Components of Net Cost of Operations Not Requiring/Generating Resources in the
Current Period
Upward/Downward Re-estimates of Credit Subsidy Expense                                 $         4,613    $     8,723
Increase in Exchange Revenue Receivable from the Public                                          (171)           (208)
Change in Loan Loss Reserve                                                                         27               (3)
Revaluation of Assets or Liabilities                                                                 -                1
Depreation and Amortization                                                                          9               16
Changes in Bad Debt Expenses Related to Credit Reform Receivables                                 (97)           (440)
Reduction of Credit Subsidy Expense from Guarantee Endorsements and Modifications           (10,457)          (18,358)
Increase in Annual Leave Liability                                                                   -                -
Other                                                                                            (609)          3,799
Total Components of Net Cost of Operations Not Requiring/Generating Resources in the
Current Period                                                                         $        (6,685)   $    (6,470)

Net Cost of Operations                                                                 $        41,426    $    38,362




                                                                                           80
Note 30: Restatement of the Department’s Fiscal Year 2013
Financial Statements
In FY 2014, the Department restated its FY 2013 financial statements to correct material errors
in the Consolidated Balance Sheet, the Statement of Net Cost and the Statement of Changes in
Net Position. The FY 2013 restatement was due to the restimate of prepayments from our
tenant-based rental assistance program and the establishment of grant accruals by the
Department. The restated financial statements by HUD also reflect the accounting error relating
to net restricted assets maintained by PHAs under the Housing Choice Voucher Program, which
resulted in additional assets and operating expenses reported by the Department. The impact of
these errors resulted in the Department’s equity reported on the consolidated financial statement
to be overstated by $565 million for FY 2013.
The Department’s restated financial statements do not reflect the impact of eliminating the
current use of the First in First out (FIFO) method to liquidate obligations under CPD’s formula
grant programs. The Department is in the process of modifying the Integrated Disbursement
Information System (IDIS) to ensure that the disbursements are matched to the proper funding
source as required under U.S. generally accepted accounting principles (GAAP). Until the
systems modifications are completed by the Department, the impact on HUD’s financial
statements cannot be determined. HUD was also not able to assess the impact of revising its
regulations based on GAO’s ruling of HUD’s interpretation of the 24 month commitment period
which grantees must adhere to as a stipulation to receiving Federal funds. The failure by a
grantee to meet the 24-month commitment as interpreted by GAO would result in greater
recoveries reported on the Department’s Statement of Budgetary Resources. The Department
will disclose a restatement related to CPD’s programs once HUD determines the financial
statements and corresponding line items impacted.
Recognition of NRA Balances
HUD restated its FY 2013 financial statements to correct the impact of the errors resulting from
the amount of PIH’s Net Restricted Asset (NRA) balances in HUD’s consolidated balance sheet.
Beginning in 2005, PHAs have maintained NRA balances as a result of funding provided by the
Department under the Housing Choice Voucher Program. The NRA balances have been
significantly depleted over the years due to reduced renewal funding levels and sequestration.
In calendar year 2012, PIH implemented new cash management requirements and procedures for
the disbursement by HUD of housing assistance payments funds provided to PHAs under the
Housing Choice Voucher program in accordance with Department of Treasury’s guidelines. PIH
Notices further stipulated that NRAs maintained by PHAs as of December 31, 2012, were to be
transitioned to HUD held reserves under the Department’s cash management policies. The
implementation of the Department’s cash management policies have not been fully implemented


                                                 81
and as a result, PHAs continue to hold NRA balances to cover future subsidiary costs of the
Housing Voucher Program.
PIH has implemented a forecasting model to project the NRA balances maintained by the PHAs.
The OIG has reported that PIH does not have adequate controls in place to ensure that the
Voucher Management System’s self-reported data is accurate and deemed that manual processes
involved in the calculation to be an internal control weakness. The Department recognizes that
the expenses of the program are self-reported by the PHAs and subject to audit verification by
the OIG and the results of PIH’s ongoing monitoring reviews. The amount of costs incurred by
PHAs under the program are reported through PIH’s Voucher Management System and used by
program staff to adjust the amount of the NRA balances during the year. The expense
recognized by the Department in the Statement of Net Cost and its impact on the net cost of
operations reported on the Statement of Changes in Net Position is based on the difference
between the beginning and ending NRA balances reported for FY 2013, and FY 2012,
respectively. The Department contends that prior reviews of PIH activity and reliance on IPA
audits provide a reasonable basis to book the estimate to accurately reflect the full costs of the
PIH voucher program.
The Department previously reported an error in the beginning balances of $986 million and $452
million dollars in its FY 2013 and FY 2014 financial statements, respectively, as a result of
understating its equity reported on its balance sheets for the current and prior fiscal years. A
prepayment of $986 million and $452 million was also recognized in the Statement of Budgetary
Resources for FY 2013 and FY 2014, respectively, to account for the related asset established in
the Department’s Consolidated Balance Sheet. Based on revised NRA estimates provided by
PIH in FY 2014, the amount of the error disclosed by the Department was increased to $1.1
billion and $552 million for FY 2013 and FY 2014 respectively. The increase in the estimated
NRA balances decreased the amount of expenses reported in the Statement of Net Cost by $137
million and $100 million for FY 2013 and FY 2014 respectively. The reclassification from a paid
to pre-paid status has no impact on the restated Statement of Budgetary Resources since the
amounts for unobligated balances, gross outlays and unpaid obligations, end of year are not
impacted under the USSGL

Recognition of Grant Accrual Estimates
The Federal Accounting Standards Advisory Board issued Federal Financial Accounting
Technical Release 12, Accrual Estimates for Grant Programs, effective for periods beginning
after September 30, 2010. In response to the OIG recommendation, the Department issued a
policy for estimating accruals for grant programs administered by HUD and restated its FY 2013
financial statements to reflect the implementation of the OCFO policy. The restatement of
HUD’s financial statements for FY 2013 focused on significant grant programs administered by
Community Planning and Development, Public and Indian Housing and the Office of Housing.


                                                 82
The estimates provided by the program offices resulted in increasing the Department’s liabilities
by $2.2 billion and $1.5 billion for FY 2013 and FY 2014 respectively. The increase in the
estimated liability increased the amount of expenses reported in the Statement of Net Cost by
$72 million and $870 million for FY 2013 and FY 2014 respectively as a result of reversing
accruals during the fiscal year based on assumptions incorporated in the Department’s policy.
The reclassification of obligated balances from an undelivered order to a delivered order has no
impact on the Statement of Budgetary Resources.
Below are the Department’s FY 2013 restated financial statements to correct accounting errors
not previously reported (dollars in millions):
                                                                 September 30, 2013     September 30, 2013
                         Balance Sheet                          Consolidated Financial Consolidated Financial
                      (dollars in millions)                      Statements (without        Statements (with
                                                                    restatement)             restatement)            Change
ASSETS
 Intragovernmental
   Fund Balance with Treasury (Note 4)                          $             135,596   $              135,596   $               -
   Investments (Note 5)                                                         1,825                    1,825                   -
   Accounts Receivable, Net (Note 6)                                                -                        1                  (1)
   Other Assets (Note 11)                                                          15                       15                   -
 Total Intragovernmental                                        $             137,436   $              137,437   $              (1)

 Investments (Note 5)                                           $                  56   $                   56   $               -
 Accounts Receivable, Net (Note 6)                                                180                      180                   -
 Direct Loan and Loan Guarantees, Net (Note 7)                                  9,986                    9,986                   -
 Other Non-Credit Reform Loans (Note 8)                                         4,001                    4,001                   -
 General Property, Plant and Equipment, Net (Note 9)                              351                      351                   -
 PIH Prepayments (Note 10)                                                        452                      552                (100)
 Other Assets (Note 11)                                                           378                      378                   -
TOTAL ASSETS                                                    $             152,840   $              152,941   $            (101)

LIABILITIES
 Intragovernmental Liabilities
   Accounts Payable (Note 12)                                   $                  17   $                   17   $               -
   Debt (Note 13)                                                              26,078                   26,078                   -
   Other Intragovernmental Liabilities (Note 16)                                4,660                    4,660                   -
 Total Intragovernmental                                        $              30,755   $               30,755   $               -

 Accounts Payable (Note 12)                                     $                 803   $                  803   $             -
 Accrued Grant Liabilities (Note 12)                                                -                    2,213            (2,213)
 Loan Guarantee Liability (Note 7)                                             39,306                   39,306                 -
 Debt Held by the Public (Note 13)                                                 20                       20                 -
 Federal Employee and Veteran Benefits (Note 14)                                   77                       77                 -
 Loss Reserves (Note 15)                                                          700                      700                 -
 Other Governmental Liabilities (Note 16)                                         709                      709                 -
TOTAL LIABILITIES                                               $              72,370   $               74,583   $        (2,213)

Net Position
 Unexpended Appropriations - Earmarked Funds (Note 19           $                (215) $                  (215) $             -
 Unexpended Appropriations - Other Funds                                       62,107                   59,995            2,112
 Cumulative Results of Operations - Earmarked Funds (Note 19)                  18,151                   18,151                -
 Cumulative Results of Operations - Other Funds                                   427                      427                -
Total Net Position                                              $              80,470 $                 78,358 $          2,112

Total Liabilities and Net Position                              $             152,840   $              152,941   $            (101)




                                                                     83
                                                        September 30, 2013           September 30, 2013
      Statement of Changes in Net Position             Consolidated Financial Consolidated Financial
              (dollars in millions)                     Statements (without             Statements (with
                                                            restatement)                  restatement)                    Change

Cumulative Results of Operations:
Beginning Balances                                     $                   4,165    $                   4,165     $                        -
Adjustments                                                                                                                                -
 Changes in Accounting Principles                                              -                            -                              -
 Corrections of Errors                                                        (1)                          (1)                             -
Beginning Balances, As Adjusted                        $                   4,164 $                      4,164 $                            -

Budgetary Financing Sources:
Other Adjustments                                      $                       -    $                       -     $                        -
Appropriations Used                                                       56,696                       56,670                             26
Non-exchange Revenue                                                           1                            1                              -
Donations/Forfeitures of Cash & Cash Equivalents                               -                            -                              -
Transfers In/Out Without Reimbursement                                         -                            -                              -
Other                                                                          -                            -                              -

Other Financing Sources (Non-Exchange):
Transfers In/Out Without Reimbursement                 $                     (14) $                        (14) $                          -
Imputed Financing                                                             77                            78                            (1)
Other                                                                     (3,958)                       (3,959)                            1

Total Financing Sources                                                52,802                           52,776                          26
Net Cost of Operations                                                (38,388)                         (38,362)                        (26)
Net Change                                             $               14,414 $                         14,414 $                         -

Cumulative Results of Operations                       $              18,578        $                  18,578     $                   -



Unexpended Appropriations:
Beginning Balances                                     $                  52,469    $                  52,469     $                        -
Adjustments
 Changes in Accounting Principles                                              -                            -                            -
 Corrections of Errors                                                       987                       (1,151)                       2,138
Beginning Balances, As Adjusted                        $                  53,456    $                  51,318 $                      2,138

Budgetary Financing Sources:
Appropriations Received                                $               68,575       $                   68,575    $                      -
Appropriations Transferred In/Out                                           -                                -                           -
Other Adjustments                                                      (3,443)                          (3,443)                          -
Appropriations Used                                                   (56,696)                         (56,670)                        (26)
Total Budgetary Financing Sources                      $                8,436       $                    8,462    $                    (26)
Unexpended Appropriations                              $               61,892       $                   59,780    $                  2,112
Net Position                                           $               80,470       $                   78,358    $                  2,112


                                                    September 30, 2013             September 30, 2013
             Statement of Net Cost                 Consolidated Financial Consolidated Financial
              (dollars in millions)                 Statements (without             Statements (with
                                                           restatement)                 restatement)                  Change
Program Costs

  Gross Costs                                      $                 42,515 $                     42,489 $                      26
   Less: Earned Revenue                                              (4,127)                      (4,127)                      -
  Net Program Costs                                $                 38,388 $                     38,362 $                      26

Net Cost of Operations                             $                 38,388    $                  38,362     $                 26




                                                                          84
Restatement of HUD’s Statement of Budgetary Resources
In FY 2014, Ginnie Mae’s Statement of Budgetary Resources was restated to reflect the proper
presentation of its Guarantees of Mortgage Backed Securities Financing Account as a non-
budgetary resource as required by OMB Circular A-11 and OMB Circular A-136. This non-
budgetary account is used to record all cash flows to and from the Government resulting from the
loan guarantees committed in 1992 and beyond (including modifications of loan guarantees that
resulted from obligations in any year). The accounting error resulted in the misstatement of
budgetary resources initially reported in its FY 2013 financial statements published in Annual
Financial Report. In addition, the OCFO restated balances related to the Emergency
Homeowner’s Relief Financing Account and the Green Retrofit Program for Multifamily
Financing Account to comply with the Federal Credit Reform Act of 1990. As in the case of
Ginnie Mae’s programs, these non-budgetary accounts are used to record all cash flows to and
from the Government resulting from the loan guarantees committed in 1992 and beyond
(including modifications of loan guarantees that resulted from obligations in any year). For your
reference, we have provided a summary report documenting the amount that was reclassified as
non-budgetary resources by the Department.




                                                85
                                                                     Total Budgetary                                                       Ginnie Mae                  CFO
                  Statement of Budgetary Resources                        Resources            Total Budgetary                         Non- Budgetrary            Non-Budgetary
                         (dollars in millions)                             (without              Resources                                 Resources          Resources (with
                                                                         restatement)      (with restatement)        Difference       (with restatement)          restatement) *
(Dollars in Millions)
Budgetary Resources:
 Unobligated Balance, Brought Forward                                $           18,266    $            17,483   $                783 $                777 $                       6
 Adjustments to Unobligated Balance Brought Forward, October 1                        1                      3                     (2)                  (2)                        -

Unobligated balance from prior year budget authority, net                        18,267                 17,486                    781                  777                         4
Recoveries of Prior Year Unpaid Obligations                                         626                    627                     (1)                  (1)                        -
Other changes in unobligated balance                                               (496)                  (496)                     -                    -                         -
Unobligated balance from prior year budget authority, net            $           18,397 $               17,617 $                  780 $                777 $                       3

Appropriations (discretionary and mandatory)                         $           65,002    $            65,002   $               -    $                -      $                 -
Borrowing Authority (discretionary and mandatory)                                     1                      -                   1                     1                        -
Spending Authority from offsetting collections                                   28,927                 24,315               4,612                 4,600                       12
Total Budgetary Resources                                                       112,327                106,934               5,393                 5,377                       16

STATUS OF BUDGETARY RESOURCES:
Obligations Incurred
Direct                                                               $           78,124    $            78,117   $               7    $                7      $                 -
Reimbursable                                                                      3,587                    449               3,138                 3,139                       (1)
   Subtotal                                                                      81,711                 78,566               3,145                 3,139                        6
Unobligated Balances
Apportioned                                                          $           17,600    $            17,581   $              19                            $                19
Unapportioned                                                                    13,016                 10,787               2,229                 2,238                       (9)
   Subtotal                                                                      30,616                 28,368               2,248                 2,238                       10

 Total Status of Budgetary Resources                                 $          112,327    $           106,934   $           5,393    $            5,377      $                16

CHANGE IN OBLIGATED BALANCE
Unpaid Obligations
Unpaid obligations, brought forward, Oct 1                           $           49,357 $                49,196 $              161 $                   111    $                50
Adjustments to unpaid obligations, start of year (+ or -)                             (3)                     (4)                 1                                              1
Obligations incurred                                                              81,711                  78,566              3,145                 3,139                        6
Outlays (gross) (-)                                                             (86,053)                (82,897)            (3,156)               (3,136)                     (20)
Actual Transfers, unpaid obligations (net) (+ or -)                                     -                       -                 -                     -                        -
Recoveries of prior year unpaid obligations (-)                                    (626)                   (627)                 1                     1                        -
Unpaid Obligations, end of year (gross)                                          44,386                  44,234                152                   114                       38

Uncollected Payments
Uncollected payments, Fed sources, brought forward, Oct 1 (-)        $                (71) $               (16) $                 (55) $                (6) $                 (49)
Adjustments to uncollected payments, Fed sources, start of year                       -                    -                      -
Change in uncollected payments, Fed sources (+ or -)                                   10                    (1)                   11                   (2)                    13
Actual Transfers, uncollected payments, Fed sources (net) (+ or -)                    -                    -                      -
Uncollected payments, Fed sources, end of year (-)                                    (61)                 (17)                   (44)                  (8)                   (36)
                                                                                                                 $                  -
Obligated Balance, start of year (+ or -)                            $           49,285    $            49,176 $                  109 $                105    $                    4
Obligated Balance, end of year (+ or -)                                          44,325                 44,217                    108                  106                         2

BUDGET AUTHORITY, NET
Budget authority, gross (discretionary and mandatory)                $           93,929 $                89,318 $            4,611 $               4,600 $                     11
Actual offsetting collections (discretionary and mandatory) (-)                 (29,448)                (24,826)            (4,622)               (4,598)                     (24)
Change in uncollected customer payments from Federal Sources                         10                      (1)                11                    (2)                      13
Budget Authority, net (discretionary and mandatory) SubTotal         $           64,491 $                64,491 $                - $                   - $                      -

Outlays, net (discretionary and mandatory)
Gross Outlays                                                        $           86,053 $                82,897 $            3,156 $               3,136 $                     20
Actual offsetting collections (discretionary and mandatory) (-)                 (29,447)                (24,826)            (4,621)               (4,598)                     (23)
                                                                                 56,605                  58,071             (1,466)               (1,462)                      (4)
Distributed offsetting receipts                                                  (1,495)                 (1,495)                 -                     -                        -
Agency Outlays, net (discretionary and mandatory)                                55,110                  56,576             (1,466)               (1,462)                      (4)



* Funds 4357 and 4589
Note: Numbers may not add to total due to rounding.




                                                                                          86