U.S. Department of Housing and
Urban Development,
Washington, DC
Fiscal Years 2015 and 2014 (Restated) Consolidated
Financial Statements Audit
Office of Audit, Financial Audits Division Audit Report Number: 2016-FO-0004
Washington, DC November 23, 2015
To: Joseph Hungate, Deputy Chief Financial Officer, F
//signed//
From: Thomas R. McEnanly, Director, Financial Audits Division, Washington DC, GAF
Subject: Fiscal Years 2015 and 2014 (Restated) U.S. Department of Housing and Urban
Development Consolidated Financial Statements Audit
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: 2016-FO-0004
Date: November 23, 2015
Fiscal Years 2015 and 2014 (Restated) U.S. Department of Housing and
Urban Development Consolidated Financial Statements Audit
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 the Federal Housing
Administration 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 years 2015 and 2014 (restated) 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 years 2015 and 2014 (restated)
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, (2) $5.4 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, (3) $19.8 billion in Ginnie Mae’s budgetary
resources that we could not audit because of the inaccurate reporting from its budgetary system,
and (4) improper accounting for HUD’s assets resulting from advances made to public housing
agencies and Indian Housing Block Grant grantees and loans receivable from the Emergency
Homeowners’ Loan Program. This audit report contains nine material weaknesses, eight
significant deficiencies in internal controls, and six 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
Our recommendations regarding each of the components’ findings were made in audit report
2016-FO-0001, 2016-FO-0002, and 2016-FO-0003.
Table of Contents
Independent Auditor’s Report................................................................................3
Appendixes ..............................................................................................................22
A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 22
B. HUD’s Fiscal Years 2015 and 2014 Consolidated Financial Statements and Notes
..................................................................................................................................... 23
2
U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
OFFICE OF INSPECTOR GENERAL
Independent Auditor’s Report 1
To the Secretary,
U.S. Department of Housing and Urban Development:
Report on the Financial Statements
The Chief Financial Officers Act of 1990 (CFO Act) requires the U.S. Department of Housing
and Urban Development (HUD) to prepare the accompanying consolidated balance sheets as of
September 30, 2015 and 2014 (restated); 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 15-02.
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.
1
This report is supplemented by three separate reports issued by the HUD Office of Inspector General (OIG) to
provide a more detailed discussion of the internal control and compliance issues and to provide specific
recommendations to HUD management. The findings have been updated as needed for inclusion in the internal
control and compliance with laws and regulations sections of the independent auditor’s report. The supplemental
reports are available on the HUD OIG Internet site at https://www.hudoig.gov and are entitled (1) Additional Details
to Supplement Our Fiscal Years 2015 and 2014 (Restated) U.S. Department of Housing and Urban Development
Financial Statement Audit (audit report 2016-FO-0003, issued November 18, 2015), (2) Audit of Federal Housing
Administration Financial Statements for Fiscal Years 2015 and 2014 (audit report 2016-FO-0002, issued November
16, 2015), and (3) Audit of the Government National Mortgage Association’s Financial Statements for Fiscal Years
2015 and 2014 (Restated) (audit report 2016-FO-0001, issued November 13, 2015).
3
Auditor’s Responsibility
We are required by the CFO Act, as amended by the Government Management Reform Act of
1994 and implemented by OMB Bulletin 15-02, Audit Requirements for Federal Financial
Statements, to audit HUD’s principal financial statements or select an independent auditor to do
so.
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 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.
Basis for Disclaimer of Opinion
Our audit identified four areas in which we were unable to obtain adequate audit evidence to
provide a basis of opinion on the fiscal years 2015 and 2014 (restated) financial statements.
When evaluating these areas and their impacts on the financial statements as a whole, we
determined, in the aggregate, all four areas impacted multiple material financial statement line
items and were material and pervasive to the fiscal years 2015 and 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 and unauditable budgetary accounting. HUD continued to use budgetary
accounting for the Office of Community Planning and Development (CPD) programs that
was not performed in accordance with Federal generally accepted accounting principles
(GAAP), which resulted in misstatements in HUD’s combined statement of budgetary
resources. In addition, the Government National Mortgage Association’s (Ginnie Mae)
budgetary accounting was not auditable during the fiscal year. Therefore, we could not
assess whether the balances reported were reasonable.
HUD used a cumulative and first-in first-out (FIFO) method 2 to disburse and commit CPD
program funds that was not in accordance with GAAP for Federal grants. These methods
2
The FASAB Handbook defines FIFO as a cost flow assumption; The first goods purchased or produced are
assumed to be the first goods sold (FASAB Handbook Version 13, appendix E, page 30, dated June 2014). In
addition, the Financial Audit Manual (FAM) states that the use of “first-in, first-out” or other arbitrary means to
liquidate obligations based on outlays is not generally acceptable (GAO-PCIE (U.S. Government Accountability
Office-President’s Council on Integrity and Efficiency) FAM, Internal Control Phase, Budget Control Objectives,
page 395 F-3). In the context of HUD’s use of this method, the first funds appropriated and allocated to the grantee
4
were used to determine the amount of uncommitted HOME Investment Partnerships
Program grant funds that would be subject to reallocation and recapture under section
218(g) of the HOME Investment Partnership Act and to process disbursements for CPD
formula programs, respectively. The effects of these methodologies were pervasive
because the dollar risk exposure and volume of CPD grant activities from several thousand
grantees (approximately $4.5 billion in annual appropriations to support CPD-related
programs, including the HOME Investment Partnerships Program, Community
Development Block Grant, Housing 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 were considered. Due to these issues, we determined that
financial transactions related to CPD’s formula based programs that entered HUD’s
accounting system had been processed incorrectly. Although FIFO has been removed for
disbursements and commitments made from fiscal year 2015 and forward grants, this
method will not be removed retroactively from prior year grants. Thus, based on the
pervasiveness of their effects, in our opinion, the obligated and unobligated balance
brought forward and obligated and unobligated balances reported in HUD’s combined
statement of budgetary resources for fiscal year 2015 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 could not 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.
Ginnie Mae’s budgetary module within its Ginnie Mae Financial Accounting System did
not accurately account for some of Ginnie Mae’s budgetary resources. As a result, Ginnie
Mae recorded several material top level adjustments to bring the balances into agreement
with Ginnie Mae’s control totals, most of which could not be supported. In addition,
Ginnie Mae was unable to provide adequate documentation for transactional activity
occurring in these accounts. As a result, we were unable to obtain sufficient, appropriate
audit evidence regarding the accuracy of these adjustments because of when they were
performed and the lack of adequate supporting documentation available for us to complete
our review. Therefore we cannot form an opinion on the reliability of the status of Ginnie
Mae’s budgetary resources reported on HUD’s combined statement of budgetary resources
as of September 30, 2015, which totaled $19.8 billion.
Disclaimer of opinion on Ginnie Mae financial statements. For the second consecutive
year, in fiscal year 2015, (1) we were unable to obtain sufficient, appropriate evidence to
express an opinion on the fairness of the $5.4 billion (net of allowance) in nonpooled loan
assets from Ginnie Mae’s defaulted issuers’ portfolio and (2) Ginnie Mae continued to
are the first funds committed and disbursed, regardless of the source year in which grant funds were committed for
the activity.
5
improperly account for FHA reimbursable costs as an expense instead of capitalizing the
costs as an asset. Additionally, Ginnie Mae performed restatements to correct prior-year
misstatements; however, we were unable to gather sufficient, appropriate evidence to
validate the accuracy and propriety of these accounting adjustments.
A number of Ginnie Mae balance sheet line items made up the $5.4 billion in nonpooled
loan assets 3 which were consolidated into other-non-credit reform loans reported on HUD’s
consolidated balance sheet. The previous contractors maintained Ginnie Mae’s accounting
records and the supporting data. However, those records did not completely transfer to
Ginnie Mae when it changed servicing contractors in September 2014. As a result, Ginnie
Mae was unable to provide appropriate supporting documentation and data to enable us to
audit the completeness and accuracy of these asset balances. Because of this limitation in
our audit scope, we were unable to determine whether adjustments might be necessary with
respect to these nonpooled loan assets.
Ginnie Mae continued to improperly account for Federal Housing Administration (FHA)
reimbursable costs as an expense instead of capitalizing the costs as an asset in fiscal year
2015. This practice caused Ginnie Mae’s asset and net income line items to be misstated,
resulting in misstatements in HUD’s assets, expenses, and net position. Due to multiple
years of incorrect accounting, we believe the cumulative effect of the errors that we
identified were material. However, we were unable to determine with sufficient accuracy a
proposed adjustment to correct the errors due to insufficient available data.
In addition, as discussed in note 31, Ginnie Mae performed a restatement to correct prior
period misstatements, many of which were consolidated into HUD’s financial statements.
These adjustments affected multiple asset, liabilities, and net position line items on HUD’s
consolidated balance sheet by $150 million, expenses and revenues on HUD’s consolidated
statement of net cost by $5.7 million, and net cost of operations on the consolidated
statement of changes in net position by $150 million. Ginnie Mae also performed a second
restatement of its reserve for loss balance, which impacted HUD’s loss reserves and other
non-credit-reform-loans reported on its consolidated balance sheet by $739 million. On
October 23 and November 3, 2015, Ginnie Mae notified us about these adjustments. Due
to the late notification of the adjustments, this condition limited our ability to adequately
review them and gather sufficient, appropriate evidence to validate the accuracy and
propriety of these accounting adjustments.
Improper accounting for HUD’s assets. HUD did not properly account for several types of
assets reported on its balance sheet related to (1) payments advanced to public housing
agencies (PHA) for the Housing Choice Voucher program, (2) payments advanced to
3
These are (1) mortgage loans held for investment, net ($4,353 million), (2) advances against defaulted mortgage
backed security pools, net ($119 million), (3) claims receivable, net ($814 million), accrued interest receivable, net
($48 million) and acquired properties, net ($30 million).
6
Indian Housing Block Grant (IHBG) grantees for investment purposes, and (3) loans
receivable related to the Emergency Homeowners’ Loan Program (EHLP).
HUD adjusted its Office of Public and Indian Housing (PIH) prepayments reported on its
consolidated balance sheet as of September 30, 2015, by $466.5 million for advanced funds
held by Moving To Work (MTW) PHAs. HUD was not able to recognize a comparable
amount as of September 30, 2014, for inclusion in its comparative statements because of
the unavailability of information. Due to the (1) timing of the adjustment and (2) lack of
appropriate supporting data, we were unable to perform sufficient audit procedures
necessary to obtain reasonable assurance regarding the material adjustment
performed. Further, not recognizing the balance of advanced funds held at MTW PHAs in
both years presented did not comply with GAAP and prevented consistency between years
presented.
HUD authorized recipients of Federal funds to retain funding advanced to it before
incurring eligible expenses; however, HUD did not recognize these as advances on its
financial statements in accordance with Statements on Federal Financial Accounting
Standards 1. As of June 30, 2015, as much as $273 million was being held in investment
accounts with PHAs and IHBG grantees, which represented an advance in accordance with
the standards. Instead, HUD elected to present these as expenses on its statement of net
cost once they were disbursed. Therefore, we believe the PIH prepayment reported on
HUD’s consolidated balance sheet and expenses reported on HUD’s consolidated statement
of net cost were likely misstated as of September 30, 2015, by approximately $273 million.
Lastly, HUD was unable to provide the loans receivable portfolio for EHLP for audit
during the fiscal year due to a data review being performed as a result of serious
deficiencies in the accuracy of the loan balances identified in our prior year audit report 4.
Therefore, we were unable to obtain sufficient appropriate evidence to express an opinion
on the fairness of the balances reported in the direct loan and loan guarantees line item
reported on HUD’s consolidated balance sheet as of September 30, 2015 related to EHLP.
The total loan principal issued under this program was $246 million; however HUD was
unable to determine whether the current balance recognized of $133.6 million was an
accurate net realizable value of the portfolio.
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 developing reasonable
estimates of accrued grant liabilities to report on their financial statements. While we
obtained sufficient, appropriate audit evidence that fiscal year 2014’s estimate was
reasonable, we were unable to do so for the fiscal year 2015 estimate. This lack of
4
Audit Report 2015-DP-0004, Loan Accounting System, issued December 9, 2014
7
evidence was due to (1) CPD’s not adequately validating its accrued grant liability
estimates and (2) 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 CPD. There were no other compensating audit
procedures that could be performed to obtain reasonable assurance regarding the $2 billion
estimate. Therefore, we could not form an opinion on HUD’s grant accrual estimate for
fiscal year 2015. CPD’s fiscal year 2015 estimated accrued grant liabilities were $2 billion,
accounting for 84 percent of $2.4 billion total accrued grant liabilities reported on HUD’s
consolidated balance sheet.
Disclaimer of Opinion
Because of the significance of the matters described in the Basis for Disclaimer of Opinion
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, 2015 and 2014 (restated), 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.
Emphasis of Matter
Restatement
At the time of issuance of this auditor’s report and as discussed in note 31 to the financial
statements, the 2014 financial statements have been restated for the correction of errors related to
Ginnie Mae’s accounting for cash and other monetary assets, general property, plant, and
equipment and multiclass fee accounting. There were other material misstatements in the fiscal
year 2015 financial statements related to the use of the FIFO method to liquidate obligations
under CPD’s formula grant programs. No adjustments had been made related to the use of FIFO
because the specific amount of misstatements and their related effects were unknown.
Additional details on these items can be found in note 31 to the financial statements. However,
as stated in our basis for disclaimer, HUD did not include in its restatement the effects of
correction of errors related to (1) PIH’s excess funds held at MTW PHAs as of September 30,
2014 which was estimated to be $573 million, preventing consistency between periods presented,
and (2) the correction of errors related to loans issued under the EHLP which have a loan
principal of $246 million of which only $133.6 million is recognized on the financial statements.
Additionally, as discussed in our basis for disclaimer, advanced funds held by grantees for IHBG
grantees, which totaled as much as $218 million as of September 30, 2014 were not included in
the financial statements due to HUD’s disagreement regarding the presentation of these
advances.
FHA’s Loan Guarantee Liability
The loan guarantee liability (LGL) is an actuarially determined estimate of the net present value of
future claims, net of future premiums and future recoveries, from loans insured as of the end of the
fiscal year. This estimate is developed using econometric models that integrate historical loan-level
program and economic data with regional house price appreciation forecasts to develop assumptions
8
about future portfolio performance. This year’s estimate is the mean value from a series of
projections using many economic scenarios and FHA’s single family liability for loan guarantee
estimates reported as of September 30, 2015, and could change depending on which economic
outcome prevails. This forecast method helps project how the estimate will be affected by different
economic scenarios but does not address the risk that the models may not accurately reflect current
borrower behavior or may contain technical errors. The LGL is discussed further in note 1 to the
financial statements. Our opinion is not modified with respect to this matter.
Other Matters
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
operational, economic, or historical context. We did not audit and do not express an opinion or
provide any assurance on this information; however, we applied certain limited procedures, in
accordance with auditing standards generally accepted in the United States of America, which
consisted principally of inquiries of management regarding the methods of preparing the
information and comparing the information for consistency with management’s responses to the
auditor’s inquiries, the basic financial statements, and other knowledge the auditor obtained
during the audit of the basic financial statements. These limited procedures do not provide
sufficient evidence to express an opinion or provide any assurance on the information.
In its fiscal year 2015 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 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
In September 2015, OIG and Ginnie Mae published restatement memorandums to notify report
users about the material misstatements identified during our fiscal year 2014 audit of Ginnie
Mae’s financial statements. In October 2015, Ginnie Mae performed a restatement to correct the
fiscal year 2014 financial statements, and HUD performed a restatement of the consolidated
financial statements as well. However, Ginnie Mae made this restatement to correct the
additional accounting errors identified in fiscal year 2015. Those issues included in the
September 2015 restatement memorandums had not been addressed. Accordingly, an additional
9
restatement of Ginnie Mae’s and HUD’s consolidated financial statements may occur at a later
time.
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 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. 5 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
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 nine material weaknesses
and eight significant deficiencies.
Material Weaknesses
CPD’s Formula Grant Accounting Did Not Comply With GAAP, Resulting in Misstatements on
the Financial Statements
CPD’s formula grant program accounting continued to depart from GAAP because of its use of
the FIFO method for committing and disbursing obligations. Since 2013, we have reported that
the information system used, Integrated Disbursement Information System (IDIS) Online, a
5
Audit Report 2016-FO-0003, Additional Details To Supplement Our Fiscal Years 2015 and 2014 (Restated) U.S.
Department of Housing and Urban Development Financial Statements, issued November 18, 2015; Audit Report
2016-FO-0002, Federal Housing Administration Financial Statements Audit, issued November 16, 2015; Audit
Report 2016-FO-0001, Audit of the Government National Mortgage Association’s Financial Statements for Fiscal
Years 2015 and 2014 (Restated), issued November 13, 2015
10
grants management system, was not designed to comply with Federal financial management
system requirements. Further, HUD’s plan to eliminate FIFO from IDIS Online was applied to
fiscal year 2015 and future grants and not to 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 (USSGL) attribute resulted in additional misstatements.
Although FIFO has been removed from fiscal year 2015 and forward grants, modifications to
IDIS were necessary for the system to comply with the Federal Financial Management
Improvement Act (FFMIA) and USSGL transaction records. The inability of IDIS Online to
provide an audit trail of all financial events affected by the FIFO method made it impossible to
quantify the financial effects of FIFO on HUD’s consolidated financial statements. Further,
because of 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 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.
HUD Did Not Account for Assets and Liabilities in Its Public and Indian Housing Programs in
Accordance With GAAP and FFMIA
HUD did not properly account for advances (PIH prepayment), 6 receivables, and payables in its
PIH programs in accordance with U.S. GAAP and FFMIA. First, HUD accounted for
prepayments to MTW PHAs for fiscal year 2015 through manual fiscal-yearend adjustments that
were based on self-reported data, not transactional data. It also did not recognize a comparative
amount for fiscal year 2014. Second, HUD’s accounting for its cash management process was
untimely and incomplete because it did not include the recognition of receivables and payables
when incurred. Third, HUD did not recognize a prepayment for funds advanced to its IHBG
grantees used for investment. These problems occurred because of its continued weak internal
controls over the cash management process, including the lack of an automated process.
Additionally, the Office of the Chief Financial Officer (OCFO) did not have a mechanism to
routinely communicate with program offices to evaluate GAAP compliance of program
transactions. As a result, several significant financial statement line items were misstated or
could not be audited as of September 30, 2015. Specifically, (1) $466.5 million recorded for
MTW PHAs’ housing assistance prepayment could not be audited; (2) HUD’s PIH prepayments
and accounts receivable on its balance sheet were understated by $232 million 7 and $41 million,
respectively; (3) HUD’s expenses on its statement of net costs were overstated by $273 million;
and (4) HUD’s accounts payable were understated by an unknown amount.
CPD’s Grant Accrual Estimates Were Not Validated
CPD did not validate its estimated accrued grant liabilities. This deficiency was due to a lack of
procedures and relevant grantee reporting. As a result, CPD could not ensure that its
6
HUD accounts for advances in the PIH program as PIH prepayments.
7
$232 million= $273 million in prepayments not recorded for IHBG minus a $41 million receivable not recorded in
the Housing Choice Voucher program. This should have reduced the prepayment.
11
assumptions, and therefore its estimates were accurate. Additionally, we were unable to obtain
sufficient, appropriate audit evidence on CPD’s fiscal year 2015 estimated accrued grant
liabilities. Therefore, we could not form an opinion on CPD’s grant accrual estimate for fiscal
year 2015.
Ginnie Mae’s System’s Data To Account for Its Budgetary Resources Were Not Auditable
In response to our fiscal year 2013 recommendation 8 regarding a material internal control
weakness in financial reporting, Ginnie Mae implemented a system to account for its budgetary
resources; however, the implementation was problematic, and the system’s data was not reliable.
Therefore, Ginnie Mae reverted to manual processes for reporting its budgetary resources to the
consolidated financial statements. During fiscal year 2015, we were not able to audit the
budgetary resource activity because Ginnie Mae (1) manually adjusted most of its budgetary
accounts, (2) lacked proper controls or an adequate audit trail to support its material adjustments,
and (3) did not provide its budgetary resources trial balances and detailed supporting
documentation within the timeframe needed to conduct adequate audit procedures. This
condition occurred because Ginnie Mae management did not devote sufficient resources to
system implementation. As a result, we could not provide reasonable assurance regarding the
status of $19.8 billion in budgetary resources that HUD reported for Ginnie Mae as of September
30, 2015.
HUD’s Financial Management System Weaknesses Continued in 2015
Financial system limitations and deficiencies remained a material weakness in fiscal year 2015,
although there were efforts to modernize HUD’s financial management system by moving key
financial management functions to a Federal shared service provider. These system limitations
and deficiencies existed because of HUD’s inability to modernize its legacy financial systems
and the lack of an integrated financial management system, which we have reported on annually
since 1991. Program offices compensated for system limitations by using less reliable manual
processes to meet financial management needs. Existing system issues and limitations inhibited
HUD’s ability to produce reliable, useful, and timely financial information.
Material Asset Balances Related to Nonpooled Loans Were Not Auditable
In fiscal year 2015, Ginnie Mae again failed to bring its material asset balances related to
nonpooled loans, including the related accounts, into an auditable state. For this reason, we
deemed last year’s audit matters to be unresolved, and we were unable to audit the $5.4 billion
(net of allowance) in nonpooled loan assets reported in Ginnie Mae’s and HUD’s consolidated
financial statements as of September 30, 2015. This condition occurred because Ginnie Mae’s
executive management3 did not ensure that Ginnie Mae’s or its master subservicers’ financial
management systems were capable of meeting Ginnie Mae’s loanlevel transaction accounting
8
2014-FO-0003, recommendation 3B, Develop and implement plans to ensure that Ginnie Mae’s core financial
system is updated to include functionality in the system to perform budgetary accounting at a transaction level using
the USSGL to comply with FFMIA.
12
requirements to comply with GAAP. These deficiencies resulted in Ginnie Mae producing
unauditable financial statements with materially misstated asset balances.
Given the current state of Ginnie Mae’s accounting systems and records, we were again unable
to perform all of the audit procedures that we determined to be necessary for obtaining sufficient,
appropriate evidence. As a result, our audit scope was insufficient to express an opinion on
Ginnie Mae’s $5.4 billion in nonpooled loan assets as of September 30, 2015.
Ginnie Mae’s Internal Controls Over Financial Reporting Continued To Have Weaknesses
In fiscal year 2014, we reported that Ginnie Mae’s internal control over financial reporting was
not effective. This condition continued in fiscal year 2015. These material weaknesses in
internal controls were issues related to the (1) improper accounting for FHA reimbursable costs
and accrued interest earned on nonpooled loans, (2) nonreporting of escrow deposits held in trust
by Ginnie Mae for the borrowers in its financial statements, (3) improper classification and
presentation of financial information in Ginnie Mae’s statement of cash flows, (4) improper
revenue recognition of guarantee fees, (5) improper accounting for the month-end’s custodial
account balances, (6) omission of the required footnote disclosure and (7) the use of an
unreasonable assumption in estimating the valuation of its mortgage servicing rights portfolio.
The first three issues were repeat findings from the fiscal year 2014, and the remaining four
issues were new in fiscal year 2015. This occurred because of executive management’s failure to
ensure (1) adequate monitoring and oversight of its accounting and reporting functions were in
place and operating effectively, (2) serious staffing problems within Ginnie Mae’s OCFO were
addressed, and (3) accounting policies, procedures, and systems were in place to track
accounting transactions and events at a loan level. As a result of these deficiencies, Ginnie Mae
failed to prevent or detect material misstatements in its financial statements.
Ginnie Mae’s Mortgage-Backed Security Liabilities for Loss Account Balance Remained
Unreliable
In fiscal year 2015, Ginnie Mae’s executive management confirmed our concerns about the
reliability of the yearend balance in its mortgage-backed securities loss liability account in a
written representation letter provided to OIG this year. Specific issues posed in the fiscal year
2014 audit report were related to (1) improper accounting treatment of selected accounting
transactions on nonpooled loans in the mortgage-backed securities loss liability account and (2) a
lack of evidence to support the reasonableness of key management assumptions used in the loss
reserve model. Factors that contributed to the issue included the adoption of an inappropriate
loan accounting policy and a lack of indepth analysis to validate the reasonableness of the
management assumptions. Considering the impact of these issues and their significance, for the
second year, we deemed the mortgage-backed securities loss liability account to be unreliable.
13
HUD’s and Ginnie Mae’s Financial Management Governance Was Ineffective 9
Overall, we determined that HUD’s financial management governance remained
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.
Ginnie Mae’s executive management failed to make significant improvements in addressing the
financial management governance problems cited in our fiscal year 2014 audit report and
regressed in some areas. Specifically, these problems included a failure to (1) backfill key
positions in the Ginnie Mae OCFO, (2) ensure that emerging risks affecting its financial
management operations were identified, analyzed, and responded to appropriately and in a timely
manner, and (3) establish adequate and appropriate accounting policies and procedures and
accounting systems. In addition, for the first time in fiscal year 2015, we found Ginnie Mae’s
entitywide governance of the models used to generate accounting estimates for financial
reporting was ineffective. This condition occurred because (1) Ginnie Mae’s President and
Executive Vice President failed to set the appropriate tone at the top by delaying needed changes
in its accounting operations and (2) Ginnie Mae was overwhelmed by the difficult and complex
financial management challenges encountered during the year, coupled with the lack of adequate
senior accounting and financial staff to manage these problems. These failures in governance by
Ginnie Mae’s executive management contributed to its failure to prevent or detect material
misstatements and impaired Ginnie Mae’s ability to produce auditable financial statements.
While HUD and its components took steps in fiscal year 2015 to address some of the weaknesses
in its financial management governance structure and internal controls over financial reporting,
deficiencies continued to exist. Specifically, OCFO needed to provide stronger direction to
program office accounting and improve financial management and governance issues at Ginnie
Mae. Additionally, HUD needs to be more consistent in its control and monitoring activities,
including front-end risk assessments, management control reviews, and reconciliation activities.
These conditions stemmed from HUD’s inadequate implementation of the CFO Act and the lack
of a senior management council. These shortcomings limited the ability of OCFO to stress the
importance of financial management and facilitate 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 and was in the process of replacing its outdated
legacy financial systems. 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. Entity-level controls could improve HUD’s governance and enable the
prevention, detection, and mitigation of significant program and component-level internal control
9
This was classified as a material weakness, based on the findings on financial management governance reported in
Audit Report 2016-FO-0003, Additional Details to Supplement Our Fiscal Years 2015 and 2014 (Restated) U.S.
Department of Housing and Urban Development Financial Statement Audit, and Audit Report 2016-FO-0001, Audit
of the Government National Mortgage Association’s Financial Statements for Fiscal Years 2015 and 2014
(Restated).
14
weaknesses. As a result of control weaknesses, multiple deficiencies existed in HUD’s internal
controls over financial reporting, resulting in misstatements on the financial statements and
noncompliance with laws and regulations.
Significant Deficiencies
Weaknesses in HUD’s Administrative Control of Funds System Continued
We have reported on HUD’s administrative control of funds in our audit reports and
management letters since fiscal year 2005. HUD continued to not have a fully implemented and
complete administrative control of funds system that provided oversight of both obligations and
disbursements. Our review noted instances in which (1) the Office of Multifamily Housing
Programs did not follow HUD’s administrative control of funds; (2) program codes were not
included in funds control plans; (3) funds control plans were out of date or did not reflect the
controls and procedures in place; and (4) OCFO staff processed accounting changes without
proper review, approval, and sufficient supporting documentation. 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) a lack of policies and
procedures requiring documentation of system accounting changes. As a result, HUD could not
ensure that its obligations and disbursements were within authorized budget limits and complied
with the Antideficiency Act (ADA).
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, some program offices did
not complete their obligation reviews in a timely manner, and we discovered $200.4 million in
invalid obligations not previously identified by HUD. We discovered another $331.1 million in
obligations that had been inactive for at least 2 years, indicating potentially additional invalid
obligations. We also discovered $30.7 million in obligations that HUD determined needed to be
closed out and deobligated during the fiscal year that remained on the books as of September 30,
2015. These deficiencies were attributed to ineffective monitoring efforts and the inability to
promptly process contract closeouts. We also noted that, as of September 30, 2015, HUD had
not implemented prior-year recommendations to deobligate $106.3 million in funds. As a result,
HUD’s unpaid obligation balances on the statement of budgetary resources were potentially
overstated by $668.5 million.
The Emergency Homeowners’ Loan Program Data Was Not Auditable
Loan balances related to EHLP were incomplete, unreliable, and not available for audit during
the fiscal year 2015 audit. This condition occurred because the loan data in HUD’s systems were
not reliable and HUD did not complete a review of the data in time for inclusion in the fiscal
year 2015 financial statements. As a result, we were unable to perform all of the audit
procedures we deemed necessary to obtain sufficient, appropriate audit evidence regarding the
accuracy of loan receivable balances related to the EHLP. However, loans with a total principal
of at least $116 million had not been recorded in the subsidiary ledger as of the end of fiscal year
2015, increasing the risk of misstatement.
15
HUD’s Computing Environment Controls Had Weaknesses
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 fiscal year 2015, we audited general controls over the IBM mainframe general
support system, which houses applications that support the preparation of HUD’s financial
statements. HUD did not ensure that general controls over its computing environment fully
complied with Federal requirements. Specifically, (1) some accounts on the IBM mainframe
were not properly managed and (2) vulnerabilities were not reported in system security
documentation. These weaknesses occurred because policies were not always followed. In
addition, although HUD had taken action to address information system control weaknesses
reported in prior years, several of those weaknesses remained open. Without adequate general
controls, there was no assurance that financial management applications and the data within them
were adequately protected.
Ginnie Mae Did Not Provide Adequate Oversight of its Master Subservicer To Ensure
Compliance With Federal Regulations and Guidance
Ginnie Mae did not provide adequate oversight of one of its single family master subservicers to
ensure adequate business process controls were in place to provide a compliant level of internal
controls over financial reporting. Specifically, (1) proper segregation of duties does not exist
over cash processes; (2) ongoing monitoring was not in place to review change activities made
by individuals in the loan administration department, who had access to and change capability
for master data for approximately 21,000 loans; and (3) management used an ineffective
monitoring tool that did not capture all financial data adjustments. These conditions occurred
because (1) the contractor believed that the risk of wrongful acts was mitigated through its use of
security cameras, access restrictions, and background checks; (2) management did not have a
policy and process to perform periodic monitoring or review reports to ensure that unauthorized
changes were not made; (3) the approval process for adjustments was not automated within the
contractor’s primary financial system that houses all loan transactions; and (4) the report that was
used to monitor financial data changes did not allow for a meaningful review because it did not
capture all financial data adjustments. As a result, Ginnie Mae’s data was susceptible to
unauthorized access and tampering which increased its risk of undetected misstatements in the
financial statements.
Controls To Prevent Misclassification of FHA Receivables Had Not Been Fully Implemented
In fiscal year 2015, our review of partial claims found that the risk of not completely and
accurately identifying recorded loans receivable with missing notes at the end of each
reporting period continued to be an issue. The risk continued because the action plans
developed by FHA in 2015 to remedy the control deficiencies identified in our 2014 audit
report have not been fully implemented. As a result, we continue to have concerns
regarding the reliability of financial information related to loans receivable produced
using FHA’s current partial claims business processes.
16
FHA’s Internal Control Over Financial Reporting Had Weaknesses
In fiscal year 2015, we identified weaknesses in FHA’s internal control over financial
reporting. These weaknesses related to (1) a failure to obligate funds for future borrower
disbursements upon home equity conversion mortgages (HECM) notes, (2) a failure to
implement some key controls over its cash flow modeling processes, and (3) inadequate
procedures for identifying and reviewing abnormal USSGL account balances. Factors
contributing to these issues were (1) FHA’s belief that future borrower disbursements
should be treated as claim payments made to lenders and (2) the lack of emphasis on the
need for or importance of maintaining complete and up-to-date model documentations.
These weaknesses significantly increased FHA’s risk of having errors in its financial
statements and not preventing and detecting them in a timely manner.
Weaknesses Were Identified in Selected FHA Information Technology Systems
Our review of the general and application controls over FHA’s Single Family Insurance System
(SFIS) and the Claims subsystem found that (1) there were weaknesses in the SFIS information
system, which included five of the nine vulnerabilities identified during the fiscal year 2015
vulnerability scan previously identified but not corrected; (2) the risk assessment prepared for
SFIS did not accurately document whether SFIS was operating with an acceptable level of risk;
(3) effective application contingency planning had not been implemented for SFIS; (4) SFIS may
be at risk due to improperly implemented security controls with connected applications; and (5)
SFIS management was not familiar with the data values. Additionally, we found a weakness in
the Claims information system, in which some of the personally identifiable information (PII)
was not encrypted. These conditions occurred because some application controls were not
sufficient. As a result, the information used to provide input to the FHA financial statements
could be adversely affected.
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 six 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. 15-02, 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’s Financial Management Systems Did Not Comply With the Federal Financial
Management Improvement Act
We have reported on HUD’s lack of an integrated financial management system annually since
1991. In fiscal year 2015, we noted a number of instances of FFMIA noncompliance with
HUD’s financial management system. HUD’s continued noncompliance was due to a reliance
on financial system limitations and information security weaknesses. While HUD continued to
work toward financial management system modernization in 2015, significant challenges
remained.
17
HUD Continued To 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 HUD’s recapture policies continued to result in HUD’s
noncompliance with HOME Statute requirements. Further, HUD’s corrective action plan to
modify IDIS to assess grantee compliance on a grant-by-grant basis for fiscal year 2015 and later
grants was halted due to budget shortfalls. As a result, HUD incorrectly permitted some
jurisdictions to retain, commit, and disburse HOME Investment Partnerships Program grant
funds beyond the statutory deadline. HUD will continue to be noncompliant 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. Additionally, we concluded that
these conditions created the potential for an ADA violation, which was reported to OCFO in an
audit memorandum. 10 Lastly, allowing grantees to disburse from commitments made outside the
24-month statutory period may have caused HUD to incur improper payments.
HUD Did Not Comply With Treasury’s Financial Manual’s Rules on Cash Management or 2
CFR Part 200
HUD did not comply with Treasury’s cash management regulations 11 and 2 CFR (Code of
Federal Regulations) Part 200 12 because HUD’s PHAs maintained Federal cash in excess of their
immediate disbursement need. Specifically, MTW PHAs reported maintaining $573 million and
$466.5 million as of September 30, 2014, and September 30, 2015, respectively. In addition,
non-MTW PHAs held between $81 million and $106 million for up to 6 months before it was
transitioned back to HUD. This condition occurred because HUD could not quantify the amount
of MTW accumulations that existed or how much it should transition. Additionally, HUD did
not have a system to perform (1) cash reconciliations to identify accumulations and (2) offsets to
transition accumulations back to HUD in a timely manner. Since PHAs maintained these funds
in excess of their immediate disbursement needs for extended periods, HUD did not in comply
with Treasury’s cash management regulations or the related CFR regulations, and it could not
ensure that these funds were properly safeguarded against fraud, waste, and abuse.
HUD Reported 14 ADA Violations in October 2015; and OIG Referred One Potential Violation
to HUD
In fiscal year 2015, HUD OCFO made demonstrable progress and remedied long-standing issues
related to ADA reporting requirements in October 2015. 13 As of September 30, 2015, all
10
Audit Memorandum 2015-FO-0801, Potential Antideficiency Act Violation HOME Investment Partnerships
Program, issued June 16, 2015.
11
Treasury Financial Manual Vol. 1, Part 4A- Section 2045.10- Cash Advances Establishing Procedure for Cash
Advances-section 3.
12
2 CFR 200 305.
13
31 U.SC. (United States Code) 1341, 1342, 1350, 1517, and 1519; Once it has been determined that there has
been a violation of 31 U.S.C 1341(a), 1342, or 1517(a), the agency head “shall report immediately to the President
and Congress all relevant facts and a statement of actions taken” in accordance with 31 U.S.C. 1351, and 1517(b).
18
confirmed ADA violations were with OMB for review and approval. We noted that in October
2015, HUD reported 14 ADA violations that occurred between 2004 and 2014 to the President,
U.S. Government Accountability Office (GAO), and Congress. Additionally, during the course
of our 2015 audit, we noted a potential ADA violation regarding the HOME Investment
Partnerships Program.
HUD Did Not Comply With the Improper Payments Elimination and Recovery Act of 2010
For fiscal year 2014, HUD 14 found that HUD did not comply with the Improper Payments
Elimination and Recovery Act of 2010 (IPERA) because it (1) did not include all accompanying
materials required by OMB in its published fiscal year 2014 agency financial report and (2) did
not conduct a compliant program specific risk assessment for each program. Specifically, HUD
did not adequately report on its supplemental measures as required by OMB and its risk
assessment did not include a review of all relevant OIG audit reports. This is the second year in
a row that HUD did not comply with IPERA. Additionally, significant improper payments in
HUD’s rental housing assistance programs continued during fiscal year 2014.
Ginnie Mae Did Not in Comply With the Debt Collection Improvement Act of 1996
Ginnie Mae did not take all steps necessary to maximize collection of mortgage-backed
securities (MBS) program debts as required by the Debt Collection Improvement Act (DCIA)
of 1996. Specifically, it failed to analyze the possibility of collecting on certain uninsured
mortgage debts owed to Ginnie Mae using all debt collection tools allowed by law before
writing them off. This condition occurred because Ginnie Mae’s executive management decided
to not pursue the MBS program debts because it believed that DCIA did not apply to Ginnie
Mae; therefore it did not need to comply with DCIA requirements. As a result, Ginnie Mae may
have missed opportunities to collect millions of dollars in debts related to losses on its MBS
program.
Results of the Audit of FHA’s Financial Statements
We performed a separate audit of FHA’s fiscal years 2015 and 2014 financial statements. Our
report on FHA’s financial statements, dated November 16, 2015, 15 includes an unqualified
opinion on FHA’s financial statements, along with discussion of three significant deficiencies in
internal controls.
Results of the Audit of Ginnie Mae’s Financial Statements
We performed a separate audit of Ginnie Mae’s fiscal years 2015 and 2014 (restated) financial
statements. Our report on Ginnie Mae’s financial statements, dated November 13, 2015, 16
includes a disclaimer of opinion on these financial statements, along with discussion of four
14
Audit Report 2015-FO-0005, Compliance With the Improper Payments Elimination and Recovery Act, issued
May 15, 2015.
15
Audit Report 2016-FO-0002, Audit of Federal Housing Administration Financial Statements for Fiscal Years
2015 and 2014, issued November 16, 2015, was incorporated into this report.
16
Audit Report 2016-FO-0001, Audit of Government National Mortgage Association Financial Statements for
Fiscal Years 2015 and 2014 (Restated), issued November 13, 2015, was incorporated into this report.
19
material weaknesses, one significant deficiency in internal control, and one instance of
noncompliance with laws and regulations.
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 15-02. 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.
With respect to information presented in HUD’s “required supplementary stewardship
information” and “required supplementary information” and management’s discussion and
analysis presented in HUD’s fiscal year 2015 agency financial report, we performed limited
testing procedures as required by AU-C 730, Required Supplementary Information. Our
procedures were not designed to provide assurance, and, accordingly, we do not provide an
opinion on such information.
Because of the matters described in the Basis for Disclaimer of Opinion 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 5, 2015, we provided a draft of the internal control and compliance sections of our
report to OCFO, appropriate assistant secretaries, and other departmental officials and requested
that OCFO coordinate a departmentwide response. OCFO responded in a memorandum dated
November 10, 2015, which is included in its entirety in our separate report, along with our
complete evaluation of the response. In summary, while OCFO recognized there were some
weaknesses within its operations, it indicated it did not have adequate time to sufficiently
validate the information within the draft report. It also indicated that beginning in December
2015 it would work closely with the OIG to develop optimal resolutions to result in a more
effective HUD.
All facts presented were communicated to the OCFO and applicable program offices throughout
the course of the audit through multiple vehicles such as assessments, notifications of findings
20
21
Appendixes
Appendix A
Schedule of Questioned Costs and Funds To Be Put to Better Use
Audit report Funds to be put to
Unsupported 1/ better use 2/
number
2016-FO-0001 $291,489,605
2016-FO-0003 $1,071,263,037
Totals $291,489,605 $1,071,263,037
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.
22
Appendix B
HUD’s Fiscal Years 2015 and 2014 (Restated) Consolidated Financial Statements and
Notes
23
Department of Housing and Urban Development
Consolidated Balance Sheet
As Of September 2015 and 2014
(Dollars in Millions)
2015 (Restated) 2014
ASSETS
Intragovernmental
Fund Balance with Treasury (Note 4) $ 94,691 $ 121,703
Investments (Note 5) 27,677 6,529
Other Assets (Note 10) 9 34
Total Intragovernmental Assets 122,377 128,266
Cash and Other Monetary Assets (Note 4) 45 37
Investments (Note 5) 31 41
Accounts Receivable, Net (Note 6) 780 1,887
Direct Loan and Loan Guarantees, Net (Note 7) 14,425 10,868
Other Non Credit Reform Loans (Note 8) 3,227 2,809
General Property Plant and Equipment, Net (Note 9) 329 308
PIH Prepayments 672 423
Other Assets (Note 10) 45 48
TOTAL ASSETS $ 141,931 $ 144,687
Stewardship PP&E (Note 11) - -
LIABILITIES
Intragovernmental Liabilities
Accounts Payable (Note 11) 15 16
Debt (Note 12) 27,150 27,661
Other Intragovernmental Liabilities (Notes 15) 2,610 1,801
Total Intragovernmental Liabilities 29,775 29,478
Accounts Payable (Note 11) 966 864
Accrued Grant Liabilities 2,388 1,501
Loan Guarantee Liability (Note 7) 14,307 31,779
Debt Held by the Public (Note 12) 8 8
Federal Employee and Veteran Benefits (Note 13) 69 74
Loss Reserves (Note 14) - -
Other Governmental Liabilities (Notes 15) 1,239 1,078
TOTAL LIABILITIES $ 48,752 $ 64,782
Commitments and Contingencies (Note 17) 55 15
NET POSITION
(320) (224)
Unexpended Appropriations - Funds From Dedicated Collections (Note 18)
Unexpended Appropriations - Other Funds 51,435 56,443
Cumulative Results of Operations - Funds From Dedicated Collections 21,417 19,623
(Note 18)
Cumulative Results of Operations - Other Funds 20,647 4,063
TOTAL NET POSITION - Funds From Dedicated Collections 21,097 19,399
TOTAL NET POSITION - All Other Funds 72,082 60,506
TOTAL NET POSITION 93,179 79,905
TOTAL LIABILITIES AND NET POSITION $ 141,931 $ 144,687
The accompanying notes are an integral part of these statements.
24
Department of Housing and Urban Development
Consolidating Statement of Net Cost
For the Period Ending September 2015 and 2014
(Dollars in Millions)
2015 (Restated) 2014
COSTS
Federal Housing Administration
Gross Cost (Note 22) $ (16,201) $ (3,108)
Less: Earned Revenue (1,849) (2,181)
Net Program Costs (18,050) (5,289)
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes (18,050) (5,289)
Government National Mortgage Association
Gross Cost (Note 22) (234) (38)
Less: Earned Revenue (1,555) (1,558)
Net Program Costs (1,789) (1,596)
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes (1,789) (1,596)
Section 8 Rental Assistance
Gross Cost (Note 22) 29,482 28,772
Less: Earned Revenue - -
Net Program Costs 29,482 28,772
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes 29,482 28,772
Public and Indian Housing Loans and Grants
Gross Cost (Note 22) 2,835 2,995
Less: Earned Revenue - -
Net Program Costs 2,835 2,995
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes 2,835 2,995
Homeless Assistance Grants
Gross Cost (Note 22) 1,894 1,881
Less: Earned Revenue (4) -
Net Program Costs 1,890 1,881
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes 1,890 1,881
Housing for the Elderly and Disabled
Gross Cost (Note 22) 1,037 1,196
Less: Earned Revenue (136) (177)
Net Program Costs 901 1,019
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes 901 1,019
Community Development Block Grants
Gross Cost (Note 22) 7,567 5,905
Less: Earned Revenue - (1)
Net Program Costs 7,567 5,904
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes 7,567 5,904
HOME
Gross Cost (Note 22) 1,241 1,064
Less: Earned Revenue - -
Net Program Costs 1,241 1,064
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes 1,241 1,064
Other
Gross Cost (Note 22) 6,071 6,503
Less: Earned Revenue (29) (39)
Net Program Costs 6,042 6,464
Gain/Loss from Assumption Changes (Note 15) - -
Net Program Costs including Assumption Changes 6,042 6,464
Costs Not Assigned to Programs 218 218
Earned Revenue Not Attributed to Programs - -
Consolidated
Gross Cost (Note 22) 33,910 45,388
Less: Earned Revenue (3,573) (3,956)
NET COST OF OPERATIONS $ 30,337 $ 41,432
The accompanying notes are an integral part of these statements.
25
Department of Housing and Urban Development
Consolidated Statement of Changes in Net Position
For the Period Ending September 2015 and 2014
(Dollars in Millions)
2015 (Restated) 2014
FUNDS FROM FUNDS FROM
DEDICATED ALL OTHER CONSOLIDATED DEDICATED ALL OTHER CONSOLIDATED
COLL. FUNDS TOTAL COLL. FUNDS TOTAL
CUMULATIVE RESULTS OF OPERATIONS:
Beginning of Period $ 19,622 $ 4,063 $ 23,685 $ 18,151 $ 426 $ 18,577
Adjustments:
Corrections of Errors (3) - (3) (145) (99) (244)
Beginning Balances, As Adjusted 19,619 4,063 23,682 18,006 327 18,333
BUDGETARY FINANCING SOURCES:
Appropriations Used 82 52,911 52,993 28 49,341 49,368
Non-exchange Revenue 3 - 3 1 - 1
Transfers In/Out Without Reimbursement - - - 1 (1) -
OTHER FINANCING SOURCES (NON-EXCHANGE):
Transfers In/Out Without Reimbursement - - - (5) 5 -
Imputed Financing - 65 65 1 77 78
Other - (4,342) (4,342) - (2,663) (2,663)
Total Financing Sources 85 48,634 48,719 26 46,759 46,785
Net Cost of Operations 1,713 (32,050) (30,337) 1,591 (43,023) (41,432)
Net Change 1,798 16,584 18,382 1,617 3,736 5,353
CUMULATIVE RESULTS OF OPERATIONS $ 21,417 $ 20,647 $ 42,064 $ 19,623 $ 4,063 $ 23,686
UNEXPENDED APPROPRIATIONS:
Beginning of Period $ (222) $ 56,442 $ 56,220 $ (214) $ 59,995 $ 59,781
Adjustments:
Corrections of Errors - 574 574 19 22 41
Beginning Balances, As Adjusted (222) 57,016 56,794 (195) 60,017 59,822
BUDGETARY FINANCING SOURCES:
Appropriations Received - 47,639 47,639 - 46,103 46,103
Appropriations Transfers In/Out 8 (8) - - - -
Other Adjustments (24) (301) (325) (1) (336) (338)
Appropriations Used (82) (52,911) (52,993) (28) (49,341) (49,368)
Total Budgetary Financing Sources (98) (5,581) (5,679) (29) (3,574) (3,603)
UNEXPENDED APPROPRIATIONS (320) 51,435 51,115 (224) 56,443 56,219
NET POSITION $ 21,097 $ 72,082 $ 93,179 $ 19,399 $ 60,506 $ 79,905
The accompanying notes are an integral part of these statements.
26
Department of Housing and Urban Development
Combined Statement of Budgetary Resources
For the Period Ending September 2015 and 2014
(Dollars in Millions)
2015 2014
NonBudgetary Credit NonBudgetary Credit
Program Financing Program Financing
Budgetary Accounts Budgetary Accounts
Budgetary Resources:
Unobligated Balance Brought Foward, October $ 34,729 $ 49,760 $ 28,153 $ 60,416
Unobligated balance brought forward, October 1, adjusted 34,729 49,760 28,153 60,416
Recoveries of prior year unpaid obligations 711 396 643 781
Other changes in unobligated balance (709) - (612) (8)
Unobligated balance from prior year budget authority, net 34,731 50,156 28,184 61,189
Appropriations (discretionary and mandatory) 47,458 - 45,790 -
Borrowing Authority (discretionary and mandatory) - 12,146 - 8,769
Spending Authority from offsetting collections 26,158 28,452 14,306 27,683
Total Budgetary Resources $ 108,347 $ 90,754 $ 88,280 $ 97,641
Status of Budgetary Resources:
Obligations Incurred (Note 31)
Direct 63,700 49,732 53,280 45,863
Reimbursable 194 5,560 270 2,018
Subtotal 63,894 55,292 53,550 47,881
Unobligated Balances - -
Apportioned 12,992 3,612 16,092 13,583
Unapportioned 31,461 31,850 18,638 36,177
Unobligated balance, end of year 44,453 35,462 34,730 49,760
Total Status of Budgetary Resources $ 108,347 $ 90,754 $ 88,280 $ 97,641
Change in Obligated Balance
Unpaid Obligations:
Unpaid obligations, brought forward, Oct 1 41,087 2,511 44,234 2,691
Adjustments to unpaid obligations, start of year (+ or -) (Note 28) - - 11 -
Obligations Incurred 63,894 55,292 53,550 47,881
Outlays, (gross) (-) (65,009) (54,626) (55,950) (47,395)
Actual Transfers, unpaid obligations (net) (+ or -) - - (115) 115
Recoveries of prior year unpaid obligations (-) (711) (396) (643) (781)
Unpaid obligations, end of year (gross) 39,261 2,781 41,087 2,511
Uncollected Payments:
Uncollected payments, Fed sources, brought forward, Oct 1 (-) (11) (53) (16) (66)
Change in uncollected customer payments, Fed sources (+ or -) (6) - 4 13
Uncollected payments, Fed sources, end of year (-) (17) (53) (12) (53)
Obligated balance, start of year (+ or -) $ 41,075 $ 2,458 $ 44,227 $ 2,626
Obligated balance, end of year (net) $ 39,244 $ 2,728 $ 41,075 $ 2,458
Budget Authority and Outlays, Net:
Budget authority, gross (discretionary and mandatory) 73,614 40,598 60,095 36,453
Actual offsetting collections (discretionary and mandatory) (-) (26,643) (41,109) (14,707) (34,876)
Change in uncollected customer payments from Federal Sources
(discretionary and mandatory) (+ or -) (6) - 4 13
Budget Authority, net (discretionary and mandatory) $ 46,965 $ (511) $ 45,392 $ 1,590
Outlays, gross (discretionary and mandatory) 65,009 54,626 55,950 47,395
Actual offsetting collections (discretionary and mandatory) (-) (26,640) (41,109) (14,707) (34,876)
Outlays, net (discretionary and mandatory) 38,369 13,517 41,243 12,519
Distributed offsetting receipts (2,844) - (2,719) -
Agency Outlays, net (discretionary and mandatory) $ 35,525 $ 13,517 $ 38,524 $ 12,519
The accompanying notes are an integral part of these statements.
27
Section 2: Financial Information
Notes to Financial Statements
Notes to Financial Statements
September 30, 2015 and 2014
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
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Section 2: Financial Information
Notes to Financial Statements
Emergency Solutions Grant and Continuum of Care which award funds through formula and
competitive processes.
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 billion were
disbursed as of September 30, 2015. 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 13 percent
of HUD’s consolidated revenues and financing sources as of September 30, 2015.
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 2015 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
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Notes to Financial Statements
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
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 2015 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.
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Notes to Financial Statements
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
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
and Indian Housing Authorities (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 2015
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.
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.
PIH administrative programs use disbursement data from the Department’s Electronic
Line of Credit Control Systems (ELOCCS) and evaluated it for reasonableness based on
unaudited data using the Financial Subsystem for Public Housing (FASS-PIH).
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Notes to Financial Statements
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.
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
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Section 2: Financial Information
Notes to Financial Statements
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
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.
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Section 2: Financial Information
Notes to Financial Statements
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
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.
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Section 2: Financial Information
Notes to Financial Statements
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
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
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Section 2: Financial Information
Notes to Financial Statements
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 14, 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
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
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Section 2: Financial Information
Notes to Financial Statements
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 believes issuer defaults are
probable and FHA, USDA, and PIH insurance or guarantees are insufficient to recoup Ginnie
Mae expenditures.
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
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Notes to Financial Statements
CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities applicable to its
employees’ retirement plans.
N. Fiduciary Funds
Ginnie Mae has immaterial fiduciary activities which involve the collection or receipt and
subsequent disposition of cash in which non-Federal entities have an ownership interest.
Fiduciary assets are not assets of Ginnie Mae or the Federal Government. The fiduciary assets
held by Ginnie Mae include unclaimed MBS Certificate Holders payments and escrow funds
held in trust. The amount of escrows reported by Ginnie Mae for FY 2015 and FY 2014 were
89 million and 88 million, respectively.
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
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, 2015 and 2014 were as follows (dollars in millions):
Description 2015 2014
Entity Non-Entity Total Entity Non-Entity Total
Intragovernmental
Fund Balance with Treasury (Note 4) $ 94,651 $ 40 $ 94,691 $ 121,668 $ 35 $ 121,703
Investments (Note 5) 27,677 - 27,677 6,529 - 6,529
Accounts Receivable, Net (Note 6) - - - - - -
Other Assets (Note 11) 9 - 9 34 - 34
Total Intragovernmental Assets $ 122,337 $ 40 $ 122,377 $ 128,231 $ 35 $ 128,266
Cash and Other Monetary Assets (Note 4) - 45 45 - 37 37
Investments (Note 5) 31 - 31 41 - 41
Accounts Receivable, Net (Note 6) 686 94 780 1,845 42 1,887
Loan Receivables and Related Foreclosed Property, Net (Note 7) 14,292 133 14,425 10,829 39 10,868
Other Non-Credit Reform Loans Receivable, Net (Note 8) 3,227 - 3,227 2,809 - 2,809
General Property, Plant and Equipment, Net (Note 9) 329 - 329 308 - 308
PIH Prepayments (Note 10) 672 - 672 423 - 423
Other Assets (Note 11) 8 37 45 7 41 48
Total Assets $ 141,582 $ 349 $ 141,931 $ 144,493 $ 194 $ 144,687
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HUD FY 2015 Agency Financial Report Page 11
Section 2: Financial Information
Notes to Financial Statements
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, 2015 and 2014 were as follows (dollars in millions):
Description 2015 2014
Revolving Funds $ 40,170 $ 62,861
Appropriated Funds 53,241 57,780
Trust Funds 14 13
Other 1,266 1,049
Total - Fund Balance $ 94,691 $ 121,703
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.
39
HUD FY 2015 Agency Financial Report Page 12
Section 2: Financial Information
Notes to Financial Statements
HUD’s fund balances with the U.S. Treasury as reflected in the entity’s general ledger as of
September 30, 2015 and 2014 were as follows (dollars in millions):
S tatus of Resources - 2015
Obligated Unfilled S tatus of
Unobligated Unobligated Not Yet Customer Total Other Total
Description Available Unavailable Disbursed Orders Resources Fund Balance Authority Resources
FHA $ 3,565 $ 47,154 $ 3,050 $ (15) $ 53,754 $ 39,057 $ 14,697 $ 53,754
Ginnie M ae 6 14,066 584 - 14,656 1,733 12,923 14,656
Section 8 Rental Assistance 698 92 8,902 - 9,692 9,692 - 9,692
PIH Loans and Grants 113 43 4,711 - 4,867 4,867 - 4,867
Homeless Assistance Grants 2,086 539 2,536 - 5,161 5,161 - 5,161
Section 202/811 253 188 1,964 - 2,405 2,405 - 2,405
CDBG 9,021 8 12,495 - 21,524 21,524 - 21,524
Home 237 27 3,184 - 3,448 3,448 - 3,448
Section 235/236 31 32 951 - 1,014 1,014 - 1,014
All Other 594 1,175 3,665 (56) 5,378 5,366 12 5,378
Total $ 16,604 $ 63,324 $ 42,042 $ (71) $ 121,899 $ 94,267 $ 27,632 $ 121,899
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 $ 3,565 $ 32,457 $ 3,050 $ (15) 39,057 $ - $ 39,057
Ginnie M ae 6 1,143 584 - 1,733 409 2,142
Section 8 Rental Assistance 698 92 8,902 - 9,692 - 9,692
PIH Loans and Grants 113 43 4,711 - 4,867 - 4,867
Homeless Assistance Grants 2,086 539 2,536 - 5,161 - 5,161
Section 202/811 253 188 1,964 - 2,405 - 2,405
CDBG 9,021 8 12,495 - 21,524 - 21,524
Home 237 27 3,184 - 3,448 - 3,448
Section 235/236 31 32 951 - 1,014 - 1,014
All Other 594 1,163 3,665 (56) 5,366 15 5,381
Total $ 16,604 $ 35,692 $ 42,042 $ (71) $ 94,267 $ 424 $ 94,691
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 $ - $ 14,697 $ - $ - $ - $ 14,697 $ -
Ginnie M ae - 12,923 - - - 12,923 -
Section 8 Rental Assistance - - - - - - -
PIH Loans and Grants - - - - - - -
Section 202/811 - - - - - - -
Section 235/236 - - - - - - -
All Other - 12 - - - - 12
Total $ - $ 27,632 $ - $ - $ - $ 27,620 $ 12
S tatus of Receipt Account Balances Breakdown of All Other
Fund Fund
Description Balance Description Balance
FHA $ - All Other HUD suspense/deposit funds $ 15
Ginnie M ae $ 409 -
Section 8 Rental Assistance - Total $ 15
All Other 15
Total $ 424
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HUD FY 2015 Agency Financial Report Page 13
Section 2: Financial Information
Notes to Financial Statements
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 1,108 3,948 (54) 5,559 5,547 12 5,559
Total $ 29,675 $ 54,826 $ 43,599 $ (64) $ 128,036 $ 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
41
HUD FY 2015 Agency Financial Report Page 14
Section 2: Financial Information
Notes to Financial Statements
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: Cash and Other Monetary Assets
Cash and other monetary assets consist of cash that is received by the Ginnie Mae’s Master
Subservicers, but has not yet been transmitted to Ginnie Mae. As of September 30, 2015
and 2014, deposits in transit were $45 million and $37 million, respectively.
Note 6: Investments
The U.S. Government securities are non-marketable intra-governmental securities. Interest rates
established by the U.S. Treasury as of September 30, 2015 were 0.01 percent. During FY 2014,
interest rate was 0.01 percent. The amortized cost and estimated market value of investments in
debt securities as of September 30, 2015 and 2014 were as follows (dollars in millions):
Amortized
(Premium)/ Accrued Net Market
Cost Discount, Net Interest Investments Value
FY 2015 $ 27,654 $ 10 $ 13 $ 27,677 $ 27,687
FY 2014 $ 6,521 $ 1 $ 7 $ 6,529 $ 6,530
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, 2015 and 2014 (dollars in millions):
Share of
Beginning Net Earnings or Return of Ending
Balance Acquisition Losses Investment Redeemed Balance
2015
601 Program $ 41 $ 19 $ - $ - $ (29) $ 31
Risk Sharing Debentures - - - - - -
Total $ 41 $ 19 $ - $ - $ (29) $ 31
2014
601 Program $ 56 $ - $ - $ - $ (15) $ 41
Risk Sharing Debentures - - - - - -
Total $ 56 $ - $ - $ - $ (15) $ 41
42
HUD FY 2015 Agency Financial Report Page 15
Section 2: Financial Information
Notes to Financial Statements
Note 7: 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,
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
43
HUD FY 2015 Agency Financial Report Page 16
Section 2: Financial Information
Notes to Financial Statements
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, 2015 and 2014, HUD was due $14 million and $15 million, respectively.
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, 2015 and 2014 (dollars in millions):
2015 2014
Gross Gross
Accounts Allowance Accounts Allowance
Description Receivable for Loss Total, Net Receivable for Loss Total, Net
Intragovernmental $ - $ - $ - $ - $ - $ -
Public
Sustained Audit Costs $ 158 $ - $ 158 $ 64 $ - $ 64
Bond Refundings 13 - 13 15 - 15
Section 8 Settlements 17 - 17 4 1 5
Section 236 Excess Rental Income 5 (1) 4 5 (1) 4
Other Receivables: - -
FHA 453 (322) 131 2,328 (868) 1,460
Ginnie Mae 649 (241) 408 678 (360) 318
Other Receivables 51 (2) 49 24 (3) 21
Total Accounts Receivable $ 1,346 $ (566) $ 780 $ 3,118 $ (1,231) $ 1,887
44
HUD FY 2015 Agency Financial Report Page 17
Section 2: Financial Information
Notes to Financial Statements
Note 8: 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.
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 2015 and FY 2014:
45
HUD FY 2015 Agency Financial Report Page 18
Section 2: Financial Information
Notes to Financial Statements
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
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):
2015
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 $ - $ - $ - $ - -
b) GI/SRI Direct Loan Program 14 12 (6) - 20
Housing for the Elderly and Disabled 1,412 15 (11) - 1,416
All Other -
a) CPD Revolving Fund 5 - (5) 2 2
b) Flexible Subsidy Fund 428 72 (39) - 461
Total $ 1,859 $ 99 $ (61) $ 2 $ 1,899
46
HUD FY 2015 Agency Financial Report Page 19
Section 2: Financial Information
Notes to Financial Statements
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
C. Direct Loans Obligated Post-1991 (dollars in millions):
2015
Value of
Loans Assets
Receivable, Interest Allowance for Foreclosed Related to
Direct Loan Programs Gross Receivable Loan Losses Property Direct Loans
FHA
a) MMI/CHMI Direct Loan Program $ - $ - $ (3) $ - (3)
b) GI/SRI Direct Loan Program 103 - 34 - 137
All Other
a) Green Retrofit Program $ 63 $ 1 $ (66) $ - $ (2)
b) Emergency Homeowners' Loan Program 50 - (50) - -
c) EHLP Receipt Account 133 - - - 133
Total $ 349 $ 1 $ (85) $ - $ 265
2014
Value of
Loans Assets
Receivable, Interest Allowance for Foreclosed Related to
Direct Loan Programs Gross Receivable Loan Losses Property Direct Loans
FHA
a) MMI/CHMI Direct Loan Program $ - $ - $ - $ - -
b) GI/SRI Direct Loan Program - - - - -
All Other $ 70 $ 1 $ (66) $ - $ 5
a) Green Retrofit Program 82 - (81) - 1
b) Emergency Homeowners' Loan Program 39 - - - 39
Total $ 191 $ 1 $ (147) $ - $ 45
D. Total Amount of Direct Loans Disbursed (Post-1991) (dollars in millions):
Current Prior
Direct Loan Programs Year Year
FHA Risk Sharing Program $ 103 $ -
All Other
a) Green Retrofit Program $ - $ -
b) Emergency Homeowners' Loan Program - 5
Total $ 103 $ 5
47
HUD FY 2015 Agency Financial Report Page 20
Section 2: Financial Information
Notes to Financial Statements
E. Subsidy Expense for Direct Loans by Program and Component (dollars in
millions):
E1. Subsidy Expense for New Direct Loans Disbursed (dollars in millions):
2015
Interest Fees and Other
Direct Loan Programs Differential Defaults Collections Other Total
FHA Risk Sharing Program $ (5) $ - $ (3) $ (1) $ (9)
All Other
a) Green Retrofit Program $ - $ - $ - $ - $ -
b) Emergency Homeowners' Loan Program - - - - -
Total $ (5) $ - $ (3) $ (1) $ (9)
2014
Interest Fees and Other
Direct Loan Programs Differential Defaults Collections Other Total
FHA Risk Sharing Program $ - $ - $ - $ - $ -
All Other
a) Green Retrofit Program $ - $ - $ - $ - $ -
b) Emergency Homeowners' Loan Program - - - 5 5
Total $ - $ - $ - $ 5 $ 5
E2. Modifications and Re-estimates (dollars in millions):
2015
Total Interest Rate Technical Total
Direct Loan Programs Modification Re-estimates Re-stimates Re-estimates
FHA Risk Sharing Program $ - $ - $ - $ -
All Other
a) Green Retrofit Program $ - $ - $ - $ -
b) Emergency Homeowners' Loan Program - - - -
Total $ - $ - $ - $ -
2014
Total Interest Rate Technical Total
Direct Loan Programs Modification Re-estimates Re-stimates Re-estimates
FHA Risk Sharing Program $ - $ - $ - $ -
All Other
a) Green Retrofit Program $ - $ - $ - $ -
b) Emergency Homeowners' Loan Program - - - -
Total $ - $ - $ - $ -
E3. Total Direct Loan Subsidy Expense (dollars in millions):
Current Prior
Direct Loan Programs Year Year
FHA Risk Sharing Program $ (8) $ -
All Other
a) Green Retrofit Program $ - $ -
b) Emergency Homeowners' Loan Program - 5
Total $ (8) $ 5
48
HUD FY 2015 Agency Financial Report Page 21
Section 2: Financial Information
Notes to Financial Statements
F. Subsidy Rates for Direct Loans by Program and Component:
Budget Subsidy Rates for Direct Loans
2015
Interest Fees and Other
Direct Loan Programs Differential Defaults Collections Other Total
FHA Risk Sharing Program (6.1%) 0.5% (3.9%) (1.3%) (10.8%)
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%
2014
Interest Fees and Other
Direct Loan Programs Differential Defaults Collections Other Total
FHA Risk Sharing Program 0.0% 0.0% 0.0% 0.0% 0.0%
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%
G. Schedule for Reconciling Subsidy Cost Allowance Balances (Post-1991
Direct Loans) (dollars in millions):
Beginning Balance, Changes, and Ending Balance FY 2015 FY 2014
Beginning balance of the subsidy cost allowance $ 152 $ 151
Add: subsidy expense for direct loans disbursed
during the reporting years by component: - -
a) Interest rate differential costs (5) -
b) Default costs (net of recoveries) - -
c) Fees and other collections (3) -
d) Other subsidy costs (1) 5
Total of the above subsidy expense components (9) 5
Adjustments:
a) Loan modifications - -
b) Fees received - -
c) Foreclosed properties acquired - -
d) Loans written off (31) (5)
e) Subsidy allowance amortization 1 1
f) Other (4) -
Ending balance of the subsidy cost allowance before re-estimates 109 152
Add or subtract subsidy re-estimates by component:
a) Interest rate re-estimate - (5)
b) Technical/default re-estimate (24) -
Total of the above re-estimate components (24) (5)
Ending balance of the subsidy cost allowance $ 85 $ 147
49
HUD FY 2015 Agency Financial Report Page 22
Section 2: Financial Information
Notes to Financial Statements
H. Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for
Loss Method) (dollars in millions):
2015
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
MMI/CMHI
a) Single Family $ 22 $ - $ (7) $ 7 $ 22
b) Multi Family - - - - -
c) HECM - - - - -
GI/SRI
a) Single Family $ - $ - $ (4) $ 9 $ 5
b) Multi Family 1,946 234 (808) 1 1,373
c) HECM 4 2 (5) (2) (1)
Total $ 1,972 $ 236 $ (824) $ 15 $ 1,399
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
MMI/CMHI
a) Single Family $ 21 $ - $ (9) $ 11 $ 23
b) Multi Family - - - - -
c) HECM - - - - -
GI/SRI
a) Single Family $ - $ - $ (4) $ 9 $ 5
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
50
HUD FY 2015 Agency Financial Report Page 23
Section 2: Financial Information
Notes to Financial Statements
I. Defaulted Guaranteed Loans from Post-1991 Guarantees (dollars in millions):
2015
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
MMI/CMHI
a) Single Family $ 8,805 $ - $ (7,050) $ 3,131 $ 4,886
b) Multi Family - - - - -
c) HECM 2,182 992 (1,008) 11 2,177
GI/SRI
a) Single Family $ 292 $ 1 $ (233) $ 94 $ 154
b) Multi Family 655 - (272) 1 384
c) HECM 3,107 1,517 (1,495) 101 3,230
All Other - - - - -
a) Indian Housing Loan Guarantee - - - 31 31
b) Native Hawaiian Housing Loan Guarantee - - - (1) (1)
Total $ 15,041 $ 2,510 $ (10,058) $ 3,368 $ 10,861
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
MMI/CMHI
a) Single Family $ 5,247 $ - $ (4,193) $ 2,437 $ 3,491
b) Multi Family - - - - -
c) HECM 996 371 (598) 5 774
GI/SRI
a) Single Family $ 176 $ 1 $ (139) $ 73 $ 111
b) Multi Family 818 - (319) 1 500
c) HECM 2,510 1,192 (1,648) 80 2,134
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
2015 2014
Total Credit Program Receivables and Related Foreclosed Property, Net $14,425 $10,868
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Section 2: Financial Information
Notes to Financial Statements
J. Guaranteed Loans Outstanding (dollars in millions):
J1. Guaranteed Loans Outstanding (dollars in millions):
2015
Outstanding
Principal,
Guaranteed Loans, Amount of Outstanding
Loan Guarantee Programs Face Value Principal Guaranteed
FHA Programs
a) MMI/CMHI Funds $ 1,168,560 $ 1,065,896
b) GI/SRI Funds 123,399 112,063
c) H4H Progam 98 92
All Other 7,321 7,317
Total $ 1,299,378 $ 1,185,368
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
J2. Home Equity Conversion Mortgage Loans Outstanding (dollars in millions):
Cumulative
2015 Current Year Current Outstanding Maximun Potential
Loan Guarantee Programs Endorsements Balance Liability
FHA Programs $ 15,890 $ 105,471 $ 149,645
Cumulative
2014 Current Year Current Outstanding Maximun Potential
Loan Guarantee Programs Endorsements Balance Liability
FHA Programs $ 13,473 $ 105,523 $ 149,885
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Section 2: Financial Information
Notes to Financial Statements
J3. New Guaranteed Loans Disbursed (dollars in millions):
2015
Outstanding Principal, Amount of Outstanding
Loan Guarantee Programs Guaranteed Loans, Face Value Principal Guaranteed
FHA Programs
a) MMI/CMHI Funds $ 213,125 $ 211,322
b) GI/SRI Funds 11,366 11,311
c) H4H Program - -
All Other 1,008 1,008
Total $ 225,499 $ 223,641
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
K. Liability for Loan Guarantees (Estimated Future Default Claims,
Pre-1992) (dollars in millions):
2015
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 $ 7 $ 13,998 $ 14,005
All Other - 289 289
Total $ 7 $ 14,287 $ 14,294
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
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Section 2: Financial Information
Notes to Financial Statements
L. Subsidy Expense for Post-1991 Guarantees:
L1. Subsidy Expense for Loan Guarantees (dollars in millions):
2015
Endorsement Default Fees Other Subsidy
Loan Guarantee Programs Amount Component Component Component Amount
FHA
a) MMI/CMHI Funds, Excluding HECM $ 213,125 $ 5,684 $ (18,706) $ - $ (13,022)
b) MMI/CMHI Funds, HECM 15,890 991 (1,055) - (64)
c) GI/SRI Funds 11,366 191 (703) - (512)
d) H4H Program - - - - -
All Other - 8 - - 8
Total $ 240,381 $ 6,874 $ (20,464) $ - $ (13,590)
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. Modification and Re-estimates (dollars in millions):
2015
Total Interest Rate Technical Total
Loan Guarantee Programs Modifications Re-estimates Re-estimates Re-estimates
FHA
a) MMI/CMHI Funds $ - $ - $ (2,248) $ (2,248)
b) GI/SRI Funds - - (1,088) (1,088)
All Other - - (12) (12)
Total $ - $ - $ (3,348) $ (3,348)
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
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Section 2: Financial Information
Notes to Financial Statements
L3. Total Loan Guarantee Subsidy Expense (dollars in millions):
Loan Guarantee Programs Current Year Prior Year
FHA
a) MMI/CMHI Funds $ (15,333) $ (6,470)
b) GI/SRI Funds (1,600) (64)
c) H4H Program - -
All Other $ (5) $ 101
Total $ (16,938) $ (6,433)
M. Subsidy Rates for Loan Guarantees by Programs and Component:
Budget Subsidy Rates for Loan Guarantees for FY 2015 Cohorts
Fees and Other
Loan Guarantee Program Default Collections Total
FHA Programs
MMI/CMHI
Single Family - Forward 2.7% (10.5%) (7.8%)
Single Family - HECM 6.2% (6.6%) (0.4%)
Single Family - Refinancing 10.1% (10.1%) 0.0%
Multi Family - Section 213 0.0% 0.0% 0.0%
GI/SRI
Multifamily
Section 221(d)(4) 2.5% (6.2%) (3.7%)
Section 207/223(f) 0.3% (5.0%) (4.7%)
Section 223(a)(7) 0.3% (5.0%) (4.7%)
Section 232 3.8% (8.0%) (4.2%)
Section 242 2.6% (7.1%) (4.5%)
H4H
Single Family - Section 257 0.0% 0.0% 0.0%
All Other Programs
CDBG, Section 108(b) 2.4% 0.0% 2.4%
Loan Guarantee Recovery 50.0% 0.0% 50.0%
Indian Housing (weighted average) 1.3% 0.0% 1.3%
Native Hawaiian Housing 0.6% 0.0% 0.6%
Title VI Indian Housing 11.2% 0.0% 11.2%
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Section 2: Financial Information
Notes to Financial Statements
Budget Subsidy Rates for Loan Guarantees for FY 2014 Cohorts
Fees and Other
Loan Guarantee Program Default Collections 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%
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% 0.0% 2.6%
Loan Guarantee Recovery 50.0% 0.0% 50.0%
Indian Housing (weighted average) 0.5% 0.0% 0.5%
Native Hawaiian Housing 0.1% 0.0% 0.1%
Title VI Indian Housing 12.1% 0.0% 12.1%
N. Schedule for Reconciling Loan Guarantee Liability Balances (Post-1991
Loan Guarantees) (dollars in millions):
Beginning Balance, Changes, and Ending Balance 2015 2014
Beginning balance of the loan guarantee liability $ 33,024 $ 41,638
Add: subsidy expense for guaranteed loans disbursed during
the reporting years by component:
(a) Interest supplement costs - -
(b) Default costs (net of recoveries) 6,875 5,101
(c) Fees and other collections (20,465) (15,552)
(d) Othe subsidy costs - -
Total of the above subsidy expense components $ (13,590) $ (10,451)
Adjustments:
(a) Loan guarantee modifications - -
(b) Fees Received 13,288 12,233
(c) Interest supplemental paid - -
(d) Foreclosed property and loans acquired 13,564 11,871
(e) Claim payments to lenders (26,642) (27,960)
(f) Interest accumulation on the liability balance 580 1,165
(g) Other 1,089 524
Ending balance of the subsidy cost allowance before re-estimates $ 21,313 $ 29,020
Add or Subtract subsidy re-estimates by component:
(a) Interest rate re-estimate - -
(b) Technical/default re-estimate (3,876) 5,387
(c) Adjustment of prior years credit subsidy re-estimates (1,032) (658)
Total of the above re-estimate components (4,908) 4,729
Ending balance of the subsidy cost allowance $ 16,405 $ 33,749
Less: unrealized Ginnie Mae claims from defaulted loans $ (2,098) $ (1,970)
Ending balance of the subsidy cost allowance $ 14,307 $ 31,779
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HUD FY 2015 Agency Financial Report Page 29
Section 2: Financial Information
Notes to Financial Statements
O. Administrative Expenses (dollars in millions):
Loan Guarantee Program 2015 2014
FHA $ 557 $ 576
All Other - -
Total $ 557 $ 576
Note 9: Other Non-Credit Reform Loans
The following shows HUD’s Other Non-Credit Reform Loans Receivable as of September
30, 2015 and 2014 (dollars in millions):
2015
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 $ 4,362 $ (1,334) $ 3,028
Advances Against Defaulted Mortgage-Backed Security Pools, net 119 - 119
Properties Held for Sale, net 30 - 30
Foreclosed Property 769 (719) 50
Short Sale Claims Receivable 45 (45) -
Total $ 5,325 $ (2,098) $ 3,227
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 $ 4,113 $ (1,747) $ 2,366
Advances Against Defaulted Mortgage-Backed Security Pools, net 81 - 81
Properties Held for Sale, net 13 - 13
Foreclosed Property 555 (204) 351
Short Sale Claims Receivable 17 (19) (2)
Total $ 4,779 $ (1,970) $ 2,809
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
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Section 2: Financial Information
Notes to Financial Statements
B. Mortgage loans were previously insured but insurance is currently denied (collectively
with B), referred to as uninsured mortgage loans)
Ginnie Mae has the option to purchase mortgage loans out of the MBS pool when:
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.
For the years ended September 30, 2015 and 2014, the majority of purchased mortgage loans
were bought out of the pool due to borrower delinquency of more than three months.
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 HFI. The mortgage
loans HFI are reported net of allowance for loan losses.
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 if 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.
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. As a part of this assessment, Ginnie Mae incorporates the
probable recovery amount from mortgage insurance (e.g., FHA, USDA, VA, or PIH) based on
established insurance rates. Additionally, Ginnie Mae reviews the delinquency of mortgage
loans, industry benchmarks, as well as the established rates of insurance recoveries from
insurers. Ginnie Mae records an allowance for the estimated uncollectible amount. 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.
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Section 2: Financial Information
Notes to Financial Statements
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 fair value option was not elected by Ginnie Mae for any recognized loans on its balance
sheet in 2015 and 2014. The fair value option allows certain financial assets, such as acquired
loans, to be reported at fair value (with unrealized gains and losses reported in the Statement of
Revenues and Expenses). Ginnie Mae reserves the right to elect the fair value option for newly
acquired loans in future periods. As the fair value option was not elected and Ginnie Mae has
the ability and the intent to hold these acquired loans for the foreseeable future or until maturity,
the mortgage loans were classified as loans HFI and reported at amortized cost (net of allowance
for loan losses).
Management is currently pursuing marketing activities to potentially sell loans currently
recognized on Ginnie Mae’s balance sheet. Once a plan of sale is developed and loans are
clearly identified for sale, Ginnie Mae will reclassify the applicable loans from HFI to HFS (held
for sale). For loans which Ginnie Mae initially classifies as held for investment and
subsequently transfers to HFS, those loans should be recognized at the lower of cost or fair value
until sold. As of the year ended September 30, 2015 and 2014, Ginnie Mae has no loans
classified as HFS.
Please note that management is currently assessing current and historic loan accounting for
potential restatement.
Mortgage loans HFI, net as of September 30, 2015 and 2014, was $4,362 million and
$4,113 million, 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
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Section 2: Financial Information
Notes to Financial Statements
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. Management is currently addressing
current and historic accounting practices for potential restatement. The advances against
defaulted MBS pools balance is $119 million in FY 2015 and $81 million in FY 2014.
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, they are to be recorded at the fair
value of the asset less the estimated cost to sell with subsequent declines in the fair value below
the initial acquired property cost basis recorded through the use of a valuation allowance. The
Properties Held for Sale balance is one of the line items for which Ginnie Mae Management is
currently performing an assessment related to the recognition and measurement as compared to
US GAAP requirements. Currently, Ginnie Mae does not have access to broker price opinions
or other fair value data for acquired properties. A further assessment of data availability is
currently being performed. Properties Held for Sale, net, as of September 30, 2015 and 2014
was $30 and $13 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. Management is currently
addressing current and historic accounting practices for potential restatement. Foreclosed
Property, net as of September 30, 2015, was $769 million, and, net as of September 30, 2014,
was $555 million.
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Section 2: Financial Information
Notes to Financial Statements
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. Management is currently addressing current and historic accounting practices
for potential restatement. Short Sale Claims Receivable, net as of September 30, 2015 and 2014
was $45 and $17 million, respectively.
Note 10: 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.
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Section 2: Financial Information
Notes to Financial Statements
The following shows general property, plant, and equipment as of September 30, 2015 and
September 30, 2014 (dollars in millions):
Description 2015 2014
Accumulated Accumulated
Depreciation and Book Depreciation and Book
Cost Amortization Value Cost Amortization Value
Equipment $ 7 $ - $ 7 $ 7 $ - $ 7
Leasehold Improvements - - - - - -
Internal Use Software 186 (152) 34 176 (137) 39
Internal Use Software in Development 288 - 288 262 - 262
Total $ 481 $ (152) $ 329 $ 445 $ (137) $ 308
Note 11: 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. PIH has estimated NRA balances of $205 million and
$467 million for FY 2015 related to the Housing Choice Voucher and Moving to Work
Programs. The amount of advances reported by the Department in its comparative financial
statements does not include advances to grantees participating in the Indian Block Grant
Program which allows investment authority for up to five years. Although the Department does
not agree with the OIG’s recommendation that expenditures be reclassified as advances, the OIG
reported that 43 grantees invested approximately $273 million and $218 million as of September
30, 2015 and September 30, 2014, respectively.
Note 12: Other Assets
The following shows HUD’s Other Assets as of September 30, 2015 and 2014 (dollars in
millions):
2015
Description FHA Ginnie Mae Section 8 All Other Total
Intragovernmental Assets:
Other Assets $ 1 $ - $ 4 $ 4 $ 9
Total Intragovernmental Assets 1 - 4 4 9
Mortgagor Reserves for Replacement - Cash $ 37 $ - $ - $ - $ 37
Other Assets 8 - - - 8
Total $ 46 $ - $ 4 $ 4 $ 54
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Section 2: Financial Information
Notes to Financial Statements
2014
Description FHA Ginnie Mae Section 8 All Other Total
Intragovernmental Assets:
Other Assets $ 1 $ - $ 2 $ 31 $ 34
Total Intragovernmental Assets 1 - 2 31 34
Mortgagor Reserves for Replacement - Cash $ 41 $ - $ - $ - $ 41
Other Assets 6 - - 1 7
Total $ 48 $ - $ 2 $ 32 $ 82
Note 13: Liabilities Covered and Not Covered by Budgetary
Resources
The following shows HUD’s liabilities as of September 30, 2015 and 2014 (dollars in millions):
Description 2015 2014
Covered Not-Covered Total Covered Not-Covered Total
Intragovernmental
Accounts Payable $ 15 $ - $ 15 $ 16 $ - $ 16
Debt 27,150 - 27,150 27,661 - 27,661
Other Intragovernmental Liabilities 2,594 16 2,610 1,785 16 1,801
Total Intragovernmental Liabilities $ 29,759 $ 16 $ 29,775 $ 29,462 $ 16 $ 29,478
Accounts Payable 966 - 966 864 - 864
Accrued Grant Liabilities 2,388 - 2,388 1,501 - 1,501
Liabilities for Loan Guarantees 14,307 - 14,307 31,779 - 31,779
Debt 8 - 8 8 - 8
Federal Employee and Veterans' Benefits - 69 69 - 74 74
Loss Liability - - - - - -
Other Liabilities 1,105 134 1,239 998 80 1,078
Total Liabilities $ 48,533 $ 219 $ 48,752 $ 64,612 $ 170 $ 64,782
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 14: 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.
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Section 2: Financial Information
Notes to Financial Statements
The following shows HUD borrowings, and borrowings by PHAs/TDHEs for which HUD is
responsible for repayment, as of September 30, 2015 (dollars in millions):
Beginning Net Ending
Description Balance Borrowings Balance
Debt to the Federal Financing Bank $ - $ 122 $ 122
Debt to the U.S. Treasury 27,661 (633) 27,028
Held by the Public 9 (1) 8
Total $ 27,670 $ (512) $ 27,158
Classification of Debt:
Intragovernmental Debt $ 27,150
Debt held by the Public 8
Total $ 27,158
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 Federal Financing Bank $ - $ - $ -
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
Interest paid on borrowings as of September 30, 2015 and 2014 was $1,191 million and
$963 million, respectively. The purpose of these borrowings is discussed in the following
paragraphs.
Borrowings from the U.S. Treasury
In FY 2015 and FY 2014, FHA borrowed $27,023 million and $27,528 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 1.02 percent to 7.59 percent during FY 2015.
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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
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 15: 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 2015, HUD recorded imputed costs of $65 million which consisted of $27 million for
pension and $38 million for 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. 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 $69 million as of September 30, 2015, and $74 million as of
September 30, 2014. Future payments on this liability are to be funded by future financing
sources.
In addition to the imputed costs of $65 million noted above, HUD recorded benefit expenses
totaling $179 million for FY 2015 and $170 million for FY 2014.
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Note 16: MBS Loss Liability
Liability for loss on MBS program guaranty (MBS loss liability) represents the loss contingency
that arises from the guaranty obligation that Ginnie Mae has to the MBS holders as a result of a
probable issuer default. The issuers have the obligation to make timely principal and interest
payments to investors, however, in the event whereby the issuer defaults, Ginnie Mae steps in
and continues to make the contractual payments to investors. The contingent aspect of the
guarantee is measured under ASC Subtopic 450-20, Contingencies – Loss Contingencies.
Ginnie Mae’s Office of Enterprise Risk (ERO) utilizes CorporateWatch to assist in the analysis
of potential defaults. CorporateWatch assigns each issuer an internal risk grade using an
internally developed proprietary risk-rating methodology. The objective of the methodology is
to identify those Ginnie Mae issuers that display an elevated likelihood of default relative to their
peers. To this end, the methodology assigns each active Issuer a risk grade ranging from 1-8,
with 1 representing a low probability of default and 8 representing an elevated probability of
default. A higher probability of default would arise from an observed weakness in an entity's
financial health. Those Issuers with an elevated probability of default are assigned an internal
risk grade of 7 or 8 and are automatically included in Risk Category I of the Watch List. ERO
prepares written financial reviews on all Issuers appearing in Risk Category I of Watch List to
assess the level of on-going monitoring needed to ensure that these Issuers remain viable Ginnie
Mae counterparties or to take other mitigation actions.
Note 17: Other Liabilities
The following shows HUD’s Other Liabilities as of September 30, 2015 (dollars in millions):
Non-
Description Current Current Total
Intragovernmental Liabilities
FHA Special Receipt Account Liability $ - $ 2,351 $ 2,351
Unfunded FECA Liability 16 - 16
Employer Contributions and Payroll Taxes - 5 5
Miscellaneous Receipts Payable to Treasury - 228 228
Advances to Federal Agencies - 10 10
Total Intragovernmental Liabilities $ 16 $ 2,594 $ 2,610
Other Liabilities
FHA Other Liabilities $ - $ 412 $ 412
FHA Escrow Funds Related to Mortgage Notes - 314 314
Ginnie Mae Deferred Income 273 34 307
Deferred Credits - 18 18
Deposit Funds - 13 13
Accrued Unfunded Annual Leave 79 - 79
Accrued Funded Payroll Benefits - 32 32
Contingent Liability 55 - 55
Other 7 2 9
Total Other Liabilities $ 430 $ 3,419 $ 3,849
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Notes to Financial Statements
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 - 4 4
Miscellaneous Receipts Payable to Treasury - 82 82
Advances to Federal Agencies - 10 10
Total Intragovernmental Liabilities $ 1,705 $ 96 $ 1,801
Other Liabilities
FHA Other Liabilities $ 323 $ - $ 323
FHA Escrow Funds Related to Mortgage Notes 307 - 307
Ginnie Mae Deferred Income 267 22 289
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 $ 2,682 $ 197 $ 2,879
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 18: 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, 2015
and 2014 was $1,292 billion and $1,291 billion, respectively. The amount of outstanding
principal guaranteed (insurance-in-force) as of September 30, 2015 and 2014 was $1,178 billion
and $1,186 billion, respectively, as disclosed in Note 8J. The maximum claim amount (MCA)
outstanding for FHA’s reverse mortgage insurance program (HECM) as of September 30, 2015
and 2014 was $150 billion and $150 billion, respectively. As of September 30, 2015 and 2014,
the insurance-in-force (the outstanding balance of active loans) was $105 billion and
$106 billion, respectively, as disclosed in Note 8J. 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
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PIH mortgage loans. Ginnie Mae is exposed to credit loss in the event of non-performance by
other parties to the financial instruments. The total amount of Ginnie Mae guaranteed securities
outstanding at September 30, 2015 and 2014 was approximately $1,609 billion and
$1,526 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, 2015 and 2014 were $129 billion and $98 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 2015 and FY 2014, Ginnie Mae issued a total of $93 billion and $114 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, 2015 and 2014 were
$473 billion and $487 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, 2015 and
2014 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 19: 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 $5.2 million or more. In the opinion of management and general counsel, the
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Section 2: Financial Information
Notes to Financial Statements
ultimate resolution of these legal actions will not have an effect on the Department’s
consolidated financial statements as of September 30, 2015. As a result, no contingent liability
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 $55 million 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 20: 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 2015,
Ginnie Mae was authorized to use $23 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.
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Notes to Financial Statements
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.
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Notes to Financial Statements
The following shows funds from dedicated collections as of September 30, 2015 (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 $ 2,142 $ 8 $ 380 $ 14 $ 42 $ - $ - $ 2,586
Cash and Other Monetary Assets 45 - - - - - - 45
Investments 12,923 - - - - - - 12,923
Accounts Receivable 131 4 - - 18 - - 153
Loans Receivable - - 461 - (2) - - 459
Other Non-Credit Reform Loans Receivable 5,325 - - - - - - 5,325
General Property, Plant and Equipment 58 - - - - - - 58
Other - - - - - - - -
Total Assets $ 20,624 $ 12 $ 841 $ 14 $ 58 $ - $ - $ 21,549
Debt - Intragovernmental $ - $ - $ - $ - $ 3 $ - $ - $ 3
Accounts Payable - Intragovernmental - - - - - - -
Accounts Payable - Public 135 - - - - - - 135
Loan Guarantees - - - - - - - -
Loss Liability - - - - - - - -
Other Liabilities - Intragovernmental - - - - - - - -
Other Liabilities - Public 314 - - - - - - 314
Total Liabilities $ 449 $ - $ - $ - $ 3 $ - $ - $ 452
Unexpended Appropriations $ 1 $ - $ (376) $ - $ 55 $ - $ - $ (320)
Cumulative Results of Operations 20,174 12 1,217 14 - - - 21,417
Total Net Position $ 20,175 $ 12 $ 841 $ 14 $ 55 $ - $ - $ 21,097
Total Liabilities and Net Position $ 20,624 $ 12 $ 841 $ 14 $ 58 $ - $ - $ 21,549
Statement of Net Cost For the Period Ended
Gross Costs $ (234) $ (3) $ 3 $ 9 $ 79 $ - $ - $ (146)
Less Earned Revenues (1,551) (2) (3) (11) - - - (1,567)
Net Costs $ (1,785) $ (5) $ - $ (2) $ 79 $ - $ - $ (1,713)
Statement of Changes in Net Position for the Period Ended
Net Position Beginning of Period $ 18,390 $ 10 $ 838 $ 12 $ 157 $ - $ - $ 19,407
Correction of Errors - (3) - - - - - (3)
Appropriations Received - - - - - - - -
Transfers In/Out Without Reimbursement - - - - - - - -
Imputed Costs 1 - - - - - - 1
Donations and Forfeitures of Cash & Cash Equivalents - - - - - - - -
Penalties, Fines, and Administrative Fees Revenue - - 3 - - - - 3
Other Adjustments (1) - - - (23) - - (24)
Net Cost of Operations 1,785 5 - 2 (79) - - 1,713
Change in Net Position $ 1,785 $ 5 $ 3 $ 2 $ (102) $ - $ - $ 1,693
Net Position End of Period $ 20,175 $ 12 $ 841 $ 14 $ 55 $ - $ - $ 21,097
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Notes to Financial Statements
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 $ 13,471 $ 6 $ 337 $ 12 $ 134 $ - $ - $ 13,960
Cash and Other Monetary Assets 37 - - - - - - 37
Investments 151 - - - - - - 151
Accounts Receivable 320 4 - - 21 - (2) 343
Loans Receivable - - 501 - 6 - - 507
Other Non-Credit Reform Loans Receivable 4,779 - - - - - - 4,779
General Property, Plant and Equipment 42 - - - - - - 42
Other - - - - - - - -
Total Assets $ 18,800 $ 10 $ 838 $ 12 $ 161 $ - $ (2) $ 19,819
Debt - Intragovernmental $ - $ - $ - $ - $ 9 $ - $ - $ 9
Accounts Payable - Intragovernmental - - - - - (2) (2)
Accounts Payable - Public 108 - - - - - - 108
Loan Guarantees - - - - - - - -
Loss Liability - - - - - - - -
Other Liabilities - Intragovernmental - - - - - - - -
Other Liabilities - Public 305 - - - - - - 305
Total Liabilities $ 413 $ - $ - $ - $ 9 $ - $ (2) $ 420
Unexpended Appropriations $ 1 $ - $ (377) $ - $ 152 $ - $ - $ (224)
Cumulative Results of Operations 18,386 10 1,215 12 - - - 19,623
Total Net Position $ 18,387 $ 10 $ 838 $ 12 $ 152 $ - $ - $ 19,399
Total Liabilities and Net Position $ 18,800 $ 10 $ 838 $ 12 $ 161 $ - $ (2) $ 19,819
Statement of Net Cost For the Period Ended
Gross Costs $ (38) $ - $ (14) $ 9 $ 23 $ 3 $ - $ (17)
Less Earned Revenues (1,559) (2) (6) (5) (1) (1) - (1,574)
Net Costs $ (1,597) $ (2) $ (20) $ 4 $ 22 $ 2 $ - $ (1,591)
Statement of Changes in Net Position for the Period Ended
Net Position Beginning of Period $ 16,935 $ 8 $ 817 $ 15 $ 160 $ 2 $ - $ 17,937
Correction of Errors (145) - - - 19 - - (126)
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 Equivalents - - - - - - - -
Penalties, Fines, and Administrative Fees Revenue - - 1 - - - - 1
Net Cost of Operations 1,597 2 20 (4) (22) (2) - 1,591
Change in Net Position $ 1,452 $ 2 $ 21 $ (3) $ (8) $ (2) $ - $ 1,588
Net Position End of Period $ 18,387 $ 10 $ 838 $ 12 $ 152 $ - $ - $ 19,399
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Notes to Financial Statements
Note 21: 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.
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
2015
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 $ 1,207 $ 4 $ 70 $ 37 $ 13 $ 47 $ 20 $ 8 $ 316 $ - $ 1,722
Public Costs (17,408) (238) 29,412 2,798 1,881 990 7,547 1,233 5,755 - 31,970
Subtotal Costs $ (16,201) $ (234) $ 29,482 $ 2,835 $ 1,894 $ 1,037 $ 7,567 $ 1,241 $ 6,071 $ - $ 33,692
Unassigned Costs $218 $218
T otal Costs $ 33,910
Intragovernmental
Earned Revenue $ (1,791) $ (128) $ - $ - $ (4) $ - $ - $ - $ (12) $ - $ (1,935)
Public Earned Revenue (58) (1,427) - - - (136) - - (17) - (1,638)
Total Earned Revenue (1,849) (1,555) - - (4) (136) - - (29) - (3,573)
Net Cost of Operations $ (18,050) $ (1,789) $ 29,482 $ 2,835 $ 1,890 $ 901 $ 7,567 $ 1,241 $ 6,260 $ - $ 30,337
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) (41) 28,707 2,961 1,870 1,149 5,890 1,055 6,195 - 43,698
Subtotal Costs $ (3,108) $ (38) $ 28,772 $ 2,995 $ 1,881 $ 1,196 $ 5,905 $ 1,064 $ 6,503 $ - $ 45,170
Unassigned Costs $218 $218
T otal Costs $ 45,388
Intragovernmental
Earned Revenue $ (2,119) $ (153) $ - $ - $ - $ - $ (1) $ - $ (25) $ - $ (2,298)
Public Earned Revenue (62) (1,405) - - - (177) - - (14) - (1,658)
Total Earned Revenue (2,181) (1,558) - - - (177) (1) - (39) - (3,956)
Net Cost of Operations $ (5,289) $ (1,596) $ 28,772 $ 2,995 $ 1,881 $ 1,019 $ 5,904 $ 1,064 $ 6,682 $ - $ 41,432
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Notes to Financial Statements
Note 22: 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 2015 (dollars in millions):
Budget Functional Classification Gross Cost Earned Revenue Net Cost
Intragovernmental:
Commerce and Housing Credit $ 1,212 $ (1,920) $ (708)
Community and Regional Development 86 - 86
Income Security 424 (15) 409
Other Multiple Functions - - -
Financial Statement Eliminations $ (1) $ (1) $ (2)
Total Intragovernmental 1,721 (1,936) (215)
With the Public:
Commerce and Housing Credit $ (17,733) $ (1,629) $ (19,362)
Community and Regional Development 7,659 - 7,659
Income Security 41,676 (7) 41,669
Administration of Justice 61 - 61
Other Multiple Functions 307 - 307
Total with the Public $ 31,970 $ (1,636) $ 30,334
Not Assigned to Programs:
Income Security 218 - 218
Total with the Public $ 218 $ - $ 218
TOTAL:
Commerce and Housing Credit $ (16,521) $ (3,549) $ (20,070)
Community and Regional Development 7,745 - 7,745
Income Security 42,318 (22) 42,296
Administration of Justice 61 - 61
Other Multiple Functions 307 - 307
Financial Statement Eliminations (1) (1) (2)
TOTAL: $ 33,909 $ (3,572) $ 30,337
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Notes to Financial Statements
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 $ (4,021) $ (1,635) $ (5,656)
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 $ 43,696 $ (1,658) $ 42,038
Not Assigned to Programs:
Income Security 218 - 218
Total with the Public $ 218 $ - $ 218
TOTAL:
Commerce and Housing Credit $ (3,038) $ (3,907) $ (6,945)
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: $ 45,388 $ (3,956) $ 41,432
Note 23: 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
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Notes to Financial Statements
The following table shows the expenditures allocated to HUD’s Strategic Goals for FY 2015
(dollars in millions):
Goal 1 Goal 2 Goal 3 Goal 4 Goal 5 Total
Programs
FHA $ (11,732) $ (2,708) $ (722) $ (2,888) $ - $ (18,050)
Ginnie Mae (1,342) (447) - - - (1,789)
Section 8 Rental Assistance - 24,109 192 5,181 - 29,482
Low Rent Public Housing Loans and Grants 396 2,080 71 288 - 2,835
Homeless Assistance Grants - 1,323 567 - - 1,890
Housing for the Elderly and Disabled - 561 79 261 - 901
Community Development Block Grants 1,513 379 1,135 4,540 - 7,567
HOME 335 670 - 236 - 1,241
All Other Programs 206 3,793 769 1,242 32 6,042
Total (10,624) 29,760 2,091 8,860 32 30,119
Costs Not Assigned To Programs $ 218
Total 30,337
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 (1,197) (399) - - - (1,596)
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 89 296 - 1,019
Community Development Block Grants 1,181 295 885 3,543 - 5,904
HOME 287 575 - 202 - 1,064
All Other Programs 308 3,901 797 1,428 30 6,464
Total (2,441) 31,256 2,386 9,983 30 41,214
Costs Not Assigned To Programs $ 218
Total 41,432
Note 24: 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.
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Section 2: Financial Information
Notes to Financial Statements
The following table shows the cross-cutting of HUD’s major program areas that incur costs that
cross multiple program areas for FY 2015 (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 $ 37 $ 32 $ - $ - $ 69
Intragovernmental Earned Revenues - - - - -
Intragovernmental Net Costs $ 37 $ 32 $ - $ - $ 69
Gross Costs with the Public $ 19,053 $ 10,281 $ 80 $ (2) $ 29,412
Earned Revenues - - - - -
Net Costs with the Public $ 19,053 $ 10,281 $ 80 $ (2) 29,412
Net Program Costs $ 19,090 $ 10,313 $ 80 $ (2) $ 29,481
Homeless Assistance Grants
Intragovernmental Gross Costs $ - $ - $ - $ 13 $ 13
Intragovernmental Earned Revenues - - (4) - (4)
Intragovernmental Net Costs $ - $ - $ (4) $ 13 $ 9
Gross Costs with the Public $ - $ - $ 1,850 $ 31 $ 1,881
Earned Revenues - - - - -
Net Costs with the Public $ - $ - $ 1,850 $ 31 $ 1,881
Net Program Costs $ - $ - $ 1,846 $ 44 $ 1,890
CDBG
Intragovernmental Gross Costs $ - $ - $ 20 $ - $ 20
Intragovernmental Earned Revenues - - - - -
Intragovernmental Net Costs $ - $ - $ 20 $ - $ 20
Gross Costs with the Public $ 55 $ - $ 7,455 $ 36 $ 7,546
Earned Revenues - - - - -
Net Costs with the Public $ 55 $ - $ 7,455 $ 36 $ 7,546
Net Program Costs $ 55 $ - $ 7,475 $ 36 $ 7,566
All Other
Intragovernmental Gross Costs $ 86 $ 153 $ 50 $ 27 $ 316
Intragovernmental Earned Revenues 7 (1) 4 (23) (13)
Intragovernmental Net Costs $ 93 $ 152 $ 54 $ 4 $ 303
Gross Costs with the Public $ 4,886 $ 353 $ 550 $ (34) $ 5,755
Earned Revenues - (15) - (1) (16)
Net Costs with the Public $ 4,886 $ 338 $ 550 $ (35) $ 5,739
Net Program Costs $ 4,979 $ 490 $ 604 $ (31) $ 6,042
Costs Not Assigned to Programs $ 63 $ 102 $ 53 $ - $ 218
Net Program Costs (including indirect costs) $ 5,042 $ 592 $ 657 $ (31) $ 6,260
77
HUD FY 2015 Agency Financial Report Page 50
Section 2: Financial Information
Notes to Financial Statements
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
78
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Section 2: Financial Information
Notes to Financial Statements
Note 25: 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 2015
Single Family Multifamily/Healthcare Administrative
Forward Program HECM Program Program Costs Total
Costs
Intragovernmental Gross Costs $ 955 $ 59 $ 177 $ 16 $ 1,207
Intragovernmental Earned Revenues (1,133) (584) (74) - (1,791)
Intragovernmental Net Costs $ (178) $ (525) $ 103 $ 16 $ (584)
Gross Costs with the Public $ (13,283) $ (3,993) $ (699) $ 567 $ (17,408)
Earned Revenues (11) (1) (46) - (58)
Net Costs with the Public $ (13,294) $ (3,994) $ (745) $ 567 $ (17,466)
Net Program Costs $ (13,472) $ (4,519) $ (642) $ 583 $ (18,050)
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)
79
HUD FY 2015 Agency Financial Report Page 52
Section 2: Financial Information
Notes to Financial Statements
Note 26: 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.
80
HUD FY 2015 Agency Financial Report Page 53
Section 2: Financial Information
Notes to Financial Statements
The following shows HUD’s obligations and contractual commitments under its grant, subsidy,
and loan programs as of September 30, 2015 (dollars in millions):
Undelivered Orders
Unexpended Permanent Investment Offsetting Undelivered Orders -
Programs Appropriations Indefinite Authority Collections Obligations, Unpaid
FHA $ 140 $ 79 $ - $ 1,825 $ 2,044
Ginnie Mae 3 - - 402 405
Section 8 Rental Assistance 8,896 - - - 8,896
Low Rent Public Housing Loans and Grants 4,359 - - - 4,359
Homeless Assistance Grants 2,389 - - - 2,389
Housing for the Elderly and Disabled 1,939 - - - 1,939
Community Development Block Grants 10,950 - - - 10,950
HOME Partnership Investment Program 2,855 - - - 2,855
Section 235/236 951 - - - 951
All Other 3,336 - - - 3,336
Total $ 35,818 $ 79 $ - $ 2,227 $ 38,124
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
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.
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Section 2: Financial Information
Notes to Financial Statements
The following chart shows HUD’s administrative commitments as of September 30, 2015
(dollars in millions):
Reservations
Permanent
Unexpended Indefinite Offsetting Total
Programs Appropriations Appropriations Collections Reservations
Section 8 Rental Assistance $ 155 $ - $ - $ 155
Low Rent Public Housing Loans and Grants 9 - - 9
Homeless Assistance Grants 107 - - 107
Housing for the Elderly and Disabled 106 - - 106
Community Development Block Grants 7,868 - - 7,868
HOME Partnership Investment Program 227 - - 227
Section 235/236 - - - -
All Other 182 - - 182
Total $ 8,654 $ - $ - $ 8,654
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
82
HUD FY 2015 Agency Financial Report Page 55
Section 2: Financial Information
Notes to Financial Statements
Note 27: 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.
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, 2015 (dollars in millions):
Total
Unobligated Balance, beginning of period $ 11,619
Recoveries -
Budget Authority -
Spending Authority from Offsetting Collections -
Non-Expenditure Transfers, net -
Other Balances Withdrawn -
Total Budgetary Resources $ 11,619
Status of Budgetary Resources
Obligations Incurred $ 3,527
Unobligated Balance, available 8,091
Unobligated Balance, not available -
Total Status of Budgetary Resources $ 11,618
Change in Obligated Balance
Obligated Balance, net beginning of period $ 6,012
Obligations Incurred 3,527
Gross Outlays (3,432)
Recoveries -
Obligated Balance, net end of period $ 6,107
Net Outlays $ 3,432
83
HUD FY 2015 Agency Financial Report Page 56
Section 2: Financial Information
Notes to Financial Statements
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 $ 14,621 $ 13,348 $ 1,273
Mississippi 5,539 5,060 479
Texas 3,752 2,689 1,063
Florida 393 370 23
Other States 2,287 2,478 (191)
Total $ 26,592 $ 23,945 $ 2,647
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
84
HUD FY 2015 Agency Financial Report Page 57
Section 2: Financial Information
Notes to Financial Statements
Note 28: 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
2015
Direct $ 984 $ 112,448 $ 113,432
Reimbursable - 5,754 5,754
Total $ 984 $ 118,202 $ 119,186
Category A Category B Total
2014
Direct $ 929 $ 98,214 $ 99,143
Reimbursable - 2,288 2,288
Total $ 929 $ 100,502 $ 101,431
Note 29: Explanation of Differences between the Statement of
Budgetary Resources and the Budget of the United States
Government
The President’s Budget containing actual FY 2015 data is not available for comparison to the
Statement of Budgetary Resources. Actual FY 2015 data will be available in the Appendix to
the Budget of the United States Government, FY 2017.
For FY 2014, an analysis to compare HUD’s Statement of Budgetary Resources to the
President’s Budget of the United States was performed to identify any differences.
The following shows the difference between Budgetary Resources reported in the Statement of
Budgetary Resources and the President’s Budget for FY 2014 (dollars in millions):
Distributed
Budgetary Obligations Offsetting Net
Resources Incurred Receipts Outlays
Combined Statement of Budgetary Resources $ 185,922 $ 101,431 $ (2,719) $ 53,763
Difference #1 - Resources related to HUD's expired accounts
not reported in the President's Budget (705) (97) - -
Difference #2 - Offsetting receipts included in the President's Budget - - 1 -
Difference #3 - Offsetting receipts not included in the President's Budget - - 12 (2)
Difference #4 - Ginnie Mae amounts from temporary reduction of prior year 1 (1) - (1)
balances
Difference #5 - Ginnie Mae amounts precluded from obligation - - - -
Difference #6 - Rounding issues 7 4 1 1
United States Budget $ 185,225 $ 101,337 $ (2,705) $ 53,761
85
HUD FY 2015 Agency Financial Report Page 58
Section 2: Financial Information
Notes to Financial Statements
Note 30: 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, 2015 and 2014 (dollars in millions):
2015 2014
Budgetary Resources Obligated
Obligations Incurred $ 119,186 $ 101,431
Spending Authority from Offsetting Collections and Recoveries (68,862) (43,393)
Obligations Net of Offsetting Collections $ 50,324 $ 58,038
Offsetting Receipts (2,844) (2,719)
Net Obligations $ 47,480 $ 55,319
Other Resources
Transfers In/Out Without Reimbursement $ - $ 1
Imputed Financing from Costs Absorbed by Others 65 79
FHA Transfers Out to U.S. Dept. of Treasury for negative subsidies (3,679) -
CFO Other Resources 4 -
Net Other Resources Used to Finance Activities $ (3,610) $ 80
Total Resources Used to Finance Activities $ 43,870 $ 55,399
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 $ 2,895 $ 2,801
Credit Program Resources that Increase LLG or Allowance for Subsidy 243 365
Credit Program Resources not Included in Net Cost (Surplus) of Operations - 45,001
Resources that Finance the Acquisition of Assets or Liquidation of Liabilities 58,057 (45,435)
Resources that Fund Expenses from Prior Periods (14,991) (6,025)
Other Changes to Net Obligated Resources Not Affecting Net Cost of Operations (49,141) (56)
Other 12,792 (1,628)
Total Resources Used to Finance Items Not Part of Net Cost of Operations $ 9,855 $ (4,977)
Total Resources Used to Finance the Net Cost of Operations $ 53,725 $ 50,422
Components of Net Cost of Operations Not Requiring/Generating Resources in the
Current Period
Upward/Downward Re-estimates of Credit Subsidy Expense $ (4,916) $ 4,613
Increase in Exchange Revenue Receivable from the Public (139) (171)
Change in Loan Loss Reserve (1) 27
Revaluation of Assets or Liabilities 5 -
Depreciation and Amortization (11) (1)
Changes in Bad Debt Expenses Related to Credit Reform Receivables (42) (97)
Reduction of Credit Subsidy Expense from Guarantee Endorsements and Modifications (13,607) (10,457)
Increase in Annual Leave Liability - -
Other (4,677) (2,904)
Total Components of Net Cost of Operations Not Requiring/Generating Resources in the
Current Period $ (23,388) $ (8,990)
Net Cost of Operations $ 30,337 $ 41,432
86
HUD FY 2015 Agency Financial Report Page 59
Section 2: Financial Information
Notes to Financial Statements
Note 31: Restatement of the Department’s Fiscal Year 2014
Financial Statements
In FY 2015, the Department corrected material errors in the Consolidated Balance Sheet, the
Statement of Net Cost and the Statement of Changes in Net Position to recognize the re-estimate
of prepayments from balances accumulated by PHAs under the Moving to Work Program
(MTW). Based on self-reported program data and disbursements recorded in HUDCAPS, the
Department estimated that PHAs held approximately $466 million and $573 million as of
FY 2015 and FY 2014 respectively in excess funds in its reserve accounts. As a result, the
amount of program expenses reported under the Section 8 Rental Assistance program increased
by $107 million in FY 2015. The advances under the Moving to Work Program was not
available in FY 2014 and as a result, the Department’s FY 2014 restated financial statements do
not reflect this adjustment to the Balance Sheet, Statement of Net Cost or the Statement of
Changes in Net Position.
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’s efforts to modify 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) is a proactive approach
beginning in FY 2015. 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.
Furthermore, the restated financial statements do not reflect Emergency Homeowners’ Loan
Program gross loans receivables balances of approximately $114 and $120 million for fiscal
years 2015 and 2014 respectively. The amounts were not recorded in the Department’s
accounting records due to data integrity issues which the Department is currently analyzing.
Ginnie Mae Accounting Error Corrections
In FY 2015, Ginnie Mae restated its FY 2014 financial statements to correct errors in the
Balance Sheet, the Statement of Net Cost and the Statement of Changes in Net Position. The
impact of these errors resulted in the Department’s equity reported on the consolidated financial
statement to be overstated by $150 million. Ginnie Mae has classified the restatement
adjustments in four categories:
87
HUD FY 2015 Agency Financial Report Page 60
Section 2: Financial Information
Notes to Financial Statements
Cash and Other Monetary Assets
Ginnie Mae identified accounting errors with the classification of deposits in transit in the
amount of $37 million. Ginnie Mae incorrectly classified these deposits in transit on its Balance
Sheet as part of “Other Non-Credit Reform Loans” for the year ended September 30, 2014.
These deposits in transit should have been recorded as “Cash and Other Monetary Assets” in the
Balance Sheet. As a result of this error, Ginnie Mae has reclassified a total of $37 million from
“Other Non-Credit Reform Loans” to “Cash and Other Monetary Assets” for the year ended
September 30, 2014.
General Property, Plant and Equipment
Ginnie Mae identified accounting errors associated with its accounting treatment of expenses
associated with internally developed software and hardware purchases. Ginnie Mae incorrectly
recognized some internally developed software and hardware expenses in the period incurred
instead of capitalizing the costs. Additionally, certain expenditures that did not meet the
capitalization criteria per Ginnie Mae’s accounting policy were capitalized in error and some
software projects, which were completed, and in use were not being amortized. The impact of
correcting these errors resulted in an increase in “General Property and Equipment, Net’ of
$10 million for the year ended September 30, 2014.
Multiclass Fee Accounting
Ginnie Mae identified accounting errors associated with the recognition of multiclass fees.
Ginnie Mae incorrectly recognized multiclass fees as revenue before the earnings process was
complete. The impact of these errors resulted in an increase of $160 million in “Other
Governmental Liabilities” for the year ended September 30, 2014.
MBS Loan Liability
Ginnie Mae identified accounting errors associated with the MBS Loss Liability as the amount
incorrectly included a liability related to estimated incurred foreclosure related losses for
mortgage loans held for investment and short sales claims receivable. The impact of correcting
these errors resulted in a reclassification of $735 million form the “MBS Loss Liability” to the
allowance against “Non-Credit Reform Loans.”
88
HUD FY 2015 Agency Financial Report Page 61
Section 2: Financial Information
Notes to Financial Statements
September 30, 2014 September 30, 2014
Balance Sheet Consolidated Financial Consolidated Financial
(dollars in millions) Statements (without Statements (with
restatement) restatement) Change
ASSETS
Intragovernmental
Fund Balance with Treasury (Note 4) $ 121,703 $ 121,703 $ -
Investments (Note 6) 6,529 6,529 -
Accounts Receivable, Net (Note 7) - - -
Other Assets (Note 12) 33 34 (1)
Total Intragovernmental $ 128,265 $ 128,266 $ (1)
Cash and Other Monetary Assets (Note 5) $ - $ 37 $ (37)
Investments (Note 6) 41 41 -
Accounts Receivable, Net (Note 7) 1,901 1,887 14
Direct Loan and Loan Guarantees, Net (Note 8) 10,868 10,868 -
Other Non-Credit Reform Loans (Note 9) 3,569 2,809 760
General Property, Plant and Equipment, Net (Note 10) 297 308 (11)
PIH Prepayments (Note 11) 423 423 -
Other Assets (Note 12) 48 48 -
TOTAL ASSETS $ 145,412 $ 144,687 $ 725
LIABILITIES
Intragovernmental Liabilities
Accounts Payable (Note 13) $ 16 $ 16 $ -
Debt (Note 14) 27,661 27,661 -
Other Intragovernmental Liabilities (Note 17) 1,802 1,801 1
Total Intragovernmental $ 29,479 $ 29,478 $ 1
Accounts Payable (Note 13) $ 863 $ 864 $ (1)
Accrued Grant Liabilities (Note 13) 1,501 1,501 -
Loan Guarantee Liability (Note 8) 31,779 31,779 -
Debt Held by the Public (Note 14) 8 8 -
Federal Employee and Veteran Benefits (Note 15) 74 74 -
Loss Reserves (Note 16) 735 - 735
Other Governmental Liabilities (Note 17) 918 1,078 (160)
TOTAL LIABILITIES $ 65,357 $ 64,782 $ 575
Net Position
Unexpended Appropriations - Earmarked Funds (Note 20) $ (224) $ (224) $ -
Unexpended Appropriations - Other Funds 56,442 56,443 (1)
Cumulative Results of Operations - Earmarked Funds (Note 20) 19,773 19,623 150
Cumulative Results of Operations - Other Funds 4,064 4,063 1
Total Net Position $ 80,055 $ 79,905 $ 150
Total Liabilities and Net Position $ 145,412 $ 144,687 $ 725
89
HUD FY 2015 Agency Financial Report Page 62
Section 2: Financial Information
Notes to Financial Statements
September 30, 2014 September 30, 2014
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 $ 18,577 $ 18,577 $ -
Adjustments -
Changes in Accounting Principles - - -
Corrections of Errors (99) (244) 145
Beginning Balances, As Adjusted $ 18,478 $ 18,333 $ 145
Budgetary Financing Sources:
Other Adjustments $ - $ - $ -
Appropriations Used 49,368 49,368 -
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 $ - $ - $ -
Imputed Financing 79 77 2
Other (2,663) (2,663) -
Total Financing Sources 46,785 46,783 2
Net Cost of Operations (41,427) (41,433) 6
Net Change $ 5,358 $ 5,350 $ 8
Cumulative Results of Operations $ 23,836 $ 23,683 $ 153
Unexpended Appropriations:
Beginning Balances $ 59,780 $ 59,781 $ (1)
Adjustments
Changes in Accounting Principles - - -
Corrections of Errors 43 41 2
Beginning Balances, As Adjusted $ 59,823 $ 59,822 $ 1
Budgetary Financing Sources:
Appropriations Received $ 46,103 $ 46,103 $ -
Appropriations Transferred In/Out - - -
Other Adjustments (339) (338) (1)
Appropriations Used (49,369) (49,368) (1)
Total Budgetary Financing Sources $ (3,605) $ (3,603) $ (2)
Unexpended Appropriations $ 56,218 $ 56,219 $ (1)
Net Position $ 80,054 $ 79,902 $ 152
September 30, 2014 September 30, 2014
Statement of Net Cost Consolidated Financial Consolidated Financial
(dollars in millions) Statements (without Statements (with
restatement) restatement) Change
Program Costs
Gross Costs $ 45,368 $ 45,388 $ (20)
Less: Earned Revenue (3,942) (3,956) 14
Net Program Costs $ 41,426 $ 41,432 $ (6)
Net Cost of Operations $ 41,426 $ 41,432 $ (6)
90
HUD FY 2015 Agency Financial Report Page 63
Fiscal Years 2015 and 2014 (Restated) U.S. Department of Housing and Urban Development Consolidated Financial Statements Audit
Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-11-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)