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Federal • Housing • Administration Annual Management Report Fiscal Year 2013

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Federal • Housing • Administration Annual Management Report Fiscal Year 2013 FHAFederal • Housing • Administration Annual Management Report Fiscal Year 2013 U.S. Department of Housing and Urban Development To contribute to sustainable communities by facilitating the financing of homes, rental housing and healthcare FHA’S facilities and providing quality affordable housing options in a manner that mitigates taxpayer risks and protects MISSION consumers. A MESSAGE FROM THE COMMISSIONER December 16, 2013 TO THE CONGRESS OF THE UNITED STATES, MEMBERS OF THE HOUSING INDUSTRY AND THE AMERICAN PUBLIC: Throughout its history, FHA has supported access to affordable, sustainable homeownership opportunities for those with limited wealth or who are otherwise underserved. It has also acted as a stabilizing force in the housing market during times of economic distress. At no time has this dual mission been more pronounced than during the recent housing crisis. Since the height of the crisis, FHA has continued to provide access to mortgage credit where the private market was unwilling or unable, while simultaneously improving risk management and overall portfolio performance. In fiscal year 2013, that work continued to support the housing market’s recovery and ensured the availability of affordable financing options for the Single Family, Multifamily, and Healthcare markets. Credit Access During fiscal year 2013, as the housing market continued to recover, FHA’s single family market share continued to decline from its peak level in 2009. While FHA endorsement volume has returned to pre- crisis levels, the private endorsement levels still remain low. FHA insured over 1.3 million single family forward mortgage loans during the year, with a total dollar value of approximately $240 billion. Of the over 700,000 home-purchase mortgages endorsed during the year, 79 percent were for first-time homebuyers, and 31 percent were for minority borrowers. Since its inception, FHA has insured more than 40 million single family mortgages. FHA has also worked diligently with its lender-partners to help improve access for qualified borrowers. In FY 2013, demand for FHA’s Multifamily and Healthcare programs remained high. FHA insured new loans for multifamily properties with a total mortgage amount of nearly $18 billion. This activity not only bolstered the supply of much-needed rental housing, but helped many multifamily owners refinance into more sustainable loans – protecting affordability in communities across the country. This ongoing high volume insured by FHA was made possible by a substantial improvement in processing procedures for multifamily loan applications. FHA also experienced strong demand for its healthcare facilities financing programs in 2013. Together, the Section 232 and 242 endorsed more than $7.3 billion for hospitals and residential care facilities that not only increased access to quality health care in many communities, but created thousands of jobs tied to construction and medical care. Single Family Portfolio Performance The recent severe recession put substantial strain on the Mutual Mortgage Insurance Fund (MMIF) as private capital retreated and FHA was called on to play a countercyclical role to support the broader housing market. FHA responded aggressively to the challenge, ensuring access to affordable credit while appropriately managing risk during a crisis. However, FHA was required to take a mandatory appropriation of $1.68 billion from the U.S. Treasury to close its FY 2013 books. Despite this, we are confident that FHA’s actions over the past five years are improving the long-term value of the Fund and responding effectively to the recession’s effects. Our annual report to Congress, containing the independent actuary’s valuation of the Fund, reinforces that the steps we have taken have been impactful. As a result of making major programmatic changes, improving risk management, and restructuring pricing, the value of the Mutual Mortgage Insurance Fund (MMIF) has improved significantly since last year. These changes are helping to create a turnaround in the fundamental health of the MMIF, improving the overall economic value of the Fund by $15 billion, from negative $16.3 billion at the end of FY 2012 to negative $1.3 billion at the end of FY2013, according to the independent actuary’s valuation. As a result of this positive trajectory, the actuary expects the Fund to accumulate capital at a much faster rate than was projected last year, reaching a 2 percent capital reserve ratio by FY 2015 instead of FY 2017, as was anticipated in last year’s report. These improvements clearly demonstrate that FHA’s actions have improved the performance of the Fund and placed it solidly on the right track. FHA is focused on continuing this progress using a number of strategies. This includes continuing aggressive loss mitigation efforts, implementing policies that simultaneously ensure value to the Fund and increase credit access, as well as other changes to better manage ongoing and emerging risks. Our future priorities recognize that while we have made significant progress there is more to do. Future Priorities In addition to improving the performance of the MMIF, we continue to identify ways to transform the way we do business with our partners and the people we serve. The Multifamily Transformation is restructuring our multifamily operations to make them more effective and efficient. By improving consistency and having employees specialize in certain types of transactions, the Multifamily unit will better serve its partners, and help build and preserve more affordable housing across the country. Both our Single Family and Healthcare units are making major updates to their handbooks. These are the definitive guides on how to do business with us – and by clarifying guidance and expectations, we will improve the quality of the loans we insure and improve access to affordable mortgage credit. This commitment to transformation will help us achieve our FY 2014 goals: Establish a stronger FHA within the new housing finance system; Continue to strengthen risk management practices; Enhance programs to ensure availability of affordable housing and needed healthcare facilities; Further improve operational and organizational effectiveness; and Enhance internal and external communication and create consistent stakeholder engagement. Finally, I want to thank the entire Office of Housing staff for their hard work and dedication. FY 2013 presented a number of budgetary challenges – and despite those challenges, their unwavering commitment is what allowed us to continue to work effectively and efficiently with our partners, improve the health of the MMI Fund, and most importantly, better serve the American people. Looking to the future, we remain committed to strengthening all our programs, so that ladders of opportunity are available to all Americans for generations to come. Together, I know we can achieve these goals. Carol J. Galante Assistant Secretary for Housing- Federal Housing Commissioner This report is divided into four sections: A Message from the Commissioner is a letter from the Assistant Secretary for Housing that highlights FHA’s mission, vision, achievements for the year and communicates the direction and priorities of the organization. Management’s Discussion and Analysis (MD&A) defines the organization’s mission, program activities, performance goals and objectives, and includes management’s assurances regarding compliance with relevant financial management legislation. The Principal Financial Statements includes Financial Statements and Notes to the Financial Statements. Auditor’s Report on the Federal Housing Administration’s (FHA) fiscal year 2013 financial statements, internal controls and compliance with laws and regulations. ANNUAL MANAGEMENT DISCUSSION 2011 Table of Contents A MESSAGE FROM THE COMMISSIONER……………………….………………………………………………………………………..i MANAGEMENT’S DISCUSSION AND ANALYSIS ...........................................................................................1 FEDERAL HOUSING ADMINISTRATION AT A GLANCE ...............................................................................3 MISSION AND ORGANIZATIONAL STRUCTURE .........................................................................................4 ROLE AND RESPONSIBILITY .......................................................................................................................5 PERFORMANCE GOALS AND OBJECTIVES ...............................................................................................10 FHA PROGRAMS......................................................................................................................................13 Office of Single Family Housing .........................................................................................................13 Performance Goals and Objectives.................................................................................................20 Office of Multifamily Housing............................................................................................................29 Performance Goals and Objectives.................................................................................................32 Office of Healthcare Programs...........................................................................................................41 Performance Goals and Objectives.................................................................................................49 Office of Housing Counseling.............................................................................................................51
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