This is the accessible text file for GAO report number GAO-14-171R 
entitled 'Financial Audit: Federal Housing Finance Agency's Fiscal 
Years 2013 and 2012 Financial Statements' which was released on 
December 16, 2013. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

GAO-14-171R: 

[End of section] 

GAO: 
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

December 16, 2013: 

The Honorable Tim Johnson: Chairman: 
The Honorable Mike Crapo: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Jeb Hensarling: 
Chairman: 
The Honorable Maxine Waters: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

Financial Audit: Federal Housing Finance Agency's Fiscal Years 2013 
and 2012 Financial Statements: 

This report transmits the GAO auditor's report on the results of our 
audits of the fiscal years 2013 and 2012 financial statements of the 
Federal Housing Finance Agency (FHFA), which is incorporated in the 
enclosed Federal Housing Finance Agency Performance and Accountability 
Report for Fiscal Year 2013. These financial statements are the 
responsibility of FHFA. 

As discussed more fully in the auditor's report that begins on page 96 
of the enclosed Performance and Accountability Report, we found: 

* the FHFA financial statements as of and for the fiscal years ended 
September 30, 2013, and 2012, are presented fairly, in all material 
respects, in accordance with U.S. generally accepted accounting 
principles; 

* FHFA maintained, in all material respects, effective internal 
control over financial reporting as of September 30, 2013; and: 

* no reportable noncompliance for fiscal year 2013 with provisions of 
applicable laws, regulations, contracts, and grant agreements we 
tested. 

The Housing and Economic Recovery Act of 2008[Footnote 1] established 
FHFA as an independent agency empowered with supervisory and 
regulatory oversight of the housing-related government-sponsored 
enterprises: Federal National Mortgage Association (Fannie Mae), 
Federal Home Loan Mortgage Corporation (Freddie Mac), the 12 Federal 
Home Loan Banks, and the Office of Finance.[Footnote 2] This act 
requires FHFA to annually prepare financial statements and requires 
GAO to audit the agency's financial statements. This report responds 
to these requirements. We conducted our audits in accordance with U.S. 
generally accepted government auditing standards. 

We are sending copies of this report to the Chairman of the Federal 
Housing Finance Oversight Board, the Secretary of the Treasury, the 
Secretary of Housing and Urban Development, the Chairperson of the 
Securities and Exchange Commission, the Director of the Office of 
Management and Budget, and other interested parties. In addition, the 
report is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions concerning this report, 
please contact me at (202) 512-3406 or malenichj@gao.gov. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. 

Signed by: 

J. Lawrence Malenich: 
Director: 
Financial Management and Assurance: 

Enclosure: 

Footnotes: 

[1] Pub. L. No. 110-289 (July 30, 2008). 

[2] The 12 Federal Home Loan Banks and the Office of Finance, whose 
primary function is to issue and service all debt securities for the 
Federal Home Loan Banks, constitute the Federal Home Loan Bank System. 

[End of section] 

2013:
Federal Housing Finance Agency: 
Performance And Accountability Report: 
Planning For The Future: 

Mission: 

Provide effective supervision, regulation, and housing mission 
oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks 
to promote their safety and soundness, support housing finance and 
affordable housing, and support a stable and liquid mortgage market. 

Vision: 

A reliable, stable, and liquid housing finance system. 

FHFA Values: 

Respect: 

We strive to act with respect for each other, to promote diversity, to 
share information and resources, to work together in teams, and to 
collaborate to solve problems. 

Excellence: 

We aspire to excel in every aspect of our work and to seek better ways 
to accomplish our mission and goals. 

Integrity: 

We seek to adhere to the highest ethical and professional standards 
and to inspire trust and confidence in our work. 

Diversity: 

We pursue the full inclusion of all segments of the U.S. population in 
our business endeavors and at the entities we regulate. 

[End of section] 

Table of Contents: 

Did You Know? 

Message from the Acting Director: 

FHFA Public Benefits: 

How this Report Is Organized: 

Management’s Discussion and Analysis: 

FY 2013 Strategic Goals, Performance Goals, and Measures: 

Alignment of Resource Allocation with Strategic Goals: 

FY 2013 Profile: 

Organization: 

Meet the Housing Government-Sponsored Enterprises: 

Performance Highlights by Strategic Goal: 

Management Challenges: 

FY 2013 Performance Summary: 

Overview of FHFA’s Eight Key Performance Measures: 

Program Evaluations: 

Analysis of Financial Statements: 

Analysis of Systems, Controls and Legal Compliance: 

Management's Report on Final Actions: 

FHFA’s Statement of Assurance: 

Performance Section: 

Managing and Measuring Performance: 

Strategic Human Capital Management: 

Strategic Goal 1: Safe and Sound Housing GSEs: 

Strategic Goal 2: Stability, Liquidity, and Access in Housing Finance: 

Strategic Goal 3: Preserve and Conserve Enterprise Assets: 

Strategic Goal 4: Prepare for the Future of Housing Finance in the U.S. 

Financial Section: 

Message from the Chief Financial Office: 

Independent Auditor's Report: 

Appendix I: Management’s Report on Internal Control over Financial 
Reporting: 

Appendix II: FHFA Response to Auditor’s Report: 

Financial Statements: 

Notes to the Financial Statements: 

Other Information: 

FHFA FY 2012 Performance Measures No Longer Reported: 

Inspector General's FY 2014 Management and Performance Challenges: 

Summary of Financial Statements Audit and Management Assurances: 

Appendix: 

Glossary: 

Acronyms: 

Index of Figures: 

Acknowledgments: 

FHFA Agency Key Management Officials (inside back cover): 

[End of section] 

Did You Know? 

FHFA and the Housing Finance Market: 

The Federal Housing Finance Agency (FHFA) was created in July 2008 
when the President signed the Housing and Economic Recovery Act of 
2008 (HERA). HERA reformed the oversight of all the housing GSEs—-
Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System (12 
Federal Home Loan Banks and the Office of Finance)-—by creating a 
single regulator with the powers and authorities to ensure that the 
GSEs operate in a safe and sound manner. 

FHFA as Regulator of Fannie Mae, Freddie Mac, (the Enterprises) and 
the Federal Home Loan Banks (FHLBanks): 

As regulator, FHFA has a statutory responsibility to ensure that each 
regulated entity operates in a safe and sound manner and that the 
operations and activities of each regulated entity foster liquid, 
efficient, competitive, and resilient national housing finance markets. 

FHFA participates in a number of interagency initiatives to improve 
the effectiveness of its oversight, including the Financial Stability 
Oversight Council (FSOC), the Federal Housing Finance Oversight Board, 
and the Financial Stability Oversight Board (FinSOB). The President, 
subject to Senate approval, appoints the FHFA Director. The Director 
represents the agency on FSOC and FinSOB, and chairs the Federal 
Housing Finance Oversight Board. 

FHFA as Conservator of the Enterprises: 

On September 6, 2008, FHFA used its authorities to place the 
Enterprises into conservatorship. This was in response to a 
substantial deterioration in the housing markets that severely damaged 
the Enterprises’ financial condition and left them unable to fulfill 
their mission without government intervention. A key component of the 
conservatorships is the commitment of the U.S. Department of the 
Treasury to provide financial support to the Enterprises to enable 
them to continue to provide liquidity and stability to the mortgage 
market. To date, the Treasury Department has provided $189.5 billion 
in support, which includes an initial placement of $1 billion at each 
Enterprise at the time of the conservatorships and an additional 
cumulative $187.5 billion investment from the Treasury Department. In 
accordance with the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 as amended by HERA, FHFA is authorized to “take 
such action as may be: (i) necessary to put the regulated entity in a 
sound and solvent condition; and (ii) appropriate to carry on the 
business of the regulated entity and preserve and conserve the assets 
and property of the regulated entity.” 

In addition, as conservator, FHFA assumed the authority of the 
management and boards of the Enterprises during the period of the 
conservatorship. However, the Enterprises continue to operate legally 
as business corporations and FHFA has delegated to the chief executive 
officers and boards of directors responsibility for much of the day-to-
day operations of the companies. The Enterprises must follow the laws 
and regulations governing financial disclosure, including the 
requirements of the Securities and Exchange Commission. 

As corporate executives, the Enterprises’ executive officers have 
legal responsibilities to use sound and prudent business judgment in 
their stewardship of the companies. 

While FHFA has broad authority over the Enterprises, the focus of the 
conservatorships is not to manage every aspect of their operations. 
Instead, FHFA leadership reconstituted the Enterprises' boards of 
directors in 2008 and charged them with ensuring that normal corporate 
governance practices and procedures are in place. The boards are 
responsible for carrying out normal board functions, which are subject 
to FHFA review and approval on critical matters. This division of 
duties represents the most efficient structure for FHFA to carry out 
its responsibilities as conservator. 

[End of section] 

Message from the Acting Director, Edward J. DeMarco: 

I am pleased to present the Federal Housing Finance Agency’s (FHFA’s) 
FY 2013 Performance and Accountability Report. FHFA is an independent 
agency with a unique mission responsible for providing oversight of 
the housing government-sponsored enterprises (GSEs or alternatively, ‘
the regulated entities’). The housing GSEs include Fannie Mae, Freddie 
Mac (known as the Enterprises), the Federal Home Loan Banks (FHLBanks) 
and the FHLBanks’ joint Office of Finance. The focus of FHFA’s mission 
is to promote their safety and soundness and ensure that the GSEs 
serve as a reliable source of liquidity and funding for housing 
finance and community investment. 

This report describes some very significant accomplishments as well as 
major challenges that FHFA has faced in meeting its strategic goals 
and objectives during FY 2013. It also features the ongoing 
initiatives being pursued by the agency to ensure FHFA meets the 
strategic goals outlined in its strategic plan. FHFA’s Strategic Plan 
consists of four strategic goals: 

FHFA’s FY 2013 Strategic Goals: 

1. Safe and Sound Housing GSEs. 

2. Stability, Liquidity, and Access in Housing Finance. 

3. Preserve and Conserve Enterprise Assets. 

4. Prepare for the Future of Housing Finance in the United States. 

The Enterprises: 

FHFA has made considerable progress in its role as conservator, 
supervisor, and regulator of the Enterprises. 

The Enterprises’ financial condition continues to improve. Both of the 
Enterprises reported positive earnings from October 1, 2012, through 
September 30, 2013. As of September 30, 2013, the Enterprises’ 
cumulative draws under the Senior Preferred Stock Purchase agreements 
totaled $187.5 billion, and the Enterprises have paid $146.6 billion 
in cash dividends to Treasury. 

In March 2013, we published the 2013 Conservatorship Scorecard, 
setting forth performance goals for the Enterprises in furtherance of 
the Conservatorship Strategic Plan that we issued last year. The three 
strategic goals outlined in the Strategic Plan for Enterprise 
Conservatorships are: 

* Build. Build a new infrastructure for the secondary mortgage market; 

* Contract. Gradually contract the Enterprises’ dominant presence in 
the marketplace while simplifying and shrinking their operations; and; 

* Maintain. Maintain foreclosure prevention activities and credit 
availability for new and refinanced mortgages. 

I testified before Congress the week after publication of the 
scorecard, focusing on these goals and the progress made in achieving 
them (see Performance Highlights, page 29). 

Under FHFA’s direction, Fannie Mae and Freddie Mac together made 
important strides towards establishing the Common Securitization 
Platform (CSP). Since September, a joint venture responsible for 
developing the platform has been incorporated as Common Securitization 
Solutions (CSS), a limited liability company equally owned by Fannie 
Mae and Freddie Mac. Office space for CSS has been secured in 
Bethesda, Maryland and recruitment for a Chief Executive Officer and 
an independent chairman of the Board of Managers is underway. 
Significant housing finance reform legislation introduced this year in 
the House of Representatives, and a different bill introduced in the 
Senate, each rely upon the platform as a component of the 
securitization infrastructure of the future. 

In furtherance of the strategic goal of gradually contracting the 
dominant presence of Fannie Mae and Freddie Mac in the secondary 
mortgage market, under FHFA’s direction each Enterprise has executed 
significant transactions to share single-family mortgage credit risk 
with the private sector. In July 2013, Freddie Mac completed a credit 
risk transaction, known as the Structured Agency Credit Risk (STACR) 
transaction. Fannie Mae executed a similar transaction in October and 
Freddie Mac closed a second STACR transaction in November. In October, 
Fannie Mae completed a different type of credit risk transaction, a 
deeper mortgage insurance coverage transaction. Freddie Mac completed 
a reinsurance transaction in November. Shifting risk from taxpayers to 
private capital markets has been a major objective of the 
Conservatorship Strategic Plan. Together, each Enterprise met FHFA’s 
scorecard target for $30 billion in risk-sharing transactions using 
multiple types of transactions. Both Enterprises have other planned 
transactions in various stages of development. These are the first of 
what I expect to become regular marketplace transactions to bring 
private capital in to support some portion of the mortgage credit risk 
being insured by the Enterprises. 

The Enterprises have continued to offer programs that help troubled 
mortgage borrowers avoid foreclosure. Since the establishment of the 
conservatorships in September 2008 through August 2013, the 
Enterprises have completed 2.97 million foreclosure prevention 
actions. These actions have allowed more than 2.4 million troubled 
borrowers to stay in their homes. We also surpassed 1 million Home 
Affordable Refinance Program (HARP) refinances last calendar year, 
bringing the total number of HARP refinances since conservatorship 
through September 2013 to nearly 2.9 million. Taken together, the 
Enterprises have purchased 18 million refinance mortgages since the 
establishment of the conservatorship. 

In the summer of 2011, FHFA filed 18 separate lawsuits pertaining to 
securities laws violations and negligent misrepresentation, among 
other complaints, against major financial institutions regarding 
private-label mortgage-backed securities purchased by Freddie Mac and 
Fannie Mae prior to the conservatorships. With these suits, FHFA is 
seeking compensation for taxpayers for losses incurred by the 
Enterprises that are the legal responsibility of these other parties. 
In recent months, FHFA has settled several of these suits, resulting 
in recoveries in excess of $5 billion. The largest of these 
settlements involved $885 million in recoveries from UBS Americas 
Incorporated and J.P. Morgan Chase & Company for $4 billion. At the 
same time, FHFA resolved matters outside of litigation. These 
initiatives fulfill a critical conservator responsibility and reduce 
the overall taxpayer losses associated with the conservatorships. 

Federal Home Loan Banks: 

The financial condition of the FHLBanks is stronger than in recent 
years. All 12 FHLBanks were profitable during FY 2013, marking their 
third consecutive year of profitability. The FHLBanks continued to 
build their retained earnings in 2013. Capital-to-asset ratios are at 
or near historic highs, and retained earnings levels in relation to 
assets are also substantially higher than recent years. The FHLBanks 
had $798.4 billion in assets at the end of FY 2013. All 12 FHLBanks 
met the minimum total regulatory capital requirement of 4 percent of 
total assets. The FHLBanks’ advances to members increased 
approximately $53 billion or 13 percent in FY 2013. 

The FHLBanks helped to achieve their mission in FY 2013 by supporting 
the Affordable Housing Program (AHP), which is a source of funds to 
support local affordable housing initiatives. The FHLBanks provided 
$286.8 million in AHP funds in FY 2013. 

Future Challenges: 

Despite the numerous successes during FY 2013, we still have 
significant challenges ahead of us. The single-family mortgage market 
remains heavily supported by taxpayers. While there is progress on the 
legislative front, the timing of broader housing finance reform 
remains uncertain. We will continue our efforts to implement the three 
broad goals of the Strategic Plan for Enterprise Conservatorships: 
Build, Contract, and Maintain. 

Efforts to build a new infrastructure for the secondary mortgage 
market will continue. We must complete the development, testing, and 
deployment of the CSP. We need to make further progress in the 
development of a model Contractual and Disclosure Framework (CDF). 
Together, the CSP and CDF initiatives constitute our core efforts at 
building a new and improved infrastructure. 

We have made a good start at reducing the footprint of the Enterprises 
in the mortgage market and we expect those efforts to continue in the 
coming year. 

To maintain credit availability for refinanced mortgages, we are 
redoubling our efforts with a national outreach campaign designed to 
inform the public of the benefits of the HARP and encourage qualified 
borrowers to take advantage of the program. We want to improve public 
awareness of this important benefit to homeowners and taxpayers. 

Program Data and Financial Performance: 

For the fifth consecutive year, FHFA has received an unmodified 
(clean) opinion on its financial statements from the U.S. Government 
Accountability Office (GAO). FHFA has no material internal control 
weaknesses, and our financial and performance data contained in this 
report are reliable and complete in accordance with Office of 
Management and Budget Circulars A-123 and A-136. FHFA met or exceeded 
17 out of 25 (68 percent) of its performance targets for which fiscal 
year data was available. The agency did not meet seven (28 percent) of 
its targets. Performance information for one measure will be available 
in the second quarter of FY 2014 (see the Performance Section on page 
79). 

Conclusion: 

The accomplishments described in this report would not have been 
possible without the dedicated effort of everyone at FHFA. In July, 
the agency celebrated its fifth anniversary. Still a young and 
maturing agency, FHFA has built a solid foundation for its own future 
service to the country in housing finance oversight. While many 
challenges remain ahead as described in this report, FHFA is ready to 
meet those challenges to ensure a stable and liquid mortgage market 
for the benefit of homeowners and renters around the country while 
protecting the interests of taxpayers. 

Long-term, continued operation in a government-run conservatorship is 
not sustainable for the Enterprises because each company lacks 
capital, cannot rebuild its capital base, and is operating on a 
remaining, finite line of capital from taxpayers. Until Congress 
determines the future of the Enterprises and the housing finance 
market, FHFA will continue to carry out its responsibilities to 
supervise and regulate the FHLBanks and Enterprises. It will also 
continue to implement the Strategic Plan for Enterprise 
Conservatorships. 

Signed by: 

Edward J. DeMarco: 
Acting Director: 
December 16, 2013: 

[End of section] 

FHFA Public Benefits: 

The FHFA is an independent regulatory agency responsible for the 
oversight of the housing GSEs, including the Enterprises and the 
twelve FHLBanks. In addition to being the conservator for the 
Enterprises, FHFA is responsible for many important tasks that further 
the public interest. Included among these responsibilities are: 

Ensuring a Reliable Source of Liquidity and Funding for Housing 
Finance and Community Investment: 

FHFA’s mission is to ensure that the housing GSEs are operating in a 
safe and sound manner so that the GSEs can serve as a reliable source 
of liquidity and funding for housing finance and community investment. 
To ensure that the housing GSEs are operating safely and soundly, FHFA 
identifies risks to the regulated entities and takes timely 
supervisory actions to address risks and improve their condition. FHFA 
accomplishes this mission through on-site examinations and off-site 
monitoring of each of the housing GSEs. 

Protecting Taxpayers and Stabilizing the Enterprises: 

Since September 6, 2008, FHFA has served as the conservator of Fannie 
Mae and Freddie Mac. As conservator, FHFA works to preserve and 
conserve each Enterprise’s assets and property. To date, taxpayers 
have invested $189.5 billion in the Enterprises to keep them 
operational. FHFA focuses on improving the Enterprises’ operational 
efficiency and effectiveness and restoring the Enterprises to a sound 
financial condition. FHFA also provides oversight of the Enterprises’ 
foreclosure prevention programs. In addition, FHFA works to reduce the 
Enterprises’ footprint in current mortgage finance markets by 
distributing risk to participants other than the U.S. Government and 
increasing the amount of private capital supporting the mortgage 
finance markets. 

[Photograph: Representatives from FHFA’s Division of Housing Mission 
and Goals, Office of Financial Analysis, Modeling & Simulations. FHFA 
photo] 

Increasing Transparency in the Housing Finance Markets: 

FHFA actively promotes the dissemination of information that will 
improve the public’s understanding of housing finance markets and 
thereby the efficiency of the market. FHFA publishes an indicator of 
single-family house price trends at various geographic levels called 
the House Price Index (HPI). The HPI can be used to estimate the 
current value of a house based on the appreciation rate of home values 
in an area (see HPI calculator at [hyperlink, 
http://www.fhfa.gov/Default.aspx?Page=86]). The HPI can also be used 
to estimate changes in mortgage defaults and prepayments which are 
highly dependent on the level and direction of housing prices. HPI 
data are available on a variety of geographic levels, including 
National, State, Census Division, and Metropolitan Statistical Areas. 
HPI data is also available on a monthly and quarterly basis. In 
addition to the HPI, FHFA works with the Enterprises to improve their 
loan-level disclosures for mortgage originations until securities 
created from packaged loans are extinguished. This will help market 
participants better understand and price risk associated with 
Enterprise MBS. Finally, FHFA periodically releases research papers on 
topics related to mortgage markets. 

Preserving Homeownership: 

FHFA works with the Enterprises to provide several avenues for 
preserving homeownership including the Home Affordable Refinance 
Program (HARP) and the Home Affordable Modification Program (HAMP). 
Under HARP, homeowners with little or no equity in their homes whose 
mortgages are guaranteed by the Enterprises and who have continued to 
make timely monthly payments are allowed to refinance to take 
advantage of lower mortgage interest rates, thereby reducing their 
monthly payment. Under HAMP, delinquent homeowners are able to obtain 
a loan modification that can lower their monthly payment. FHFA works 
collaboratively with the Enterprises and other industry participants 
to increase access to HARP and HAMP for qualified borrowers. FHFA has 
completed over 2.9 million foreclosure prevention actions since the 
start of the conservatorships of the Enterprises. These actions have 
allowed approximately 2.4 million troubled borrowers to remain in 
their homes. 

On September 23, 2013, FHFA launched a national education campaign to 
inform homeowners of the refinance opportunities available to them 
through HARP. The agency also launched the website [hyperlink, 
http://www.HARP.gov] as part of its outreach program. 

Building a Better Secondary Mortgage Market for the Future 

FHFA is pursuing a series of initiatives and strategies to improve the 
future system of housing finance. One important initiative is the 
creation of a new Common Securitization Platform (CSP) that will serve 
the dual purpose of modernizing the Enterprises’ current outdated 
infrastructures and providing the potential for other market 
participants to use the same infrastructure. Under FHFA’s direction, 
the Enterprises have made significant progress in developing the 
design, scope and functional requirements for the CSP’s core modules—
which will perform the data validation, security issuance, disclosure, 
master servicing, and bond administration functions—as well as 
transactional data stores, an integrated data store, and other 
components. Other initiatives include a model Contractual and 
Disclosure Framework, developing uniform standards for data reporting 
on mortgage loans and appraisals, and developing a new system for 
document custody and electronic registration of mortgage notes, 
titles, and liens. 

How this Report Is Organized: 

This report highlights the agency’s accomplishments in FY 2013 and in 
subsequent months prior to the publication of this report. It also 
describes the future challenges facing the agency. This report has 
five sections, namely: 

Management’s Discussion and Analysis: 

This section is an overview of the entire Performance and 
Accountability Report. It briefly describes FHFA’s mission and 
organization, performance highlights, management challenges, and key 
performance measures. It also gives a financial overview and 
management assurances of internal controls. 

Performance: 

This section identifies FHFA’s strategic goals and describes the 
fiscal year performance relative to the goals and measures set forth 
in the agency’s Annual Performance Plan. 

Financial: 

This section includes a Message from the Chief Financial Officer, the 
independent auditor’s report, Appendix I: Management’s Report on 
Internal Control over Financial Reporting, Appendix II: FHFA Response 
to Auditor’s Report, FHFA’s Financial Statements, and Notes to the 
Financial Statements. 

Other Information: 

This section includes performance goals and measures no longer 
reported, the Inspector General’s primary management and performance 
challenges and the Summary of Financial Statements Audit and 
Management Assurances. 

Appendix: 

The appendix includes a glossary, a list of abbreviations and acronyms 
used in the report, acknowledgments, and an index of figures and 
features. 

[End of section] 

Management’s Discussion and Analysis: 

* FY 2013 Strategic Goals, Performance Goals, and Measures; 

* Alignment of Resource Allocation with Strategic Goals; 

* FY 2013 Profile; 

* Organization; 

* Meet the Housing Government-Sponsored Enterprises; 

* Performance Highlights by Strategic Goal; 

* Management Challenges; 

* FY 2013 Performance Summary; 

* Overview of FHFA’s Eight Key Performance Measures; 

* Program Evaluations; 

* Analysis of Financial Statements; 

* Analysis of Systems, Controls and Legal Compliance; 

* Management's Report on Final Actions; 

* FHFA’s Statement of Assurance. 

FY 2013 Strategic Goals, Performance Goals, and Measures 

Strategic Goal 1: Safe and Sound Housing GSEs 

1.1. Identify risks and require timely remediation of weaknesses. 

1.1.1a. Develop a written supervisory strategy for each regulated 
entity that effectively identifies risks and ensures corrective 
actions are implemented. 

1.1.1b. Develop a written supervisory strategy for each regulated 
entity that effectively identifies risks and ensures corrective 
actions are implemented. 

1.1.2. Percentage of examination findings remediated since the last 
exam or in accordance with an approved remediation plan. 

1.2. Improve the condition of the regulated entities. 

1.2.1. Complete guidance on the implementation of the asset 
classification policy (2012-AB-02, April 9, 2012) and ensure regulated 
entities establish implementation plans. 

1.2.2. Develop five new examination modules to guide examiners in 
reviewing and assessing the regulated entities. 

1.2.3. Conduct supervisory review of Enterprise compliance processes 
for tracking and executing conservatorship directives. 

1.2.4. Increased retained earnings for each FHLBank. 

Strategic Goal 2: Stability, Liquidity, and Access in Housing Finance. 

2.1. Promote stability and mitigate systemic risk that could lead to 
market instability. 

2.1.1. Number of refinances successfully completed through Home 
Affordable Refinance Program (HARP) 2.0. 

2.1.2. Number of foreclosure alternatives successfully completed. 

2.1.3. Number of real estate owned (REO) dispositions in individual 
markets to promote recovery via existing and new distribution channels. 

2.2. Ensure liquidity in mortgage markets. 

2.2.1. Initiate the monthly mortgage market survey. 

2.2.2. Inform the public through dissemination of FHFA research 
publications on housing and housing finance markets. 

2.3. Expand access to housing finance for diverse financial 
institutions and qualified borrowers. 

2.3.1. Reduce variance in single-family guarantee fees charged to 
lenders that sell large versus small volumes of mortgages to the 
Enterprises. 

2.3.2. Increase number/dollar amount of awards to women and minority 
owned businesses by FHFA. 

2.3.3. Increase number/dollar amount of business awarded to women and 
minority owners by the entities FHFA regulates. 

Strategic Goal 3: Preserve and Conserve Enterprise Assets. 

3.1. Minimize taxpayer losses during the Enterprises’ conservatorships. 

3.1.1. Reduce cross-subsidization in Enterprise single-family 
guarantee fees. 

3.1.2. Undertake and defend legal actions that recover upon losses or 
seek to avoid liability to the GSEs. 

3.1.3. Reduce the amount of current outstanding repurchases. 

3.1.4. Reduce the annual percentage of manufacturing defects at loan 
origination. 

3.1.5. Reduce the annual net of operational loss events. 

Strategic Goal 4: Prepare for the Future of Housing Finance in the 
United States. 

4.1. Build a new infrastructure for the secondary mortgage market 

4.1.1. Publish a White Paper soliciting public input on a common 
securitization platform and model pooling and servicing agreement. 

4.1.2. Finalize plan(s) for the securitization platform and pooling 
and servicing agreement. 

4.2. Establish standards that promote a safer and more efficient 
housing finance system. 

4.2.1. Work with the industry to develop servicing data standards and 
agree on a timetable for data collection. 

4.2.2. Announce, via the Enterprises, selling and servicing policies 
in support of the Contract Harmonization Project. 

4.3. Contract Enterprise operations. 

4.3.1. Increase the average national ongoing guarantee fee. 

4.3.2. Reduction in retained portfolio consistent with the Preferred 
Stock Purchase Agreement. 

Alignment of Resource Allocation with Strategic Goals: 

Pursuant to the Housing and Economic Recovery Act of 2008 (HERA), FHFA 
supervises and regulates the 14 regulated entities: Freddie Mac, 
Fannie Mae and the 12 FHLBanks. FHFA tracks resource allocations and 
program costs to the strategic goals developed for FHFA’s strategic 
plan. FHFA adopted a new strategic plan in FY 2013 that contains four 
strategic goals, whereas the prior strategic plan had three strategic 
goals: 

* Strategic Goal 1 is to ensure that the housing GSEs operate in a 
safe and sound manner. 

* Strategic Goal 2 is to ensure the stability, liquidity, and 
accessibility of the housing market. 

* Strategic Goal 3 is to preserve and conserve enterprise assets in 
order to minimize taxpayer losses during the conservatorships of the 
Enterprises. 

* Strategic Goal 4 is to prepare for the future of housing finance in 
the U.S. through the creation of a new secondary mortgage market 
infrastructure. 

FHFA also carries out work under its Resource Management Strategy and 
distributes these resources proportionately among the different 
strategic goals based on the percentage of direct costs of each goal 
to the total direct costs for FHFA. FHFA-OIG costs are allocated under 
FHFA's Resource Management Strategy. 

Strategic Goal 1 is the only goal that reflects the same activities in 
both FY 2012 and FY 2013. 

The activities reported for the remaining strategic goals differ from 
fiscal year 2012 to 2013. 

* FY 2012 activities under Strategic Goal 2 are now allocated, in FY 
2013, between Strategic Goals 2 and 4. 

* FY 2012 activities under Strategic Goal 3 are now allocated in FY 
2013 between Strategic Goals 3 and 4. 

Therefore, the actual costs expended and FTEs working on each 
strategic goal are only shown for FY 2013. 

Strategic Goal 4 is a new mission goal that was adopted in FY 2013 
consistent with the Strategic Plan for Enterprise Conservatorships 
(SPEC), which FHFA presented to Congress in February 2012. The SPEC 
outlines how FHFA will work with the Enterprises to prepare for the 
future of housing finance by building a new securitization 
infrastructure, gradually contracting the Enterprises’ footprint in 
the marketplace, and maintaining market liquidity and borrower 
assistance efforts. 

Figure 1: Gross Costs FY 2013 (Dollars in Millions): 

[Refer to PDF for image: vertical bar graph] 

Strategic Goal 1: $153.1; 62%; 
Strategic Goal 2: $40.9; 16%; 
Strategic Goal 3: $45.1; 18%; 
Strategic Goal 4: $10.9; 4%; 

Note: Strategic Goal 4 is a new goal for FY 2013. 

[End of figure] 

Figure 2: Gross Costs FY 2010–2012 (Dollars in Millions): 

[Refer to PDF for image: vertical bar graph] 

Strategic Goal 1: 
2010: $95.9; 
2011: $6.0; 
2012: $16.7. 

Strategic Goal 2: 
2010: $126.0; 
2011: $17.2; 
2012: $24.2. 

Strategic Goal 3: 
2010: $153.6; 
2011: $24.9; 
2012: $39.0. 

[End of figure] 

Figure 3: Actual Full-Time Equivalent - FY 2013 

[Refer to PDF for image: vertical bar graph] 

Strategic Goal 1: 494; 69%; 
Strategic Goal 2: 139; 19%; 
Strategic Goal 3: 51; 7%; 
Strategic Goal 4: 36; 5%; 

Note: Strategic Goal 4 is a new goal for FY 2013. 

[End of figure] 

Figure 4: Actual Full-Time Equivalents FY 2010–2012: 

[Refer to PDF for image: vertical bar graph] 

Strategic Goal 1: 
2010: 326; 
2011: 54; 
2012: 57. 

Strategic Goal 2: 
2010: 421; 
2011: 69; 
2012: 36. 

Strategic Goal 3: 
2010: 515; 
2011: 99; 
2012: 52. 

Note: Full-time equivalent (FTE) is calculated as the total number of 
hours worked (or to be worked) divided by the number of compensable 
hours in each fiscal year. 

[End of figure] 

[End of section] 

FY 2013 Profile: 

* FHFA conducts safety and soundness supervision of the operations of 
the housing-related GSEs and manages the conservatorships of the 
Enterprises. The agency uses examiners, economists, accountants, and 
financial and policy analysts to fulfill its responsibilities. 

* During each calendar year (CY), FHFA completes examinations of 
Fannie Mae, Freddie Mac, each of the 12 FHLBanks, and the Office of 
Finance. It presents reports of examination to the respective boards 
of directors of each entity. However, the scheduling of examination 
fieldwork and reviews of examination reports may vary from year to 
year. Results of the examinations are reported to Congress by June of 
the following year. In June 2013, FHFA released its fifth annual 
Report to Congress and deemed both Fannie Mae and Freddie Mac 
“critical concerns,” but noted they each generated positive annual 
income for the first time since 2006. The most recent report to 
Congress is available at [hyperlink, 
http://fhfa.gov/webfiles/25320/FHFA2012_AnnualReport-508.pdf]. 

* As conservator of the Enterprises, FHFA settled major claims to be 
paid to the Enterprises during FY 2013. In addition to repurchase 
claims against sellers of mortgages to the Enterprises, FHFA has 
pursued 18 lawsuits against major financial institutions regarding 
private-label mortgage-back securities (PLMBS) purchased by the 
Enterprises. In January 2013, Bank of America settled with Fannie Mae 
for $10.3 billion. In March 2013, Citigroup settled with the 
Enterprises for $3.5 billion over alleged PLMBS misrepresentations, 
and finally in July 2013, FHFA reached a settlement with UBS for $885 
million over PLMBS sales to the Enterprises. 

* FHFA ensured that the Enterprises took preemptive action in 
providing emergency relief to homeowners dealing with natural 
disasters. For borrowers affected by Hurricane Sandy, the Enterprises 
offered 90 days payment relief to borrowers and suspended foreclosure 
proceedings against these distressed homeowners. 

* FHFA announced a new standardized examination rating system for the 
housing GSEs in December 2012. FHFA had previously applied different 
examination rating systems for the Enterprises and the FHLBanks. 
Effective January 2013, each regulated entity is now assigned a common 
composite rating based on Capital, Asset Quality, Management, 
Earnings, Liquidity, Sensitivity to market risk, and Operational risk 
(CAMELSO). 

* FHFA handled 74 congressional inquiries, 1,321 non-consumer general 
public inquiries, and 1,947 consumer inquiries in FY 2013. 

* The formal congressional inquiries dealt with housing policy 
questions, programmatic issues as the conservator of the Enterprises, 
questions regarding the current state and the future of the GSEs, and 
individual constituent issues from members’ offices. This number does 
not include the informal e-mail and phone inquiries from staff that 
Congressional Affairs address every day. 

* FHFA worked with the Enterprises to complete foreclosure prevention 
actions, which helped 478,300 homeowners avoid foreclosure from 
October 2012 to September 2013. These actions are intended to assist 
homeowners whose mortgages are distressed or in danger of becoming 
distressed to maintain their homes or leave their homes without going 
through the foreclosure process. HARP was established as a pre-
distressed action to enable homeowners to refinance their mortgages 
and lower their monthly payments. From October 2012 to September 2013, 
nearly 1.1 million mortgages were refinanced through HARP. 

* FHFA ended the year with 597 employees. FHFA has budgeted for 614 
positions by the end of FY 2014. 

* FHFA’s budget for FY 2013 was $197.4 million (excluding the Office 
of Inspector General); the agency’s FY 2014 budget is $199.5 million. 

Figure 5: FHFA’s Workforce By Specialized Area: 

[REfer to PDF for image: table] 

FHFA Positions (by specialized area): 

Examinations: 
FY 2013 Year End: 273; 
FY 2014 Budgeted: 283. 

Other Mission: 
FY 2013 Year End: 134; 
FY 2014 Budgeted: 140. 

Office of the Director: 
FY 2013 Year End: 28; 
FY 2014 Budgeted: 30. 

Legal: 
FY 2013 Year End: 41; 
FY 2014 Budgeted: 42. 

Information Technology: 
FY 2013 Year End: 51; 
FY 2014 Budgeted: 51. 

Infrastructure: 
FY 2013 Year End: 70; 
FY 2014 Budgeted: 68. 

Total FHFA: 
FY 2013 Year End: 597; 
FY 2014 Budgeted: 614. 

Total FHFA - OIG: 
FY 2013 Year End: 140; 
FY 2014 Budgeted: 150. 

Year-end positions can differ from budgeted positions as needs and 
priorities may change over the course of the fiscal year. 

[End of figure] 

Organization: 

FHFA is an independent government agency with a workforce that 
includes highly skilled examiners, economists, financial and policy 
analysts, attorneys, and subject matter experts in banking, insurance, 
technology, accounting, and legal matters. The Acting Director sets 
the direction for the agency to achieve its mission with core 
divisions and offices working together to ensure effective execution 
of the agency’s mission (see Figure 6). 

[Photograph: Representatives of the Division of Housing Mission and 
Goals, Office of Policy Analysis and Research. FHFA photo] 

Figure 6: FHFA Principal Organization Units: 

[Refer to PDF for image: organizational chart] 

Top level: 
Office Of The Director: 
* Inspector General. 

Second level, reporting to Office of The Director: 
* Office of the Chief Operating Officer;
* Division of Enterprise Regulation; 
* Division of Bank Regulation; 
* Division of Supervision Policy and Support; 
* Division of Housing Mission and Goals. 

Third level, reporting to Office of The Director: 
* Office of Conservatorship Operations; 
* Office of General Counsel; 
* Office of Strategic Initiatives; 
* Office of Minority and Women Inclusion. 

[End of figure] 

The Office of Inspector General (OIG) is responsible for conducting 
independent objective audits, evaluations, investigations, surveys, 
and risk assessments of FHFA’s programs and operations. OIG informs 
the Director, Congress, and the public of any problems or deficiencies 
relating to programs and operations. OIG activities assist FHFA staff 
and program participants by ensuring the effectiveness, efficiency, 
and integrity of FHFA’s programs and operations. Established by HERA 
in 2008, the office commenced operation in October 2010. 

The Office of Ombudsman is responsible for considering complaints and 
appeals from any regulated entity, the Office of Finance, or any 
person who has a business relationship with a regulated entity or the 
Office of Finance concerning any matter relating to FHFA’s regulation 
and supervision. Neither FHFA nor any of its employees may retaliate 
against a regulated entity, the Office of Finance, or a person for 
submitting a complaint or appeal to the Ombudsman. Created by 
regulation under HERA, the office commenced operation in March 2011. 

The Office of Chief Operating Officer oversees the agency’s day-to-day 
operations that include facilities management, contingency planning, 
continuity of operations, financial and strategic planning and 
budgeting, contracting, hiring and human resources management, 
information technology, quality assurance, internal and external 
communications, and coordination with the FHFA Office of Inspector 
General. The office leads reporting on strategic planning and 
accountability, and develops recommendations for long-term 
improvements in agency operations. 

The Division of Enterprise Regulation (DER) is responsible for the 
supervision of the Enterprises to ensure their safe and sound 
operation. This office provides management oversight, direction, and 
support for all examination activity involving the Enterprises, the 
development of supervision findings, and preparation of the annual 
reports of examination. The division monitors and assesses the 
financial condition and performance of the Enterprises and their 
compliance with regulations through annual on-site examinations and 
periodic visits. An examiner-in-charge leads examination activity at 
each Enterprise. 

The Division of Federal Home Loan Bank Regulation (DBR) is responsible 
for supervising the FHLBanks and the Office of Finance to ensure their 
safe and sound operation. The division oversees and directs all 
FHLBank examination activities, develops examination findings, and 
prepares annual examination reports. The division monitors and 
assesses the financial condition and performance of the FHLBanks and 
the Office of Finance and tests their compliance with laws and 
regulations through annual on-site examinations, periodic visits, and 
off-site monitoring and analysis. DBR also conducts Affordable Housing 
Program (AHP) on-site examinations and visits at each FHLBank annually 
to ensure compliance with program regulations and to evaluate the 
effectiveness of each FHLBank’s AHP program. 

The Division of Supervision Policy and Support is responsible for 
monitoring the regulated entities for emerging risks in housing and 
financial markets and key counterparties. The division is also 
responsible for working with other federal financial regulators on 
identifying and assessing emerging risks. The division also helps 
identify and assess regulatory best practices, emerging risks, and 
supervision priorities. It collaborates with DER and DBR to 
incorporate this information into FHFA’s supervisory program. 

The Division of Housing Mission and Goals is responsible for FHFA 
policy development and analysis, oversight of housing and regulatory 
policy, oversight of the mission and goals of the Enterprises, and the 
housing finance and community and economic development mission of the 
FHLBanks. In support of FHFA’s mission and the Director’s 
responsibilities as a member of the Federal Housing Finance Oversight 
Board, the Financial Stability Oversight Board, and the Financial 
Stability Oversight Council, the division also oversees and 
coordinates FHFA activities. Such activities involve data analyses, 
market surveillance, systemic risk monitoring, and analysis affecting 
housing finance and financial markets. 

The Office of Conservatorship Operations assists the FHFA Director, as 
conservator, in preserving and conserving the Enterprises’ assets and 
property. The office facilitates communications between the 
Enterprises and the conservator to ensure the prompt identification of 
emerging issues and their timely resolution. The office also works 
with the Enterprises’ boards and senior management to establish 
priorities and milestones for accomplishing the goals of the 
conservatorship. 

The Office of the General Counsel advises and supports the Director 
and FHFA staff on legal matters related to the functions, activities, 
and operations of FHFA and the regulated entities. It supports 
supervision functions, regulations writing, housing mission policy 
initiatives, and enforcement actions. The office oversees the bringing 
or defense of litigation. The office also manages the Freedom of 
Information Act (FOIA) and Privacy Act programs. The ethics official 
advises, counsels and trains FHFA employees on ethical standards and 
conflicts of interest, and manages the agency’s financial disclosure 
program. 

The Office of Strategic Initiatives leads, coordinates, and clarifies 
agency and Enterprise activities related to FHFA’s A Strategic Plan 
for Enterprise Conservatorships (SPEC) to achieve the objectives set 
forth therein. It tracks FHFA activities involving engagement with the 
Enterprises on a limited set of projects associated with the strategic 
plan. The office promotes consistency between FHFA and the Enterprises 
with regard to priorities and timelines and ensures that projects 
achieve their objectives in a timely and efficient manner. 

The Office of Minority and Women Inclusion (OMWI) is responsible for 
all matters of diversity in employment, management, and business 
activities at FHFA as well as programs to monitor minority and women 
inclusion at the regulated entities. OMWI ensures that FHFA is 
compliant with Equal Employment Opportunity laws and regulations, and 
protects against illegal workplace discrimination. OMWI ensures that 
minorities, women, service-disabled veterans, and persons with 
disabilities are fully included in all job and business opportunities 
created as a part of the Federal Government’s efforts to reform and 
strengthen the banking system and the financial services industry. 

[End of section] 

Meet the Housing Government-Sponsored Enterprises: 

Fannie Mae and Freddie Mac (the Enterprises): 

Fannie Mae and Freddie Mac were created by Congress to provide 
stability and liquidity in the secondary market for home mortgages. 
The Enterprises purchase mortgages that lenders have already made to 
homeowners. These mortgages are guaranteed by the Enterprise, pooled 
into mortgage-backed securities (MBS), and either sold to investors or 
kept by the Enterprise as an investment (see Figure 7). 

Since 2008, the Enterprises have operated under FHFA conservatorship. 
The U.S. Department of the Treasury supports the Enterprises through 
Senior Preferred Stock Purchase Agreements, which ensure each 
Enterprise maintains a positive net worth. The agreements require a 15 
percent reduction in the Enterprises’ retained portfolios each year. 
At the inception of the conservatorships, FHFA made clear that the 
Enterprises would continue to be responsible for normal business 
activities and day-to-day operations. FHFA exercises oversight as 
safety and soundness regulator while serving a more active role as 
conservator. However, the Enterprises cannot stay in conservatorship 
permanently, and FHFA is taking a number of steps towards this 
eventuality. 

An important element is the progress FHFA continues to make on 
implementing the SPEC that was released in 2012 to address the 
agency’s obligations as conservator. The SPEC has three components: 
build, contract, and maintain. FHFA has made great progress on the 
“build” component, which involves building a new mortgage 
securitization infrastructure. 

The “contract” component is designed to reduce the Enterprises’ market 
presence and increase opportunities in the private sector for 
absorbing credit risk in the mortgage market. Major progress was made 
in FY 2013 on risk sharing transactions and will continue throughout 
FY 2014. 

The “maintain” component provides foreclosure prevention assistance to 
borrowers and mitigates the credit losses from the legacy book of 
business. The Enterprises continue to make improvements to their 
borrower assistance programs. 

The management challenges and performance highlights sections of this 
report detail more about the components of the SPEC on pages 43 and 47. 

Figure 7: FHFA Oversight Role – Fannie Mae and Freddie Mac: 

[Refer to PDF for image: illustration] 

Primary Mortgage Market: 
Market in which financial institutions provide mortgage loans to home 
buyers. 

Lender: 
Borrower Receives Loan form Lender; 
Lenders Sell Loans that Meet Underwriting and Product Standards. 

Borrower: 
Borrower Applies for Mortgage. 

Secondary Mortgage Market: 
Market in which existing mortgages and mortgage-backed securities 
(MBS) are traded. 

Lenders Receive Cash or MBS from Lender; 

FHFA: Conservator; Financial Safety and Soundness Regulator to: 
Fannie Mae And Freddie Mac. 

Credit Guarantee Business: Issues MBS. 

Portfolio Investment Business: Issues Debt. 

Wall Street: 
Lenders Receive Cash; 
Lenders Sell MBS Received from Fannie Mae or Freddie Mac; 
Buys MBS from Credit Guarantee Business; 
Buys Debt from Portfolio Investment Business; 
Sells MBS & Debt to Investors; 

Investors: 
* Individual; 
* Institutional; 
* Foreign; 
Buys MBS and Debt from Wall Street; 

[End of figure] 

Conservatorship has stabilized the Enterprises and supported the 
continued functioning of the secondary mortgage market. At the end of 
September 2013, the Enterprises owned or guaranteed approximately $5.1 
trillion of mortgages consisting of nearly $1.0 trillion in mortgages 
and MBS held in the Enterprises’ investment portfolios and roughly 
$4.0 trillion in MBS held by investors other than the Enterprises. 

The Enterprises have been responsible for issuing the majority of all 
MBS to the market since 2008, when, as a result of the financial 
crisis, the private sector virtually withdrew from the market. During 
the third quarter of 2013, for example, the share of total MBS issued 
by the Enterprises stood at 76 percent. When combined with the 
Government National Mortgage Corporation (Ginnie Mae), which issued 
just under 24 percent of total MBS, the government-supported sector 
accounted for virtually all MBS issuance (see Figure 8). 

The Enterprises have received substantial support from the Federal 
Government while in conservatorship. Through the purchase of Senior 
Preferred Stock, the Treasury Department has provided $187.5 billion 
to the Enterprises—$116.1 billion to Fannie Mae and $71.3 billion to 
Freddie Mac. Since the second quarter of 2012, neither Enterprise has 
needed additional funding from the Treasury Department. 

Figure 8: Enterprises’ Market Share – MBS Issuance Volume: 

[Refer to PDF for image: multiple line graph 

¢ Private-Label ¢ Ginnie Mae ¢ Freddie Mac ¢ Fannie Mae Dollars in 
Billions 

Fannie Mae: 
2001: 39% 
2002: 39% 
2003: 44% 
2004: 28% 
2005: 22% 
2006: 22% 
2007: 33% 
2008: 44% 
2009: 45% 
2010: 43% 
2011: 48% 
2012: 50% 
2013, Q1: 48% 
2013, Q2: 46% 
2013, Q3: 49% 

Freddie Mac: 
2001: 29% 
2002: 29% 
2003: 26% 
2004: 19% 
2005: 18% 
2006: 18% 
2007: 25% 
2008: 29% 
2003: 27% 
2010: 27% 
2011: 25% 
2012: 27% 
2013, Q1: 29% 
2013, Q2: 30% 
2013, Q3: 27% 

Enterprises: 
2001: 68% 
2002: 68% 
2003: 70% 
2004: 47% 
2005: 40% 
2006: 40% 
2007: 58% 
2008: 73% 
2009: 72% 
2010: 70% 
2011: 73% 
2012: 77% 
2013, Q1: 77% 
2013, Q2: 76% 
2013, Q3: 76% 

Ginnie Mae: 
2001: 13% 
2002: 9% 
2003: 8% 
2004: 7% 
2005: 4% 
2006: 4% 
2007: 5% 
2008: 22% 
2009: 25% 
2010: 26% 
2011: 25% 
2012: 23% 
2013, Q1: 22% 
2013, Q2: 24% 
2013, Q3: 24% 

Total: 
2001: 81% 
2002: 77% 
2003: 78% 
2004: 54% 
2005: 44% 
2006: 44% 
2007: 63% 
2008: 95% 
2009: 97% 
2010: 96% 
2011: 98% 
2013, Q1: 100% 
2013, Q1: 99% 
2013, Q2: 100% 
2013, Q3: 100% 

Sources: Inside Mortgage Finance, Enterprise Monthly Volume Summaries. 
Issuance figures exclude MBS issued backed by assets previously held 
in the Enterprises’ portfolios. 

[End of figure] 

Table: 
Fast Facts – The Enterprises: 

Total New Business (Trillions): 
Sept. 2011: $1.28; 
Sept. 2012: $1.47; 
Sept. 2013: $1.71. 

Total Enterprise HARP Refinances: 
Oct. 2010–Sept. 2011: 485,387; 
Oct. 2011–Sept. 2012: 879,658; 
Oct. 2012–8/1/2013:* 1,019,286. 

30 Years Mortgage Rate**: 
Sept. 2011: 4.11%; 
Sept. 2012: 3.47%; 
Sept. 2013: 4.49%. 

Delinquency Rates: 

Single Family: 
Fannie; 
Sept. 2011: 4.00%; 
Sept. 2012: 3.41%; 
Sept. 2013: 2.61%; 
Freddie;
Sept. 2011: 3.51%; 
Sept. 2012: 3.37%; 
Sept. 2013: 2.64%. 

Multi-Family: 
Fannie; 
Sept. 2011: 0.57%; 
Sept. 2012: 0.28%; 
Sept. 2013: 0.18%; 
Freddie; 
Sept. 2011: 0.33%; 
Sept. 2012: 0.27%; 
Sept. 2013: 0.05%. 

Retained Mortgage Portfolio (Trillions): 
Sept. 2011: $1.40; 
Sept. 2012: $1.22; 
Sept. 2013: $1.01. 

TOTAL MBS Outstanding (Trillions): 
Sept. 2011: $3.90; 
Sept. 2012: $3.94; 
Sept. 2013: $4.08. 

* September 2013 refi data not available. 
** Average interest rate on a 30 year mortgage. 

Source: Freddie Mac's Primary Mortgage Survey. 

[End of table] 

Management's Discussion and Analysis 

Federal Home Loan Banks: 

Congress passed the Federal Home Loan Bank Act in 1932 to establish 
the Federal Home Loan Bank System and reinvigorate a housing market 
devastated by the Great Depression. 

The System includes 12 district banks, each serving a designated 
geographic area of the United States, and the Office of Finance, which 
issues consolidated obligations to fund the banks. 

The FHLBanks are member-owned cooperatives and provide a reliable 
source of liquidity to member financial institutions. At the end of FY 
2013, there were 7,541 FHLBank members, which included: 

* 948 thrifts; 

* 5,096 commercial banks; 

* 1,200 credit unions; 

* 279 insurance companies; and; 

* 18 community development financial institutions. 

As of September 30, 2013, with total assets of $789 billion, the 
FHLBank System represents one of the largest banking structures in the 
country. Few bank holding companies—Citigroup, JP Morgan Chase, Bank 
of America, Wells Fargo, Goldman Sachs, and Morgan Stanley—are larger. 

The FHLBank of New York, with assets of $121.4 billion, is the largest 
FHLBank, and the FHLBank of Atlanta, with assets of $112.1 billion, is 
the second largest. The FHLBank of Dallas is the smallest in the 
System at $31.3 billion in assets, followed by Topeka, at $36.1 
billion in assets as of September 30, 2013 (see Figure 9). 

Figure 9: Total Assets of the FHLBanks at September 30, 2013: 

New York: $121.4 billion; 
Atlanta: $112.1 billion; 
Cincinnati: $96.6 billion; 
San Francisco: $87.7 billion; 
Des Moines: $65.1 billion; 
Pittsburgh: $61.6 billion; 
Chicago: $61.1 billion; 
Boston: $39.7 billion; 
Indianapolis: $39.6 billion; 
Seattle: $37.2 billion; 
Topeka: $36.1 billion; 
Dallas: $31.3 billion. 

[End of figure] 

FHLBanks make loans, known as advances, to member institutions and 
housing associates, such as state housing agencies. Those loans are 
underwritten based on the borrower’s ability to repay and are 
collateralized by whole mortgage loans, securities, and other real 
estate related collateral (see Figure 10). Advances are the largest 
category of FHLBank assets and no FHLBank has ever incurred a credit 
loss on an advance to a member. FHLBank advances and other credit-
related products increase the availability of credit for residential 
mortgages and community investment. 

In order to become a member institution of an FHLBank or to obtain an 
advance, an institution purchases capital stock in that bank. Only 
member institutions can purchase the capital stock in an FHLBank, and, 
with the exception of certain housing associates, only member 
institutions can borrow from an FHLBank. 

Membership is limited to regulated depository institutions (banks, 
thrifts, and credit unions), insurance companies, and community 
development financial institutions engaged in residential housing 
finance. Some 57 percent of members are borrowers (see Figure 11). 
Each FHLBank district comprises whole contiguous states, including the 
District of Columbia and U.S. territories (see Figure 12). 

In addition to advances, the FHLBanks offer members letters of credit, 
correspondent banking (which includes security safekeeping, wire 
transfers, and settlements), cash management services, and derivative 
intermediation. Some FHLBanks have acquired member assets programs to 
purchase mortgages from their members. The volume of loan purchases is 
low relative to advances, and acquired member asset balances have 
generally declined since 2004. 

The FHLBanks also offer their members several housing and community 
investment programs, such as the Affordable Housing Program. Members 
receive a subsidy from an FHLBank used typically in conjunction with 
an affordable housing sponsor for the purchase, construction, or 
rehabilitation of housing for low- and moderate-income households. The 
Affordable Housing Program supports both multifamily rental properties 
and single-family home ownership projects. Each FHLBank must 
contribute the greater of 10 percent of its net income or an aggregate 
$100 million to fund the Affordable Housing Program. Since 1990, the 
FHLBanks have contributed $4.5 billion in subsidy to this program as 
of September 30, 2013. 

Finally, the FHLBank System also issues debt securities in the 
domestic and international capital markets through the Office of 
Finance at interest rates lower than those available to private sector 
debt issuers. Capital raised through these securities is then used to 
make advances to members, which in turn can pass along the FHLBanks’ 
funding advantage when making loans to their customers. In June 2013, 
Standard and Poors—a ratings agency—revised its outlook of the debt 
issues of the FHLBank System (and 11 of the 12 FHLBanks) from negative 
to stable. 

Figure 10: FHFA Oversight Role – FHLBanks: 

[Refer to PDF for image: illustration] 

Investors: 
* Individual; 
* Institutional; 
* Foreign; 
Purchase Bonds from Underwriters. 

Wall Street: 
Sells Bonds to Investors; 
Receives Loan from Underwriters. 

Office of Finance: 
Issues Debt to Underwriters; 
All Debt Is Issued through the Office of Finance. 

FHL Bank: 
Lender Receives Cash (Advance) from FHL Bank. 

Lender: 
Lender Pledges Collateral* to FHL Bank. 

Borrower: 
Borrower Applies for Mortgage; 
Borrower Receives Loan from Lender. 

FHFA: 
Ensures Financial Safety and Soundness of FHL Bank and Office of 
Finance. 

* Note: The collateral pledged may include assets other than 
mortgages. Also, the collateral pledged may be loans originated well 
in the past. 

[End of figure] 

Figure 11: Number of FHLBank Members and Percent of Members That 
Borrow: 

[Refer to PDF for image: combined vertical bar and line graph] 

Approximated numbers: 

Dec. 1991: 
Members: 3000; 
Borrowing Percent: 48. 

Dec. 1992: 
Members: 3500; 
Borrowing Percent: 49. 

Dec. 1993: 
Members: 4300
Borrowing Percent: 53. 

Dec. 1994: 
Members:5100
Borrowing Percent: 62. 

Dec. 1995: 
Members:5800
Borrowing Percent: 58. 

Dec. 1996: 
Members:6000; 
Borrowing Percent: 63. 

Dec. 1997: 
Members: 6500; 
Borrowing Percent: 65. 

Dec. 1998: 
Members: 6800; 
Borrowing Percent: 68. 

Dec. 1999: 
Members: 7200; 
Borrowing Percent: 79. 

Dec. 2000: 
Members: 7700; 
Borrowing Percent: 75. 

Dec. 2001: 
Members: 7900; 
Borrowing Percent: 74. 

Dec. 2002: 
Members: 8000; 
Borrowing Percent: 76. 

Dec. 2003: 
Members: 8100; 
Borrowing Percent: 78. 

Dec. 2004: 
Members: 8000; 
Borrowing Percent: 80. 

Dec. 2005: 
Members: 8,100; 
Borrowing Percent: 78. 

Dec. 2006: 
Members: 8,000; 
Borrowing Percent: 79. 

Dec. 2007: 
Members: 8,000
Borrowing Percent: 82. 

Dec. 2008: 
Members: 8,1000; 
Borrowing Percent: 83. 

Dec. 2009: 
Members: 8,000; 
Borrowing Percent: 80. 

Dec. 2010: 
Members: 7,800; 
Borrowing Percent: 72. 

June 2012: 
Members: 7,600; 
Borrowing Percent: 54. 

June 2012: 
Members: 7,500; 
Borrowing Percent: 55. 

[End of figure] 

Table: 
Fast Facts – FHLBanks 

Cooperatives: 
Each Federal Home Loan Bank (FHLBank) is a cooperative owned by its 
members. 

Members: 
There are 7,541 FHLBank members. Generally, only members and housing 
finance agencies can borrow from an FHLBank. 

Insurance Companies: 
297 insurance companies are members and account for 12 percent of 
advances outstanding. 

Advances: 
The largest asset class is advances and accounts for 59 percent of 
assets. 

New Mortgages: 
In the 12 months ending September 30, 2013, the FHLBanks acquired $8.2 
billion of new mortgage loans while $12.6 billion was paid off. 

Funding: 
The FHLBanks fund themselves by issuing discount notes and bonds in 
the capital markets. 

Joint-And-Several Liability: 
The FHLBanks are jointly and severally liable for each other’s debt, 
meaning that if one FHLBank faced several difficulties the other 
FHLBanks would have to make good on the discount notes and bonds 
attributable to that FHLBank. 

Capital: 
The regulatory capital-to-assets ratio is 6.3 percent, well above the 
4.0 percent requirement. All FHLBanks have a capital ratio of 5.1 
percent or more. 

Earnings: 
The FHLBanks as a group have been profitable in every quarter since 
the fourth quarter of 2009, and every FHLBank has been profitable in 
every quarter since the fourth quarter of 2011. 

[End of table] 

Figure 12: Federal Home Loan Bank Districts: 

[Refer to PDF for image: illustrated map] 

Atlanta: 
Alabama, District Of Columbia, Florida, Georgia, Maryland, North 
Carolina, South Carolina, Virginia. 

Boston: 
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, 
Vermont. 

Chicago: 
Illinois, Wisconsin. 

Cincinnati: 
Kentucky, Ohio, Tennessee. 

Dallas: 
Arkansas, Louisiana, Mississippi, New Mexico, Texas. 

Des Moines: 
Iowa, Minnesota, Missouri, North Dakota, South Dakota. 

Indianapolis: 
Indiana, Michigan. 

New York: 
New Jersey, New York, Puerto Rico, Virgin Islands. 

Pittsburgh: 
Delaware, Pennsylvania, West Virginia. 

San Francisco: 
Arizona, California, Nevada. 

Seattle: 
Alaska, Guam, Hawaii, Idaho, Montana, Oregon, Utah, Washington, 
Wyoming. 

Topeka: 
Colorado, Kansas, Nebraska, Oklahoma. 

[End of figure] 

[End of section] 

Performance Highlights by Strategic Goal: 

Strategic Goal 1: Safe and Sound Housing GSEs: 

Completed 2012 Examinations of the Enterprises and FHLBanks and 
Reported Summaries to Congress: 

FHFA released its 2012 annual Report to Congress in June 2013. The 
report contains the results and conclusions of the annual examinations 
of the Enterprises and the FHLBanks. In its fifth annual Report to 
Congress, FHFA highlighted the following: 

Report of Examinations of the Enterprises: 

The overall ratings for both Enterprises did not change from 2011 to 
2012. FHFA deemed both Fannie Mae and Freddie Mac “critical concerns” 
in 2012 but noted they each generated positive annual income for the 
first time since 2006. The most significant risks facing Fannie Mae 
are credit risk and operational risk, particularly the dependence on 
legacy systems, and the need to implement a number of FHFA initiatives 
and regulations. 

Figure 13: Enterprises Net Income (Dollars in Billions): 

[Refer to PDF for image: line graph] 

Graph depicts Enterprises Net Income for Freddie Mac and Fannie Mae 
for 2006-2012. 

[End of figure] 

Freddie Mac’s risk profile also remains high because of the difficulty 
in maintaining a sound control structure and effective risk management 
framework in a rapidly changing and complex operating environment. The 
management and the boards at both Enterprises were responsive 
throughout 2012 to FHFA findings. They continue to take appropriate 
steps to resolve identified issues. 

Report of Examinations of the FHLBanks: 

The FHLBanks showed some improvements in 2012. Overall, governance 
practices improved. Operational risk management continues to evolve, 
and some FHLBanks need to ensure that they allocate sufficient 
resources to this function. The FHLBanks’ financial condition and 
performance in terms of return on assets and return on equity remained 
stable. All FHLBanks exceeded the minimum statutory capital 
requirement of 4 percent of total assets and their risk-based capital 
requirements at year-end. Credit risk management was generally stable 
or decreasing. The most significant credit risk associated with the 
FHLBanks continues to be their private-label MBS portfolios. Credit 
losses on these securities are highly dependent on the level and 
direction of housing prices. 

Enterprises’ Financial Condition Continues to Improve: 

Both Fannie Mae and Freddie Mac reported positive earnings for the 
nine months ended September 30, 2013, significantly influenced by the 
continued improvement in national house prices, including sales prices 
of real estate owned (REO) properties, combined with the further 
reductions in the number of delinquent loans guaranteed by the 
Enterprises. For the nine months ending September 30, 2013, the 
Enterprises reported combined net income of $117.6 billion bolstered 
by each Enterprise releasing its valuation allowance against deferred 
tax assets (DTA). The release of the DTA valuation allowance at Fannie 
Mae and Freddie Mac contributed $50.6 billion and $23.9 billion, 
respectively, to year-to-date net income (see Figure 14). 

Figure 14: The Enterprises Net Income (Dollars in Billions): 

[Refer to PDF for image: vertical bar graph] 

Combined Net Income: 

2013, Q1: $63.3 billion; 
Tax benefit: $12.7 billion; 

2013, Q2: $15.1 billion; 

2013, Q3: $39.2 billion; 
Tax benefit: $15.3 billion. 

[End of figure] 

For the four quarters ending in September 2013, national house prices 
rose approximately 8.4 percent, according to the FHFA House Price 
Index. Rising house prices in almost all states lowered expected 
defaults on mortgages guaranteed by the Enterprises. States with the 
highest severity rates, such as Arizona, California, Nevada and 
Florida, experienced sharp increases in house prices over the past 
nine months, which reduced the severity of credit losses when the 
Enterprises sold REO properties. 

Furthermore, the Enterprises’ portfolio quality continues to improve 
as the share of mortgages acquired prior to 2009 continues to decline 
as a percentage of the total mortgage portfolios, and new loans 
acquired since 2009 have better credit characteristics. The Enterprises’
 seriously delinquent loan count declined by 22 percent to 
approximately 724,000 loans as of September 30, 2013, compared to 
approximately 930,000 loans as of December 31, 2012 (see Figure 15). 

Figure 15: Seriously Delinquent Loans (Count in Thousands): 

[Refer to PDF for image: vertical bar graph] 

2010, Q1 through 2013, Q3, with the following identified: 
2010, Q1: 1,511; 
2011, Q4: 1,105; 
2012, Q4: 930; 
2013, Q3: 724. 

[End of figure] 

These factors contributed to a $20.1 billion decrease in the 
Enterprises’ combined loan loss reserves during the first nine months 
of the year (see Figure 16). The reduction in loan loss reserves led 
to the Enterprises reporting a benefit for credit losses (i.e., a 
negative provision for credit losses) of $11.2 billion. The 
Enterprises have reported a benefit for credit losses in each of the 
first three quarters of 2013. 

Figure 16: Loan Loss Reserves (Dollars in Billions): 

[Refer to PDF for image: vertical bar graph] 

2010, Q1 through 2013, Q3, with the following identified: 
2010, Q1: $105.2; 
2011, Q4: $116.4 
2012, Q4: $93.5; 
2013, Q3: $73.4. 

[End of figure] 

Earnings were further augmented by hedging gains, as the Enterprises 
reported combined fair value gains on derivatives of $4.0 billion for 
the first nine months of the year. 

Additionally, prices of private-label mortgage-backed securities 
(PLMBS) rose considerably over the first nine months, particularly in 
the first quarter of 2013, influenced by increases in house prices and 
tighter credit spreads, as improved investor sentiment led to greater 
demand for these risky assets. As a result, the Enterprises reported 
an increase in accumulated other comprehensive income (AOCI) of $2.4 
billion mainly due to unrealized gains on PLMBS. 

As of September 30, 2013, the Enterprises reported a combined net 
worth of $45.0 billion, and neither Enterprise has requested a draw 
from the Treasury in 2013. Over the first nine months of 2013, the 
Enterprises paid dividends to the Treasury totaling $91.0 billion, 
with additional dividends payable to the Treasury of $39.0 billion due 
by December 31, 2013. 

FHLBanks’ Financial Condition Stronger Now Than It Has Been In Years: 

The financial health of FHLBanks is stronger now than it has been in 
years thanks to improvements in the mortgage finance market. The 
decline in advances appears to have stopped with some evidence of 
increases ahead. Capital-to-asset ratios are at or near historic 
highs, and retained earnings levels, in relation to assets, are 
substantially higher. Retained earnings were $11.7 billion in Q4 FY 
2013, a remarkable growth from $3.8 billion in the first half of 2008 
(see Figure 17). 

Figure 17: FHLBanks Retained Earnings (Billions): 

[Refer to PDF for image: vertical bar graph] 

March 2008: $3.8
September 2013: $11.7. 

[End of figure] 

The Banks’ capital is redeemable at par, i.e., face value—which makes 
it important for the market value of each Bank’s equity (MVE) to be at 
or above the par value of its capital stock (PVCS). MVE is a snapshot 
of the market value of a firm’s outstanding shares. MVE and the 
sensitivity of MVE to changes in market conditions are helpful 
measures of an FHLBank’s condition and market risk. 

MVE is frequently compared to PVCS to form the MVE/PVCS ratio. This 
effectively compares the market value of Bank equity to the capital 
contributed by member institutions. A ratio significantly below 1.0 
may indicate poor Bank condition and an inability of the FHLBank to 
prudently repurchase or redeem its capital stock at par. This brings 
us to the very encouraging news that the MVE/PVCS ratio exceeded 1.0 
at all FHLBanks (as of Q3 FY 2013) for the first time in many years. 

FHFA Establishes a Uniform Examination Rating System for the 
Enterprises and the FHLBanks: 

Prior to 2013, the divisions supervising the FHLBanks (DBR) and the 
Enterprises (DER) applied different examination rating systems 
developed by the predecessor agencies that merged to form the FHFA. 
While risks common to the housing GSEs were addressed in each system, 
FHFA concluded that there should be a single, standardized rating 
system. 

Today, FHFA employs a risk-focused rating system under which each 
regulated entity and the Office of Finance is assigned a common 
composite rating based on an evaluation of various aspects of its 
operations. Specifically, the composite rating of a Federal Home Loan 
Bank or an Enterprise is based on an evaluation and rating of seven 
components: Capital, Asset quality, Management, Earnings, Liquidity, 
Sensitivity to market risk, and Operational risk (CAMELSO). The 
composite rating of the Office of Finance is based primarily on an 
evaluation of two components: management and operational risk. 

Under the rating system, each housing GSE is assigned a composite 
rating from 1 (best - the lowest degree of supervisory concern) to 5 
(worst - the highest level of supervisory concern.) The composite 
rating reflects the ratings of the underlying components, which are 
also rated on a scale of ‘1’ to ‘5’. The composite rating is not an 
arithmetic average of the component ratings. Instead, the relative 
importance of each component is determined on a case-by-case basis, 
within the parameters established by this rating system. 

Table: CAMELSO Component Assessments: 

Capital: 
Sufficiency of capital relative to GSE’s risk profile. 

Asset Quality: 
Credit risk associated with assets and off-balance sheet transactions, 
and management’s ability to identify, measure, monitor, and control 
credit risk. 

Management: 
Capability and willingness of board and management to identify, 
measure, monitor and control the risks of the GSE. 

Earnings: 
Quantity, trend, sustainability, and quality of earnings. 

Liquidity: 
Current level and prospective sources of liquidity compared to funding 
needs, and adequacy of funds management practices. 

Sensitivity To Market: 
Degree to which changes interest rates, foreign exchange rates, 
commodity prices, or equity prices can adversely affect the GSE’s 
earnings or economic capital. 

Operational Risk: 
Exposure to loss from inadequate or failed internal processes, people, 
and systems. 

[End of table] 

FHFA Directs the Enterprises to Adopt Some Features of the “Qualified 
Mortgage” Rule: 

In May 2013, FHFA directed Freddie Mac and Fannie Mae to adopt several 
new requirements established by the Consumer Financial Protection 
Bureau (CFPB) regulations implementing the “ability to repay” 
provisions of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act. The rule deemed loans eligible for GSE delivery to be 
Qualified Mortgages. Loans with application dates on or after January 
10, 2014, must meet the following requirements to be eligible for sale 
to the Enterprises: 

* Amortization – loans must be fully amortizing (e.g., no negative 
amortization or interest-only loans); 

* Term – loans must not have terms greater than 30 years (e.g., no 40-
year terms); and; 

* Points and fees – loans must not have total points and fees in 
excess of 3 percent of the total loan amount (or such other applicable 
limits for low balance loans). 

The Enterprises will continue to acquire mortgages that meet their 
respective eligibility guidelines under the special GSE qualified 
mortgage definition, including loans processed through their automated 
underwriting systems. Guidance was issued to the lending community 
during August and September in preparation for the January 
implementation date. 

Adoption of these new limitations by the Enterprises is in keeping 
with FHFA’s goal of gradually contracting their market footprint and 
protecting borrowers and taxpayers. 

FHFA Approves Agreement between Fannie Mae and Bank of America to 
Resolve Claims regarding Risky Loans: 

On January 7, 2013, FHFA announced that it approved a comprehensive 
agreement between Fannie Mae and Bank of America to resolve certain 
claims related to mortgages sold to Fannie Mae between 2000 and 2008 
by Bank of America, Countrywide Home Loans, Inc., and other parties 
affiliated with Bank of America. Under this agreement, Bank of America 
made a cash payment to Fannie Mae of $3.55 billion and additionally 
paid the Enterprise approximately $6.75 billion to repurchase 
approximately 30,000 loans. Bank of America also agreed to continue to 
be responsible for its servicing, third-party indemnification, and 
recourse obligations. Bank of America also accepted responsibility for 
obligations with respect to mortgage insurance rescissions, 
cancellations, and denials on the loans covered by the agreement. 

Also in January, FHFA approved two other separate agreements between 
Fannie Mae and Bank of America relating to Bank of America’s servicing 
of Fannie Mae loans. Bank of America paid Fannie Mae another $1.3 
billion for compensatory fees related to delays in Bank of America’s 
delinquent borrower resolution obligations. Fannie Mae continues to 
reconcile the compensation fees paid by Bank of America and expects to 
return a portion of the fees paid back to Bank of America. The final 
agreement approved by FHFA transferred the servicing of approximately 
900,000 Fannie Mae loans from Bank of America to specialty servicers. 

The approval of these agreements was consistent with FHFA’s 
responsibilities as conservator of Fannie Mae. They allowed Fannie Mae 
to recover losses from origination and servicing defects that have 
been, or could have been, absorbed by taxpayers in the absence of a 
resolution of these matters. 

Examiner Commissioning Program Launched: 

FHFA launched the Housing Finance Examiner Commissioning Program in 
June 2013. The main objective of the program is to provide examiners 
with broad-based knowledge to conduct successful risk-based 
examinations. A Housing Finance Examiner Commission will indicate 
whether an examiner is qualified to lead the examination of a major 
risk area at Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. 
The program combines coursework, on-the-job training, and testing to 
ensure an examiner has the skills and technical knowledge necessary to 
evaluate the condition and practices of the entities that FHFA 
supervises. The program builds on the common examination program 
instituted since the Federal Housing Finance Board and the Office of 
Federal Housing Enterprise Oversight merged to form FHFA. 

Dodd-Frank Implementation of Derivatives Clearing for the FHLBanks: 

This year, consistent with requirements of the Dodd-Frank Act, the 
FHLBanks began clearing certain types of their derivatives with a 
derivatives clearing organization (DCO) through a futures commission 
merchant (FCM). This represents a marked change from the FHLBanks’ 
historical practice of entering into derivatives in the over-the-
counter (OTC) market directly with each counterparty. 

Derivatives are used to hedge risks such as interest rate risk 
exposures. Derivatives are routinely used by many organizations. Prior 
to the Dodd-Frank requirements, OTC derivatives were not subject to 
government regulation, and many financial institutions’ OTC derivative 
positions were not being measured, yet could systemically affect the 
market. Effective November 2012, these derivatives are now cleared 
through regulated entities (DCOs/FCMs) that require both collateral 
and robust reporting to enhance accountability and transparency. 
Through examinations and other supervisory reviews, FHFA will review 
and assess the FHLBanks’ planning and operational readiness for 
complying with Dodd-Frank Act derivatives-related reporting, clearing, 
and recordkeeping requirements. 

[End of section] 

Strategic Goal 2: Stability, Liquidity, and Access in Housing Finance: 

Loss Mitigation Efforts: 

Since being placed into conservatorship, the Enterprises have focused 
extensively on loss mitigation and borrower assistance activities. As 
of August 2013, 2.97 million foreclosure prevention transactions, half 
of which were permanent loan modifications, were completed. This year, 
FHFA announced the extension of three valuable foreclosure prevention 
and refinance programs, the Home Affordable Modification Program, the 
Streamlined Modification Initiative, and the Home Affordable Refinance 
Program, through year-end 2015. 

Home Affordable Modification Program (HAMP) extended until December 
2015 to Stabilize Secondary Mortgage Markets: 

HAMP is designed to assist financially-stressed homeowners avoid 
foreclosure by modifying delinquent loans to a level that is 
affordable. The program provides clear and consistent loan 
modification guidelines and includes incentives for borrowers, 
servicers, and investors to use the program. As of September 2013, 
601,542 permanent HAMP modifications have been completed since the 
program started in April 2009. Under the program, mortgage companies 
work with eligible homeowners to restructure their loans, and to lower 
monthly payments down to 31 percent of income. According to data from 
the U.S. Treasury, borrowers participating in the program have 
realized a median monthly savings of $546 dollars. 

FHFA Announces New Streamlined Modification Initiative: 

In late March 2013, FHFA announced that Fannie Mae and Freddie Mac 
would offer a new, simplified loan modification option to help 
struggling borrowers stay in their homes. The Streamlined Modification 
Initiative requires servicers to solicit eligible borrowers more than 
90 days late with a proposed trial payment plan specifying the dollar 
amount of a new, lower mortgage payment. The new loan offers a fixed 
interest rate, extends the payment terms to 40 years and provides 
principal forbearance for certain underwater borrowers. 

The new Streamlined Modification Initiative addresses borrower 
challenges associated with document collection by offering borrowers 
that are 90-days delinquent a modification with reduced paperwork 
requirements. Under the new Streamlined Modification Initiative, to 
receive a permanent modification a borrower must simply successfully 
complete a trial plan. 

Text box: 

Streamlined Modification Eligibility Requirements 

* Effective July 2013. 

* Loan must be at least 90 days delinquent, but no more than 720 days 
delinquent. 

* LTV greater than or equal to 80 percent. 

* A Borrower Response Package is not required. 

* The loan may not have been previously modified more than twice 
regardless of the modification program or dates of prior modifications. 

* Loans not meeting the eligibility requirements for a Streamlined 
Modification will be evaluated for another type of modification or 
other foreclosure prevention alternative, provided the borrower 
submits a complete Borrower Response Package. 

[End of text box] 

The Home Affordable Refinance Program (HARP) Continues to Have 
Positive Impact: 

HARP continues to help many underwater borrowers reduce their monthly 
payments or shorten their loan terms. As of September 2013, HARP 
refinances since program inception totaled nearly 2.9 million loans. 
However, there are still borrowers who would be able to benefit from 
the program. Therefore, FHFA has decided to extend the program through 
2015. In addition, FHFA launched a public outreach campaign in 
September 2013 to increase HARP awareness and encourage borrowers to 
take advantage of the program. The campaign launched in Chicago, 
Cleveland, Detroit, Southern California/Riverside, Las Vegas, Atlanta, 
Miami, Tampa and Orlando includes: 

* A new, consumer friendly HARP website, [hyperlink, 
http://www.HARP.gov]; 

* A series of virtual events, held in partnership with lenders, in 
targeted markets with a blitz by local media; 

* Customizable tools to help lenders promote HARP; and; 

* Partnerships to amplify the FHFA message and encourage access to the 
site’s housing experts and refinancing tools. 

Text box: 

FHFA Launches National Education Campaign for Home Affordable 
Refinance Program (HARP): 

FHFA launched a nationwide media campaign designed to educate and 
inform homeowners about the benefits of refinancing through a lender 
supported program, which has helped nearly 2.9 million borrowers. 

HARP encourages homeowners who have been making their monthly payments 
to contact their mortgage lender to consider options for refinancing. 
Even if the home is underwater (borrowers owe more than it is worth), 
homeowners can still take advantage of low rates. Eligibility 
requirements have changed to include the following: 

* The loan must be owned or guaranteed by the Enterprises. 

* The mortgage must have been delivered to the Enterprises on or 
before May 31, 2009. 

* The current loan-to-value (LTV) ratio must be greater than 80 
percent. 

* The borrower must be current on their mortgage with no late payment 
in the last six months and no more than one late payment in the last 
12 months. 

FHFA opened a new website, [hyperlink, http://www.HARP.gov], to help 
inform qualified homeowners of the benefits from this great program. 
FHFA is also working with HGTV personality, and star of Power Broker, 
Mike Aubrey to assist in our outreach efforts. 

[End of text box] 

Figure 18: Monthly HARP Volume by Loan-to-Value Ratio: 

[Refer to PDF for image: multiple line graph] 

Depicts for time period July 2008 though August 2013: 
HARP LTV more than 80–105; 
HARP LTV more than 105–125; 
HARP LTV more than 125. 

The number of completed HARP refinances reported for deeply underwater
borrowers continued to represent a significant portion of total HARP 
volume. In August 2013, 17 percent of the loans refinanced through 
HARP had a loan-to-value ratio greater than 125 percent. 

* The number of completed HARP refinances reported for deeply 
underwater borrowers increased sharply in June 2012 as further 
enhancements to HARP went into effect. Starting June 1, 2012,
lenders became able to deliver loans with loan-to-value ratios greater 
than 125 percent refinanced through HARP to the Enterprises to be 
securitized. 

Sources: FHFA (Fannie Mae and Freddie Mac). 

[End of figure] 

The Enterprises help Homeowners affected by Hurricane Sandy and other 
disasters: 

FHFA worked with the Enterprises to align their guidance for borrowers 
located in FEMA-declared disaster areas eligible for individual 
assistance, such as the area affected by Hurricane Sandy. The 
Enterprises aligned their guidance to establish: 

* Standard foreclosure and eviction moratoria; 

* Forbearance for up to twelve months; 

* Processing rules for insurance claims for borrowers who were current 
at the time of the disaster and whose property had not suffered a 
total or near-total loss; 

* Increased insurance settlement claim limits (up to 10 percent of the 
unpaid principal balance or $40,000) for properties that suffered a 
near-total or total loss; and; 

* Rules to handle trial period plans for those borrowers who were 
already in a loan modification trial period and were affected by a 
disaster. 
In addition to the guidance, both Enterprises appraised their REO 
portfolios in the area affected by Hurricane Sandy and worked with 
FEMA to determine properties that were habitable in order to rent 
those properties to borrowers. 

FHFA Directs Enterprises to Address the Cost of Force-Placed Insurance: 

FHFA is considering methods the Enterprises may use to reduce their 
costs for lender-placed insurance (LPI). LPI is imposed by the lender 
or servicer when a homeowner does not maintain property insurance 
coverage as required by the mortgage instruments. When LPI costs 
cannot be covered by the borrower or from a foreclosure sale, mortgage 
servicers seek reimbursement from the Enterprises. Concerns about 
excessive LPI premiums and costs are well publicized and some states 
have already taken action to reform LPI practices and reduce rates. 

FHFA directed the Enterprises to align their LPI policies. During 
2013, FHFA assembled a working group comprised of federal and state 
regulators to discuss LPI practices and inform the development of a 
broad-based strategy to address them. This group has engaged mortgage 
servicers, consumer advocates, and insurance carriers and their 
intermediaries to get their input. In late March, FHFA published a 
notice in the Federal Register requesting input on the restriction of 
two practices that create incentives for servicers to seek out higher 
priced coverage. FHFA received 37 responses to the request for input. 
On November 5, 2013, FHFA directed the Enterprises to prohibit certain 
lender-placed insurance practices. 

FHFA Promotes Fair Access to Enterprise Underwriting Systems: 

FHFA has discouraged the implementation of new minimum customer annual 
activity thresholds for selling, servicing and utilizing the 
Enterprises’ automated underwriting systems. For example, Freddie 
Mac’s proposed “low activity” fee of $7,500 would have created a 
significant financial burden on smaller community-based lenders and 
discouraged their ability to obtain liquidity in the secondary 
mortgage market. With FHFA encouragement, the fee was changed and now 
the minimal fee applies only to community-based lenders who have not 
delivered a loan within the past three years. This fee allows small 
lenders to maintain their approved seller status, which is important 
because it keeps the option open to make future sales to the 
Enterprise. 

Enterprise Affordable Housing Goals: 

FHFA established annual housing goals for purchases of single-family 
mortgages and multifamily mortgages by Fannie Mae and Freddie Mac 
during 2012-2014 in a November 13, 2012 final rule (12 C.F.R. § 
1282.12). The goals provide targets to the Enterprises for the 
purchase of mortgages from low-and very low-income homeowners. For CY 
2012, FHFA determined that both Enterprises met all of their single-
family and multifamily goals and notified them of our determination on 
October 28, 2013 (see Figures 19 and 20). 

Figure 19: Enterprise Performance on 2012 Single-Family Housing Goals:* 

[Refer to PDF for image: table] 

Goal Category: Low Income Home Purchase; 
2012 Benchmark Level: 23%; 
Official Goal Performance: 
Fannie Mae: 25.6%; 
Freddie Mac: 24.4%. 

Goal Category: Very Low Income Home Purchase; 
2012 Benchmark Level: 7%; 
Official Goal Performance: 
Fannie Mae: 7.3%; 
Freddie Mac: 7.1%. 

Goal Category: Low Income Area Home Purchase Goal; 
2012 Benchmark Level: 20%; 
Official Goal Performance: 
Fannie Mae: 22.3%; 
Freddie Mac: 20.6%. 

Goal Category: Low Income Area Home Purchase subgoal; 
2012 Benchmark Level: 11%; 
Official Goal Performance: 
Fannie Mae: 13.1%; 
Freddie Mac: 11.4%. 

Goal Category: Low Income Refinance; 
2012 Benchmark Level: 20%; 
Official Goal Performance: 
Fannie Mae: 21.8%; 
Freddie Mac: 22.4%. 

* Goals expressed as percentage of total mortgages purchased for the 
year. 

[End of figure] 

Figure 20: Enterprise Performance on 2012 Multifamily Housing Goals: 

[Refer to PDF for image: table] 

Goal Category: Low Income Multifamily; 
2012 Goal Level (in units): 
Fannie Mae: 285,000; 
Freddie Mac: 225,000; 
Official Goal Performance: 
Fannie Mae: 375,924; 
Freddie Mac: 298,529. 

Goal Category: Very Low Income Multifamily; 
2012 Goal Level (in units): 
Fannie Mae: 80,000; 
Freddie Mac: 59,000; 
Official Goal Performance: 
Fannie Mae: 108,878; 
Freddie Mac: 60,084. 

[End of figure] 

FHLBank Affordable Housing and Community Development Programs: 

The Affordable Housing Program (AHP) consists of a competitive 
application subsidized advance or grant program, and a homeownership 
set-aside grant program, designed to assist moderate-income, low-
income and very low-income households. In CY 2012, the FHLBanks 
awarded $245 million to their AHP for the purchase, construction, or 
rehabilitation of over 29,500 housing units. 

The Community Investment Program (CIP), is an advance program for 
affordable housing and targeted economic development. CIP advances 
must benefit households at or below 115 percent of the area median 
income. CIP economic development advances must benefit low- or 
moderate-income households, or they must benefit development located 
in low- and moderate-income neighborhoods. In CY 2012, CIP housing 
advances totaled approximately $2.2 billion and CIP economic 
development advances totaled about $5.1 million. 

Office of Minority and Women Inclusion: 

FHFA’s Office of Minority and Women Inclusion (OMWI) is charged with 
leading the agency’s efforts to advance diversity and inclusion in all 
activities of the agency as well as assisting the efforts of the 
entities regulated by the FHFA. In its annual report to Congress for 
2012, published in March 2013, the OMWI reported significant strides 
in fulfilling its mission in 2012. In addition to awarding $8.2 
million in contracts to minority- and women-owned businesses (MWOBs), 
the agency now includes a contract clause for all contracts above 
$150,000 requiring contractors to confirm their commitment to 
including women and minorities in employment, contracting and 
subcontracting. In addition, OMWI assisted in efforts with the 
Enterprises to increase their contract awards to MWOBs. 

[End of section] 

Strategic Goal 3: Preserve and Conserve Enterprise Assets: 

Board and Enterprise Management: 

From the outset, FHFA stated that the goals of the conservatorships 
were to help restore confidence in the Enterprises, enhance their 
capacity to fulfill their missions, and mitigate the systemic risk 
that contributed directly to instability in financial markets. It is 
unprecedented that two enormous financial institutions such as these 
have been in conservatorships for more than five years. The prolonged 
time overseeing the conservatorships has required FHFA to adapt to 
changing circumstances, while remaining consistent with the 
fundamental responsibilities given to us. Today, FHFA is balancing 
three responsibilities: preserve and conserve assets, ensure market 
stability and liquidity, and prepare the Enterprises for an uncertain 
future. 

In addition to the efforts of FHFA, the progress made during the 
conservatorships would not have been possible without the commitment 
of the boards, management, and employees of Fannie Mae and Freddie 
Mac. The leadership and staff at both companies remain committed to 
fixing what is broken and creatively addressing the challenging issues 
we face. Stability in the Enterprise management ranks is critical 
during this time, and, in 2013, there were fewer turnovers among 
Fannie Mae and Freddie Mac senior executives than in 2012 and 2011. 
Another key component of continuing to make progress during the 
conservatorships is the ability of the Enterprises to attract and 
recruit qualified board members. During 2013, long-standing vacancies 
on the board at Freddie Mac were filled with the election of three new 
members. All of the new members are well qualified and have extensive 
industry experience. 

During FY 2013, FHFA issued revised letters of instruction to the 
Enterprises, building on the knowledge gained over the course of the 
conservatorships. The letters maintained FHFA’s position that the day-
to-day operations of the Enterprises are the responsibility of the 
Fannie Mae and Freddie Mac management and boards. However, the letters 
better defined the Enterprises’ responsibilities to seek FHFA approval 
and establish appropriate governance processes surrounding 
submissions. The letters also clarified items requiring approval and 
notification. 

Rehabilitation and Maintenance of Enterprises Infrastructure: 

FHFA is working to update the Enterprises’ outmoded securitization 
infrastructures by replacing them with a common and more efficient 
securitization model. The ultimate goal is to develop a new 
securitization model that will have benefits beyond upgrading the 
current Enterprise business model. To achieve this, the new 
infrastructure must be operable across many platforms and operate in a 
cost effective manner so that any issuer, servicer, agent, or other 
party that decides to participate can use it. 

In April 2013, FHFA issued a progress report on steps taken to 
establish a Common Securitization Platform for residential mortgage-
backed securities. The report reflected feedback from a broad cross-
section of industry participants following the 2012 issuance of the 
FHFA’s white paper on the platform. The report noted progress and 
plans in the following areas: 

* Work on the design, scope, and building of a platform to perform 
securitization functions relating to data validation, issuance, 
disclosures, master servicing, and bond administration is underway; a 
prototype has been developed. 

* Alignment activities on Fannie Mae and Freddie Mac contracts and 
standards for mortgage-backed securities continue. 

* The development of uniform contracts and standards for Fannie Mae 
and Freddie Mac credit risk sharing activities is proceeding. 

* FHFA’s plan to institute a formal structure for accepting input from 
industry participants is moving forward. 

Further information on this work is provided in the discussion of 
Strategic Goal Four beginning on page 43. 

FHFA Announces 2013 Conservator’s Scorecard: 

On March 4, 2013, FHFA published the 2013 Conservator’s Scorecard, 
setting forth performance goals for the Enterprises in furtherance of 
the Conservatorship Strategic Plan issued last year. The 2013 
Scorecard set additional measurable targets for achieving our goals of 
Build, Contract, and Maintain to move the Enterprises to a stage where 
they will be ready for whatever transition policymakers set forth in 
the future. The 2013 Conservator’s Scorecard outlined a number of 
priorities that support these goals. See Figure 21, for details on 
priorities. 

Figure 21: 2013 Conservator Scorecard Priorities: 

[Refer to PDF for image: table] 

Build: 

* Continue the foundational development of the Common securitization 
Platform (CSP). 

* Continue the development of the Contractual and disclosure Framework 
(CDF) to meet the requirements for investors in mortgage securities 
and credit risk. 

* Complete identification and development of data standards for 
Uniform Mortgage Servicing Data (UMSD), leveraging the Mortgage 
Industry Standards Maintenance Organization (MISMO) process. Establish 
timeline to implement data collection and use of UMSD data in enhanced 
disclosures and risk management strategy. 

* Develop plan to standardize origination data as well as timeline for 
implementation. 

Contract: 

* Single-Family Credit Guarantee Business – Each Enterprise will 
demonstrate the viability of multiple types of risk transfer 
transactions involving single-family mortgages with at least $30 
billion of unpaid principal balances in 2013. 

* Multifamily Business – Reduce the unpaid principle balance (UPB) 
amount of new multifamily business relative to 2012 by at least 10 
percent by tightening underwriting, adjusting pricing and limiting 
product offerings, while not increasing the proportion of the 
Enterprises’ retained risk. 

* Retained Portfolios – Reduce the December 31, 2012 retained 
portfolio balance by selling five percent of illiquid assets. 

Maintain: 

* Enhance the post-delivery quality control practices and transparency 
associated with the new representations-and-warranty framework. 

* Complete representations-and-warranty demands for pre-
conservatorship loan activity. 

* Develop counterparty risk management standards for mortgage insurers 
that include uniform master policies and eligibility requirements. 

* Incorporate policies related to lender-placed insurance in the 
Servicing Alignment Initiative. 2013 Conservator Scorecard Priorities 

[End of figure] 

Updated Mortgage Insurance Master Policies and Eligibility 
Requirements: 

FHFA is working with Fannie Mae and Freddie Mac to revise the mortgage-
insurer eligibility requirements and mortgage insurance master 
policies. 

The objective of revising the eligibility requirements is to formulate 
and implement uniform standards for mortgage insurers that address 
three key areas of the mortgage insurance business model: financial 
strength, operational performance, and quality control. These 
eligibility requirements will enhance the counterparty risk management 
process conducted by the Enterprises in their dealings with the 
mortgage insurance companies. The new requirements will also promote a 
safer and more efficient housing finance system. 

Work on updated eligibility requirements was nearing completion during 
the preparation of this report. The revised master policies will be 
uniform between the Enterprises and will be responsive to many of the 
issues that surfaced during the financial crisis including claims 
processing, loss mitigation, and the new representations and warranty 
model. 

Completion of the work on the master policies was announced on 
December 2, 2013. The policies will go into effect in 2014 after 
review and approval by state insurance commissioners. 

Litigation Developments: 

In order to fulfill FHFA’s strategic goal of preserving and conserving 
Enterprise assets, FHFA is involved in numerous legal actions that 
seek to recover losses or to avoid liability to the Enterprises. By 
pursuing such legal actions when practical and cost-effective, the 
FHFA will be able to minimize taxpayer losses during the Enterprises’ 
conservatorships. The primary legal actions taken by the FHFA are 
filing lawsuits against financial institutions over private label 
securities sold to the Enterprises and defending the Enterprises in 
suits filed by state and local governments over the Enterprises’ 
exemption from state and local real estate transfer taxes. 

[Photograph: Representatives from the Office of General Counsel. FHFA 
photo] 

The FHFA has filed 18 lawsuits against financial institutions over 
private label securities sold to the Enterprises. As of October 2013, 
four of these lawsuits have been settled out of court. These 
settlements have resulted in payments of more than $4.8 billion from 
financial institutions to the Enterprises, which are then passed on to 
Treasury as dividend payments on Treasury’s Senior Preferred Stock 
investments. The FHFA has represented the Enterprises as a defendant 
in 55 lawsuits filed by state and local governments over the 
Enterprises’ exemption from real estate transfer taxes. Finally, 
several local governments have recently announced intentions to use 
their powers of eminent domain to restructure performing loans owned 
by entities regulated by the FHFA. In response, on August 8, 2013, the 
FHFA notified the public that it would consider initiating legal 
challenges to any local or state action that sanctions the use of 
eminent domain to restructure mortgage loan contracts that affect FHFA’
s regulated entities. FHFA may also direct its regulated entities to 
limit, restrict or cease business activities in jurisdictions 
employing eminent domain to restructure mortgage loan contracts. 

Risk-Sharing Transactions: 

During FY 2013, FHFA worked with the Enterprises to investigate and 
develop several transaction structures to share the Enterprises’ 
single-family mortgage credit risk with the private sector. FHFA set a 
target of $30 billion of unpaid principal balance (UPB) in credit risk-
sharing transactions in CY 2013 for both Fannie Mae and Freddie Mac. 
FHFA specified that each Enterprise conduct multiple types of risk-
sharing transactions to meet this target, e.g., expanded mortgage 
insurance; credit-linked securities; senior/subordinated securities; 
and other structures. The goal for 2013 was to move forward with these 
transactions and to evaluate the pricing and the potential for further 
execution in scale. 

Issuance of Historical Loan-Level Mortgage Performance Data: 

To inform potential investors and facilitate the pricing of risk-
sharing transactions, each Enterprise released loan-level information 
on the characteristics and credit performance of a sizable portion of 
the single-family mortgages it has financed in recent years. 

In March, Freddie Mac released information on about 16 million fully 
amortizing, 30-year, fixed-rate loans originated from 1999 through 
2011. Excluded from the dataset were adjustable-rate, initial-interest-
payment-only, balloon, government-insured, step-rate, relief-
refinancing loans including Home Affordable Refinance Program (HARP) 
loans, and other non-standard mortgages. The dataset includes monthly 
credit performance data on each loan, including information up to and 
including 180-days delinquency, through mid-2012. Voluntary 
prepayments and short sales, deeds-in-lieu of foreclosure, third-party 
sales, and foreclosures that occur before 180-days delinquency are 
indicated in the performance information. 

In April, Fannie Mae made a comparable release of information on the 
characteristics of over 18 million mortgages acquired by the 
Enterprise from 2000 through the first quarter of 2012, along with 
credit performance data on the loans through the end of 2012. Each 
Enterprise is updating the credit performance information in its 
historical dataset on an ongoing basis. The data releases will 
facilitate analysis of proposed Enterprise credit risk-sharing 
transactions. 

Enterprises Issue New Types of Debt Securities that Transfer Risk: 

Following their release of historical credit performance data, each 
Enterprise sold new types of debt securities that transfer to private 
investors a portion of the credit risk of a large reference pool of 
single-family mortgages that the Enterprise had previously securitized. 

In July 2013, Freddie Mac sold one offering of a new type of debt 
security, Structured Agency Credit Risk (STACR) notes. This issue was 
backed by a reference pool of 30-year, fixed-rate mortgages. The loans 
in the reference pool had loan-to-value (LTV) ratios from 60 percent 
to 80 percent, and none was covered by mortgage insurance. In the July 
offering, the Enterprise sold $500 million in STACR notes, resulting 
in credit protection on $18.5 billion of collateral consisting of 
mortgages funded in the third quarter of 2012. The STACR notes are 
unsecured general obligations of Freddie Mac. 

In October, Fannie Mae issued a new type of debt security that follows 
the structure of Freddie Mac’s STACR notes. Specifically, Fannie Mae 
sold $675 million of “Connecticut Avenue” securities, resulting in 
credit protection on $25 billion of previously issued Fannie Mae MBS. 

Both Enterprises anticipate additional risk-sharing transactions by 
the end of December 2013. Both Enterprises have met and exceeded their 
2013 risk-sharing transaction goals, executing multiple risk-sharing 
goals totaling more than $30 billion. 

New Representations and Warranties Model: 

Effective January 1, 2013, a new framework for selling representations 
and warranties went into effect that provides lenders representations 
and warranties relief on the credit underwriting of the borrower, 
property, and project as early as 36 months after acquisition. The 
loan must meet certain eligibility and on-time payment history 
requirements. The intent of this new framework is to provide lenders 
with greater certainty around repurchase exposure and liability to 
help improve the availability of credit. To that end, the Enterprises 
have developed and continue to develop tools to help lenders with 
purchase certainty. For example, the Enterprises have recently 
developed automated eligibility rules available for lenders to use 
before loan delivery. Under the new model, the Enterprises also 
perform quality control reviews closer to the time of delivery and 
provide meaningful feedback to lenders on manufacturing and loan 
quality. 

FHFA and the Enterprises are monitoring the impact of the new 
framework and are continuing discussions with other federal agencies 
and the lending community to see what more can be done in this area. 

[End of section] 

Strategic Goal 4: Prepare for the Future of Housing Finance in the U.S. 

FHFA Develops a Common Securitization Infrastructure for Housing 
Finance: 

Common Securitization Platform (CSP): 

In October 2012, FHFA released a white paper entitled, “Building a New 
Infrastructure for the Secondary Mortgage Market,” which set forth a 
proposal for both a new securitization platform and a model 
contractual and disclosure framework that were outlined in the 
Strategic Plan for Enterprise Conservatorships (SPEC). The combination 
of a Common Securitization Platform (CSP) and a Contractual and 
Disclosure Framework (CDF) will enable the Enterprises to engage in 
programmatic transactions to share mortgage credit risk with the 
private sector. This will allow for the contraction of the Enterprises’
footprint in the market. 

The proposal reflected key principles that are critical to the success 
of a functional secondary mortgage market. The proposal also focused 
on functions duplicated across the industry and for which greater 
standardization would benefit the overall market. 

FHFA issued the 2013 Conservatorship Scorecard for the Enterprises in 
March 2013, directing the Enterprises to move forward on the 
development of the CSP. During FY 2013, FHFA and the Enterprises 
completed the following tasks towards this objective: 

* Establishment of initial ownership and governance structure for the 
CSP, as well as assignment of dedicated resources and establishment of 
an independent location site for the CSP Team. 

* Development of the design, scope and functional requirements for the 
CSP’s modules and development of the initial business operational 
process model. 

* Development of a multi-year plan, inclusive of CSP build, test and 
deployment phases and the Enterprises’ related system and operational 
changes. 

* Development of testing parameters and initiation of testing the CSP. 

* Production of progress reports to the public on the design, scope 
and functional requirements. 

FHFA made significant progress this year on the system development of 
the CSP. The core functionality across five modules-data validation, 
issuance, disclosures, master servicing, and bond administration-has 
been developed and further refined. The CSP team is following a 
structured software development life cycle process, with scheduled 
releases of updated functionality across the platform. 

Contractual and Disclosure Framework (CDF): 

During FY 2013, FHFA also directed the Enterprises to align contracts 
and standards to achieve efficiencies and to support the future 
securitization platform and the broader private market through the 
development of common standards. In the 2013 Scorecard, FHFA directed 
the Enterprises to explore alternative approaches to share mortgage 
credit risk in order to reduce their overall credit risk exposure. 
Through risk-sharing activities, there are opportunities to create 
efficiencies and standards that have the potential to benefit 
investors, lenders, borrowers, and taxpayers. 

In FY 2013, the Enterprises in conjunction with FHFA undertook the 
following initiatives: 

* Identifying and developing standards in data, disclosure and 
Seller/Servicer contracts; 

* Developing and executing work plans for alignment activities between 
the Enterprises with regard to common standards and creation of 
legal/contractual documents to facilitate varied credit risk sharing 
transactions; 

* Engagement with the public in a variety of forums to seek feedback, 
incorporate revisions, and support FHFA progress reports to the public 

Joint Venture—-FHFA Establishes an Entity to Build a New Secondary 
Mortgage Market: 

On October 7, 2013, FHFA announced that a certificate of formation has 
been filed in Delaware, establishing Common Securitization Solutions, 
LLCSM (CSS) as a limited liability company. CSS is an equally owned 
subsidiary of Fannie Mae and Freddie Mac. The new entity’s objective 
is to function like a market utility, instead of rebuilding the 
proprietary infrastructures of Fannie Mae and Freddie Mac. This new 
entity will house the CSP and the related business and operational 
functions. A commercial lease for CSS has been signed and the venture 
will soon be occupying office space in Bethesda, Maryland. FHFA is 
actively recruiting a CEO and Chairman of the Board, who will be 
independent from Fannie Mae and Freddie Mac. The new governing body 
will be regulated by FHFA. This is an important step towards building 
a new housing infrastructure. 

Data Standardization: 

During FY 2013, FHFA worked on the Uniform Mortgage Servicing Data 
(UMSD) project, which is a component of the Uniform Mortgage Data 
Program (UMDP). By design, UMDP captures consistent and accurate 
mortgage data to improve loan quality and enhance risk management 
capabilities. UMSD will expand and standardize the servicing dataset 
used for managing performing and nonperforming loans and for 
disclosure reporting. 

FHFA and the Enterprises are working with the industry to define the 
complete UMSD dataset requirements at this time. A full build-out and 
industry adoption is expected to take several years. FHFA and the 
Enterprises are working with the Mortgage Industry Standards 
Maintenance Organization (MISMO) to ensure that UMSD data points are 
accurately defined and specified for industry adoption. FHFA is also 
working with other agencies and the Enterprises to standardize 
origination data collected through the new Consumer Financial 
Protection Bureau’s (CFPB) Closing Disclosure Form, which integrates 
parts of the HUD-1 and the final Truth in Lending forms. The 
Enterprises are also working to expand and reorganize the data 
collected on the Uniform Residential Loan Application (URLA). 

The National Mortgage Database (NMDB) Initiative: 

In October 2012, FHFA signed an interagency agreement with the CFPB to 
develop the National Mortgage Database (NMDB). When completed, the 
NMDB will be a relational dataset created by merging Home Mortgage 
Disclosure Act (HMDA), servicing data, Freddie Mac, Fannie Mae, and 
other government agency loan-level mortgage data with credit bureau 
data. This relational data set will capture data in five dimensions: 
mortgage record, real estate transaction, household demography, 
characteristics of the house and neighborhood, and performance data on 
the mortgage and all credit lines of the mortgage borrower(s). A 
subset of NMDB borrowers will be surveyed through a recurring National 
Survey of Mortgage Borrowers, which will provide information not 
available from the other data sources. 

The NMDB will address a wide variety of supervisory and policy related 
topics such as: 

* Analysis of delinquent borrowers and loan modifications. 

* Benchmarking and comparison of loan performance. 

* Loss mitigation and borrower counseling. 

* Evaluation of the success of loan modifications. 

* Retrospective analysis of the causes of the subprime mortgage crisis. 

* Accessibility of affordable/fair lending. 

* Prepayment and default modeling. 

Further, the NMDB will satisfy market report mandates required under 
HERA for the FHFA and Dodd-Frank for the CFPB. 

[Photograph: FHFA Employees at All-Hands Meeting. FHFA photo] 

Management Challenges: 

Although FHFA has accomplished much over the past year, many 
challenges remain as regulator of the housing GSEs and conservator of 
the Enterprises. The GSEs’ safety and soundness is an important 
element in preserving housing finance liquidity. Below are select 
challenges FHFA is currently addressing. 

Managing in an Uncertain Environment 

Since September of 2008, FHFA has been the conservator of the 
Enterprises. These conservatorships are the largest and most complex 
conservatorships in history. The conservatorships are not meant to be 
indefinite, but used only as a short-term opportunity to provide 
stability in the mortgage market while Congress and the Administration 
determine how best to address future reforms to the housing finance 
system. 

The length of the conservatorships along with the uncertain future of 
both the Enterprises and the housing finance system has overshadowed 
all aspects of FHFA’s operations. FHFA continues to face challenges 
with how best to direct and manage the Enterprises’ operations while 
planning for an uncertain future. 

Legislative initiatives and continued uncertainty: 

There has been some movement by Congress to address the issue of 
mortgage finance reform, with at least two bills introduced to date 
(one in the House and one in the Senate) that focus on revamping the 
current structure for mortgage finance and eliminating the current 
roles played by Fannie Mae and Freddie Mac. While there is general 
agreement that the private sector needs to play a larger role in the 
market, there continues to be significant disagreement on the future 
role of the Enterprises, with proposals ranging from eliminating the 
Enterprises altogether to transforming their operations into a more 
limited role of a federal mortgage insurance corporation. 

Resources: 

Continued uncertainty with respect to the future of the Enterprises 
poses a continuing challenge in retaining and recruiting the necessary 
human resources required to operate the Enterprises effectively and 
efficiently. The operations of the Enterprises still support well over 
half of all new mortgage originations in the market. With the housing 
recovery still evolving, the Enterprises continue to play a dominate 
role in housing finance. 

Attracting private capital to the mortgage market: 

One of the agency’s primary objectives for the Enterprises is to 
reduce their footprint in the marketplace by shifting an increasing 
portion of mortgage credit risk from the Enterprises to private 
capital. To that end, FHFA has implemented several successful 
initiatives to encourage private capital to return to the marketplace. 
However, as long as there are two government-supported firms occupying 
this space with their future role in the marketplace uncertain, 
significantly increasing private sector capital in the market will be 
difficult to achieve. 

Future role of the FHLBanks in a reformed housing finance system: 

Resolving the conservatorship of the Enterprises is essential to the 
future of the secondary mortgage market. However, there is uncertainty 
in the future role of the FHLBanks in a new revamped housing finance 
system as well. The FHLBanks could continue to fulfill their 
traditional role of secured lending to member institutions. Some 
legislative proposals have the FHLBanks expanding their role to assist 
their smaller members in aggregating and securitizing mortgage loans. 
Regardless of their future role, a revamped mortgage finance system 
might affect the value of system membership to existing members. 

Completing the Development of a New Infrastructure for the Secondary 
Mortgage Market: 

FHFA is committed to preparing for the future of housing finance by 
establishing a stronger foundation on which Congress and market 
participants can build to replace the pre-conservatorship government-
sponsored enterprise (GSE) model, regardless of the direction Congress 
chooses for the future. The existing proprietary infrastructures for 
the Enterprises are outmoded and in need of replacement. This makes 
current Enterprise infrastructures ineffective at adapting to market 
changes, issuing securities that attract private capital, aggregating 
data, or lowering barriers to market entry. In 2012, FHFA directed the 
Enterprises to begin developing a new common securitization 
infrastructure that will have benefits beyond the current Enterprise 
business model. The new infrastructure will be operable across many 
different platforms; operate in a cost effective manner; and can be 
used by any issuer, servicer, agent, or other party that decides to 
participate. 

Common Securitization Platform (CSP): 

A key challenge will be to complete, in an efficient and effective 
manner, the design, building, and testing of the Common Securitization 
Platform (CSP) and the associated operational infrastructure. The CSP 
will focus on the functions routinely repeated across the secondary 
mortgage market, such as issuing securities, providing disclosures, 
paying investors, and disseminating data. We are leveraging industry 
standard software and interface wherever possible, and are leveraging 
both Enterprise staff for their subject matter expertise and third 
party contractors and vendors for the software implementation and 
related activities. 

To help ensure that the new CSP serves as a market utility, and not 
just as a replacement for the Enterprises’ proprietary systems, the 
CSP will be housed in a separate legal entity (Common Securitization 
Solutions, LLC) that will be initially owned and funded by the 
Enterprises. Since the CSP is designed to be flexible, the long-term 
ownership structure can be adjusted to meet the goals and direction 
that policymakers may set forth for housing finance reform. It will be 
critical in FY 2014 for FHFA to operationalize this new legal entity 
by installing a strong leadership team, including a Chief Executive 
Officer and Chairman of the Board, to complete the development of the 
CSP. 

Contractual and Disclosure Framework (CDF): 

Developing common contractual standards for securities issued through 
the CSP will be a challenging task, but will be very valuable to the 
mortgage market of the future. To accomplish this, FHFA must analyze 
and understand various credit guarantee models and barriers to private 
capital participation. FHFA must also analyze and understand where 
current Enterprise standards may need alignment. For example, the 
current fully guaranteed Enterprise model has implications with regard 
to contracts where it may, in some areas, vary dramatically from the 
standards that private credit risk investors require, for example, the 
need for timely and efficient resolution of disputes. In other cases, 
the current Enterprise standards, once aligned, may be very beneficial 
to the development of future industry standards, regardless of credit 
guaranty, for example loan servicing. 

Expanding Foreclosure Prevention Activities: 

FHFA is committed to maintaining foreclosure prevention activities to 
help qualified homeowners stay in their homes. It will be a challenge 
for FHFA to reach deeper into the pool of eligible, distressed 
homeowners to provide them access to foreclosure prevention activities. 

FHFA currently works with the Enterprises to encourage their servicers 
to address borrower concerns promptly. Borrower concerns include 
requests regarding loan modifications and other foreclosure prevention 
options. The quicker issues are identified and addressed, the greater 
their chance for successful resolution. In addition, FHFA will work to 
(1) improve oversight of Enterprise activities in identifying servicer 
noncompliance with consumer complaints; and (2) expand monitoring of 
the Enterprises’ oversight over their counterparties’ compliance with 
laws that govern originating and servicing mortgage loans, including 
consumer protection laws. 

In broad terms, we want to empower the public with information about 
how they may exercise their rights concerning disputes with their 
mortgage lender or servicer, and provide an avenue for the public to 
report this information. 

Maintaining a Mission Focus for the FHLBanks: 

Focusing the FHLBank System on its core mission activities will be a 
challenge as the FHLBanks emerge from the effects of the recent 
financial crisis. FHFA wants to ensure that the FHLBanks are not using 
their GSE funding advantage for purposes other than housing finance 
and community development. 

In 2013, FHFA asked the 12 FHLBanks to develop mission assets plans as 
addenda to their current strategic plans. The intent of this request 
was to start a discussion between FHFA and the FHLBanks about the best 
definition of, and metric for, core mission activities. FHFA intends 
to use that discussion to clarify expectations about each FHLBank’s 
use of its charter and preferential market access to further the 
mission Congress gave to the FHLBank System. 

Within the definition of mission activities, there are safety and 
soundness issues that must be addressed. Activities that stray from 
their core business of making advances can expose the FHLBanks to 
counterparty risk. Continued consolidation of primary market lenders 
can expose the FHLBanks to concentration risk. However, depending on 
the economy and the evolving structure for primary market lending, a 
mission-focused FHLBank may have difficulty maintaining a sustainable 
size. Addressing these issues in the context of maintaining mission 
focus will be a challenge. 

[End of section] 

FY 2013 Performance Summary: 

This section describes FHFA’s strategic and performance-planning 
framework, performance measures not met, the reasons why, proposed 
improvements, and the eight key performance measures that most closely 
reflect the agency’s achievements and desired outcomes. (For a 
comprehensive list of the 25 performance measures, see pages 74 
through 93.) FHFA’s performance measures are rated as: 

Target Met; or; 
Target Not Met. 

[Photograph: Representatives of FHFA’s Division of Housing Mission and 
Goals, Office of Financial Analysis, Modeling & Simulations. FHFA 
photo] 

FHFA determines that performance goals are met if targets for all 
performance measures have been achieved. Goals are counted as not met 
if at least one target performance measure has not been achieved. In 
FY 2013, FHFA had data for 24 of the 25 performance measures. The 
agency met or exceeded 17 of its measures and failed to meet seven 
performance measures (see Figure 22). 

Figure 22: FY 2013 Performance Results: 

[Refer to PDF for image: vertical bar graph] 

FY 2010: 
Target Met: 46% (12); 
Target Not Met: 54% (14); 

FY 2011: 
Target Met: 86% (25); 
Target Not Met: 14% (4). 

FY 2012: 
Target Met: 92% (23); 
Target Not Met: 8% (2). 

FY 2013: 
Target Met: 67% (17); 
Target Not Met: 28% (7)[ 
Not Available: 4%; (1). 

[End of figure] 

Performance data for one measure will be available during the second 
quarter of FY 2014. For additional details on unmet measures (see 
Figure 23). 

Figure 23: Status of Performance Measures Unmet: 

Unmet Measure: Measure 1.1.1: 
Develop a written supervisory strategy for each regulated entity that 
effectively identifies risks and ensures corrective actions are 
implemented. Target: December 1, 2012; 
Reason: There was a delay in meeting the target date, but written 
strategies have since been developed. Target was met on January 7, 2013.
Steps Required to Meet: No further action required. 

Unmet Measure: Measure 1.1.2: 
Percentage of examination findings remediated since the last exam or 
in accordance with approved remediation plan. Target: 100 percent; 
Reason: One FHLBank did not adequately address all aspects of its 2012 
MRA. Out of 104 MRAs reviewed, only one was unresolved. FHFA expects 
the FHLBank to remediate this MRA during 2014. 
Steps Required to Meet: FHFA examiners took appropriate action in 
response to the Bank's failure to remediate fully the MRA. FHFA will 
review the Bank's compliance with the re-issued MRA during the FY 2014 
examination cycle. 

Unmet Measure: Measure 2.1.2: 
Number of foreclosure alternatives successfully completed. Target: 
447,000; 
Reason: An improving economy lowered overall delinquency rates. As a 
result, only 333,819 foreclosure alternatives were completed.
Steps Required to Meet: No further action required. 

Unmet Measure: Measure 2.1.3: 
Number of REO dispositions in individual markets to promote recovery 
via existing and new distribution channels. Target: 353,000; 
Reason: An improving economy has lowered foreclosures and therefore 
the Enterprises REO inventory. REO dispositions totaled 220,364 
properties.
Steps Required to Meet: No further action required. 

Unmet Measure: Measure 2.3.2: 
Increase number/dollar amount of awards to women and minority owned 
businesses by FHFA. Target: Increase from prior year; 
Reason: Total dollar awarded to women and minority-owned businesses 
totaled $7,030,433 in FY 2013, down from $7,301,036 in FY 2012. 
Steps Required to Meet: Continued monitoring of FHFA awards and review 
of FHFA’s outreach to women and/or minority owned business. 

Unmet Measure: Measure 3.1.3: 
Reduce the amount of current outstanding repurchases. Target: 50 
percent; 
Reason: One Enterprise reduced their repurchase requests by nearly 82 
percent while the other Enterprise increased their repurchase requests 
by 14 percent.
Steps Required to Meet: The Enterprise’s current outstanding 
repurchases will be reduced further in the October-December quarter 
due to recent settlement activity. 

Unmet Measure: Measure 4.1.2: 
Finalize plan(s) for the securitization platform and pooling and 
servicing agreement. Target: 3rd Quarter FY 2013; 
Reason: The 2013 Conservator Scorecard further refined the milestones 
for the year and was not issued until March 2013. The completion date 
for the refined plans was extended to the first quarter of FY 2014.
Steps Required to Meet: Progress continues toward finalizing the plans 
for the development of the platform agreement. 

[End of figure] 

FHFA’s Strategic Planning Process: 

FHFA sets long-term and annual goals and monitors progress throughout 
the year. The agency assesses its progress in meeting its performance 
measures through quarterly performance tracking meetings with the 
senior leadership team. 

The Acting Director chairs these quarterly meetings. FHFA staff 
prepares performance reports and discusses the agency’s record 
relative to its performance measures. The meetings highlight the 
agency’s record-to-date and challenges for the future, with a focus on 
how to meet targets and ensure success in support of the agency 
mission. 

FY 2013 was the first year that FHFA operated under its recently 
released FY 2013-2017 Strategic Plan, which includes a new strategic 
goal of planning for the future of the United States’ housing finance 
system. The strategic plan further details the outcomes the agency is 
seeking to achieve, the means and strategies that will be used to 
accomplish those outcomes, and the performance measures that will be 
used to gauge the agency’s progress. 

Data Completeness and Reliability: 

This report contains complete and reliable performance and financial 
data for FHFA. Where appropriate, the report notes data limitations of 
specific performance goals. FHFA reviews, verifies, and validates the 
accuracy of performance data reported on a quarterly basis. 
Coordination with the applicable offices to validate performance 
measures is carried out with senior level executives. This year, FHFA 
deployed a new automated tracking system that the agency uses to store 
and track performance indicators. 

Based on the agency’s assessment of internal controls and compliance 
with Office of Management and Budget Circular A-123, the agency’s risk 
management and internal control systems, taken as a whole, conform to 
the standards prescribed by the GAO and the Federal Manager’s 
Financial Integrity Act. For details of FHFA’s management assurances 
see page 73. 

FY 2013 Annual Performance Plan: 

The FY 2013 Annual Performance Plan (APP) describes what FHFA intended 
to do during the year to achieve the goals and objectives described in 
the Strategic Plan. FHFA’s APP includes 25 performance measures and 
nine performance goals in support of our four strategic goals. The 
measures under Strategic Goal 4 represent ongoing activities related 
to A Strategic Plan for Enterprise Conservatorships (SPEC). Other 
areas of the SPEC are highlighted within select measures under 
Strategic Goal 2 and Strategic Goal 3. The full SPEC is available at 
[hyperlink, 
http://www.fhfa.gov/webfiles/23344/StrategicPlanConservatorshipsFINAL.pd
f]. 

This section also describes the agency’s performance against its FY 
2013 Annual Performance Plan, which outlined the means and strategies 
to achieve the annual performance goals and related measures for the 
past year. Eighteen measures were deleted from the FY 2013 plan (See 
page 131 for a list of the measures no longer reported on in the Other 
Information Section). 

Overview of FHFA’s Eight Key Performance Measures: 

FHFA identified eight of the 25 performance measures for FY 2013 as 
key performance measures. These measures are critical to achieving our 
strategic goals and objectives. The key performance measures address 
remediation of supervisory concerns, loss mitigation efforts, 
guarantee fees, and litigation developments regarding the housing 
GSEs. The eight key performance measures apply to all the agency’s 
four strategic goals. 

During FY 2013, FHFA met or exceeded all but two of the key 
performance measures. 

Strategic Goal 1: Safe and Sound Housing GSEs: 

The focus of Strategic Goal one is to promote the safety and soundness 
of the housing GSEs through prudential supervision and regulation (see 
pages 79–82 of the Performance Section for a list of all measures 
associated with this goal). 

Table 1 summarizes the key performance measures for safety and 
soundness of the housing GSEs. Matters Requiring Attention (MRAs) 
identify issues of particular supervisory concern and direct the GSE 
to address these concerns. Throughout the supervision process, FHFA 
works with the GSEs to resolve issues as quickly as possible by 
requiring and monitoring corrective action plans. Findings from 
supervisory activities are presented to GSE management and/or to their 
boards of directors with the expectation that they will implement 
corrective measures acceptable to FHFA. 

The Enterprises are required to develop an acceptable plan for 
remediating an MRA within 60 days of receipt. FHFA has been revising 
its MRA process to focus Enterprise attention, resources and 
responsibility on resolution and self-validation. The Enterprises 
successfully resolved or began resolving all MRAs with an acceptable 
remediation plan. At fiscal year-end, there were 69 MRAs at least 60 
days old, including 13 at Freddie Mac and 56 at Fannie Mae, or a 
decrease since June 30, of one MRA at Freddie Mac and an increase of 
two at Fannie Mae. Of the MRAs over 60 days old as of September 30, 
all had remediation plans that were acceptable to FHFA. 

The FHLBanks successfully resolved 99 percent of all MRAs with an 
acceptable remediation plan, while technically not meeting the 100 
percent target. During FY 2013, FHFA reviewed 104 outstanding MRAs and 
determined that 103 were sufficiently addressed in accordance with a 
plan. FHFA issued a new MRA in FY 2013 that addressed outstanding 
concerns for the unresolved MRA. 

TABLE 1: Key Performance Measures for Safety and Soundness of the 
Housing GSES: 

Performance Goal 1.1: Identify risks and require timely remediation of 
weaknesses; 
Performance Measure 1.1.2: Percentage of examination findings 
remediated since the last exam or in accordance with approved 
remediation plan; 

Target: 
FY 2011: New measure for 2013; 
FY 2012: New measure for 2013; 
FY 2013: 100%. 

Performance Results Key: Goal Fulfillment: 
FY 2013: Target Not Met. 

[End of table] 

Strategic Goal 2: Stability, Liquidity, and Access in Housing Finance: 

The focus of the second strategic goal is the housing mission of FHFA. 
As the supervisor for the housing GSEs, FHFA has a critical 
responsibility to foster a well functioning, stable, and liquid 
housing finance system. Only through effective supervision can FHFA 
ensure that the entities serve as a source of liquidity for homeowners 
and rental housing markets at an efficient and reasonable price. 

Table 2 summarizes the three key performance measures for the housing 
mission. The Home Affordable Refinance Program (HARP) provides help to 
homeowners with mortgages at a loan-to-value ratio of greater than 80 
percent by enabling them to refinance into a lower interest rate 
mortgage. This program was further enhanced by removing the 125 
percent loan-to-value cap in order to allow more underwater homeowners 
to take advantage of this program. FHFA continues to work with the 
Enterprises and the lending community to find ways to increase the 
number of homeowners who are able to refinance through HARP by 
reducing potential impediments in the program, or pursuing foreclosure 
preventative measures. 

FHFA met performance measure 2.1.1 regarding HARP. A total of 
1,019,286 refinances were successfully completed through HARP during 
fiscal year 2013 (through August 1, 2013, the most recent data 
available), exceeding the fiscal year 2013 target of 600,000. 

The purpose of measure 2.1.2 was to gauge the number of foreclosure 
prevention actions that were completed by Fannie Mae and Freddie Mac 
during the year. These foreclosure alternatives help troubled 
homeowners avoid foreclosure, thereby reducing the severity of losses 
resulting from a borrower's default and minimizing the impact of 
foreclosures on borrowers, communities, and neighborhoods. 

Improvements in the housing markets resulted in performance measure 
2.1.2 not being met. A total of 333,819 foreclosure alternatives were 
completed in the first 11 months of fiscal year 2013. At the current 
run rate through August 2013 the Enterprises completed approximately 
478,300 foreclosure alternatives in fiscal year 2013, less than the 
annual target of 447,000. As housing markets are starting to stabilize 
and unemployment rates improve, the number of delinquent loans 
continues to decline at both Enterprises as fewer loans miss one or 
two payments and fewer loans roll to serious delinquency status. Last 
fiscal year, the Enterprises completed 388,000 foreclosure 
alternatives. It is worth noting that the Enterprises' delinquent loan 
counts have decreased 24 percent since September 2012. Given the 
declining trend in the number of delinquent loans, the target number 
of 447,000 foreclosure alternatives for FY 2013 may have been too high. 

Measure 2.3.1 sought to achieve greater uniformity between the 
guarantee fees charged to lenders who sell mortgages to the 
Enterprises. Traditionally, the Enterprises have provided pricing 
discounts to lenders that deliver the largest volumes of loans. FHFA 
has worked with the Enterprises to make the guarantee fees charged to 
lenders who deliver smaller volumes of loans no higher than those 
charged to lenders who deliver larger volumes. 

FHFA was successful in meeting this measure. FHFA's monitoring of 
Enterprise single-family total guarantee fees (ongoing plus upfront) 
confirms that large lenders no longer benefit from lower fees. 

See pages 82–87 of the Performance Section for a list of all measures 
associated with this goal. 

Table 2: Key Performance Measures for Stability, Liquidity, and Access 
in Housing Finance 

Performance Goal 2.1: Promote stability and mitigate systemic risk 
that could lead to market instability; 
Performance Measure 2.1.1: Number of refinances successfully completed 
through Home Affordable Refinance Program (HARP) 2.0; 

Target: 
FY 2011: New measure for 2013; 
FY 2012: New measure for 2013; 
FY 2013: 600,000. 

Performance Results Key: Goal Fulfillment: 
FY 2013: Target Met. 

Performance Measure 2.1.2: Number of foreclosure alternatives 
successfully completed (includes loan modifications, short sales, and 
deeds-in-lieu). 

Target: 
FY 2011: New measure for 2013; 
FY 2012: New measure for 2013; 
FY 2013: 447,000. 

Performance Results Key: Goal Fulfillment: 
FY 2013: Target Not Met. 

Performance Goal 2.3: Expand access to housing finance for diverse 
financial institutions and qualified borrowers 

Performance Measure 2.3.1: Reduce variance in single-family guarantee 
fees charged to lenders that sell large versus small volumes of 
mortgages to the Enterprises 

Target: 
FY 2011: New measure for 2013; 
FY 2012: New measure for 2013; 
FY 2013: Narrowing variance in year-ending June 30, 2013, from 
preceding year. 

Performance Results Key: Goal Fulfillment: 
FY 2013: Target Met. 

[End of table] 

Strategic Goal 3: Preserve and Conserve Enterprise Assets: 

The focus of Strategic Goal 3 is on the Enterprises conservatorships. 
As conservator, FHFA’s primary role is to protect the taxpayer by 
preserving and conserving Enterprise assets. 

Table 3 summarizes the key performance measures for FHFA’s goal to 
preserve and conserve the Enterprise assets. In the past, there has 
been some cross-subsidization in the Enterprises’ pricing, whereby 
lower-risk loans cross-subsidize higher-risk loans. FHFA has 
collaborated with the Enterprises on a plan to reduce these cross-
subsidies and move guarantee fee pricing toward levels that would 
exist in a fully private market. Measure 3.1.1 sought to reduce cross-
subsidization. 

The changes to single-family guarantee fees implemented in the first 
quarter of FY 2013 reduced cross-subsidization across mortgage 
products from loans with 15-year maturities to the 30-year loans. In 
addition, FHFA is actively considering changes to upfront fees that 
reduce cross-subsidies from low credit risk loans to high-risk loans 
and that reduce cross-subsidies from states with low foreclosure costs 
to states with high foreclosure costs. 

Measure 3.1.2 protects and conserves assets of the regulated entities 
and protects the agency's rights as conservator and regulator. The 
Enterprises have faced major challenges stemming from issues related 
to bad loans during the period when underwriting standards did not 
align with originators’ or private-label securitizers’ 
representations. FHFA continues to undertake multiple legal actions 
and has prevailed in several successful resolutions of them. For 
example, favorable private label securities (PLS) settlements were 
reached with Citigroup Inc., Wells Fargo & Company and UBS Americas 
Incorporated during the year. 

FHFA met or exceeded the key measures of performance goal 3 during FY 
2013. Pages 87–90 of the Performance Section includes a list of all 
measures associated with this goal. 

Table 3: Key Performance Measures Demonstrating FHFA’s Goal of 
Preserving and Conserving Enterprise Assets: 

Performance Goal 3.1: Minimize taxpayer losses during the Enterprises’ 
conservatorships; 
Performance Measure 3.1.1: Reduce cross-subsidization in Enterprise 
single-family guarantee fees; 

Target: 
FY 2011: New measure for 2013; 
FY 2012: New measure for 2013; 
FY 2013: Year-ending June 30, 2013, compared to preceding year. 

Performance Results Key: Goal Fulfillment: 
FY 2013: Target Met. 

Performance Measure 3.1.2: Undertake and defend legal actions that 
recover upon losses or seek to avoid liability to the GSEs. 

Target: 
FY 2011: New measure for 2013; 
FY 2012: New measure for 2013; 
FY 2013: Pursue legal actions where available and cost effective. 

Performance Results Key: Goal Fulfillment: 
FY 2013: Target Met. 

[End of table] 

Strategic Goal 4: Prepare for the Future of Housing Finance in the U.S. 

The focus of Strategic Goal 4 is to set forth objectives and steps the 
FHFA is taking or will take to meet the agency’s obligations as 
conservator and prepare for the future of the Enterprises. 

Table 4 summarizes the two key performance measures that demonstrate 
FHFA’s efforts towards preparing for the future of housing finance. 
Pages 90–93 of the Performance Section includes a list of all measures 
associated with this goal. 

During FY 2013, FHFA achieved 4.2.1 by working with the industry to 
develop servicing data standards. The Enterprises, under the direction 
of FHFA throughout 2013, engaged in extensive industry outreach to 
servicers, vendors, mortgage insurance companies and other Government 
agencies on the Uniform Mortgage Servicing Database (UMSD) data 
points. Mortgage Industry Standards Maintenance Organization (MISMO) 
has accepted all proposed changes to the data model by the 
Enterprises, which included updates for over 1,000 new or existing 
data points. This effort will provide lenders a higher degree of 
certainty around repurchase exposure and liability as well as 
consistency around repurchase timelines. 

Regarding performance measure 4.3.1, increasing the average national 
ongoing guarantee fee will help contract the Enterprises' footprint in 
the mortgage market. During FY 2013, FHFA met this measure. 

Changes in single-family guarantee fees implemented in the first 
quarter of FY 2013 increased the national on-going guarantee fee 
charged by each Enterprise by 10 basis points. 

FHFA anticipates gradual increases based on risk and cost of capital 
that will move g-fee pricing closer to a market-based rate. FHFA will 
continue to work with the Enterprises to better align pricing of 
guarantee fees with risk. 

Table 4: Key Performance Measures for Stability, Liquidity, and Access 
in Housing Finance 

Performance Goal 4.2: Establish standards that promote a safer and 
more efficient housing finance system; 
Performance Measure 4.2.1: Work with the industry to develop servicing 
data standards, and agree on a timetable for data collection; 

Target: 
FY 2011: New measure for 2013; 
FY 2012: New measure for 2013; 
FY 2013: Q3 FY 2013. 

Performance Results Key: Goal Fulfillment: 
FY 2013: Target Met. 

Performance Goal 4.3: Contract Enterprise operations; 
Performance Measure 4.3.1: Increase the average national ongoing g-fee; 

Target: 
FY 2011: New measure for 2013; 
FY 2012: New measure for 2013; 
FY 2013: Fiscal Year-ending 9/30/13 compared to preceding year. 

Performance Results Key: Goal Fulfillment: 
FY 2013: Target Met. 

[End of table] 

Program Evaluations: 

During FY 2013, FHFA operated under its FY 2013-2017 strategic plan. 
This plan sets out the agency’s mission, vision, values, and strategic 
goals through FY 2017. Through quarterly performance tracking meetings 
with senior leadership, FHFA reviews its progress, and verifies and 
validates performance data to ensure reliability and accuracy. The 
FHFA had an independent external evaluation conducted of its 
Information Security Program by Kearney & Company. 

FHFA’s Office of Inspector General (OIG) began operations in October 
2010. OIG assessed several of FHFA’s most serious management issues 
during FY 2013. See pages 132–138 of the Other Information section. 

FHFA reviewed 13 audits, 9 evaluation surveys, and 2 white papers 
issued by the OIG in FY 2013. The OIG has issued 74 recommendations 
that were due in FY 2013. FHFA completed/closed 72 recommendations 
while 2 recommendations will remain open due to final actions that 
will extend beyond FY 2013. 

OIG Performance Evaluations: 

Evaluation: FHFA’s Oversight of the Enterprises’ Compensation of Their 
Executives and Senior Professionals— December 2012; 
Summary: 
FHFA has increased its control and oversight of the Enterprises’ 
executive compensation, which amounts to an estimated $92 million 
annually. Though a sizable expenditure, non-executive pay is almost 
five times as large as executive pay. Therefore, FHFA-OIG recommends 
that FHFA increase oversight of non-executive pay at the Enterprises 
through reviews or examinations. OIG recommends that FHFA develop a 
long-term plan to strengthen its oversight of the Enterprises’ non-
executive compensation, by focusing on senior professional 
compensation. 
Summary of FHFA’s Response: 
FHFA recognizes the importance of having a robust approach to 
executive compensation and has recently enhanced control and oversight 
of the Enterprises’ executive compensation in its role as both the 
conservator and supervisor of Fannie Mae and Freddie Mac. 
The enhancements to FHFA’s oversight process will include the addition 
of dedicated resources within the Division of Supervision Policy and 
Support who will focus solely on FHFA’s supervisory policies and 
examination activities related to the design, controls and execution 
of executive compensation arrangements for all Enterprise employees. 
Further, FHFA agrees with FHFA-OIG that non-executive, especially 
senior professional, compensation merits enhanced review by FHFA. The 
Agency will be addressing that consistent with OIG recommendations. 

Evaluation: Freddie Mac’s Unsecured Lending to Lehman Brothers Prior 
to Lehman Brothers’ Bankruptcy—March 2013
Summary: 
FHFA, acting as Freddie Mac’s conservator, is actively engaged in 
recovering $1.2 billion owed by Lehman as a result of two unsecured 
short-term loans that were provided by Freddie Mac in August 2008. 
FHFA-OIG found that in the months leading up to Lehman’s default, 
serious flaws in the corporate culture at Freddie Mac allowed for 
counterparty risk management policies to be overridden. Proper 
adherence to counterparty risk management would have altered the terms 
of the loans and reduced the Enterprise’s risk. 
Since the default, FHFA and Freddie Mac have taken steps to improve 
the Enterprise’s corporate governance environment and to improve its 
risk management procedures. FHFA should continue to monitor Freddie 
Mac’s implementation of its counterparty risk management policies and 
procedures in order to ensure that the independence and decisions of 
the Enterprise’s risk management staff are not overridden by business 
management staff. 
Summary of FHFA’s Response: 
The report describes events that resulted in the $1.2 billion 
unsecured loan made from Freddie Mac to Lehman Brothers in 2008, which 
was not yet due at the time of Lehman’s entry into bankruptcy 
protection on September 15, 2008, and no portion of it has been repaid. 

FHFA agrees with the critical importance of a strong risk management 
function at the Enterprises, and will continue to focus on issues 
raised in the evaluation. FHFA has no additional comments on the 
evaluation’s audit recommendations. 

Evaluation: FHFA’s Oversight of the Federal Home Loan Banks’ 
Affordable Housing Programs (AHP)—April 2013
Summary: 
The FHLBanks’ AHPs involve multiple stakeholders, lack direct 
oversight of AHP projects, and play a major supplementary role in 
funding housing programs. FHFA must work to establish additional and 
enhanced oversight techniques. OIG found that FHFA’s primary oversight 
mechanisms are targeted annual examinations of AHPs. 
Summary of FHFA’s Response: 
FHFA relies on the FHLBanks, their member institutions, other project 
funders, and various private and public entities to monitor housing 
projects supported by AHP on an individual level. Thus, the success of 
AHP projects is at risk to the extent that oversight by government 
entities or funding organizations is weak. FHFA’s oversight could be 
improved through site visits and dissemination of crosscutting 
feedback or trend analyses by FHFA to the FHLBanks. Such actions will 
ensure proper oversight for a program that serves as a vital 
supplementary source of funds for private and public sector affordable 
housing projects and has awarded over a $4 billion dollars in funds 
since 1990. 
FHFA believes that the report neither identifies instances of 
mismanagement/fraud nor does it demonstrate instances in which site 
visits would have enhanced program monitoring. FHFA also does not 
agree that typical practices of “grant giving federal agencies” apply 
to FHLBanks as they are not federal agencies but private institutions. 
Nevertheless, FHFA will supplement existing monitoring requirements 
with guidance specifically related to site monitoring to supplement 
existing methods of remote monitoring. However, site visits will not 
be mandatory for all projects supported by AHP funds. 
Specific conditions in an FHLBank’s district and the project’s risk of 
non-compliance will be incorporated into the guidance. FHLBanks’ 
monitoring plans must be included in an FHLBank’s AHP implementation 
Plan, and they will continue to be subjected to FHFA supervisory 
oversight and examinations.
FHFA agrees that cross-cutting analyses will bring value to the 
Affordable Housing Program; however, the current examination program 
involves such analyses. Finally, the evaluation does not acknowledge 
the comparative analysis inherent in the current examination program. 

Evaluation: FHFA’s Initiative to Reduce the Enterprises’ Dominant 
Position in the Housing Finance System by Raising Gradually Their 
Guarantee Fees—July 2013
Summary: 
FHFA’s initiative of periodic guarantee fee increases has the 
potential to reduce direct taxpayer exposure to mortgage-related 
losses by encouraging private sector participation in the secondary 
mortgage markets. As part of its efforts to implement the initiative, 
FHFA should enhance transparency and strengthen communication and 
interactions with FHA on key issues. 
Summary of FHFA’s Response: 
OIG recommends that FHFA, preferably in consultation with FHA, develop 
definitions and performance measures that would permit the public to 
assess the progress and the effectiveness of its initiative. OIG also 
recommends that FHFA assess the costs and benefits of establishing a 
formal working arrangement with FHA to assess such critical issues as: 
The implementation of pricing initiatives and prospects for success in 
achieving objectives; and the potential for shifts of mortgage 
business and risks between government supported or guaranteed markets. 
The FHFA has worked, in coordination with FHA, to develop definitions 
and performance measures that would allow the public to assess the 
progress and the effectiveness of FHFA’s initiative. FHFA has 
publically explained its guarantee fee actions, and provided reasons 
supporting the agency’s strategy and actions. FHFA’s goal is a regular 
and increasing flow of new mortgage securities backed by quality loans. 
FHFA disagrees with OIG’s recommendation to establish a formal working 
relationship with FHA to collaborate on pricing initiatives. HERA 
created FHFA as an independent agency with specific statutory 
responsibilities. Consequently, FHFA believes an informal approach to 
working with other federal regulatory agencies is more appropriate. 
FHFA communicates frequently with other agencies about common concerns 
and issues. 
FHA pricing structures are quite different from those of the 
Enterprises (for instance, FHA has uniform pricing for all borrowers), 
and lenders’ decisions about where to send most loans are not 
especially sensitive to Enterprise price changes. Finally, FHFA has a 
statutory responsibility to conserve Enterprise assets. Neither HUD 
nor FHA shares that objective, because those agencies do not have the 
same responsibility by statute as FHFA. 

Evaluation: Home Affordable Refinance Program: A Mid-Program 
Assessment—August 2013
Summary: 
When HARP was announced in March 2009, Treasury and FHFA estimated 
that four to five million borrowers would have the opportunity to 
refinance under the program. As of September 2011, however, fewer than 
one million of those borrowers had refinanced. Based on consultations 
with lenders and feedback from borrowers, FHFA directed the 
Enterprises to modify the program. This led to the creation of HARP 
2.0. HARP 2.0 is scheduled to expire on December 31, 2015. As a result 
of the HARP 2.0 modifications, HARP refinance volume increased 
substantially—particularly for loans with LTVs greater than 105 
percent. As of March 2013, there have been more than 2.4 million HARP 
refinances. FHFA’s active administration of HARP 2.0 and its 
engagement of stakeholders have contributed to these outcomes. 
However, with over two years left in the program, it is difficult to 
project how many HARP-eligible loans ultimately will be refinanced 
because, among other factors, educating borrowers and encouraging 
their participation continue to be major challenges for the program.
Summary of FHFA’s Response: 
FHFA issued no response to this evaluation. 

Evaluation: FHFA’s Oversight of the Federal Home Loan Banks’ 
Compliance with Regulatory Limits on Extensions of Unsecured Credit—
August 2013
Summary: 
In 2012, FHFA conducted a thorough horizontal review during which it 
identified over 900 primary and secondary unsecured credit regulatory 
violations at 7 FHLBanks. In addition, FHFA found risk management 
deficiencies of varying degrees at the other 5 FHLBanks. Moreover, in 
2012, FHFA acted in accordance with Agency supervisory policy and 
directed the seven FHLBanks that committed violations to take remedial 
actions within specified timeframes. To remedy the findings, FHFA 
issued Matters of Requiring Attention (MRAs) to direct the FHLBanks to 
correct the problems. Despite this action, the inability to implement 
recommendations suggested by the MRAs persisted in 2013. 
FHFA must exercise diligent and forceful oversight on an ongoing basis 
in order to ensure that FHLBank corrective action is undertaken and 
sustained over time. Proper oversight is essential given the 
widespread nature of the violation of unsecured credit regulations and 
presence of risk management deficiencies in the FHLBank System. 
Summary of FHFA’s Response: 
FHFA agrees with OIG’s recommendation to ensure that Agency examiners 
thoroughly assess FHLBank compliance with MRAs and other supervisory 
requirements and to remediate unsecured credit violations and risk 
management deficiencies during the 2013 and 2014 examination cycles. 
With respect to the 2012 MRAs on unsecured credit, the FHLBanks 
largely fixed internal control problems upon identification of the 
violations, and committed to further enhancements of controls or 
practices to address weaknesses identified by FHFA. 
Summary of FHFA’s Response: 
FHFA will document, no later than March 31, 2014, our decisions, and 
how we came to them, about possible enforcement actions related to 
unsecured credit MRAs and any underlying regulatory violations we 
discover during the 2013 examination cycle. 

Evaluation: FHFA’s Oversight of Fannie Mae’s 2013 Settlement with Bank 
of America August 2013
Summary: 
In 2013, FHFA approved a settlement of $11.6 billion between Fannie 
Mae and Bank of America. The settlement resolved the majority of 
Fannie Mae’s outstanding representation and warranty claims. In 
reviewing the settlement, FHFA followed the settlement review policy 
and procedures it had established with regard to mortgage repurchases, 
mortgage insurance, and Private Label Mortgage Backed Securities 
(PLMBS) claims. However, FHFA lacked a settlement review policy for 
the resolution of compensatory fee claims or to agreements regarding 
the transfer of mortgage servicing. As a result, FHFA reviewed these 
aspects of the settlement without established processes and procedures 
Therefore, OIG recommends that FHFA should establish a formal review 
process for compensatory fee settlements and significant mortgage 
servicing rights (MSR) transfers.
Summary of FHFA’s Response: 
FHFA agrees with OIG’s recommendation to develop guidelines and formal 
review processes for both compensatory fee resolutions and significant 
MSR transfers. The guidelines and related processes will be developed 
by January 31, 2014. 

Evaluation: Reducing Risk and Preventing Fraud in the New 
Securitization Infrastructure—August 2013 
Summary: 
The objective of this evaluation was to assess risks and fraud threats 
in the securitization infrastructure under development and to address 
such risks by recommending countermeasures into the emerging policies, 
procedures, internal controls, and organizational structures as they 
are designed. 
Summary of FHFA’s Response: 
As information in this report can be used to exploit vulnerabilities 
and circumvent recommended countermeasures, the evaluation, and FHFA’s 
response, will not be released to the public. 

Evaluation: Evaluation of Fannie Mae’s Servicer Reimbursement 
Operations for Delinquency Expenses—September 2013 
Summary: 
When mortgage servicers make payments for delinquent homeowners, 
Fannie Mae reimburses servicers for these payments through Accenture 
LPP, a third-party payment processer. OIG estimates that Accenture 
processing errors prompted Fannie Mae to overpay servicers $89 million 
in 2012—a 3.1 percent error rate. OIG recommends that FHFA ensure 
Fannie Mae takes the actions necessary to reduce Accenture processing 
errors. By curtailing processing errors, FHFA and Fannie Mae can 
reduce overpayments to servicers and, thereby, reduce waste. OIG also 
recommends that Fannie Mae’s overpayment findings and reduction 
targets should be published following the requirements of the Improper 
Payments Elimination and Recovery Act (IPERA). 
Summary of FHFA’s Response: 
FHFA partially agrees with OIG’s recommendations. FHFA agrees with OIG 
and will monitor reimbursement activities to limit overpayment by 
identifying the cause and developing reduction goals. FHFA will also 
monitor the Fannie Mae/Accenture repayment program. As commercial 
entities, the Enterprises are not subject to IPERA and not obligated 
to comply with the statute requirement of publishing Fannie Mae’s 
overpayment findings and reduction targets. 

[End of table] 

[Photogrpah: FHFA Executive Committee on Internal Controls (ECIC) 
Meeting. FHFA photo] 

[End of section] 

Analysis of Financial Statements: 

Overview: 

FHFA prepares annual consolidated and combined financial statements 
for the agency and its Office of Inspector General in accordance with 
U.S. generally accepted accounting principles (GAAP) for Federal 
Government entities and subjects the statements to an independent 
audit to ensure their integrity and reliability in assessing 
performance. 

FY 2013 Financial Statement Audit: 

FHFA achieved an unmodified opinion from the GAO on its annual 
financial statements. GAO noted no material weaknesses or significant 
deficiencies in FHFA’s internal controls and cited no instances of 
noncompliance with laws and regulations. 

Understanding the Financial Statements: 

The principal financial statements present FHFA’s financial position, 
net cost of operations, changes in net position, and budgetary 
resources for fiscal years 2013 and 2012. Financial statements and 
notes for fiscal years 2013 and 2012 appear on pages 104–128. 
Highlights of the financial information presented in the principal 
financial statements are shown below. 

[Photograph: Bigstock.com photo] 

Financial Statements Summary: 

Figure 24: Condensed Balance Sheets: 
Condensed Balance Sheets (Dollars in Thousands): 

[Refer to PDF for image: table] 

Fund Balance with Treasury; 
FY 2013: $15,914; 
FY 2012: $20,998; 
Percent Change: (24)%. 

Investments; 
FY 2013: $71,907; 
FY 2012: $77,420; 
Percent Change: (7)%. 

Accounts Receivable, Net; 
FY 2013: $14; 
FY 2012: $13; 
Percent Change: 8%. 

Property, Equipment, and Software, Net; 
FY 2013: $39,426; 
FY 2012: $45,528; 
Percent Change: (13)%. 

Prepaid Expenses; 
FY 2013: $851; 
FY 2012: $840; 
Percent Change: 1%. 

Total Assets; 
FY 2013: $128,112; 
FY 2012: $144,799; 
Percent Change: (12)%. 

Accounts Payable - Intragovernmental; 
FY 2013: $1,637; 
FY 2012: $766; 
Percent Change: 114%. 

Other Intragovernmental Liabilities; 
FY 2013: $1,406; 
FY 2012: $2,727; 
Percent Change: (48)%. 

Accounts Payable; 
FY 2013: $9,546; 
FY 2012: $9,728; 
Percent Change: (2)%. 

Unfunded Leave; 
FY 2013: $11,175; 
FY 2012: $10,485; 
Percent Change: 7%. 

Deferred Lease Liability; 
FY 2013: $24,805; 
FY 2012: $23,917; 
Percent Change: 4%. 

Other Liabilities; 
FY 2013: $3,026; 
FY 2012: $6,503; 
Percent Change: (53)%. 

Total Liabilities; 
FY 2013: $51,595; 
FY 2012: $54,126; 
Percent Change: (5)%. 

Cumulative Results of Operations; 
FY 2013: $76,517; 
FY 2012: $90,673; 
Percent Change: (16)%. 

Total Net Position; 
FY 2013: $76,517; 
FY 2012: $90,673; 
Percent Change: (16)%. 

Total Liabilities and Net Position; 
FY 2013: $128,112; 
FY 2012: $144,799; 
Percent Change: (12)%. 

Condensed Net Costs (Dollars in Thousands): 

Gross Cost; 
FY 2013: $249,971; 
FY 2012: $217,501; 
Percent Change: 15%. 

Less: Earned Revenue; 
FY 2013: $229,390; 
FY 2012: $225,933; 
Percent Change: 2%. 

Net (Income from)/Cost of Operations; 
FY 2013: $20,581; 
FY 2012: $(8,432); 
Percent Change: (344)%. 

[End of figure] 

Overview of Financial Position: 

The Balance Sheet: 

The Balance Sheet presents, as of the end of the fiscal year, the 
recorded value of assets and liabilities retained or managed by FHFA. 
The difference between the assets and liabilities represents FHFA’s 
net position. 

Assets: 

The Balance Sheet reflects total assets of $128.1 million, a 12 
percent decrease from FY 2012. Figure 25 summarizes FY 2013 total 
assets by component. FHFA’s distribution of assets remains largely 
unchanged from FY 2012. 

When grouped together, Investments and Property, Equipment, and 
Software comprise 87 percent and 85 percent of total assets for 2013 
and 2012, respectively. Investments remain FHFA’s largest asset class, 
representing 56 percent of total assets. FHFA invests in U.S. Treasury 
securities, which are normally held to maturity and carried at 
amortized cost. Investments equaled $71.9 million at fiscal year-end 
and decreased 7 percent from FY 2012. The second largest asset class 
is Property, Equipment, and Software at $39.4 million as of September 
30, 2013, or 31 percent of FHFA’s total assets. 

The remainder of FHFA’s assets is comprised of Fund Balance with 
Treasury, accounts receivable (which is less than 1 percent), and 
prepaid expenses. 

Figure 25: Summary of Total Assets – FY 2013: 

[Refer to PDF for image: pie-chart] 

Investments: 56%; 
Prepaid Expenses: 1%; 
Property, Equipment, and Software, Net: 31%; 
Fund Balance with Treasury: 12%. 

[End of figure] 

The annual trend in FHFA’s total assets for FY 2009 through FY 2013 is 
presented in Figure 26. FHFA’s total assets have almost doubled since 
FY 2009 due to leasehold improvements and furniture, fixtures, and 
equipment purchases associated with FHFA’s new location at 
Constitution Center, the addition of the Inspector General’s Office, 
and an increase in FHFA’s overall budgetary resources. 

Figure 26: Trend in Total Assets FY 2009–2013: 

[Refer to PDF for image: vertical bar graph] 

Total Assets (Dollars in Thousands): 

2009: $70,024; 
2010: $55,461; 
2011: $100,781; 
2012: $144,799; 
2013: $128,112; 
5-Year average: $99,835. 

[End of figure] 

Liabilities: 

As of September 30, 2013, FHFA’s total liabilities amounted to $51.6 
million, a 5 percent decrease from FY 2012. Figure 27 breaks down the 
FY 2013 total liabilities by component. Deferred Lease Liability 
continues to be the largest component of total liabilities at 48 
percent. The next largest liability, Unfunded Leave, amounted to $11.2 
million. 

FHFA’s Accounts Payable and Other Liabilities equal $15.6 million at 
fiscal year-end, down 21 percent from FY 2012. The annual trend in 
total liabilities for FY 2009 through FY 2013 is presented in Figure 
28. Since FY 2009, FHFA’s total liabilities have been consistent with 
the exception of FY 2010 and FY 2011. The increase is associated with 
the increase in budgetary resources. 

Figure 27: Summary of Total Liabilities – FY 2013: 

[Refer to PDF for image: pie-chart] 

Deferred Lease Liability: 48%; 
Unfunded Leave: 22%; 
Accounts Payable: 18%; 
Accounts Payable, Intragovernmental: 3%; 
Other Liabilities: 6%; 
Other Intragovernmental Liabilities: 3%. 

[End of figure] 

Figure 28: Trend in Total Liabilities – FY 2009–2013: 

[Refer to PDF for image: vertical bar graph] 

Total Liabilities (Dollars in Thousands): 

2009: $51,613; 
2010: $17,605; 
2011: $24,350; 
2012: $54,126; 
2013: $51,595; 
5-Year average: $39,858. 

[End of figure] 

Net Position: 

FHFA’s net position of $76.5 million as of September 30, 2013 
represents the cumulative net excess of FHFA’s revenue over the cost 
of operations since inception. 

Statement of Net Cost: 

The Statement of Net Cost presents the components of FHFA’s net cost 
of operations, which is the gross cost incurred less any revenues 
earned. 

Pursuant to HERA, FHFA was established to supervise and regulate the 
14 housing GSEs. The regulated entities include Freddie Mac, Fannie 
Mae and the 12 FHLBanks. FHFA tracks resource allocations and program 
costs to the strategic goals (responsibility segments) developed for 
FHFA’s strategic plan. The Strategic Goals (1 – Safety and Soundness; 
2 – Stability, Liquidity, and Access; 3 – Conservatorship; and 4 – 
Prepare for the Future) guide program offices to carry out FHFA's 
vision and mission. FHFA has a Resource Management Strategy, which is 
distributed proportionately to Strategic Goals 1–4 based on the 
percentage of direct costs of each goal to the total direct costs for 
FHFA. FHFA-OIG allocated their costs to FHFA's Resource Management 
Strategy. 

FHFA moved from the three strategic goals presented in fiscal year 
2012 (1 – Safety and Soundness; 2 – Affordable Housing; 3 – 
Conservatorship) to the four strategic goals presented this year as 
the result of FHFA’s new Strategic Plan: Fiscal Years 2013-2017. FHFA’
s Strategic Plan builds on the Conservatorships Strategic Plan, which 
the Acting Director presented to Congress in February 2012. Strategic 
Goal 1 is the only goal that reflects the same activities in both 
fiscal year 2012 and 2013. The activities for the remaining strategic 
goals differ from fiscal year 2012 to 2013. Fiscal year 2012 
activities under Strategic Goal 2 are now distributed across Strategic 
Goals 2 and 4. Fiscal year 2012 activities for Strategic Goal 3 are 
now reported under Strategic Goals 3 and 4. Because the new and old 
strategic goals are not equivalent, fiscal years 2013 and 2012 
Consolidated Statements of Net Cost are presented separately. 

FHFA’s net cost of operations is the revenue collected during the 
current fiscal year (assessments collected from the regulated 
entities, interest earned on investments, and funds collected from 
reimbursable agreements) less gross costs (all funds expended during a 
fiscal year regardless of when the funds were obligated). The net cost 
of operations in FY 2013 for FHFA totaled $20.6 million as compared 
to -$8.4 million net revenue in FY 2012. FHFA’s gross costs exceeded 
earned revenue for FY 2013. However, earned revenue exceeded gross 
costs in FY 2012. The five-year trend in FHFA’s gross costs and 
revenue from FY 2009 through 2013 is presented in Figure 29. Figure 30 
displays the breakdown of net cost of operations by strategic goal for 
FY 2013. 

Figure 29: Trend Gross Costs and Revenue: 

[Refer to PDF for image: vertical bar graph] 

Dollars in Thousands: 

2009: 
Gross Costs: $122,816; 
Revenue: $155,709. 

2010: 
Gross Costs: $128,564; 
Revenue: $143,202. 

2011: 
Gross Costs: $167,401; 
Revenue: $200,783. 

2012: 
Gross Costs: $217,501; 
Revenue: $225,933. 

2013: 
Gross Costs: $249,971; 
Revenue: $229,390. 

5 Year Average: 
Gross Costs: $177,251; 
Revenue: $183,003. 

[End of figure] 

Figure 30: Net Cost of Operations by Strategic Goal – FY 2013: 

[Refer to PDF for image: pie-chart] 

Net Stability, Liquidity, and Access (Income from)/Cost of 
Operations: $31,187; 
Net Prepare for the Future (Income from)/Cost of Operations: ($1,153); 
Net Safety and Soundness (Income from)/Cost of Operations: ($40,647); 
Net Conservatorship (Income from)/Cost of Operations: $31,194. 

[End of figure] 

Statement of Changes in Net Position: 

The Statement of Changes in Net Position presents those accounting 
items that caused the net position section of the Balance Sheet to 
change from the beginning to the end of the reporting period. 
Financing sources increase net position. FHFA’s financing source is 
imputed financing from costs absorbed on FHFA’s behalf by other 
Federal agencies. Net income from/cost of operations impacts net 
position. FHFA’s cumulative results of operations for the period 
ending September 30, 2013 decreased $14.2 million. 

Statement of Budgetary Resources: 

This statement provides information about the budgetary resources 
available to FHFA, the status of these resources and the outlay of 
budgetary resources for the years ending September 30, 2013 and 2012. 
FHFA’s budgetary resources include unobligated funds carried forward, 
recoveries of prior year obligations, assessment collections from the 
regulated entities, and spending authority from offsetting 
collections. The statement shows that FHFA had $324.1 million in total 
budgetary resources for the 12 months ended September 30, 2013. The 
six percent increase in budgetary resources is the result of an 
increase in mission costs. Obligations incurred (includes amounts of 
orders placed, contracts awarded, and services received) increased 10 
percent to $284.7 million. Gross outlays (actual payments made) 
increased six percent to $277.6 million. FHFA’s five-year trend in 
budgetary resources, obligations incurred, and gross outlays is 
reflected in Figure 31. 

Figure 31: Trend in Budgetary Resources and Obligations Incurred – FY 
2009–2013: 

2009: 
Budgetary Resources: $125,908 
Obligations Incurred: $116,251
Gross Outlays: $117,427. 

2010: 
Budgetary Resources: $155,551 
Obligations Incurred: $132,808
Gross Outlays: $122,948. 

2011: 
Budgetary Resources: $253,568 
Obligations Incurred: $225,896
Gross Outlays: $186,945. 

012: 
Budgetary Resources: $304,635 
Obligations Incurred: $259,100
Gross Outlays: $262,252. 

2013: 
Budgetary Resources: $324,123 
Obligations Incurred: $284,684
Gross Outlays: $277,649. 

5-Year Average: 
Budgetary Resources: $232,757 
Obligations Incurred: $203,748
Gross Outlays: $193,444. 

[End of figure] 

Source of Funds: 

HERA authorizes FHFA to collect annual assessments from the regulated 
entities to pay its costs and expenses and maintain a working capital 
fund. Under HERA, annual assessments are levied against the 
Enterprises and the FHLBanks to cover the cost and expenses of the 
agency’s operations for supervision of the regulated entities. 

FHFA calculates the assessments for each Enterprise by determining the 
proportion of each Enterprise’s assets and off-balance sheet 
obligations to the total for both Enterprises and then applying each 
of the Enterprise’s proportion (expressed as a percentage) to the 
total budgeted costs for regulating the Enterprises. FHFA calculates 
the assessments for each of the twelve FHLBanks by determining each 
FHLBank’s share of minimum required regulatory capital as a percentage 
of the total minimum capital of all the FHLBanks and applying this 
percentage to the total budgeted costs for regulating the banks. 
Assessments are paid semiannually on October 1 and April 1. FHFA 
collected assessments of $225.4 million during FY 2013, which included 
a $38.1 million assessment for costs related to the operations of the 
Office of Inspector General. 

Limitations of the Financial Statements: 

The principal financial statements have been prepared to report the 
financial position and results of operations of FHFA, pursuant to the 
requirements of 31 U.S.C. 3515(b). While the statements have been 
prepared from the books and records of FHFA in accordance with GAAP 
for Federal entities and the formats prescribed by OMB, the statements 
are in addition to the financial reports used to monitor and control 
budgetary resources, which are prepared from the same books and 
records. The statements should be read with the realization that they 
are for a component of the U.S. Government, a sovereign entity. 

[End of section] 

Analysis of Systems, Controls and Legal Compliance: 

Management Assurances: 

Federal Managers’ Financial Integrity Act: 

During FY 2013, FHFA adhered to the internal control requirements of 
the Federal Managers’ Financial Integrity Act (FMFIA) and the guidance 
provided by OMB Circular A-123. FHFA’s Executive Committee on Internal 
Controls (ECIC) met quarterly to oversee internal controls and provide 
recommendations to the FHFA Acting Director on the effectiveness of 
FHFA’s internal controls. 

In 2013, the ECIC members were the Chief Operating Officer who served 
as the Chairman, the Chief Financial Officer who served as the Vice-
Chairman, the Chief Information Officer, the Deputy Director for 
Enterprise Regulation, the Deputy Director for Bank Regulation, the 
Deputy Director for Supervision Policy and Support, the Deputy 
Director for Housing Mission and Goals, the General Counsel, the 
Deputy Director of the Office of Conservatorship Operations, and the 
Deputy Director Office of Strategic Initiatives. The Chairman and Vice 
Chairman of the ECIC invited other FHFA executives and managers when 
appropriate. The ECIC also established senior assessment teams to 
review specific areas when needed. 

During FY 2013, pursuant to its obligations under OMB Circular A-123, 
FHFA monitored and assessed the following three areas: 

Reliability over Financial Reporting: 

FHFA’s Office of Budget and Financial Management assessed the agency’s 
financial reporting controls according to the requirements outlined in 
OMB Circular A-123, Appendix A. 

Compliance with Laws and Regulations: 

Assessment teams from FHFA divisions and offices identified the 
significant laws and regulations that relate to the operations for 
their respective offices. Assessment teams documented the actions that 
demonstrated compliance, and the agency’s Office of General Counsel 
reviewed all submissions. 

Effectiveness and Efficiency of Operations: 

Assessment teams from FHFA divisions and offices reviewed controls 
over operations using the criteria outlined in the GAO Internal 
Control Management and Evaluation Tool. Division and office managers 
and the Office of Budget and Financial Management reviewed the reports 
of the assessment teams. 

The ECIC reviewed documentation from all three areas. In compliance 
with the FMFIA requirements, the FHFA Acting Director, on the basis of 
a recommendation from the ECIC, provided reasonable assurance that 
internal controls over the effectiveness and efficiency of operations, 
compliance with applicable laws and regulations, and financial 
reporting as of September 30, 2013 were operating effectively and that 
no material weaknesses were found in the design or operation of the 
internal controls. 

The FHFA-OIG began operation in mid-October 2010 and adhered to the 
internal control requirements of FMFIA and the guidance provided by 
OMB Circular A-123. In order to ensure compliance with these 
requirements, the FHFA-OIG formed an ECIC and established a senior 
assessment team headed by the Chief of Staff to assess, among other 
things, the internal controls of the FHFA-OIG. The assessment team 
included participants from each office within the FHFA-OIG. Based on 
its review of the internal control assessments, the FHFA-OIG ECIC 
provided reasonable assurance that FHFA-OIG offices have developed and 
maintained effective internal controls for FY 2013, and no significant 
deficiencies or material weaknesses were identified. 

The Office of Counsel (OC), under the Chief Counsel’s direction, is 
FHFA-OIG’s principal authority on legal matters pertaining to FHFA-OIG 
activities, duties, and authorities. The OC works to ensure that all 
FHFA-OIG activities are conducted in accordance with applicable legal 
requirements. Starting with the creation of FHFA-OIG in mid-October 
2010, the OC has developed rules, policies, and procedures to ensure 
full FHFA-OIG compliance with such requirements. Although these 
efforts continue, no FHFA-OIG office identified substantive deviations 
from full compliance with those legal authorities to which it is 
subject. Based on these factors and the controls assessments performed 
by each FHFA-OIG office, the FHFA-OIG ECIC members determined that the 
FHFA-OIG’s A-123 efforts provide reasonable assurance that FHFA-OIG 
complies with laws and regulations applicable to FHFA generally and to 
FHFA-OIG specifically. Therefore, the FHFA-OIG ECIC recommended that 
the Inspector General sign an assurance statement to the FHFA Acting 
Director recommending an unqualified statement of assurance relative 
to the three areas assessed by the FHFA-OIG: internal control over 
financial reporting, effectiveness and efficiency of operations, and 
compliance with laws and regulations. 

Federal Management Information Systems and Strategy: 

Section 1106(g)(3) of HERA requires FHFA to implement and maintain 
financial management systems that comply substantially with federal 
financial management systems requirements, applicable federal 
accounting standards, and the U.S. Government Standard General Ledger 
at the transaction level. FHFA, including FHFA-OIG, uses the Bureau of 
Fiscal Services for its accounting services and that agency’s 
financial management system (FMS) which includes (1) a core accounting 
system—Oracle Federal Financials; (2) four feeder systems—PRISM 
(procurement), GovTrip (travel), IPP (payments), and Citidirect 
(charge card); (3) a reporting system—Discoverer; and (4) an inventory 
tracking system. FHFA is responsible for overseeing the Bureau of 
Fiscal Services’ performance of accounting services for the agency. A 
financial oversight document outlines the assignment of activities 
between FHFA and the Bureau of Fiscal Services. FMS includes manual 
and automated procedures and processes from the initiation of a 
transaction to the issuance of financial reports. FMS meets the 
requirements of HERA Section 1106(g) (3). FHFA also uses the National 
Finance Center, a service provider within the Department of 
Agriculture, for its payroll and personnel processing. FHFA has 
streamlined accounting processes by electronically interfacing data 
from charge cards, investment activities, the GovTrip travel system, 
the PRISM procurement system, the IPP payments system, and the 
National Finance Center payroll system to FMS. 

Federal Information Security Management Act: 

Title III of the Electronic Government Act of 2002, commonly referred 
to as the Federal Information Security Management Act (FISMA), 
requires all Federal agencies to develop and implement an agency-wide 
information security program. The program provides a framework to 
protect the agency’s information, operations, and assets. 

FHFA’s Information Security Program activities during FY 2013 continue 
to reflect improvements of the Agency’s continuous monitoring program 
including the increased use of automated tools. The continuous 
monitoring program requires FHFA to proactively monitor the security 
posture of its information technology infrastructure through the 
implementation of operational, management, and technical controls, 
including automated security tools and supplemental resources for 
monitoring activities. These tools and activities include the FHFA 
Security Assessment and Authorization (SA&A) process for evaluating 
information systems before they become operational; reviewing system 
logs and configuration management activities; and conducting periodic 
vulnerability scans. 

Other FY 2013 information security program activities include 
enhancing the access control process, updating the vulnerability 
management program, conducting independent penetration testing, 
updating information security policies and procedures, and performing 
annual security control assessments of FHFA information systems, 
including the Agency’s Financial Management System (FMS). FHFA 
developed and distributed monthly non-technical cyber security 
newsletters to all employees to enhance user awareness and conducted a 
security symposium to provide security awareness training to FHFA 
employees and contractors. FHFA also addressed security-related 
weaknesses for systems noted in the prior year FISMA review and 
mitigated vulnerabilities identified during other SA&A activities. 

FHFA-OIG operates its own network, systems and related information 
security programs that are independent from those of the agency. 

The FHFA-OIG is required to evaluate the agency’s information security 
program annually and report the results to OMB as required by FISMA. 
The FHFA-OIG contracted with an independent external audit firm to 
conduct the FY2013 FISMA audit of the FHFA information security 
program, which was completed in October 2013. In addition, the FHFA-
OIG elected to have an inaugural independent evaluation of its 
information security program performed consistent with FISMA. This 
evaluation was performed by the independent external audit firm as 
well. 

For the FHFA information security program, the external auditor 
concluded that the program was generally compliant with FISMA, other 
Federal legislation, and applicable OMB guidance, as well as with 
National Institute of Standards and Technology (NIST) special 
publications. The independent external auditor identified 15 
recommendations to assist FHFA in strengthening its information 
security program. During FY 2013, FHFA closed 16 of 20 prior year 
FISMA recommendations and has a project in place to remediate the 
remaining recommendations. 

For the FHFA-OIG information security program, the external auditor 
identified four recommendations to help the FHFA-OIG to: 

1) respond to issues that, in its opinion, collectively represented a 
significant deficiency as of June 30, 2013; and 

2) strengthen its information security program. 

The OIG has a project in place to remediate the four recommendations 
that is in its final stages. The external auditor noted that the FHFA-
OIG’s relatively new information security program continued to mature 
during FY 2013 and that the FHFA-OIG has taken steps to mitigate 
certain risks identified in its program. In particular, the external 
auditor reported that throughout the course of the FISMA evaluation, 
the FHFA-OIG’s Chief Information Officer took action to remediate 
control deficiencies and, by the conclusion of the independent 
evaluation, reported that corrective action to strengthen security 
controls was largely completed as of September 30, 2013. 

The corrective actions taken by the FHFA and the FHFA-OIG will be 
reviewed and verified by the auditor during the FY 2014 FISMA audits. 
The independent external auditor concluded that, overall, a 
significant deficiency did not exist for FHFA when the agency and the 
FHFA-OIG results were consolidated for FISMA reporting purposes. 

[End of section] 

Management's Report on Final Actions: 

As required under amended Section 5 of the Inspector General Act of 
1978, the FHFA must report information on final action taken by 
management on certain audit reports. The tables on the following pages 
provide information on final action taken by management on audit 
reports for the federal fiscal year period October 1, 2012, through 
September 30, 2013. 

Table 5: Management Report on Final Action on Audits with Disallowed 
Costs for Fiscal Year 2013: 
Dollars in Thousands: 

Audit Report: A. Management decisions – Final action not taken at 
beginning of period; 
Number of Reports: 0; 
Disallowed Costs: $0; 

Audit Report: B. Management decisions made during the period; 
Number of Reports: 1; 
Disallowed Costs: $256,343. 

Audit Report: C. Total reports pending Final action during the period 
(A and B); 
Number of Reports: 1; 
Disallowed Costs: $256,343. 

Audit Report: D. Final action taken during the period: 

1. Recoveries: 

(a) Collections & offsets; 
Number of Reports: 0; 
Disallowed Costs: $0. 

(b) Other; 
Number of Reports: 0; 
Disallowed Costs: $0. 

2. Write-offs; 
Number of Reports: 0.
Disallowed Costs: $0. 

3. Total of 1(a), 1(b), & 2;
Number of Reports: 0; 
Disallowed Costs: $0. 

Audit Report: E. Audit reports needing final action at the end of the 
period; 
Number of Reports: 1;
Disallowed Costs: $256,343. 

[End of table] 

Table 6: Management Report on Final Action on Audits with 
Recommendations to Put Funds to Better Use for Fiscal Year 2013: 
Dollars in Thousands: 

Audit Report: A. Management decisions – Final action not taken at 
beginning of period; 
Number of Reports: 0; 
Disallowed Costs: $0. 

Audit Report: B. Management decisions made during the period; 
Number of Reports: 1; 
Disallowed Costs: $105,000. 

Audit Report: C. Total reports pending Final action during the period 
(A and B); 
Number of Reports: 1; 
Disallowed Costs: $105,000. 

Audit Report: D. Final action taken during the period: 

1. Value of recommendations implemented (completed)
Number of Reports: 0; 
Disallowed Costs: $0. 

2. Value of recommendations that management concluded should not or 
could not be implemented or completed
Number of Reports: 0; 
Disallowed Costs: $0. 

3. Total of 1(a), 1(b), & 2
Number of Reports: 0; 
Disallowed Costs: $0. 

Audit Report: E. Audit reports needing final action at the end of the 
period; 
Number of Reports: 0; 
Disallowed Costs: $0. 

[End of table] 

Table 7: Audit Reports without Final Actions But with Management 
Decisions over One Year Old for Fiscal Year 2013: 

Report No. and Issue Date: EVL 2011-06, Evaluation of the Federal 
Housing Finance Agency’s Oversight of Freddie Mac’s Repurchase 
Settlement with Bank of America, September, 27, 2011
Recommendation: The OIG recommended that FHFA and its senior 
management must promptly act on the significant concerns raised about 
the loan review process to ensure that Freddie Mac is maximizing its 
repurchase claim recoveries.
Management Action: The FHFA continued to complete corrective actions 
to address the recommendations, including continuing to work with 
Freddie Mac on repurchase settlement processes and approvals. However, 
the actions to fully address the recommendations are still underway at 
the end of the fiscal year. Expected Completion Date: FHFA will 
complete monitoring of the repurchase settlement process in fiscal 
year 2014. 

Report No. and Issue Date: AUD-2012-009, CliftonLarsonAllen LLP's 
Audit of FHFA's Controls Over Sensitive and Proprietary Information 
Collected and Exchanged with the Financial Stability Oversight 
Council, September 28, 2012
Recommendation: The OIG conducted a performance audit to evaluate FHFA’
s controls and protocols over sensitive and proprietary information 
collected and exchanged with the Financial Stability Oversight Council 
(FSOC). The report included six recommendations to enhance the 
controls over sensitive information. 
Management Action: The FHFA completed corrective action on four of the 
six recommendations. Two remaining corrective actions are in-process 
and scheduled to be completed by the end of the calendar year. 
Expected Completion Date: FHFA will complete corrective actions by 
December 31, 2013. 

[End of table] 

[End of section] 

FHFA’s Statement of Assurance: 

Federal Housing Finance Agency: 
Constitution Center: 
400 7th Street. S.W. 
Washington, D.C. 20024: 
Telephone: (202) 649-3800: 
Facsimile: (202) 649-1071: 
[hyperlink, http://www.fhfa.gov]: 

November 18, 2013: 

Federal Managers' Financial Integrity Act Statement of Assurance
Fiscal Year 2013 The Federal Housing Finance Agency (FHFA) Management 
is responsible for establishing and maintaining effective internal 
control and financial management systems that meet the objectives of 
the Federal Managers' Financial Integrity Act (FMFLA). 

FHFA conducted its assessment of the effectiveness of internal control 
over the effectiveness and efficiency of operations and compliance 
with applicable laws and regulations in accordance with OMB Circular A-
123, Management's Responsibility for Internal Control. Based on the 
results of this evaluation, FHFA can provide reasonable assurance that 
its internal control over the efficiency and effectiveness of 
operations and compliance with applicable laws and regulations as of 
September 30,2013 was operating effectively and that no material 
weaknesses were found in the design or operation of the internal 
controls. 

In addition, FHFA conducted its assessment of the effectiveness of 
tribunal controls over financial reporting, which includes 
safeguarding of assets and compliance with applicable laws and 
regulations, in accordance with the requirements of Appendix A of OMB 
Circular A-123. Based on the results of this evaluation, FHFA can 
provide reasonable assurance that its internal controls over financial 
reporting as of September 30, 2013 were operating effectively and no 
material weaknesses were found in the design and operation of the 
internal controls over financial reporting. 

In accordance with the requirements of FMFIA, FHFA's financial 
management systems are substantially in compliance with the 
requirements for federal financial management systems as presented in 
A-127, Financial Management Systems as of September 30, 2013. 

Signed by: 

Edward DeMarco: 
Acting Director: 

[End of section] 

Performance Section: 

* Managing and Measuring Performance. 

* Strategic Human Capital Management. 

* Strategic Goal 1: Safe and Sound Housing GSEs. 

* Strategic Goal 2: Stability, Liquidity, and Access in Housing 
Finance. 

* Strategic Goal 3: Preserve and Conserve Enterprise Assets. 

* Strategic Goal 4: Prepare for the Future of Housing Finance in the 
U.S. 

Managing and Measuring Performance: 

The Performance Section is organized by the strategic goals described 
in FHFA’s new Strategic Plan for FHFA for Fiscal Years 2013–2017. 
These four strategic goals provide long-term direction to the agency 
and define how the accompanying performance goals will enable FHFA to 
accomplish its mission. 

The Performance Section also includes a brief discussion of each 
performance goal; the associated targets; the results of the 
performance measures for the current fiscal year, as well as two prior 
fiscal years (if the data are available); a discussion of how the 
agency verifies performance data; factors describing why performance 
measures were not met; and, finally, our plans to improve our 
performance. 

Strategic Planning: 

During FY 2012, FHFA released a new Strategic Plan for FHFA for Fiscal 
Years 2013–2017. This new strategic plan refined three of the existing 
strategic goals and added a fourth strategic goal. During FY 2013, 
FHFA operated under this new strategic plan which incorporates 
concepts from the Strategic Plan for Enterprise Conservatorships 
(SPEC) that was issued in February 2012. The SPEC outlined three broad 
objectives: (1) Build a new infrastructure for the secondary mortgage 
market; (2) Contract the Enterprises’ dominant presence in the 
marketplace by gradually simplifying and shrinking their operations; 
(3) Maintain foreclosure prevention activities and credit availability 
for new and refinanced mortgages. The SPEC, which is meant to 
underscore the accelerative steps FHFA is taking to meet its 
obligation as conservator of the Enterprises, is now effectively 
embedded in FHFA’s overall Strategic Plan. 

Relationship among FHFA’s Strategic Goals: 

FHFA has four strategic goals that support the achievement of its 
mission. Strategic Goal 1 focuses on the supervision of the regulated 
entities and is the foundation that supports achievement of the 
remaining three Strategic Goals. A fundamental objective of 
supervision is to evaluate a regulated entity’s condition and 
practices to ensure that it has the right processes, controls, 
resources and management in place to achieve its objectives while 
maintaining safe and sound operations. If FHFA, either through its 
role as regulator or conservator, directs the regulated entities to 
take action to help achieve Strategic Goals 2 through 4, supervision 
will work to ensure that the regulated entities are able to do so in a 
safe and sound manner. 

Strategic Goal 2 focuses on the important roles that the housing GSEs 
play in housing finance, particularly on ensuring they fulfill their 
core missions. Strategic Goal 3 is concentrated on the 
Conservatorships of Fannie Mae and Freddie Mac and on FHFA’s statutory 
responsibility, as the conservator for each of the Enterprises, to 
preserve and conserve the assets of the Enterprises for the benefit of 
the taxpayers. Finally, Strategic Goal 4 looks to the future of the 
housing finance system— post conservatorships of the Enterprises—and 
is drawn from the SPEC. The focus of this goal is on building a new 
infrastructure for the secondary market, contracting the government’s 
presence in the market by encouraging more private sector 
participation, and improving the functioning of the market by 
promoting more efficient processes and greater transparency. Other 
areas of the SPEC are reflected within select measures under Strategic 
Goal 2 and Strategic Goal 3. 

Performance Planning: 

FHFA’s Annual Performance Plan establishes specific outcomes to 
accomplish the strategic goals. The annual plan also outlines 
performance measures used to track achievement of each goal and 
describes the means and strategies that will be utilized. Performance 
measures also highlight the achievement level towards the overarching 
performance goal. In FY 2013, FHFA had four strategic goals, supported 
by nine performance goals, and 25 performance measures. Figure 32 
shows the hierarchy of FHFA’s performance goals and measures. It also 
illustrates how FHFA proposes to dedicate its resources to accomplish 
its mission. 

FHFA employs a numbering system to link performance measures to 
strategic and performance goals. For each performance measure, the 
first digit represents the strategic goal it supports, the second 
digit is the performance goal, and the third digit is the performance 
measure related to that goal. For example, performance measure 1.1.1 
supports strategic goal 1 and performance goal 1.1—-it is the first 
performance measure under that performance goal. 

Figure 32: FHFA’s Goal Hierarchy: 

[Refer to PDF for image: pyramid] 

Bottom to top: increased Execution & Monitoring; 
Top to bottom: decreased Planning. 

Bottom: 
Performance Measures; 
Performance Goals
Strategic Goals
Mission (top). 

[End of figure] 

Performance Budget: 

The annual performance budget describes the costs, systems, and 
initiatives associated with the achievement of each goal. The agency 
accomplishes its mission primarily by: 

* Examining the regulated entities; 

* Monitoring their progress in completing their remediation plans; 

* Assessing their capital adequacy; 

* Preserving and conserving Enterprise assets; 

* Setting and enforcing affordable housing goals; 

* Monitoring credit and financial market conditions; 

* Rulemaking; and; 

* Researching and analyzing the regulated entities and the housing 
markets. 

During FY 2013, FHFA functioned with a budget of $197.4 million and by 
the end of the year had 597 employees. 

Performance Reviews: 

Developing the Annual Performance Plan is an iterative process and 
includes all FHFA offices. Strategic and performance goals are 
developed during the planning process and approved by the Acting 
Director. Senior executive leaders develop performance measures, as 
well as the means and strategies that describe how FHFA is going to 
measure performance. Performance results are monitored and validated 
throughout the year to determine the success of program activities. 

During FY 2013, senior executives and supporting staff submitted 
quarterly reports on progress they made toward achieving performance 
measures for which they were accountable. The agency used the 
quarterly reports as the basis for developing the Performance and 
Accountability Report. These reports were reviewed and analyzed by the 
Performance Management and Strategic 

Figure 33: FHFA’s Performance Management Cycle: 

[Refer to PDF for image: illustration] 

FHFA’s Five-Year Strategic Plan: 
Strategic Planning: 
* Mission; 
* Strategic goals; 
* Performance standards. 

FHFA’s Annual Performance Plan: 
Performance Planning: 
* Reconfirms goals; 
* Key means and strategies; 
* Annual performance targets; 
* Propose new initiatives. 

FHFA’s Annual Performance Budget: 
Performance Budget Development: 
* Resource levels; 
* System requirements and investment decisions; 
* Adjustments to targets based on investment decisions. 

FHFA’s Annual Performance & Accountability Report: 
Management, Monitoring & Accountability: 
* Oversight and coordination of key means and strategies; 
* Quarterly execution reviews of progress towards goals and strategies; 
* Accountability for results; 
* Strategic plans for systems; 
* Employee performance evaluation management systems (PEMS); 

[End of figure] 

Planning staff to ensure the accuracy and validity of information 
being reported, and verify progress toward achieving planned 
performance levels. FHFA’s Director then held quarterly performance 
tracking meetings with senior executives to review accomplishments and 
make necessary adjustments. See Figure 33 for an outline of FHFA’s 
performance management cycle. 

During FY 2013, FHFA worked to achieve 25 performance measures and 
targets. Figure 34 depicts the results of FHFA’s efforts in meeting 
its targets for FY 2013. 

Figure 34: FY 2013 Performance Measures: 

[Refer to PDF for image: pie-chart] 

Target Met: 68%; 
Target Not Met: 28%; 
Data Not Available: 4%. 

[End of figure] 

Validation and Verification: 

Information reported in this FY 2013 Performance and Accountability 
Report is complete and reliable. The sources of data are identified 
and verified to ensure accuracy, reliability, and completeness. Each 
office maintains checks and balance systems that are reflective of 
whether their performance measures are more subject to external 
influences (factors not under FHFA’s control) versus internal 
influences (factors under FHFA’s control). The data are created 
internally, reported in the agency’s performance tracking system, and 
reviewed and approved each quarter by the agency’s senior executive 
leadership. Additionally, FHFA’s staff documents the procedures used 
to obtain and validate the data to ensure the accuracy and 
accountability of the information. 

During the performance planning cycle, the following data are 
collected on each performance measure: 

* Definition of the performance measure; 
* Data source; 
* Process for calculating or tabulating performance data; 
* Process for validation and verification; 
* Responsible manager; 
* Location of documentation 

Data related to supervision activities are collected through FHFA’s 
supervision process and reviewed by FHFA management. 

Strategic Human Capital Management: 

FHFA’s Human Capital strategic plan, programs, and operations fully 
support the agency’s mission, values and performance goals. FHFA’s 
workforce is its most valuable resource. This makes attracting, 
hiring, developing, rewarding, and retaining a diverse, knowledgeable 
staff with cutting-edge professional skills critical to the overall 
success of the agency. The agency uses FHFA’s Human Capital Balanced 
Scorecard Methodology and Strategy Map, a strategic framework that 
aligns human capital management to the agency’s overarching 
performance goals and objectives. 

Dynamic human capital management programs are either in place or being 
developed that deliver ready and capable employees to lead FHFA, carry 
out its mission, and achieve agency-level performance goals. FHFA’s 
Human Capital Management Balanced Scorecard and Strategy Map framework 
contains 21 strategic objectives that integrate innovative human 
capital management programs, thought leadership, and operational 
support to FHFA’s employees, managers, and executives to ensure that 
the agency’s mission is achieved. 

Strategic Goal 1: Safe and Sound Housing GSEs: 

In FY 2013, FHFA implemented improvements to its examination and 
oversight functions. FHFA ensured the GSEs operated in a safe manner 
and that the FHLBanks were adequately capitalized. As part of the 
agency’s supervisory responsibility, FHFA conducted examinations to 
assess the risk of the GSEs’ portfolios as well as their operations. 
FHFA also increased the effectiveness of its supervisory program by 
developing a common examination program and rating system for the GSEs. 

Performance Goal 1.1: Identify risks and require timely remediation of 
weaknesses: 
Performance Measure 1.1.1: Develop a written supervisory strategy for 
each regulated entity that effectively identifies risks and ensures 
corrective actions are implemented: 

Performance: 
FY 2011: New Measure for FY 2013; 
FY 2012: New Measure for FY 2013; 
FY 2013: Target: 100%; 
FHFA developed supervisory strategies for each Federal Home Loan Bank 
and the Office of Finance within the required time frames during FY 
2013. However, strategies for Fannie Mae and Freddie Mac were 
completed on January 7, 2013, which falls short of the official 
deadline of December 1, 2012.
Performance Results Key: Goal Fulfillment: Target Not Met. 

Performance Measure 1.1.2*: Percentage of examination findings 
remediated since the last exam or in accordance with an approved plan; 

Performance: 

FY 2011: 
Target: 90 percent quarterly; 
All MRAs were open fewer than 20 days. There were 27 total conclusion 
letters in FY 2011. All of them were resolved or were in the process 
of being resolved in accordance with a remediation plan acceptable to 
FHFA within 90 calendar days of recognition. FHFA met this target at 
100 percent each quarter of FY 2011.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012:
Target: 90 percent quarterly; 
All MRAs were resolved or were in the process of being resolved in 
accordance with a remediation plan acceptable to FHFA within 120 
calendar days of recognition. FHFA met this target by at least 99 
percent each quarter of FY 2012.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2013
Target: 100 percent; 
As of September 30, 2013, there were 69 Matters Requiring Attention 
(MRAs) at least 60 days old at the Enterprises. All 69 MRAs had 
remediation plans to which FHFA did not have an objection. FHFA met 
its target of 100 percent for the Enterprises and FHLBanks FY 2013. 

Out of 104 MRAs reviewed, only one was unresolved at the FHLBanks 
(representing only one percent of total MRAs reviewed in FY 2013). One 
FHLBank did not adequately address all aspects of one of its 2012 
MRAs. FHFA expects the FHLBank to remediate this MRA during 2014. FHFA 
therefore did not meet its target of 100 percent, scoring only 99 
percent for FY 2013.
Performance Results Key: Goal Fulfillment: Target Not Met 

* This is a key performance measure. 

[End of table] 

Synopsis of Performance Goal 1.1: Identify risk and require timely 
remediation of weaknesses: 

Through its supervisory activities, which include onsite examinations, 
FHFA ensured the Enterprises and FHLBanks operated in a safe and sound 
manner and abstained from excessive risk. FHFA developed a supervisory 
plan for each of the regulated entities based upon the previous year’s 
supervisory effort and additional information about emerging risks and 
new activities at the entities. FHFA developed a supervisory plan for 
each FHLBank by the deadline set for each bank. FHFA missed its target 
by 16 days for Freddie Mac and approximately a month for Fannie Mae. 
FHFA completed its supervisory strategies and plans for Fannie Mae and 
Freddie Mac on January 7, 2013 and December 17, 2012 respectively. 
During FY 2013, FHFA focused its attention on resolving corrective 
action plans of the regulated entities. Supervision staff monitored 
risk exposures and sought to identify emerging risks. FHFA also 
conducted reviews of the financial condition at the GSEs. 

As part of the improvements to its supervisory program, FHFA developed 
a rating system called CAMELSO which rates the Capital risk; Asset 
quality risk; Management risk; Earnings risk; Liquidity risk; 
Sensitivity to market risk; and Operational risk. The CAMELSO system 
became effective in January 2013 and will be used as a common rating 
system for the regulated entities going forward. As the agency 
improved its examination controls and procedures for identifying risks 
for the GSEs, the Enterprises remediated all Matters Requiring 
Attention (MRAs) within 60 days, as required by FHFA. The FHLBanks 
remediated 99 percent (104 out of the 105) of their MRAs—one FHLBank 
failed to meet its target because of one unresolved MRA. FHFA will 
review the Bank’s compliance with the re-issued MRA during FY 2014. 

Performance Goal 1.2: Improve the condition of the regulated entities 

Performance Measure 1.2.1: Complete guidance of the implementation of 
the asset classification policy (2012-AB-02, April 2012) and ensure 
regulated entities established implementation plans 

Performance: 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: 100 Percent; 
FHFA issued guidance to establish a standard methodology for 
classifying loans and real-estate, excluding investment securities. 
The agency prescribed the timing of asset charge-offs based on these 
classifications. 
To facilitate the regulated entities’ implementation of the policy, 
FHFA established a working group to oversee the GSEs’ preparation and 
execution of a plan to comply with the asset classification and 
recognition.
2013-AB-03 was issued on April 9, 2013. 

Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Performance Goal 1.2: Improve the condition of the regulated entities 

Performance Measure 1.2.2: Develop five new examination modules to 
guide examiners in reviewing and assessing the regulated entities; 

Performance: 
FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: March 31, 2013; 
FHFA completed 5 training modules.
The following Modules were completed by March 29th, 2013: 

Default Legal Services, Managing Seller/Servicer Relationships, Single-
Family Credit Loss Management, Single-family Mortgage Underwriting and 
Acquisitions, Third-party Relationship Management. 

Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 1.2.3: Conduct supervisory review of the 
Enterprises compliance process for tracking and executing 
conservatorship directives; 

Performance: 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: September 30, 2013 
The examination teams conducted supervisory reviews to determine 
compliance with conservatorship directives. The Freddie Mac 
examination team completed its review, resulting in the issuance of 
examination findings. The Fannie Mae team ensured that the Enterprises 
complied with Prudential Management and Operations Standards (PMOS), 
FHFA’s Letter of Instruction issued November 15, 2012, and with the 
Salary Freeze Directive.
The FHFA-OIG has been monitoring the completion of supervisory reviews 
and will follow-up on completed activities. 

Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 1.2.4: Increase retained earnings for each FHLBank; 

Performance: 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: 
Total retained earnings at the end of the current fiscal year are 
greater than total retained earnings at the end of the prior fiscal 
year.
All 12 FHLBanks increased retained earnings during FY 2013. The 
retained earnings balance for each FHLBank as of September 30, 2013, 
represented an increase over its balance as of September 30, 2012.
$11.7 billion in 2013, up 17 percent over $10 billion in 2012. 

Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Synopsis of Performance Goal 1.2: Improve the condition of the 
Regulated Entities: 

FHFA is responsible for evaluating and ensuring the safe and sound 
operation of the regulated entities. To provide better supervision, 
FHFA established examination procedures to assess risk exposures and 
controls. During FY 2013, FHFA focused its attention on loss 
mitigation and the core business operations of the Enterprises. FHFA 
met the FY 2013 goals for Performance Goal 1.2 and developed 
additional regulations and guidance in accordance with the Consumer 
Protection Act of 2010 (Dodd-Frank Act). 

FHFA completed guidance on the implementation of the asset 
classification policy and ensured that the regulated entities 
established satisfactory implementation plans. The FHFA exceeded its 
goal of creating five new examination modules to guide examiners in 
reviewing and assessing the regulated entities. FHFA completed 14 
training modules in addition to complying with FHFA-OIG’s 
recommendation to develop a Default Legal Services module. 

FHFA reviewed risk-based directives and policies. An audit revealed 
that the Enterprises completed 19 processes specific to examinations 
and conservatorship directives to ensure controls are in place that 
govern compliance with directives issued by the agency. FHFA developed 
a list of outstanding and completed conservatorship regulatory orders, 
and monitored the process through an automated tracking system. 

Finally, FHFA monitored retained earnings at each FHLBank. The Banks 
had adequate capital available to absorb losses and protect the 
principle balance on assets, and were able to increase their retained 
earnings by 17 percent over the time period of October 1, 2012 to 
September 30, 2013. The FHLBanks increased their retained earnings 
from $10 billion in FY 2012 to $11.7 billion in FY 2013. 

Strategic Goal 2: Stability, Liquidity, and Access in Housing Finance: 

During FY 2013, the housing market rebounded with increased sales 
volume and house prices. Homeowners with underwater loans continued to 
refinance with lenders through the Home Affordable Refinance Program 
(HARP) which allowed them to benefit from historically low interest 
rates. The agency continued to encourage the Enterprises to actively 
pursue foreclosure prevention activities. In cooperation with the 
Financial Stability Oversight Council (FSOC) and its member agencies, 
FHFA worked diligently to categorize developing risks and mitigate 
systemic threats. 

Some small, rural, and community-based lenders face challenges 
accessing the secondary mortgage market as the result of large bank 
aggregators reducing their participation in the correspondent channel 
over the past couple of years. FHFA and the GSEs continue to expand 
outreach to small and community-based lenders to explore alternative 
means of access to and participation in the mortgage market. 

Performance Goal 2.1: Promote stability and mitigate systemic risk 
that could lead to market instability 

Performance Measure 2.1.1*: Number of refinances successfully 
completed through the Home Affordable Refinance Program (HARP) 2.0 

Performance: 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: Maintain the volume of HARP refinances as a percent of total 
refinances at 10 percent or higher. 
The volume of HARP refinances as a percent of total refinances during 
FY 2012 (through August 31, the most recent data available) was 
approximately 18 percent.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2013: 
Target: 600,000; 
1,019,286 refinances were successfully completed through HARP during 
FY 2013 (through August 31, the most recent data available), exceeding 
the fiscal year target by 70 percent.
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 2.1.2*: Number of foreclosure alternatives 
successfully completed, 

Performance: 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: 447,000. 
Improvement in the housing market and employment resulted in a lower 
number of delinquent loans. As a result, the Enterprise successfully 
completed 333,819 foreclosure alternatives instead of its goal of 
447,000 in FY 2013.
Performance Results Key: Goal Fulfillment: Target Not Met. 

Performance Measure 2.1.3: Number of real estate owned (REO) 
dispositions in individual markets to promote recovery via existing 
and new distribution channels. 

Performance: 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: 353,000; 
Due to improvement in the housing market and employment, as well as 
delays in the foreclosure process, the number of REO acquisitions 
declined. As a result, the Enterprise successfully completed 220,364 
REO dispositions instead of its goal of 353,000 in FY 2013.
Performance Results Key: Goal Fulfillment: Target Not Met. 

* This is a key performance measure. 

[End of table] 

Synopsis of Performance Goal 2.1: Promote stability and mitigate 
systemic risk that could lead to market instability: 

The lending community, FHFA, and the Enterprises worked together to 
increase participation in HARP by further streamlining the program and 
revising eligibility requirements to make them easier for borrowers to 
understand. As a result of these efforts, over 783,000 homeowners were 
able to refinance their homes at significantly lower interest rates. 

Improvements in the housing market and the broader economy, as 
evidenced by rising home values and lower unemployment during FY 2013, 
contributed to declines in the number of delinquent loans and 
ultimately in fewer Real Estate Owned (REO) acquisitions. This good 
news for the economy contributed significantly to FHFA missing its 
targets for performance measures 2.1.2 and 2.1.3. FHFA developed its 
FY 2013 targets for these measures based on a continued downward trend 
in delinquencies and REO acquisitions. 

Although FHFA missed its target for the number of foreclosure 
alternatives successfully completed, FHFA remains committed to helping 
borrowers stay in their homes whenever possible, and has worked with 
the Enterprises to develop programs focused on home retention. FHFA 
has demonstrated its commitment to home retention since the early days 
of the foreclosure crisis. In 2008, FHFA and the Enterprises launched 
a single common modification program known as Streamlined Modification 
Program in response to rising delinquencies, which served as the 
precursor to the Treasury’s Home Affordable Modification Program 
(HAMP). Since then, FHFA and the Enterprises have provided key input 
to HAMP and strengthened servicing standards for delinquent mortgages. 
Further, in 2011, FHFA launched its Servicing Alignment Initiative 
(SAI) aimed at creating common, consistent, and simplified standards 
for managing and servicing delinquent loans. In 2012, FHFA focused on 
streamlining and standardizing the Enterprises Foreclosure 
Alternatives—Standard Short Sale and Standard Deed-in-Lieu. This year, 
FHFA and the Enterprises announced several home retention related 
enhancements, including: 

* Streamlined Modification Initiative: StreamlinedMod responds to 
documentation challenges associated with traditional modifications. 
StreamlinedMod allows servicers to solicit certain eligible borrowers 
between 90 to 720 days delinquent with reduced documentation 
requirements. 

* GSE HAMP extension: The Enterprises extended GSE HAMP to align with 
the Treasury HAMP program. The Enterprises also extended the 
Streamlined Modification Initiative to December 1, 2015, to correspond 
with the HAMP sunset date. 

* Consumer Financial Protection Bureau (CFPB) Servicing Rule 
Implementation: The Enterprises issued servicing requirements in 
response to CFPB’s final rules implementing the mortgage servicing 
provisions of the Real Estate Settlement Procedures Act and the Truth 
in Lending Act, as amended by Dodd-Frank in 2010. The updated 
servicing requirements relate to early intervention and communication 
with delinquent borrowers; alternatives to foreclosure and right of 
appeals; foreclosure referral and foreclosure suspension; and error 
resolution. The changes are effective January 10, 2014. 

FHFA will continue to monitor the Enterprises' REO property 
disposition activities in 2014, and concentrate efforts on reducing 
REO acquisitions to minimize the impact on affected communities as 
well as on the Enterprises’ risk exposure. FHFA will also adjust the 
target number of loan modifications, short sales and deeds-in-lieu 
goals to reflect current trends. 

Despite FHFA’s best efforts some homes will be foreclosed and enter 
the Enterprises’ REO inventory. FHFA has directed the Enterprises to 
take all necessary and prudent steps to decrease the size of each 
Enterprise’s REO property portfolios, while taking into account the 
state of the economy and housing market. 

Performance Section: 

Performance Goal 2.2: Ensure liquidity in mortgage markets; 
Performance Measure 2.2.1: Initiate the monthly mortgage survey; 

Performance: 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Complete by Q4 2013; 
FHFA initiated a monthly mortgage survey.
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 2.2.2: Inform the public through dissemination of 
FHFA research publications on housing and housing finance markets; 

FY 2011: 
Target: At least six; 
FHFA published two working papers, two mortgage market notes, one 
research paper, and one research report to Congress in FY 2011. These 
publications are posted on the agency’s web site. This measure 
pertains to the number of such publications released in FY 2011.
Performance Result: Six; 
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: At least six; 
FHFA published two working papers, two mortgage market notes, and two 
research papers during FY 2012. These publications are posted on the 
agency’s web site. 
Performance Result: Six; 
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2013: 
Target: Produce six research publications during FY 2013; 
FHFA completed six research studies during FY 2013, which included 
mortgage market notes, working papers, and research papers suitable 
for publication. 
Performance Result: Six; 
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Synopsis of Performance Goal 2.2: Ensure liquidity in the mortgage 
markets: 

The National Mortgage Database (NMDB) survey of mortgages has been 
completed and FHFA is working with credit bureaus to collect 
information on borrowers who have entered the housing market since 
1998. Additional historic loan data will be added to the NMDB on a 
quarterly basis during FY 2014 to assess risks. 

During FY 2013, the agency conducted research and analysis leading to 
the production of six research papers and mortgage notes. FHFA’s 
research and analysis provide useful information to the public as well 
as to examiners to enhance effective supervision. Research presented 
at conferences, published in trade journals, and available on the 
agency website include: 

* Housing and Mortgage Markets in 2011, [hyperlink, 
http://www.fhfa.gov/webfiles/24831/MME121212web.pdf]. 

* Distressed Sales and FHFA House Price Index, [hyperlink, 
http://www.fhfa.gov/webfiles/25411/FHFA_Working_Paper_13-1.pdf]. 

* Generating Historically-Based Stress Scenarios Using Parsimonious 
Factorization, [hyperlink, 
http://www.fhfa.gov/webfiles/25554/WP132_GeneratingHistoricallyBasedStes
sScenarios.pdf]. 

* Mortgage Market Note 13-1: A Study of First-Time Homebuyers, 
[hyperlink, 
http://www.fhfa.gov/webfiles/25650/FHFA_Mortgage_Market_Note_13-
01.pdf]. 

Performance Goal 2.3: Expand access to housing finance for diverse 
financial institutions and qualified borrowers; 
Performance Measure 2.3.1*: Reduce variance in single-family guarantee 
fees charged to lenders that sell large versus small volumes of 
mortgages to the Enterprises; 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Narrowing variance in fees at year ending June 30, 2013, from 
preceding year. 
Performance: FHFA's monitoring of risk-adjusted single family 
guarantee fees throughout the fiscal year showed a narrowing of the 
variance by year-end. 
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Goal 2.3.2: Expand access to housing finance for diverse 
financial institutions and qualified borrowers 

FY 2011: 
Target: Establish baseline and set a stretch goal; 
Performance: FHFA analyzed past and existing contracts to determine 
its spending on contracts with minority-owned, women-owned, and 
disabled-person–owned businesses. A baseline amount and goal were 
established. 
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: Increase from prior year as included in the 2011 Annual Report 
to Congress; 
Performance: FHFA increased the number of contracts executed by 122 
percent from prior year results during FY 2012. 
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2013: 
Target: Increase from prior year as included in the 2012 Annual Report 
to Congress; 
Performance: Total dollar amount awarded to women- and minority-owned 
businesses totaled $7,030,933 in FY 2013, down from $7,301,036 in FY 
2012.
Performance Results Key: Goal Fulfillment: Target Not Met. 

Performance Goal 2.3.3 Increase number/dollar amount of business 
awarded to women and minority owners by the entities FHFA regulates 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Increase from prior year as included in the Annual Activity 
Reports submitted by the Regulated Entities Pursuant to 12 CFC 1207.23; 
Performance: FHFA will not have data to evaluate this measure until 
the second quarter of FY 2014.
Performance Results Key: Goal Fulfillment: Data not available. 

* This is a key performance measure. 

[End of table] 

Synopsis of Performance Goal 2.3: Expand access to housing finance for 
diverse financial institutions and qualified borrowers: 

FHFA worked with the Enterprises to reduce disparities in guarantee 
fees. As a result, FHFA met its goal of reducing the variance in 
single-family guarantee fees charged to lenders that sell large 
volumes of loans versus those that sell small volumes. FHFA provided 
oversight for the FHLBanks’ Affordable Housing Program and Community 
Investment Program, which created conditions to enable more private 
mortgage participants to take part in the affordable housing market. 

Also during FY 2013, FHFA worked to increase the number and value of 
awards that went to women and minority-owned businesses. The agency 
did not meet this goal in part because in FY 2012, FHFA had a unique 
opportunity to meet its new office furniture needs by contracting with 
a minority-owned firm. This was a one-time event that greatly 
increased the total dollars awarded to minority and women-owned firms 
in FY 2012. As a result, the dollar amount awarded decreased in FY 
2013 from the spike in awards in FY 2012. 

The agency is unable to report whether it met its goal of increasing 
the number and dollar amount of business awarded to firms owned by 
women and minorities doing business with the GSEs due to the 
unavailability of data until the second quarter of FY 2014. FHFA will 
access the data once it comes available and, should results fall short 
of the target, will make adjustments to the women and minority-owned 
businesses program for the GSEs to meet diversity goals. 

Strategic Goal 3: Preserve and Conserve Enterprise Assets: 

FHFA’s objective under this goal is to minimize the taxpayers’ 
exposure to loss and protect the Enterprises’ assets. FHFA pursued 
this objective by increasing the Enterprises’ single-family guarantee 
fee, sustaining the Enterprises’ business operations, and gradually 
reducing the Enterprises’ roles in the housing market. 

The agency launched initiatives to recover losses resulting from the 
housing crisis of 2008 and avoid further liability to the Enterprises. 
FHFA sought to reduce the amount of outstanding repurchases and worked 
to reduce the number of loans originated with manufacturing defects 
due to poor underwriting standards. Finally, FHFA undertook the 
necessary actions to reduce the number of operational loss events at 
the Enterprises. 

Performance Goal 3.1: Minimize taxpayer losses during the Enterprises’ 
conservatorships; 

Performance Measure 3.1.1*: Reduce cross-subsidization in Enterprise 
single-family guarantee fees; 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Year-ending June 30, 2013, compared to preceding year; 
Performance: FHFA reduced cross-subsidization for the Enterprises’ 
single-family guarantee fees by an average of 2.11 bps (weighted by 
UPB) for the year-ending June 30, 2013 compared to the preceding year. 
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Goal 3.1.2*: Undertake and defend legal actions that 
recover upon losses to avoid liability to the GSEs 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Pursue legal actions where available and cost effective
Performance: FHFA reached several legal settlements in multiple cases 
involving mortgage backed securities sold to the Enterprises before 
the 2008 financial crisis, and obtained multi-billion dollar 
settlements against Union Bank of Switzerland (UBS) and Bank of 
America, among others. 
Performance Results Key: Goal Fulfillment: Target Met. 

* This is a key performance measure. 

Performance Goal 3.1.3: Reduce the amount of current outstanding 
repurchases 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Reduction of 50 percent
Performance: Freddie Mac did not meet the target but Fannie Mae met 
the target. Fannie Mae surpassed its target of less than $8.122 
billion in repurchases with $2.953 billion in FY 2013. Freddie Mac did 
not meet its target of less than $1.468 billion in repurchases, with 
$3.359 billion in repurchases in FY 2013. 
Performance Results Key: Goal Fulfillment: Target Not Met. 

Performance Goal 3.1: Minimize taxpayer losses during the Enterprises’ 
conservatorships; 
Performance Measure 3.1.4: Reduce the annual percentage of 
manufacturing defects at loan origination; 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Reduction from the previous year; 
Performance: Both Enterprises met their targets. Fannie Mae’s target 
was to get under 2.8 percent and its defect rate was 1.3 percent in FY 
2013. Freddie Mac’s target was to get under 4.3 percent and it had a 
rate of 2.5 percent. 
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 3.1.5: Reduce the annual net of operational loss 
events; 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Reduction of 5 Percent; 
Performance: 
Both Enterprises met this target. Fannie Mae had $3.81 million in 
operational losses, a 76 percent decrease from FY 2012 and Freddie Mac 
had $15.6 million in operational losses, a 5 percent decrease from FY 
2012.
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Synopsis of Performance Goal 3.1: Minimize taxpayer losses during the 
Enterprises’ conservatorships: 

FHFA worked with the Enterprises to reduce cross-subsidization in 
single-family guarantee fees charged by the Enterprises. This action 
reduced subsidies from lower-risk loans to higher-risk loans and 
eliminated advantages enjoyed by large-volume loan sellers with lower 
average fees. Such a reduction will help maintain the viability and 
diversity of private sector competitors. 

During FY 2013, FHFA minimized further credit losses by undertaking 
legal actions to recover or prevent losses. FHFA successfully settled 
lawsuits with several financial institutions over private label 
mortgage-backed securities sold to the Enterprises before the 2008 
housing crisis. 

FHFA has filed 18 lawsuits against financial institutions over these 
securities sold to the Enterprises. Of these 18 lawsuits, several were 
settled out of court in FY 2013. These settlements have resulted in 
payments of over $5 billion from the financial institutions. FHFA has 
also provided legal support to the Enterprises in 55 lawsuits filed by 
state and local governments over the Enterprises’ exemption from real 
estate transfer taxes. Several local governments have recently 
announced intentions to use their powers of eminent domain to 
restructure performing loans owned by the Enterprises. In response, 
the FHFA has notified the public of its intention to initiate legal 
challenges to any local or state action that sanctions the use of 
eminent domain to restructure mortgage loan contracts that affect 
FHFA’s regulated entities. 

The agency provided oversight of the Enterprises’ efforts to reduce 
the amount of repurchases. Unfortunately, FHFA failed to meet this 
goal as Freddie Mac was unable to reduce their repurchase requests by 
the end of the fiscal year. However, the Enterprises reduced the 
annual percentage of manufacturing defects at loan origination. FHFA 
worked with the Enterprises to reduce operational losses during FY 
2013. 

Strategic Goal 4: Prepare for the Future of Housing Finance in the U.S. 

FHFA is directing the Enterprise efforts to make long-term 
improvements to the housing finance system. While much of the future 
of housing finance reform rests with Congress, FHFA has an important 
role to play providing expertise on how to improve the existing 
mortgage market infrastructure. During FY 2013, FHFA continued to 
direct the Enterprises as they work toward the goals outlined in the 
SPEC. FHFA also published a Conservatorship Scorecard for 2013 that 
established performance goals for the Enterprises for 2013 to support 
the three strategic goals outlined in the SPEC, namely: build, 
contract, and maintain. FHFA has made major progress in implementing 
the initiatives included in the 2013 Scorecard’s performance goals. 
During FY 2013, among other items, the agency moved forward with three 
major initiatives through which the Enterprises are building a new 
infrastructure for the secondary mortgage market. They are: 

* Common Securitization Platform (CSP); 

* Contractual and Disclosure Framework (CDF); and; 

* Uniform Mortgage Data Program (UMDP). 

Performance Goal 4.1: Build a new infrastructure for the secondary 
mortgage market; 
Performance Measure 4.1.1: Publish a white paper soliciting public 
input on common securitization platform and model pooling and serving 
agreement 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Q1 FY 2013; 
Performance: FHFA published a white paper in the first quarter of FY 
2013. The agency received comments from market participants and 
published a progress report in April 2013 summarizing the comments and 
considerations in the development of the securitization platform. 
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Goal 4.1: Build a new infrastructure for the secondary 
mortgage market; 
Performance Measure 4.1.2: Finalize plans(s) for the securitization 
platform and pooling and service agreement; 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Q1 FY 2013; 
Performance: FHFA made progress towards finalizing the plans. However, 
FHFA did not meet this goal by the June 30, 2013, deadline as planned, 
given that the FY 2013 Scorecard further refined what the plans must 
include (multi-year plans to build, test, deploy and integrate with 
the platform) and extended the deadlines to March 2014. 
Performance Results Key: Goal Fulfillment: Target Not Met. 

[End of table] 

Synopsis of Performance Goal 4.1: Build a new infrastructure for the 
secondary mortgage market: 

Portions of the Enterprises’ existing securitization infrastructure 
are outdated and in need of replacement. Further, to provide 
policymakers with options for restructuring the secondary market, one 
of FHFA’s objectives is to build a new infrastructure for the 
secondary mortgage market that will have benefits beyond the current 
Enterprise business model. Although FHFA made significant progress 
towards this objective, one measure was not met. 

Early this fiscal year, FHFA issued a white paper soliciting public 
input on a proposal for a common securitization platform and model 
pooling and servicing agreement. It is worth noting that FHFA’s work 
on the securitization platform is consistent with the Administration’s 
goal of re-introduction of private capital into the secondary mortgage 
market. In April 2013, FHFA released a progress report summarizing 
industry feedback on the white paper, FHFA’s decisions about the scope 
of each portion of the initiative, and more recent work conducted by 
FHFA and the Enterprises. 

While FHFA made progress toward finalizing the plans for the 
development of the securitization platform (the physical 
infrastructure) and the model pooling & servicing agreement (the 
virtual infrastructure), the target for Performance Measure 4.1.2 was 
not met by the June 2013 target date. The target was not met primarily 
because the 2013 Scorecard further refined FHFA’s expectations of what 
the Enterprises were to include in the plans (i.e., multi-year plans 
to build, test, deploy and integrate with the platform). Further, the 
Scorecard that provided the refined scope was not finalized and issued 
until March 2013. The completion date for the refined plans was 
extended to the first quarter of FY 2014. 

Performance Goal 4.2: Establish standards that promote a safer and 
more efficient housing finance system; 
Performance Measure 4.2.1*: Work with the industry to develop 
servicing data standards and agree on a timetable for data collection; 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Q3 FY 2013; 
Performance: During FY 2013, FHFA worked with the Enterprises to 
solicit feedback on servicing data standards.
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 4.2.2 Announce, via the Enterprises, selling and 
servicing policies in support of the Contract Harmonization Project 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Q3 FY 2013; 
Performance: During the first quarter of FY 2013, the Enterprises' 
announced, both through advisory bulletins and announcements posted on 
the Enterprises’ websites and in Allregs, selling and servicing 
policies in support of the Contract Harmonization Project.
Performance Results Key: Goal Fulfillment: Target Met. 

* This is a key performance measure. 

[End of table] 

Synopsis of Performance Goal 4.2: Establish standards that promote a 
safer and more efficient housing finance system: 

FHFA made significant progress this year to standardize the data that 
supports loan-level disclosures on Enterprise mortgage-backed 
securities. Improving data and disclosures ensures that private 
investors have the information needed to efficiently measure and price 
mortgage credit risk. FHFA met Performance Measure 4.2.1 by directing 
the Enterprises to work together to develop a uniform servicing 
dataset. Throughout 2013, the Enterprises, under the direction of 
FHFA, created the draft servicing dataset that captures the data 
shared between servicers and investors along with some new and 
disclosure-related data points. The Enterprises conducted industry 
outreach to a targeted group of servicers, vendors, mortgage insurance 
companies, and government agencies to gather feedback on the 821 data 
points that were identified as necessary for data flow between 
servicers and investors. The outreach focused on four key areas: 
business functions, business events, data points and implementation. 
The Enterprises reviewed all industry feedback and provided answers to 
questions on individual data points. 

The Mortgage Industry Standards Maintenance Organization (MISMO) 
accepted all proposed changes to the data model submitted by the 
Enterprises which included updates for over 1,000 new or existing data 
points. The Uniform Mortgage Servicing Data (UMSD) workgroup worked 
with MISMO over an eight month period to successfully update the MISMO 
model ahead of schedule. 

During October 2012, the Enterprises announced servicing policies in 
support of the Contract Harmonization Project effective January 1, 
2013. FHFA continues to implement the contract harmonization project 
in phases. This effort provides a higher degree of certainty around 
repurchase exposure and liability for lenders. All measures within 
this goal were met. 

Performance Goal 4.3: Contract Enterprises Operations; 
Performance Measure 4.3.1*: Increase the average national ongoing 
guarantee fees; 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Fiscal Year-ending September 30, 2013 compared to preceding 
year; 
Performance: FHFA increased across-the-board loan guarantee fees (g-
fees) by 10 basis points effective in Q1 FY 2013.
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 4.3.2: Reduction in related portfolio consistent 
with the Preferred Stock Purchase Agreement; 

FY 2011: 
Target: New Measure for FY 2013; 

FY 2012: 
Target: New Measure for FY 2013; 

FY 2013: 
Target: Reduction of 15 percent annually; 
Performance: The Enterprises met the Preferred Stock Purchase 
Agreement requirements of reducing mortgage assets by 15 percent on an 
annual basis, which amounts to $553 billion by 2013 year-end. Mortgage 
Assets at both Enterprise were below this level at September 30, 2013.
Performance Results Key: Goal Fulfillment: Target Met. 

* This is a key performance measure. 

[End of table] 

Synopsis of Performance Goal 4.3: Contract Enterprise operations: 

The objective of this goal is to contract the Enterprises' footprint 
in the mortgage market thereby reducing the risk to the taxpayer and 
encouraging more private sector participation. FHFA met both targets 
under this performance goal. 

Stricter underwriting standards and increased pricing have resulted in 
loans of higher quality. In FY 2013, the national ongoing guarantee 
fees charged by each Enterprise increased by 10 basis points (bp). 

FHFA also remains committed to the principle of reducing the 
Enterprises’ retained portfolios as set forth in the agreement with 
the Department of Treasury. The Enterprises met the Preferred Stock 
Purchase Agreement requirements of reducing their retained portfolio 
of mortgage assets by 15 percent. 

[End of section] 

Financial Section: 

* Message from the Chief Financial Officer; 

* Independent Auditor's Report; 

* Appendix I: Management’s Report on Internal Control over Financial 
Reporting; 

* Appendix II: FHFA Response to Auditor’s Report; 

* Financial Statements; 

* Notes to the Financial Statements. 

Message from the Chief Financial Officer: 

[Photograph: Mark Kinsey] 

I am pleased to present the FY 2013 financial statements for the 
Federal Housing Finance Agency (FHFA) as an important component of the 
agency’s 2013 Performance and Accountability Report (PAR). FHFA 
received an unmodified audit opinion on its financial statements from 
the Government Accountability Office (GAO). In its financial 
statements audit report, GAO concluded that 1) FHFA’s FY 2013 
financial statements are fairly presented in all material respects; 2) 
FHFA had effective internal control over financial reporting; and 3) 
there were no reportable instances of noncompliance with the laws and 
regulations it tested. Also, no significant deficiencies were 
identified. 

FHFA’s commitment to maintain effective programs of internal control 
over agency activities provides a solid foundation for GAO’s audit 
opinion. Internal assessments conducted in accordance with OMB 
Circular A-123, “Management’s Responsibility for Internal Control” 
provided unqualified assurance that the agency’s internal controls 
over financial reporting, the effectiveness and efficiency of 
operations, and compliance with applicable laws and regulations as of 
September 30, 2013 were operating effectively and no material 
weaknesses were found in their design or operation. 

In addition to a clean audit opinion, FHFA received the Certificate 
for Excellence in Accountability Reporting (CEAR) award for its FY 
2012 PAR from the Association of Government Accountants, the fifth 
straight year since its inception as a new agency that FHFA has 
received this prestigious award. The CEAR award is given to government 
agencies that received unqualified audit opinions on their financial 
statements and produced PARs that achieved the highest standards in 
communicating results and demonstrating accountability. 

This is the first year reporting under FHFA’s new Strategic Plan for 
the years 2013-2017. Our new Strategic Plan contains four strategic 
goals, compared to three strategic goals in our prior plan. The new 
Strategic Plan incorporates all of the key elements in the Strategic 
Plan for Enterprise Conservatorships that was released by the agency 
to the public in February 2012. As a result of our new strategic plan, 
many of the performance measures contained in our FY 2013 annual 
performance plan and reported on in this PAR are new. 

Finally, even though there remains continued uncertainty over the 
future of the housing finance market, FHFA is committed to maintaining 
effective programs of internal control over agency activities and to 
pursuing a fiscally sound approach in operating the agency. 

Sincerely, 

Signed by: 

Mark Kinsey: 
Chief Financial Officer: 
December 16, 2013: 

[End of section] 

Independent Auditor's Report: 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

Independent Auditor’s Report: 

To the Acting Director of the Federal Housing Finance Agency: 

In our audits of the fiscal years 2013 and 2012 financial statements 
of the Federal Housing Finance Agency (FHFA), we found: 

* the FHFA financial statements are presented fairly, in all material 
respects, in accordance with U.S. generally accepted accounting 
principles; 

* FHFA maintained, in all material respects, effective internal 
control over financial reporting as of September 30, 2013; and; 

* no reportable noncompliance for fiscal year 2013 with provisions of 
applicable laws, regulations, contracts, and grant agreements we 
tested. 

The following sections discuss in more detail (1) our report on the 
financial statements and on internal control over financial reporting, 
which includes a matter of emphasis related to the conservatorship of 
the Federal National Mortgage Association (Fannie Mae) and the Federal 
Home Loan Mortgage Corporation (Freddie Mac), required supplementary 
information (RSI), and other information included with the financial 
statements; (2) our report on compliance with laws, regulations, 
contracts, and grant agreements; and (3) FHFA’s comments on a draft of 
this report. 

Report on the Financial Statements and on Internal Control over 
Financial Reporting: 

As required by the Housing and Economic Recovery Act of 2008 (HERA), 
[Footnote 1] we have audited FHFA’s financial statements. FHFA’s 
financial statements comprise the balance sheets as of September 30, 
2013, and 2012; the related statements of net cost of operations, 
changes in net position, and budgetary resources for the fiscal years 
then ended; and the related notes to the financial statements. We also 
have audited FHFA’s internal control over financial reporting as of 
September 30, 2013, based on criteria established under 31 U.S.C. § 
3512(c), (d), commonly known as the Federal Managers’ Financial 
Integrity Act (FMFIA). 

We conducted our audits in accordance with U.S. generally accepted 
government auditing standards. We believe that the audit evidence we 
obtained is sufficient and appropriate to provide a basis for our 
audit opinions. Management’s Responsibility FHFA management is 
responsible for (1) the preparation and fair presentation of these 
financial statements in accordance with U.S. generally accepted 
accounting principles; (2) preparing, measuring, and presenting the 
RSI in accordance with U.S. generally accepted accounting principles; 
(3) preparing and presenting other information included in documents 
containing the audited financial statements and auditor’s report, and 
ensuring the consistency of that information with the audited 
financial statements and the RSI; (4) maintaining effective internal 
control over financial reporting, including the design, 
implementation, and maintenance of internal control relevant to the 
preparation and fair presentation of financial statements that are 
free from material misstatement, whether due to fraud or error; (5) 
evaluating the effectiveness of internal control over financial 
reporting based on the criteria established under FMFIA; and (6) 
providing its assertion about the effectiveness of internal control 
over financial reporting as of September 30, 2013, based on its 
evaluation, included in the accompanying Management Report on Internal 
Control over Financial Reporting in appendix I. 

Auditor’s Responsibility: 

Our responsibility is to express an opinion on these financial 
statements and an opinion on FHFA’s internal control over financial 
reporting based on our audits. U.S. generally accepted government 
auditing standards require that we plan and perform the audits to 
obtain reasonable assurance about whether the financial statements are 
free from material misstatement, and whether effective internal 
control over financial reporting was maintained in all material 
respects. We are also responsible for applying certain limited 
procedures to the RSI and other information included with the 
financial statements. 

An audit of financial statements involves performing procedures to 
obtain audit evidence about the amounts and disclosures in the 
financial statements. The procedures selected depend on the auditor’s 
judgment, including the auditor’s assessment of the risks of material 
misstatement of the financial statements, whether due to fraud or 
error. In making those risk assessments, the auditor considers 
internal control relevant to the entity’s preparation and fair 
presentation of the financial statements in order to design audit 
procedures that are appropriate in the circumstances. An audit of 
financial statements also involves evaluating the appropriateness of 
the accounting policies used and the reasonableness of significant 
accounting estimates made by management, as well as evaluating the 
overall presentation of the financial statements. An audit of internal 
control over financial reporting includes obtaining an understanding 
of internal control over financial reporting, assessing the risk that 
a material weakness exists, evaluating the design and operating 
effectiveness of internal control over financial reporting based on 
the assessed risk, and testing relevant internal control over 
financial reporting. Our audit of internal control also considered the 
entity’s process for evaluating and reporting on internal control over 
financial reporting based on criteria established under FMFIA. Our 
audits also included performing such other procedures as we considered 
necessary in the circumstances. 

We did not evaluate all internal controls relevant to operating 
objectives as broadly established under FMFIA, such as those controls 
relevant to preparing performance information and ensuring efficient 
operations. We limited our internal control testing to testing 
controls over financial reporting. Our internal control testing was 
for the purpose of expressing an opinion on whether effective internal 
control over financial reporting was maintained, in all material 
respects. Consequently, our audit may not identify all deficiencies in 
internal control over financial reporting that are less severe than a 
material weakness.[Footnote 2] 

Definitions and Inherent Limitations of Internal Control over 
Financial Reporting: 

An entity’s internal control over financial reporting is a process 
effected by those charged with governance, management, and other 
personnel, the objectives of which are to provide reasonable assurance 
that (1) transactions are properly recorded, processed, and summarized 
to permit the preparation of financial statements in accordance with 
U.S. generally accepted accounting principles, and assets are 
safeguarded against loss from unauthorized acquisition, use, or 
disposition, and (2) transactions are executed in accordance with laws 
governing the use of budget authority and with other applicable laws, 
regulations, contracts, and grant agreements that could have a direct 
and material effect on the financial statements. 

Because of its inherent limitations, internal control over financial 
reporting may not prevent, or detect and correct, misstatements due to 
fraud or error. We also caution that projecting any evaluation of 
effectiveness to future periods is subject to the risk that controls 
may become inadequate because of changes in conditions, or that the 
degree of compliance with the policies or procedures may deteriorate. 

Opinion on Financial Statements: 

In our opinion, FHFA’s financial statements present fairly, in all 
material respects, FHFA’s financial position as of September 30, 2013, 
and 2012, and its net cost of operations, changes in net position, and 
budgetary resources for the fiscal years then ended in accordance with 
U.S. generally accepted accounting principles. 

Emphasis of Matter: 

FHFA Reporting Entity As discussed in note 1A of the financial 
statements, FHFA’s fiscal years 2013 and 2012 financial statements do 
not include the assets, liabilities, and activities associated with 
Fannie Mae and Freddie Mac. In early September 2008, less than 2 
months after FHFA’s establishment, the then-Director of FHFA placed 
Fannie Mae and Freddie Mac into conservatorship under the authority of 
the Federal Housing Enterprises Financial Safety and Soundness Act of 
1992, as amended by HERA.[Footnote 3] FHFA’s goal in placing the two 
entities into conservatorship was to stabilize them with the objective 
of maintaining normal business operations and restoring safety and 
soundness. From early September 2008 through September 30, 2013, about 
$188 billion in direct financial support from the Department of the 
Treasury (Treasury) has been provided to Fannie Mae and Freddie Mac. 
Shortly after Fannie Mae and Freddie Mac were placed in 
conservatorship, the Office of Management and Budget (OMB) and 
Treasury determined that the assets, liabilities, and activities of 
these entities would not be included in the consolidated financial 
statements of the federal government or those of Treasury, although 
Treasury records in its financial statements an asset for its 
investment in Fannie Mae and Freddie Mac and a liability for future 
payments to the two entities. In making this determination, OMB and 
Treasury concluded that because the entities were not listed in the “
Federal Programs by Agency and Account” section of the federal 
government’s budget, because of the nature of the conservatorships, 
and because the federal government’s ownership and control were 
considered to be temporary, the entities did not meet the conclusive 
or indicative criteria for inclusion in the consolidated federal 
government’s or Treasury’s financial statements.[Footnote 4] OMB 
reaffirmed this conclusion with respect to fiscal years 2009 through 
2013. FHFA management concurred with this conclusion. Consequently, 
FHFA did not include the assets, liabilities, and activities of Fannie 
Mae and Freddie Mac in its fiscal years 2013 and 2012 financial 
statements. Should circumstances change, such as the inclusion of 
Fannie Mae and Freddie Mac in the federal budget or a determination 
that the degree of federal control and ownership of the entities is 
other than temporary, this decision would need to be revisited. Our 
opinion on FHFA’s financial statements is not modified with respect to 
this matter. 

Opinion on Internal Control over Financial Reporting: 

In our opinion, FHFA maintained, in all material respects, effective 
internal control over financial reporting as of September 30, 2013, 
based on criteria established under FMFIA. During our 2013 audit, we 
identified deficiencies in FHFA’s internal control over financial 
reporting that we do not consider to be material weaknesses or 
significant deficiencies.[Footnote 5] Nonetheless, these deficiencies 
warrant FHFA management’s attention. We have communicated these 
matters to management and, where appropriate, will report on them 
separately. 

Other Matters: 

Required Supplementary Information: 

U.S. generally accepted accounting principles issued by the Federal 
Accounting Standards Advisory Board (FASAB) require that RSI be 
presented to supplement the financial statements.[Footnote 6] Although 
not a part of the financial statements, FASAB considers this 
information to be an essential part of financial reporting for placing 
the financial statements in appropriate operational, economic, or 
historical context. We have applied certain limited procedures to the 
RSI in accordance with U.S. generally accepted government auditing 
standards, which consisted of inquiries of management about the 
methods of preparing the RSI and comparing the information for 
consistency with management’s responses to the auditor’s inquiries, 
the financial statements, and other knowledge we obtained during the 
audit of the financial statements, in order to report omissions or 
material departures from FASAB guidelines, if any, identified by these 
limited procedures. We did not audit and we do not express an opinion 
or provide any assurance on the RSI because the limited procedures we 
applied do not provide sufficient evidence to express an opinion or 
provide any assurance. 

Other Information: 

FHFA’s other information contains a wide range of information, some of 
which is not directly related to the financial statements.[Footnote 7] 
This information is presented for purposes of additional analysis and 
is not a required part of the financial statements or RSI. We read the 
other information included with the financial statements in order to 
identify material inconsistencies, if any, with the audited financial 
statements. Our audit was conducted for the purpose of forming an 
opinion on FHFA’s financial statements. We did not audit and do not 
express an opinion or provide any assurance on the other information. 

Report on Compliance with Laws, Regulations, Contracts, and Grant 
Agreements: 

In connection with our audits of FHFA’s financial statements, we 
tested compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements consistent with the auditor
’s responsibility discussed below. We caution that noncompliance may 
occur and not be detected by these tests. We performed our tests of 
compliance in accordance with U.S. generally accepted government 
auditing standards. 

Management’s Responsibility: 

FHFA management is responsible for complying with laws, regulations, 
contracts, and grant agreements applicable to FHFA. 

Auditor’s Responsibility: 

Our responsibility is to test compliance with selected provisions of 
laws, regulations, contracts, and grant agreements applicable to FHFA 
that have a direct effect on the determination of material amounts and 
disclosures in the FHFA financial statements, and perform certain 
other limited procedures. Accordingly, we did not test compliance with 
all laws, regulations, contracts, and grant agreements applicable to 
FHFA. 

Results of Our Tests for Compliance with Laws, Regulations, Contracts, 
and Grant Agreements: 

Our tests for compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements disclosed no instances of 
noncompliance for fiscal year 2013 that would be reportable under U.S. 
generally accepted government auditing standards. However, the 
objective of our tests was not to provide an opinion on compliance 
with laws, regulations, contracts, and grant agreements applicable to 
FHFA. Accordingly, we do not express such an opinion. 

Intended Purpose of Report on Compliance with Laws, Regulations, 
Contracts, and Grant Agreements: 

The purpose of this report is solely to describe the scope of our 
testing of compliance with selected provisions of applicable laws, 
regulations, contracts, and grant agreements, and the results of that 
testing, and not to provide an opinion on compliance. This report is 
an integral part of an audit performed in accordance with U.S. 
generally accepted government auditing standards in considering 
compliance. Accordingly, this report on compliance with laws, 
regulations, contracts, and grant agreements is not suitable for any 
other purpose. 

Agency Comments: 

In commenting on a draft of this report, the acting Director of FHFA 
stated that he accepted the audit conclusions and commented that the 
agency would continue to work to enhance its internal control and 
ensure the reliability of its financial reporting, its soundness of 
operations, and public confidence in its mission. 

The complete text of FHFA’s response is reprinted in appendix II. 

Signed by: 

J. Lawrence Malenich: 
Director: 
Financial Management and Assurance: 
December 9, 2013: 

Footnotes: 

[1] Pub. L. No. 110-289 (July 30, 2008). 

[2] A material weakness is a deficiency, or combination of 
deficiencies, in internal control over financial reporting, 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. 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. 

[3] Pub. L. No. 102-550, title XIII, § 1367 (Oct. 28, 1992), 
classified as amended at 12 U.S.C. § 4617. 

[4] The conclusive and indicative criteria used in deciding what to 
include as part of a financial reporting entity is included in 
Statement of Federal Financial Accounting Concepts No. 2, Entity and 
Display. 

[5] 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. 

[6] RSI is comprised of “Management’s Discussion and Analysis” that is 
included with the financial statements. 

[7] Other information is comprised of information included with the 
financial statements, other than RSI and the auditor’s report. 

[End of section] 

Appendix I: Management’s Report on Internal Control over Financial 
Reporting: 

Federal Housing Finance Agency: 
Constitution Center: 
400 7th Street, S.W. 
Washington, D.C. 20024: 
Telephone: (202) 649-3800: 
Facsimile: (202) 649-1071: 
[hyperlink, http://www.fhfa.gov]: 

Management’s Report on Internal Control Over Financial Reporting: 

The Federal Housing Finance Agency’s (FHFA) internal control over 
financial reporting is a process effected by those charged with 
governance, management, and other personnel, the objectives of which 
are to provide reasonable assurance that (1) transactions are properly 
recorded, processed, and summarized to permit the preparation of 
financial statements in accordance with U.S. generally accepted 
accounting principles, and assets are safeguarded against loss from 
unauthorized acquisition, use, or disposition; and (2) transactions 
are executed in accordance with laws governing the use of budget 
authority and with other applicable laws, regulations, contracts, and 
grant agreements that could have a direct and material effect on the 
financial statements. 

FHFA management is responsible for maintaining effective internal 
control over financial reporting, including the design, 
implementation, and maintenance of internal control relevant to the 
preparation and fair presentation of financial statements that are 
free from material misstatement, whether due to fraud or error. FHFA 
management evaluated the effectiveness of FHFA’s internal control over 
financial reporting as of September 30, 2013, based on the criteria 
established under 31 U.S.C. 3512(c), (d) (commonly known as the 
Federal Managers’ Financial Integrity Act). 

Based on that evaluation, we conclude that, as of September 30, 2013, 
FHFA’s internal control over financial reporting was effective. 

Signed by: 

Edward J. DeMarco:
Acting Director: 

Signed by: 

Mark Kinsey:
Chief Financial Officer: 

December 9, 2013: 

[End of section] 

Appendix II: FHFA Response to Auditor’s Report: 

Federal Housing Finance Agency
Office of the Director: 
400 7th Street, S.W. 
Washington, D.C. 20024: 
202-644-3801: 
202-549-1071 (fax): 

December 9, 2013: 

Mr. J. Lawrence Malenich: 
Director, Financial Management and Assurance: 
Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Malenich: 

Thank you for the opportunity to respond to the Government 
Accountability Offices (GAO) draft audit report titled, Financial 
Audit: Federal Housing Finance Agency's Fiscal years 2013 and 2012 
Financial Statements (GAO-14-171R). This report presents GAO's opinion 
on the fiscal years 2013 and 2012 financial statements of the Federal 
Housing Finance Agency (FHFA). The report also presents GAO's opinion 
on the effectiveness of RIFA's internal controls as of September 30, 
2013 and GAO's evaluation of FHFA's compliance with laws and 
regulations. 

I am pleased to accept OAO's unmodified opinion on the FHFA financial 
statements and to note that there were no material weaknesses or 
significant deficiencies identified during the fiscal year 2013 audit. 
The GAO reported that the statements and notes were presented fairly, 
in all material respects; FHFA had effective internal controls over 
financial reporting; and there were no reportable instances of 
noncompliance with laws and regulations tested by GAO. 

FHFA will continue to work to enhance our internal controls and ensure 
the reliability of our financial reporting, soundness of operations, 
and public confidence in the agency's mission, We appreciate your 
support of these efforts. In addition, we would like to acknowledge 
the dedicated GAO staff that worked with FHFA to meet the reporting 
deadline for our audited financial statements and notes. 

If you have any questions relating to our response, please contact 
Mark Kinsey, Chief Financial Officer, at (202)649-3780. 

Sincerely, 

Signed by: 

Edward J. DeMarco: 
Acting Director: 

[End of section] 

The accompanying notes are an integral part of these financial 
statements. 

Federal Housing Finance Agency: 
Consolidated Balance Sheets: 
As of September 30, 2013 and 2012: 
(In Thousands): 

Assets: 

Intragovernmental; 

Fund Balance With Treasury - Note 2;
2013: $15,914; 
2012: $20,998. 

Investments - Note 3
2013: $71,907; 
2012: $77,420. 

Total Intragovernmental;
2013: $87,821; 
2012: $98,418. 

Accounts Receivable, Net - Note 4;
2013: $14; 
2012: $13. 

Property, Equipment, and Software, Net - Note 5;
2013: $39,426; 
2012: $45,528. 

Prepaid Expenses;
2013: $851; 
2012: $840. 

Total Assets;
2013: $128,112; 
2012: $144,799. 

Liabilities: 

Intragovernmental; 

Accounts Payable;
2013: $1,637; 
2012: $766. 

Other Intragovernmental Liabilities - Note 7;
2013: $1,406; 
2012: $2,727. 

Total Intragovernmental;
2013: $3,043; 
2012: $3,493. 

Accounts Payable;
2013: $9,546; 
2012: $9,728. 

Unfunded Leave;
2013: $11,175; 
2012: $10,485. 

Deferred Lease Liabilities;
2013: $24,805; 
2012: $23,917. 

Other Liabilities - Note 7;
2013: $3,026; 
2012: $6,503. 

Total Liabilities;
2013: $51,595; 
2012: $54,126. 

Net Position: 

Cumulative Results of Operations;
2013: $76,517; 
2012: $90,673. 

Total Net Position;
2013: $76,517; 
2012: $90,673. 

Total Liabilities and Net Position;
2013: $128,112; 
2012: $144,799. 

[End of table] 

Federal Housing Finance Agency: 
Consolidated Statement of Net Cost:
For the Year Ended September 30, 2013:
(In Thousands): 

2013: 

Program Costs by Strategic Goal–Notes 1B and 10: 

Safety and Soundness: 

Gross Costs: $153,119. 
Less: Earned Revenue: ($193,766). 
Net Safety and Soundness (Income from)/Cost of Operations: ($40,647). 

Stability, Liquidity, and Access: 

Gross Costs: $40,855. 
Less: Earned Revenue: ($9,668). 
Net Stability, Liquidity, and Access (Income from)/Cost of Operations: 
$31,187. 

Conservatorship: 

Gross Costs: $45,128. 
Less: Earned Revenue: ($13,934). 
Net Conservatorship (Income from)/Cost of Operations: $31,194. 

Prepare for the Future: 

Gross Costs: $10,869. 
Less: Earned Revenue: ($12,022).
Net Prepare for the Future (Income from)/Cost of Operations: ($1,153). 

Total Gross Program Costs: $249,971. 
Less: Total Earned Revenue: ($229,390). 
Net (Income from)/Cost of Operations; $20,581. 

[End of table] 

Federal Housing Finance Agency: 
Consolidated Statement of Net Cost:
For the Year Ended September 30, 2012: 
(In Thousands): 

2012: 

Program Costs by Strategic Goal–Notes 1B and 10: 

Safety and Soundness: 

Gross Costs: $153,621. 
Less: Earned Revenue: ($124,731).
Net Safety and Soundness (Income from)/Cost of Operations: $28,890. 

Affordable Housing: 

Gross Costs: $24,919; 
Less: Earned Revenue: ($64,607); 
Net Affordable Housing (Income from)/Cost of Operations: ($39,688). 

Conservatorship: 

Gross Costs: $38,961; 
Less: Earned Revenue: ($36,595); 
Net Conservatorship (Income from)/Cost of Operations: $2,366. 

Total Gross Program Costs: $217,501; 
Less: Total Earned Revenue: ($225,933);
Net (Income from)/Cost of Operations: ($8,432). 

[End of table] 

Federal Housing Finance Agency:
Consolidated Statements of Changes in Net Position:
For the Years Ended September 30, 2013 and 2012:
(In Thousands): 

Cumulative Results of Operations: 

Beginning Balance
2013: $90,673; 
2012: $76,431. 

Imputed Financing Sources
2013: $6,425; 
2012: $5,810. 

Total Financing Sources
2013: $6,425; 
2012: $5,810. 

Net Cost of Operations
2013: ($20,581);
2012: $8,432. 

Net Change
2013: ($14,156);
2012: $14,242. 

Cumulative Results of Operations
2013: $76,517; 
2012: $90,673. 

Net Position
2013: $76,517; 
2012: $90,673. 

[End of table] 

Federal Housing Finance Agency: 
Combined Statements of Budgetary Resources:
For the Years Ended September 30, 2013 and 2012: 
(In Thousands): 

Budgetary Resources: 

Unobligated Balance Brought Forward, October 1;
2013: $45,535; 
2012: $27,672. 

Recoveries of Prior Year Unpaid Obligations;
2013: $11,535; 
2012: $11,018. 

Unobligated Balance From Prior Year Budget Authority, Net;
2013: $57,070; 
2012: $38,690. 

Appropriations;
2013: $225,445; 
2012: $224,352. 

Spending Authority From Offsetting Collections;
2013: $41,608; 
2012: $41,593. 

Total Budgetary Resources;
2013: $324,123; 
2012: $304,635. 

Status of Budgetary Resources: 

Obligations Incurred - Note 11;
2013: $284,684; 
2012: $259,100. 

Unobligated Balance, End of Year: 

Exempt from Apportionment;
2013: $39,439; 
2012: $45,535. 

Total Unobligated Balance, End of Year;
2013: $39,439; 
2012: $45,535. 

Total Budgetary Resources;
2013: $324,123; 
2012: $304,635. 

Change in Obligated Balance: 

Unpaid Obligations: 

Unpaid Obligations, Brought Forward, October 1;
2013: $52,883; 
2012: $67,053. 

Obligations Incurred; 
2013: $284,684; 
2012: $259,100. 

Outlays (Gross);
2013: ($277,649);
2012: ($262,252). 

Recoveries of Prior Year Unpaid Obligations;
2013: ($11,535);
2012: ($11,018). 

Unpaid Obligations, End of Year (Gross);
2013: $48,383; 
2012: $52,883. 

Uncollected Payments: 

Uncollected Payments, Federal Sources, Brought Forward, October 1;
2013: 0; 
2012: ($28). 

Change in Uncollected Payments, Federal Sources;
2013: 0; 
2012: $28. 

Obligated Balance, End of Year, Net;
2013: $48,383; 
2012: $52,883. 

Obligated Balance, Start of Year, Net;
2013: $52,883; 
2012: $67,025. 

Obligated Balance, End of Year, Net;
2013: $48,383; 
2012: $52,883. 

Budget Authority and Outlays, Net: 

Budget Authority (Gross);
2013: $267,053; 
2012: $265,945. 

Actual Offsetting Collections;
2013: ($41,608);
2012: ($41,621). 

Change in Uncollected Customer Payments From Federal Sources;
2013: 0; 
2012: $28. 

Budget Authority, Net;
2013: $225,445; 
2012: $224,352. 

Outlays (Gross);
2013: $277,649; 
2012: $262,252. 

Actual Offsetting Collections;
2013: ($41,608);
2012: ($41,621). 

Outlays, Net;
2013: $236,041; 
2012: $220,631. 

Distributed Offsetting Receipts;
2013: ($225,445);
2012: ($224,353). 

Agency Outlays, Net;
2013: $10,596; 
2012: ($3,722). 

[End of table] 

Federal Housing Finance Agency: 
Notes to the Financial Statements: 
For the Years Ended September 30, 2013 and 2012: 

Note 1. Summary of Significant Accounting Policies: 

A. Reporting Entity: 

The Federal Housing Finance Agency (FHFA) was established on July 30, 
2008, when the President signed into law the Housing and Economic 
Recovery Act of 2008 (HERA). FHFA is an independent agency in the 
Executive branch empowered with supervisory and regulatory oversight 
of the 12 Federal Home Loan Banks (FHLBanks), Federal National 
Mortgage Association (Fannie Mae), Federal Home Loan Mortgage 
Corporation (Freddie Mac), and the Office of Finance, all of which are 
referred to as Regulated Entities. FHFA is responsible for ensuring 
that each Regulated Entity operates in a safe and sound manner, 
including maintenance of adequate capital and internal control, and 
carries out their housing and community development finance missions. 

HERA provided for a FHFA Office of the Inspector General (FHFA-OIG), 
which has maintained its own Agency Location Code and set of books 
since April, 2011. The Inspector General Act of 1978, as amended, sets 
forth the functions and authorities of the FHFA-OIG. The reporting 
entity for purposes of financial statements includes FHFA and FHFA-OIG. 

Under the authority of the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992, as amended by HERA, FHFA placed 
Fannie Mae and Freddie Mac under conservatorship on September 6, 2008, 
to stabilize the two entities with the objective of maintaining normal 
business operations and restoring safety and soundness. FHFA, as 
Conservator, assumed the power of stockholders, boards, and 
management. FHFA delegated to Fannie Mae and Freddie Mac certain 
business and operational authority. FHFA personnel monitor the 
operations of the enterprises. 

In September 2008, after Fannie Mae and Freddie Mac were placed in 
conservatorship under the FHFA, the Office of Management and Budget 
(OMB) determined that the assets, liabilities and activities of the 
companies would not be included in the financial statements of the 
federal government. For FY 2008, OMB and the Department of the 
Treasury (Treasury) concluded that Fannie Mae and Freddie Mac did not 
meet the conclusive or indicative criteria for a federal entity 
contained in OMB Circular A-136, Financial Reporting Requirements, and 
Statement of Federal Financial Accounting Concepts No. 2, Entity and 
Display, because they are not listed in the section of the federal 
government’s budget entitled “Federal Programs by Agency and Account,” 
and because the nature of FHFA’s conservatorships over Fannie Mae and 
Freddie Mac and the federal government’s ownership and control of the 
entities is considered to be temporary. Treasury reaffirmed this 
position, with which FHFA concurs. OMB continued to hold this view in 
the President’s budget submissions to Congress. Consequently, the 
assets, liabilities, and activities of Fannie Mae and Freddie Mac have 
not been consolidated into FHFA’s financial statements. However, 
Treasury records the value of the federal government's investments in 
Fannie Mae and Freddie Mac in its financial statements as a General 
Fund asset and liability. 

Both Fannie Mae and Freddie Mac, as represented by FHFA as their 
Conservator, entered into separate agreements with Treasury known as 
the Senior Preferred Stock Purchase Agreements (Agreements) on 
September 7, 2008. These two Agreements are identical and have since 
been amended on September 26, 2008, May 6, 2009, December 24, 2009, 
and August 17, 2012. The Agreements commit Treasury to provide funding 
for each Enterprise up to the greater of: (1) $200 billion; or (2) 
$200 billion plus the cumulative total of draws for each calendar 
quarter starting in 2010 minus any amount by which the assets of the 
Enterprise exceed its liabilities on December 31, 2012. This funding 
is to ensure that each Enterprise maintains a non-negative Net Worth, 
thereby avoiding a statutory requirement that an Enterprise be put in 
receivership following an extended period of negative Net Worth. Under 
the Agreements, each Enterprise submits a request for any needed draw 
amount once their financials (to be published in their 10-K or 10-Q) 
are finalized. The Enterprise also submits a statement certifying 
compliance with Agreement covenants, which include limits on portfolio 
size and indebtedness. FHFA, in its role as Conservator, reviews any 
request for a draw and certifies that the request is available for 
funding under the agreement. FHFA then sends a letter to Treasury 
requesting the draw amount prior to the end of the current quarter. 

The August 17, 2012 amendment eliminates the circularity of Treasury 
funding dividends paid to Treasury. Beginning on January 1, 2013, all 
future net income/profits above an established threshold will be 
distributed to Treasury as dividends. The Agreements require each 
Enterprise to obtain Treasury approval for the disposition of assets, 
except under certain circumstances. FHFA as Conservator reviews these 
requests. Draws by Fannie Mae and Freddie Mac on their Agreements with 
Treasury are summarized below (dollars in billions). These draws are 
reported in Treasury's financial statements as investments. 

Enterprise Draws On Treasury Agreements (Dollars in Billions); 

Quarter: September 30, 2008;
Fannie Mae: 0; 
Freddie Mac: $13.8. 

Quarter: December 31, 2008;
Fannie Mae: $15.2; 
Freddie Mac: $30.8. 

Quarter: March 31, 2009;
Fannie Mae: $19.0; 
Freddie Mac: $6.1. 

Quarter: June 30, 2009;
Fannie Mae: $10.7; 
Freddie Mac: 0. 

Quarter: September 30, 2009;
Fannie Mae: $15.0; 
Freddie Mac: 0. 

Quarter: December 31, 2009;
Fannie Mae: $15.3; 
Freddie Mac: 0. 

Quarter: March 31, 2010;
Fannie Mae: $8.4; 
Freddie Mac: $10.6. 

Quarter: June 30, 2010;
Fannie Mae: $1.5; 
Freddie Mac: $1.8. 

Quarter: September 30, 2010;
Fannie Mae: $2.5; 
Freddie Mac: $0.1. 

Quarter: December 31, 2010;
Fannie Mae: $2.6; 
Freddie Mac: $0.5. 

Quarter: March 31, 2011;
Fannie Mae: $8.5 
Freddie Mac: 0. 

Quarter: June 30, 2011;
Fannie Mae: $5.1; 
Freddie Mac: $1.5. 

Quarter: September 30, 2011;
Fannie Mae: $7.8; 
Freddie Mac: $6.0. 

Quarter: December 31, 2011;
Fannie Mae: $4.6; 
Freddie Mac: $0.1. 

Quarter: March 31, 2012;
Fannie Mae: 0; 
Freddie Mac: 0. 

Quarter: June 30, 2012;
Fannie Mae: 0; 
Freddie Mac: 0. 

Quarter: September 30, 2012;
Fannie Mae: 0; 
Freddie Mac: 0. 

Quarter: December 31, 2012;
Fannie Mae: 0; 
Freddie Mac: 0. 

Quarter: March 31, 2013;
Fannie Mae: 0; 
Freddie Mac: 0. 

Quarter: June 30, 2013;
Fannie Mae: 0; 
Freddie Mac: 0. 

Cumulative Draws;
Fannie Mae: $116.2; 
Freddie Mac: $71.3. 

[End of table] 

B. Basis of Presentation: 

FHFA’s principal statements were prepared from its official financial 
records and general ledger in conformity with accounting principles 
generally accepted in the United States and follow the presentation 
guidance established by OMB Circular No. 136 “Financial Reporting 
Requirements," as amended. The statements are a requirement of the 
Government Management Reform Act of 1994, the Accountability of Tax 
Dollars Act of 2002, and HERA. These financial statements are in 
addition to the financial reports prepared by FHFA, pursuant to OMB 
directives, which are used to monitor and control budgetary resources. 
As required by HERA, the financial statements of FHFA are audited by 
the U.S. Government Accountability Office (GAO). The financial 
statements include the activities and transactions of the FHFA-OIG. 
The amounts reported in the financial statements are consolidated 
totals net of intra-entity transactions, except for the Statement of 
Budgetary Resources (SBR), which is presented on a combined basis. The 
financial statements have been prepared to report the financial 
position, net cost of operations, changes in net position, and the 
status and availability of budgetary resources of FHFA. Unless 
specified otherwise, all amounts are presented in thousands. 

FHFA moved from the three strategic goals presented in FY 2012 (1 – 
Safety and Soundness; 2 – Affordable Housing; 3 – Conservatorship) to 
the four strategic goals presented this year as the result of FHFA’s 
new Strategic Plan: Fiscal Years 2013–2017. FHFA’s Strategic Plan 
builds on the Conservatorships Strategic Plan, which the Acting 
Director presented to Congress in February 2012. Strategic Goal 1 is 
the only goal that reflects the same activities in both FY 2012 and FY 
2013. The activities for the remaining strategic goals differ from FY 
2012 to FY 2013. FY 2012 activities under Strategic Goal 2 are now 
distributed across Strategic Goals 2 and 4. FY 2012 activities for 
Strategic Goal 3 are now reported under Strategic Goals 3 and 4. 
Because the new and old strategic goals are not equivalent, FY 2013 
and FY 2012 Consolidated Statements of Net Cost are presented 
separately. 

C. Basis of Accounting: 

Transactions are recorded on both an accrual accounting basis and a 
budgetary basis. Under the accrual basis of accounting, revenues are 
recognized when earned, and expenses are recognized when a liability 
is incurred, without regard to receipt or payment of cash. Budgetary 
accounting facilitates compliance with legal requirements and controls 
over the use of funds. FHFA's financial statements conform to 
accounting principles generally accepted in the United States for 
federal entities as prescribed by the standards set forth by the 
Federal Accounting Standards Advisory Board (FASAB). FASAB is 
recognized by the American Institute of Certified Public Accountants 
as the body designated to establish generally accepted accounting 
principles for federal entities. Certain assets, liabilities, earned 
revenues, and costs have been classified as intragovernmental 
throughout the financial statements and notes. Intragovernmental is 
defined as transactions made between two reporting entities within the 
federal government. 

D. Revenues, Imputed & Other Financing Sources: 

Operating revenues of FHFA are obtained through assessments of the 
Regulated Entities. The agency’s Acting Director approved the annual 
budgets for FY 2013 and 2012 in August 2012 and 2011, respectively. By 
law, FHFA is required to charge semi-annual assessments to the 
entities. Assessments collected shall not exceed the amount sufficient 
to provide for the reasonable costs associated with overseeing the 
entities, plus amounts determined by the Acting Director to be 
necessary for maintaining a working capital fund. 

FHFA develops its annual budget using a ‘bottom up’ approach. Each 
office within the agency is asked to bifurcate their budget request 
between the amount of resources needed for the regulation of Fannie 
Mae and Freddie Mac and the resources needed for the regulation of the 
12 FHLBanks. The office requests are then aggregated (with overhead 
costs distributed proportionately) to determine the total expected 
costs associated with regulating Fannie Mae and Freddie Mac and the 
total expected costs associated with regulating the FHLBanks. These 
two totals, along with any expected collection for the working capital 
fund, comprise the fiscal year budget for the agency. Additionally, 
FHFA levied a special assessment for conservatorship activities on 
Fannie Mae and Freddie Mac during FY 2012. 

Fannie Mae and Freddie Mac pay a pro rata share of their portion of 
the total assessment based on the combined assets and off-balance 
sheet obligations of each enterprise. Each FHLBank's share of their 
portion of the total assessment is based on the dollar value of its 
capital stock relative to the combined dollar value of all FHLBanks' 
capital stock. Assessment letters are sent to the entities 30 days 
prior to the assessment due dates of October 1st and April 1st. 

FHFA receives rental revenues related to an Interagency agreement with 
the Consumer Financial Protection Bureau (CFPB) for the use of certain 
already-acquired but unused services, supplies and space available. 

Federal government entities often receive goods and services from 
other federal government entities without reimbursing the providing 
entity for all the related costs. In addition, federal government 
entities also incur costs that are paid in total or in part by other 
entities. An imputed financing source is recognized by the receiving 
entity for costs that are paid by other entities. FHFA recognized 
imputed costs and financing sources in FY 2013 and FY 2012 as 
prescribed by accounting standards. FHFA recognizes as an imputed 
financing source the amount of pension and post-retirement benefit 
expenses for current employees accrued on FHFA’s behalf by the Office 
of Personnel Management (OPM). 

E. Use of Estimates: 

The preparation of the accompanying financial statements in accordance 
with U.S. generally accepted accounting principles requires management 
to make certain estimates and assumptions that affect the reported 
amounts of assets, liabilities, revenues, and expenses. Actual results 
could differ from those estimates. Significant transactions subject to 
estimates include costs regarding benefit plans for FHFA employees 
that are administered by the OPM and cost allocations among the 
programs on the Statement of Net Cost. 

F. Fund Balance with Treasury 

The U.S. Treasury (Treasury) processes cash receipts and disbursements 
on FHFA's behalf. Funds held at the Treasury are available to pay 
agency liabilities and finance authorized purchase obligations. FHFA 
does not maintain cash in commercial bank accounts or foreign currency 
balances. 

During the year, increases to FHFA's Fund Balance with Treasury are 
comprised of semi-annual assessments, investment interest, collections 
on reimbursable agreements, civil penalty monies, and Freedom of 
Information Act (FOIA) request fees. FHFA is not authorized to retain 
civil penalty monies or FOIA fees, and as such, records these as 
custodial liabilities (See Note 15. Incidental Custodial Collections) 
until transferred to the Treasury General Fund. 

HERA provides authority for FHFA to maintain a working capital fund. 
The working capital fund is defined in FHFA’s Assessment Regulation as 
an account for amounts collected from the Regulated Entities to 
establish an operating reserve that is intended to provide for the 
payment of large or multiyear capital and operating expenditures, as 
well as unanticipated expenses. The balance in the working capital 
fund is evaluated annually. 

G. Investments: 

FHFA has the authority to invest in U.S. Treasury securities with 
maturities suitable to FHFA’s needs. FHFA invests solely in U.S. 
Treasury securities. During FY 2013 and FY 2012, FHFA invested in one-
day certificates issued by the U.S. Treasury. 

H. Accounts Receivable: 

Accounts receivable consists of amounts owed to FHFA by other federal 
agencies and the public. Amounts due from federal agencies are 
considered fully collectible and consist of interagency agreements. 
Accounts receivable from the public include reimbursements from 
employees, civil penalty assessments, and FOIA request fees. An 
allowance for uncollectible accounts receivable from the public is 
established when either (1) management determines that collection is 
unlikely to occur after a review of outstanding accounts and the 
failure of all collection efforts, or (2) an account for which no 
allowance has been established is submitted to the Department of the 
Treasury for collection, which takes place when it becomes 180 days 
delinquent. Based on historical experience, all receivables are 
collectible and no allowance is provided. 

I. Property, Equipment, and Software, Net: 

Property, Equipment, and Software is recorded at historical cost. It 
consists of tangible assets and software. The following are the 
capitalization thresholds: 

Description: Furniture and Equipment;
Threshold: $50,000. 

Description: Leasehold Improvements;
Threshold: $250,000. 

Description: Software: Internally Developed;
Threshold: $500,000. 

Description: Software: Off-the-Shelf;
Threshold: $200,000. 

Description: Capitalized Leases;
Threshold: $250,000. 

Description: Bulk Purchases;
Threshold: $250,000. 

[End of table] 

Depreciation is calculated using the straight-line method over the 
estimated useful life of the asset. Applicable standard governmental 
guidelines regulate the disposal and convertibility of agency property 
and equipment. The useful life classifications for capitalized assets 
are as follows: 

Description: Furniture and Equipment;
Useful Life (Years): 3. 

Description: Leasehold Improvements;
Useful Life (Years): Remaining term of lease at the time of 
improvement completion. 

Description: Software: Internally Developed;
Useful Life (Years): 3. 

Description: Software: Off-the-Shelf;
Useful Life (Years): 3. 

Description: Capitalized Leases;
Useful Life (Years): Term of lease. 

Description: Bulk Purchases;
Useful Life (Years): 3. 

[End of table] 

FHFA has no real property holdings or stewardship or heritage assets. 
Other property items and normal repairs and maintenance are charged to 
expense as incurred. 

J. Advances and Prepaid Charges: 

Advance payments are generally prohibited by law. There are some 
exceptions, such as reimbursable agreements, subscriptions, and 
payments to contractors and employees. Payments, in excess of $25,000, 
made in advance of the receipt of goods and services are recorded as 
advances or prepaid charges at the time of prepayment and recognized 
as expenses when the related goods and services are received. 

K. Liabilities: 

Liabilities represent the amount of funds that are obligations to be 
paid by FHFA as the result of a transaction or event that has already 
occurred. 

FHFA reports its liabilities under two categories, Intragovernmental 
and With the Public. Intragovernmental liabilities represent funds 
owed to another government agency. Liabilities With the Public 
represent funds owed to any entity or person that is not a federal 
agency, including private sector firms and federal employees. Each of 
these categories may include liabilities that are covered by budgetary 
resources and liabilities not covered by budgetary resources. 

Liabilities covered by budgetary resources are liabilities funded by a 
current appropriation or other funding source. These consist of 
accounts payable and accrued payroll and benefits. Accounts payable 
represent amounts owed to another entity for goods ordered and 
received and for services rendered except for employees. Accrued 
payroll and benefits represent payroll costs earned by employees 
during the fiscal year which are not paid until the next fiscal year. 
The Department of Labor (DOL) is the central paying agent for all 
workman compensation claims filed under the Federal Employees 
Compensation Act (FECA). Accrued FECA represents the amount FHFA is to 
reimburse DOL for claims paid to FHFA employees. 

Liabilities not covered by budgetary resources are liabilities that 
are not funded by any current appropriation or other funding source. 
These liabilities consist of accrued annual leave, deferred lease 
liabilities and the amounts due to Treasury for collection and 
accounts receivable of civil penalties and FOIA request fees. Annual 
leave is earned throughout the fiscal year and is paid when leave is 
taken by the employee; the accrued liability for annual leave 
represents the balance earned but not yet taken. Deferred lease 
liabilities consist of deferred rent and the Constitution Center 
tenant allowance. Deferred rent is the difference at year-end between 
the sum of monthly cash disbursements paid to-date for rent and the 
sum of the average monthly rent calculated based on the term of the 
lease. Lease costs are based on the straight line method. This 
determination and recording of deferred rent is applicable to the 
lease agreements on the properties at 400 7th Street SW Constitution 
Center and 5080 Spectrum Drive (See Note 8. Leases). 

L. Employee Leave and Benefits: 

All full-time FHFA employees are entitled to accrue sick leave at a 
rate of four hours per pay period. Annual leave is accrued based on 
years of creditable federal service and military service, with the 
following exceptions: Former Office of Federal Housing Enterprise 
Oversight (OFHEO) employees hired between April 25, 2005 and July 30, 
2008 accrue annual leave based on years of creditable federal and 
military service as well as years of relevant private sector 
experience (HERA abolished OFHEO when FHFA was established in July 
2008). 

Additionally, FHFA employees hired into mission critical positions, EL-
13 and above, after May 2011 accrue annual leave under this same 
formula. Some employees who transfer from other federal agencies may 
also have been authorized to receive credit for private sector time. 
EL employees may carryover up to 240 hours of annual leave each year. 
The FHFA executive employees (LL’s) equivalent to the Senior Executive 
Service (SES) employees may accrue annual leave consistent with the 
rules for SES level employees. Accrued annual leave is treated as an 
unfunded expense with an offsetting liability when earned. The accrued 
liability is reduced when the annual leave is taken. Any unused annual 
leave balance is paid to the employee upon leaving federal service, 
based on the employee's earnings per hour. There is no maximum limit 
on the amount of sick leave that may be accrued. Upon separation, any 
unused sick leave of Civil Service Retirement System (CSRS) plan 
employees is creditable as additional time in service for the purpose 
of calculating an employee's retirement annuity. Credit is given for 
sick leave balances in the computation of annuities upon the 
retirement of Federal Employees Retirement System (FERS)-covered 
employees effective at 50% beginning October 28, 2009 and 100% 
beginning January 1, 2014. 

Health Benefits and Life Insurance: FHFA, through programs established 
for all agencies by the federal government, offers its employees 
health and life insurance coverage through the Federal Employees 
Health Benefits Program and Federal Employees Group Life Insurance 
Program. The cost of each is shared by FHFA and its employees. FHFA 
pays 90% of the FEHB premium. In addition, all employees have 1.45% of 
gross earnings withheld to pay for Medicare taxes. 

M. Retirement Plans: 

FHFA employees participate in the retirement plans offered by OPM, 
which consist of CSRS, CSRS-Offset, FERS (FERS is provided under 
calculations for both regular employees as well as law enforcement 
employees in the Office of the Inspector General), or FERS-Revised 
Annuity Employee (RAE). FHFA remits the employer’s share of the 
required contribution, which is 11.9% for FERS, 9.6% for FERS-RAE and 
7% for CSRS. Prior to December 31, 1983, all eligible employees were 
covered under the CSRS program. Any employee hired from January 1, 
1984 through December 31, 1986, were placed in CSRS Offset which 
served as interim retirement plan until FERS was created on January 1, 
1987. At that time, any employee who did not have 5 years of prior 
federal service under CSRS was automatically moved to FERS. As of 
January 1, 1987, hires to FHFA without previous Federal service are 
automatically covered under FERS. Employees covered by CSRS who leave 
the federal government and return with a break of service of one year 
or more after December 31, 1983 are subject to mandatory social 
security contributions and are placed under CSRS Offset. Effective 
January 1, 2013, any employee who begins employment with FHFA with no 
prior federal service is placed under FERS-RAE. Both CSRS and FERS 
employees may participate in the federal Thrift Savings Plan (TSP). 
FERS employees receive an automatic Agency contribution equal to 1% of 
pay. Effective July 31, 2010, FERS employees are automatically 
enrolled in TSP equal to 3% of pay unless they make an election to 
stop or change the contribution. FHFA matches any FERS employee 
contribution up to an additional 4% of pay. For FERS participants, 
FHFA also contributes the employer’s share of Social Security. 

FERS employees and CSRS-Offset employees are eligible to receive 
Social Security benefits after retirement once they reach the full 
retirement age. Employees subject to social security withholdings 
currently contribute 6.2%. The 2013 maximum taxable wage base for 
Social Security is $113,700. 

FHFA expenses its contributions to the retirement plans of covered 
employees as the expenses are incurred. FHFA reports imputed 
(unfunded) costs with respect to retirement plans, health benefits and 
life insurance pursuant to guidance received from OPM. These costs are 
paid by OPM and not by FHFA. Disclosure is intended to provide 
information regarding the full cost of FHFA’s program in conformity 
with generally accepted accounting principles. 

FHFA does not report on its financial statements information 
pertaining to the retirement plans covering its employees. Reporting 
amounts such as plan assets, accumulated plan benefits, and related 
unfunded liabilities, if any, is the responsibility of OPM as the 
administrator. 

In addition to the TSP, FHFA offers a supplemental 401(K) plan that is 
administered by T. Rowe Price. All CSRS and FERS employees are 
eligible to contribute to the 401(K). All eligible employees that 
participate may contribute up to 10% of their bi-weekly salary on a 
pre-tax basis while FHFA will match contributions up to 3% of the 
employee's salary. Qualified employees may participate in the TSP 
and/or FHFA’s 401(K) Savings Plan, up to the Internal Revenue Code 
limitations established for salary deferral and annual additions. 

N. Contingencies: 

FHFA recognizes contingent liabilities, in the accompanying balance 
sheet and statement of net cost, when they are both probable and can 
be reasonably estimated. FHFA discloses contingent liabilities in the 
notes to the financial statements when a loss from the outcome of 
future events is more than remote but less than probable or when the 
liability is probable but cannot be reasonably estimated. 

Note 2. Fund Balance with Treasury: 

Fund Balance with Treasury (FBWT) consists of an operating fund and a 
working capital fund. The funds in the working capital fund were fully 
invested during FY 2013 and FY 2012. FBWT account balances as of 
September 30, 2013 and 2012 were as follows (dollars in thousands): 

Fund Balances: 

Operating Fund;
2013: $15,914; 
2012: $20,998. 

Total:
2013: $15,914; 
2012: $20,998. 

Status of Fund Balance with Treasury: 

Unobligated Balance; 

Available;
2013: $39,439; 
2012: $45,535. 

Obligated Balance Not Yet Disbursed;
2013: $48,383; 
2012: $52,883. 

Investments;
2013: ($71,907);
2012: ($77,420). 

Total:
2013: $15,914; 
2012: $20,998. 

(See Note 12. Legal Arrangements Affecting Use of Unobligated Balances) 

[End of table] 

Note 3. Investments: 

Investments as of September 30, 2013 consist of the following (dollars 
in thousands): 

Intragovernmental Securities: 

Non-Marketable: 

Market-Based; 
Cost: $71,907; 
Amortized (Premium) discount: 0; 
Interest Receivable: 0; 
Investments Net: $71,907; 
Market Value Disclosure: $71,907. 

Investments as of September 30, 2012 consist of the following: 

Non-Marketable: 

Market-Based: 
Cost: $77,420; 
Amortized (Premium) discount: 0; 
Interest Receivable: 0; 
Investments Net: $77,420; 
Market Value Disclosure: $77,420. 

[End of table] 

Non-marketable, market-based securities are Treasury notes and bills 
issued to governmental accounts that are not traded on any securities 
exchange, but mirror the prices of marketable securities with similar 
terms. FHFA is currently investing in one-day certificates issued by 
the U.S. Treasury. There were no amortized premiums/discounts on 
investments as of September 30, 2013 or 2012. Interest earned on 
investments was $73 thousand and $57 thousand for FY 2013 and FY 2012, 
respectively. 

Note 4. Accounts Receivable: 

Accounts Receivable balances as of September 30, 2013 and 2012 were as 
follows (dollars in thousands): 

With the Public: 

Accounts Receivable;
2013: $14; 
2012: $13. 

Total Accounts Receivable;
2013: $14; 
2012: $13. 

There are no amounts that are deemed uncollectible as of September 30, 
2013 and 2012. 

[End of table] 

Note 5. Property, Equipment, and Software, Net: 

Schedule of Property, Equipment, and Software as of September 30, 2013 
(dollars in thousands): 

Major Class: Equipment;
Acquisition Cost: $26,263; 
Accumulated Amortization/Depreciation: $17,831; 
Accumulated Amortization/Depreciation: $8,432. 

Major Class: Leasehold Improvements;
Acquisition Cost: $33,837;
Accumulated Amortization/Depreciation: $3,772; 
Net Book Value: $30,065. 

Major Class: Internal-Use Software;
Acquisition Cost: $4,266; 
Accumulated Amortization/Depreciation: $4,002; 
Net Book Value: $264. 

Major Class: Software-in-Development;
Acquisition Cost: $329; 
Accumulated Amortization/Depreciation: 0; 
Net Book Value: $329. 

Major Class: Construction-in-Progress;
Acquisition Cost: $336; 
Accumulated Amortization/Depreciation: 0; 
Net Book Value: $336. 

Major Class: Total;
Acquisition Cost: $65,031; 
Accumulated Amortization/Depreciation: $25,605; 
Net Book Value: $39,426. 

Schedule of Property, Equipment, and Software as of September 30, 2012 
(dollars in thousands): 

Major Class: Equipment;
Major Class: $24,630; 
Accumulated Amortization/Depreciation: $10,980; 
Net Book Value: $13,650. 

Major Class: Leasehold Improvements;
Acquisition Cost: $31,708; 
Accumulated Amortization/Depreciation: $1,515; 
Net Book Value: $30,193. 

Major Class: Internal-Use Software;
Acquisition Cost: $4,160; 
Accumulated Amortization/Depreciation: $3,542; 
Net Book Value: $618. 

Major Class: Construction-in-Progress;
Acquisition Cost: $1,067; 
Accumulated Amortization/Depreciation: 0; 
Net Book Value: $1,067. 

Major Class: Total
Acquisition Cost: $61,565; 
Accumulated Amortization/Depreciation: $16,037; 
Net Book Value: $45,528. 

The leasehold improvement acquisition cost related to Constitution 
Center was financed in part by a tenant allowance in the amount of 
$20.8 million during fiscal year 2012. 

[End of table[ 

Note 6. Liabilities Covered and Not Covered by Budgetary Resources: 

Liabilities Covered and Not Covered By Budgetary Resources as of 
September 30, 2013 consist of the following (dollars in thousands): 

Intragovernmental Liabilities: 

Accounts Payable;
Covered: $1,637; 
Not-Covered: 0; 
Total: $1,637. 

Other Intragovernmental Liabilities;
Covered: $1,406; 
Not-Covered: 0; 
Total: $1,406. 

Total Intragovernmental Liabilities;
Covered: $3,043; 
Not-Covered: 0; 
Total: $3,043. 

Accounts Payable;
Covered: $9,546; 
Not-Covered: 0; 
Total: $9,546. 

Unfunded Leave;
Covered: 0; 
Not-Covered: $11,175; 
Total: $11,175. 

Deferred Lease Liabilities;
Covered: 0; 
Not-Covered: $24,805; 
Total: $24,805. 

Other Liabilities;
Covered: $3,026; 
Not-Covered: 0; 
Total: $3,026. 

Total Public Liabilities;
Covered: $12,572; 
Not-Covered: $35,980; 
Total: $48,552. 

Total Liabilities;
Covered: $15,615; 
Not-Covered: $35,980; 
Total: $51,595. 

Liabilities Covered and Not Covered By Budgetary Resources as of 
September 30, 2012 consist of the following (dollars in thousands): 

Intragovernmental Liabilities 

Accounts Payable;
Covered: $766; 
Not-Covered: 0; 
Total: $766. 

Other Intragovernmental Liabilities;
Covered: $2,727; 
Not-Covered: 0; 
Total: $2,727. 

Total Intragovernmental Liabilities;
Covered: $3,493; 
Not-Covered: 0; 
Total: $3,493. 

Accounts Payable;
Covered: $9,728; 
Not-Covered: 0; 
Total: $9,728. 

Unfunded Leave;
Covered: 0; 
Not-Covered: $$10,485; 
Total: $10,485. 

Deferred Lease Liabilities;
Covered: 0; 
Not-Covered: $23,917; 
Total: $23,917. 

Other Liabilities;
Covered: $6,503; 
Not-Covered: 0; 
Total: $6,503. 

Total Public Liabilities;
Covered: $16,231; 
Not-Covered: $$34,402; 
Total: $50,633. 

Total Liabilities;
Covered: $19,724; 
Not-Covered: $$34,402; 
Total: $54,126. 

[End of section] 

Note 7. Other Liabilities: 

Current liabilities are amounts owed by a federal entity for which the 
financial statements are prepared, and which need to be paid within 
the fiscal year following the reporting date. The other liabilities 
for FHFA are comprised of FECA liability, unemployment insurance 
liability, payroll accruals, payroll benefits payable, employer 
benefit contributions, and advances and prepayments. Payroll accruals 
represent payroll expenses that were incurred prior to year-end but 
were not paid. All Other Liabilities are considered current 
liabilities. 

Other Liabilities as of September 30, 2013 and September 30, 2012 
consist of the following (dollars in thousands): 

Intragovernmental Liabilities: 

Funded FECA Liability;
2013: $5; 
2012: $11. 

Unemployment Insurance Liability;
2013: $1; 
2012: 0. 

Accrued Funded Payroll;
2013: $36; 
2012: $36. 

Payroll Benefits Payable;
2013: $643; 
2012: $1,500. 

Advances and Prepayments;
2013: $721; 
2012: $1,180. 

Total Intragovernmental Other Liabilities;
2013: $1,406; 
2012: $2,727. 

With the Public: 

Employer Benefit Contributions;
2013: $497; 
2012: $713. 

Accrued Funded Payroll;
2013: $2,529; 
2012: $5,790. 

Total Public Other Liabilities;
2013: $3,026; 
2012: $6,503. 

[End of section] 

Note 8. Leases: 

Current Operating Leases: 

1625 Eye Street NW – FHFA Space: 

FHFA leases office space in Washington, DC at 1625 Eye Street NW. The 
lease terms of 1625 Eye Street expire on June 30, 2015. The lease is 
non-cancellable. FHFA entered into an Interagency Agreement (IAA) with 
the Consumer Financial Protection Bureau (CFPB) on March 29, 2012, for 
CFPB’s use of certain already-acquired but unused services, supplies 
and space available on a short-term basis. The IAA includes, but is 
not limited to, furniture, equipment, IT network infrastructure, and 
space at 1625 Eye Street, NW. The CFPB took occupancy on April 1, 
2012. The IAA expires on June 30, 2015 in conjunction with FHFA’s 
lease expiration. The receipts from CFPB are less than the lease 
expenditures, thus requiring FHFA to record a loss. Therefore, the 
loss recognized for the years ended September 30, 2013, and 2012 is 
$1.4 million and $679 thousand, respectively. FHFA will not recognize 
a loss contingency for the remaining life of the IAA since the 
agreement is with a federal agency and is deemed collectable. 

400 7th Street SW – Constitution Center: 

FHFA entered into a lease for office space at 400 7th Street SW 
Constitution Center on January 31, 2011. FHFA took occupancy in 
January 2012. FHFA does not have the right to terminate the lease for 
the convenience of the government. FHFA may only exercise a one-time 
early termination at the end of the 10th year, contingent upon FHFA 
having less than 400 employees in the Washington DC area as of the 
date that is 20 months prior to the early termination date and 
representing that it reasonably believes it will have less than 400 
employees in the DC area as of the termination date. The lease terms 
of 400 7th Street SW expire on January 31, 2027. In addition, the 
lease stipulates that FHFA shall pay additional rent for its share of 
increases in the operating expenses and real estate property taxes. 

5080 Spectrum Drive: 

FHFA entered into a lease for office space at 5080 Spectrum Drive in 
Addison, Texas on April 23, 2012. FHFA took occupancy on August 16, 
2012. FHFA does not have the right to terminate the lease for the 
convenience of the government. FHFA may only exercise a one-time early 
termination at the end of the 39th month following the commencement 
date of the lease. The written termination notice must be provided to 
the landlord nine months prior to the termination date. The lease 
terms of 5080 Spectrum Drive expire on July 31, 2017. 

300 N Los Angeles Street: 

FHFA-OIG entered into a lease for office space at 300 N Los Angeles 
Street, Los Angeles, CA on May 13, 2013. FHFA-OIG took occupancy on 
June 01, 2013. FHFA-OIG has the right to terminate the lease based on 
the availability of funds or with a four months notice at any point 
after the first 12 months of occupancy. The lease terms of 300 N Los 
Angeles Street expire on April 30, 2018. 

501 E Polk Street: 

FHFA-OIG entered into a lease for office space at 501 E Polk Street, 
Tampa, FL on August 13, 2013. FHFA-OIG took occupancy on August 10, 
2013. FHFA-OIG has the right to terminate the lease based on the 
availability of funds or with a four month notice at any point after 
the first 12 months of occupancy. The lease terms of 501 E Polk Street 
expire on August 9, 2023. 

20 Washington Place: 

FHFA-OIG entered into a lease for office space at 20 Washington Place, 
Newark, NJ 0n June 12, 2012; but has yet to take occupancy due to 
construction of the property. FHFA-OIG expects to take occupancy in 
the early part of FY 2014. FHFA-OIG has the right to terminate the 
lease based on the availability of funds or with a four month notice 
at any point after the first 12 months of occupancy. The lease terms 
of 20 Washington Place expire on September 14, 2022. 

The leases at 300 N Los Angeles Street, 501 E Polk Street, and 20 
Washington Place contain cancellation clauses; therefore are not 
included in the minimum future payments table. 

The minimum future payments for non-cancellable operating leases with 
terms longer than one year (400 7th Street SW, 1625 Eye Street NW, and 
5080 Spectrum Drive) are as follows (dollars in thousands): 

Fiscal Year: 2014;
Amount: $19,906. 

Fiscal Year: 2015;
Amount: $19,316. 

Fiscal Year: 2016;
Amount: $16,656. 

Fiscal Year: 2017;
Amount: $16,934. 

Fiscal Year: 2018;
Amount: $17,272. 

Fiscal Year: Thereafter;
Amount: $60,066. 

Total Future Payments:
Amount: $150,150. 

[End of table] 

The minimum future receipts for the IAA with CFPB for the 1625 Eye 
Street NW space are as follows (dollars in thousands): 

Fiscal Year: 2014;
Amount: $2,992 

Fiscal Year: 2015;
Amount: $2,319 

Fiscal Year: 2016;
Amount: 0. 

Fiscal Year: 2017;
Amount: 0. 

Fiscal Year: 2018;
Amount: 0. 

Fiscal Year: Thereafter;
Amount: 0. 

Total Future Operating Lease Receivables:
Amount: $5,311. 

Additionally, FHFA leases contingency space at an undisclosed 
location. The lease expires on March 31, 2014. 

Total rental payments for the fiscal years ended September 30, 2013 
and 2012 were $21.4 million and $15.6 million, respectively. 

[End of section] 

Operating Leases Terminated During Fiscal Year 2012: 

1700 G Street NW: 

FHFA had an occupancy lease with the Office of the Comptroller of the 
Currency (OCC) at 1700 G Street NW, Washington, DC that covered office 
space and building services, including utilities, security guards, 
janitorial services, mail delivery, use of the loading dock, garage 
parking and building operation and maintenance. The initial term of 
the lease was for five years beginning in 1993, with the option to 
renew for three 5-year terms with OFHEO. This lease was transferred to 
FHFA with its creation. FHFA exercised the third of the three option 
terms. FHFA terminated the lease effective January 31, 2012. 

1750 Pennsylvania Avenue NW: 

FHFA leased office space in Washington, DC at 1750 Pennsylvania Avenue 
NW. The lease term expired on January 31, 2012. 

1625 Eye Street NW – FHFA-OIG Space: 

FHFA-OIG leased office space in 1625 Eye Street NW. The FHFA lease 
terms at 1625 Eye Street NW expired one year after the occupation 
date, January 24, 2011, with optional renewal periods for up to two 
years. FHFA-OIG terminated the lease on January 24, 2012. 

Note 9. Commitments and Contingencies: 

FHFA did not have any material commitments or contingencies that met 
disclosure requirements as of September 30, 2013 and 2012. 

Note 10. Program Costs: 

Pursuant to HERA, FHFA was established to supervise and regulate the 
14 Regulated Entities. The Regulated Entities include Freddie Mac, 
Fannie Mae and the 12 FHLBanks. FHFA tracks resource allocations and 
program costs to the strategic goals (responsibility segments) 
developed for FHFA’s strategic plan. The Strategic Goals (1 – Safety 
and Soundness; 2 – Stability, Liquidity, and Access; 3 – 
Conservatorship; and 4 – Prepare for the Future) guide program offices 
to carry out FHFA's vision and mission. FHFA has a Resource Management 
Strategy, which is distributed proportionately to Strategic Goals 1–4 
based on the percentage of direct costs of each goal to the total 
direct costs for FHFA. FHFA-OIG allocated their costs to FHFA's 
Resource Management Strategy. 

FHFA moved from the three strategic goals presented in FY 2012 (1 – 
Safety and Soundness; 2 – Affordable Housing; 3 – Conservatorship) to 
the four strategic goals presented this year as the result of FHFA’s 
new Strategic Plan: Fiscal Years 2013-2017. FHFA’s Strategic Plan 
builds on the Conservatorships Strategic Plan, which the Acting 
Director presented to Congress in February 2012. Strategic Goal 1 is 
the only goal that reflects the same activities in both FY 2012 and FY 
2013. The activities for the remaining strategic goals differ from FY 
2012 to FY 2013. FY 2012 activities under Strategic Goal 2 are now 
distributed across Strategic Goals 2 and 4. FY 2012 activities for 
Strategic Goal 3 are now reported under Strategic Goals 3 and 4. 
Because the new and old strategic goals are not equivalent, FY 2013 
and FY 2012 Consolidated Statements of Net Cost are presented 
separately. 

FHFA's revenue was provided by the Regulated Entities through 
assessments. FHFA-OIG received their funding through a $38.1 million 
transfer from FHFA in FY 2013 and a $38.8 million transfer in FY 2012. 
FHFA-OIG's total expenses for FY 2013 and FY 2012 were $45 million and 
$36.2 million, respectively. 

Program costs are broken out into two categories – "Intragovernmental" 
and "With the Public." Intragovernmental costs are costs FHFA incurs 
through contracting with other federal agencies for goods and/or 
services, such as payroll processing services received from the 
Department of Agriculture and imputed financing costs for post-
retirement benefits with OPM. With the Public costs are costs FHFA 
incurs through contracting with the private sector for goods or 
services, payments for employee salaries, depreciation, annual leave 
and deferred rent expenses. Revenue is comprised of assessments, 
investment interest, and reimbursable agreements. Intragovernmental 
expenses relate to the source of goods and services purchased by the 
agency and not to the classification of related revenue. Such costs 
and revenue are summarized as follows (dollars in thousands): 

2013: 

Safety and Soundness: 

Intragovernmental Costs: $30,408; 
Public Costs: $122,711; 
Total Program Costs: $153,119; 
Less: Intragovernmental Earned Revenue: $3,394; 
Less: Public Earned Revenue: $190,372; 
Net Safety and Soundness Program (Income)/Costs: ($40,647). 

Stability, Liquidity, and Access: 

Intragovernmental Costs: $8,746[ 
Public Costs: $32,109[ 
Total Program Costs: $40,855[ 
Less: Intragovernmental Earned Revenue: $169[ 
Less: Public Earned Revenue: $9,499[ 
Net Stability, Liquidity, and Access Program (Income)/Costs: $31,187. 

Conservatorship: 

Intragovernmental Costs: $751; 
Public Costs: $44,377; 
Total Program Costs: $45,128; 
Less: Intragovernmental Earned Revenue: $244; 
Less: Public Earned Revenue: $13,690; 
Net Conservatorship Program (Income)/Costs: $31,194. 

Prepare for the Future: 

Intragovernmental Costs: $2,505; 
Public Costs: $8,364; 
Total Program Costs: $10,869; 
Less: Intragovernmental Earned Revenue: $211; 
Less: Public Earned Revenue: $11,811; 
Net Prepare for the Future Program (Income)/Costs: ($1,153). 

Total Intragovernmental Costs: $42,410; 
Total Public Costs: $207,561; 
Total Costs: $249,971; 
Less: Total Intragovernmental Earned Revenue: $4,018;
Less: Total Public Earned Revenue: $225,372. 

Total Net (Income)/Cost: $20,581. 

2012: 

Safety and Soundness: 

Intragovernmental Costs: $31,042; 
Public Costs: $122,579; 
Total Program Costs: $153,621; 
Less: Intragovernmental Earned Revenue: $904; 
Less: Public Earned Revenue: $123,827; 
Net Safety and Soundness Program (Income)/Costs: $28,890. 

Affordable Housing: 

Intragovernmental Costs: $6,059; 
Public Costs: $18,860; 
Total Program Costs: $24,919; 
Less: Intragovernmental Earned Revenue: $468; 
Less: Public Earned Revenue: $64,139; 
Net Affordable Housing Program (Income)/Costs: ($39,688). 

Conservatorship: 

Intragovernmental Costs: $267; 
Public Costs: $38,694; 
Total Program Costs: $38,961; 
Less: Intragovernmental Earned Revenue: $265; 
Less: Public Earned Revenue: $36,330; 
Net Conservatorship Program (Income)/Costs: $2,366. 

Total Intragovernmental Costs: $37,368; 
Total Public Costs: $180,133; 
Total Costs: $217,501; 
Less: Total Intragovernmental Earned Revenue: $1,637; 
Less: Total Public Earned Revenue: $224,296. 

Total Net (Income)/Cost: ($8,432). 

[End of table] 

Note 11. Apportionment Categories of Obligations Incurred: 

All obligations incurred are characterized as exempt from 
apportionment (i.e. not apportioned), on the Statement of Budgetary 
Resources. Obligations incurred and reported in the Statement of 
Budgetary Resources in FY 2013 and FY 2012 consisted of the following 
(dollars in thousands): 

Direct Obligations Exempt from Apportionment;
2013: $281,086; 
2012: $256,340. 

Reimbursable Obligations Exempt from Apportionment;
2013: $3,598; 
2012: $2,760. 

Total Obligations Incurred;
2013: $284,684; 
2012: $259,100. 

[End of table] 

Note 12. Legal Arrangements Affecting Use of Unobligated Balances: 

HERA requires that any balance that remains unobligated at the end of 
the fiscal year, except for amounts assessed for contribution to 
FHFA's working capital fund, must be credited against the next year's 
assessment to the Regulated Entities. As of September 30, 2013 and 
2012, the unobligated balance was $39.4 million and $45.5 million, 
respectively. The portion of FY 2013 unobligated available balance 
that will be credited against the Regulated Entities' April 2014 
assessments is $12.6 million with the remaining $10 million retained 
in the working capital fund and $16.8 million retained for 
conservatorship activities. The portion of FY 2012 unobligated balance 
that was credited against the Regulated Entities’ April 2013 
assessment was $19.9 million with the remaining $10 million retained 
in the working capital fund and $15.6 million retained for 
conservatorship related activities. (See Note 2. Fund Balance With 
Treasury) 

Note 13. Budgetary Resource Comparisons to the Budget of the United 
States Government: 

Statement of Federal Financial Accounting Standards No. 7, “Accounting 
for Revenue and Other Financing Sources and Concepts for Reconciling 
Budgetary and Financial Accounting,” calls for explanations of 
material differences between amounts reported in the Statement of 
Budgetary Resources and the actual balances published in the Budget of 
the United States Government (President’s Budget). The President’s 
Budget that will include FY 2013 actual budgetary execution 
information has not yet been published. The President’s Budget is 
scheduled for publication in February 2014 and can be found at the OMB 
Web site: [hyperlink, http://www.whitehouse.gov/omb]. The 2014 Budget 
of the United States Government, with the “Actual” column completed 
for 2012, has been reconciled to the Statement of Budgetary Resources 
and there were no material differences. 

Note 14. Undelivered Orders at the End of the Period: 

For the fiscal years ended September 30, 2013 and 2012, budgetary 
resources obligated for undelivered orders amounted to $34.3 million 
and $35.2 million, respectively. 

Note 15. Incidental Custodial Collections: 

FHFA's custodial collections primarily consist of Freedom of 
Information Act requests and civil penalties assessed against the 
Regulated Entities. Custodial collections are reflected in Fund 
Balance with Treasury during the year. While these collections are 
considered custodial, they are neither primary to the mission of the 
agency nor material to the overall financial statements. FHFA's 
custodial collections are $3.3 thousand for the year ended September 
30, 2013. Custodial collections totaled $6.7 thousand for the year 
ended September 30, 2012. There were no civil penalties assessed or 
collected in FY 2013 or FY 2012. Custodial collections are transferred 
to the Treasury General Fund on September 30 and are not reflected in 
the financial statements of the Agency. 

Note 16. Reconciliation of Net Cost of Operations to Budget: 

FHFA has reconciled its budgetary obligations and non-budgetary 
resources available to its net cost of operations (dollars in 
thousands). 

Resources Used to Finance Activities: 

Budgetary Resources Obligated 

Obligations Incurred;
2013: $284,684; 
2012: $259,100. 

Spending Authority from Offsetting Collections and Recoveries;
2013: ($53,143);
2012: ($52,611). 

Obligations Net of Offsetting Collections and Recoveries;
2013: $231,541; 
2012: $206,489. 

Offsetting Receipts;
2013: ($225,445);
2012: ($224,353). 

Net Obligations;
2013: $6,096; 
2012: ($17,863). 

Other Resources: 

Imputed Financing from Costs Absorbed by Others;
2013: $6,425; 
2012: $5,810. 

Net Other Resources Used to Finance Activities;
2013: $6,425; 
2012: $5,810. 

Total Resources Used to Finance Activities;
2013: $12,522; 
2012: ($12,053). 

Resources Used to Finance Items Not Part of the Net Cost of Operations: 

Change in Budgetary Resources Obligated for Goods, Services and 
Benefits Ordered But Not Yet Provided;
2013: $380; 
2012: $18,689. 

Resources That Fund Expenses Recognized in Prior Periods;
2013: 0; 
2012: ($10). 

Resources That Finance the Acquisition of Assets;
2013: ($5,038);
2012: ($47,679). 

Total Resources Used to Finance Items Not Part of the Net Cost of 
Operations;
2013: ($4,658);
2012: ($29,000). 

Total Resources Used to Finance the Net Cost of Operations;
2013: $7,864; 
2012: ($41,053). 

Components of the Net Cost of Operations That Will Not Require or 
Generate Resources in the Current Period: 

Components Requiring or Generating Resources in Future Periods: 

Increase in Annual Leave Liability;
2013: $690; 
2012: $986. 

Other;
2013: $888; 
2012: $23,917. 

Total Components of Net Cost of Operations That Will Require or 
Generate Resources in Future Periods;
2013: $1,578; 
2012: $24,903. 

Components Not Requiring or Generating Resources: 

Depreciation and Amortization;
2013: $9,755; 
2012: $6,907. 

Revaluation of Assets or Liabilities;
2013: $1,385; 
2012: $963. 

Other;
2013: ($1);
2012: ($152). 

Total Components of Net Cost of Operations That Will Not Require or 
Generate Resources;
2013: $11,139; 
2012: $7,718. 

Total Components of Net Cost of Operations That Will Not Require or 
Generate Resources in the Current Period;
2013: $12,717; 
2012: $32,621. 

Net (Income from)/Cost of Operations;
2013: $20,581; 
2012: ($8,432). 

[End of table] 

[End of section] 

Other Information 

* FHFA FY 2012 Performance Measures No Longer Reported; 

* Inspector General's FY 2014 Management and Performance Challenges; 

* Summary of Financial Statements Audit and Management Assurances. 

FHFA FY 2012 Performance Measures No Longer Reported: 

Why The Measures Were Discontinued: 
FY 2013 was the first year FHFA operated under its FY2013–FY2017 
Strategic plan. The new strategic plan introduced new goals and 
therefore, new measures. 

Performance Measures: 

Strategic Goal 1: The housing GSEs operate in a safe and sound manner 
and comply with legal requirements. 

No. 1.1.1.
Measure: Improve Component ratings at each Enterprise. 

No. 1.2.1.
Measure: Composite rating at each FHLBank of “2” or greater. 

No. 1.2.2.
Measure: Classify capital rating at each FHLBank as “adequately 
capitalized” quarterly. 

Strategic Goal 2: The housing GSEs support a stable, liquid, and 
efficient mortgage market including sustainable homeownership and 
affordable housing. 

No. 2.1.1.
Measure: Ensure liquidity levels at Fannie Mae and Freddie Mac meet or 
exceed required levels or are brought into compliance within 5 
business days. 

No. 2.1.2.
Measure: Ensure liquidity levels at the FHLBanks meet or exceed 
required levels or are brought into compliance within 5 business days. 

No. 2.2.1.
Measure: Ensure all FHLBanks award affordable housing program (AHP) 
funds at least equal to statutory minimums. 

No. 2.2.2.
Measure: Regulated entities will provide updated performance plans 
within 180 days in response to agency notification of potential 
performance shortfalls in meeting housing goals. 

No. 2.3.1.
Measure: Develop and publish house price indices that omit or reduce 
the influence of distressed sales from the estimation sample for 
Metropolitan Statistical Areas or states. 

No. 2.4.1.
Measure: Respond to Congressional inquiries within 15 business days. 

Strategic Goal 3: FHFA preserves and conserves the assets and property 
of the Enterprises, ensures focus on their housing mission, and 
facilitates their financial stability and emergence from 
conservatorship. 

No. 3.1.1.
Measure: Each Enterprises submits an acceptable asset disposition plan 
for assets identified by FHFA. 

No. 3.1.2.
Measure: Complete quarterly review of Enterprises’ assets, 
partnerships, contracts and litigation activities. 

No. 3.2.1.
Measure: All conservator requests received through the FHFA 
Conservator Decision email box are brought to the Conservatorship 
Governance Committee (CGC) and assigned to a lead office for 
resolution. 

No. 3.4.1.
Measure: Provide technical assistance to Congress and the 
Administration on various future structures for the secondary mortgage 
market and for post-conservatorship outcomes for the Enterprises. 

Resource Management FHFA has the personnel, resources, and 
infrastructure to manage effectively and efficiently to achieve its 
mission and goals. 

No. 4.1.1.
Measure: Improve FHFA Employee Viewpoint Survey (EVS) results in the 
area of “Communication.” 

No. 4.2.1.
Measure: Number and variation of targeted outreach events designed to 
provide information and education to qualified candidates and 
facilitate increased employment applications and inquiries by women 
and minority candidates. 

No. 4.3.1.
Measure: Percent of FHFA’s external audits and reviews that receive 
unqualified opinions with no material weaknesses or unacceptable risks. 

No. 4.3.2. 
Measure: Ensure management completes corrective action on OIG findings 
within agreed timeframe. 

No. 4.4.2. 
Measure: Percent of Incidents responded to by Help Desk personnel 
within 15 business minutes. 

[End of table] 

Inspector General's FY 2014 Management and Performance Challenges: 

Office Of Inspector General: 
Federal Housing Finance Agency: 
400 7th Street, SW: 
Washington DC 20024: 

October 15, 2013: 

To: Edward J. DeMarco, Director (Acting): 

From: [Signed by] Michael P. Stcpheus, Inspector General (Acting): 

Subject: FY 2014 Management and Performance Challenges: 

In accordance with the Reports Consolidation Act of 2000 (P.L. 106-
531), we are providing you with the attached annual report from the 
Office of Inspector General (OIG) on the most serious management and 
performance challenges facing the Federal Housing Finance Agency (FHFA 
or the agency) in Fiscal Year (FY) 2014. In summary, we find that the 
agency can make meaningful headway on the challenges identified by 
continuing to manage in an uncertain environment, improving its 
management of the Fannie Mae and Freddie Mae conservatorships, and 
ensuring adequate supervision and regulation of the CSE's 
relationships with their counterparties and their oversight of 
coutnerparties's' contractual performance. 

This report represents our current assessment of FHFA programs and 
external conditions that pose significant risks. The identified 
challenges are not resented in order of priority, as we believe that 
all are critical management or performance issues. Our report is based 
on OIG reports, other official reports, interviews with management, 
publicly available information, and our general knowledge of programs 
and operations. Our analysis considers accomplishments as of September 
2013. 

If you have any questions. please contact Russell Rau, Deputy 
Inspector General for Audits, at (202)731-0390. or Alisa Davis, Acting 
Assistant Inspector General, at (202)730-0382. 

cc: 
Richard Hornsby, Chief Operating Officer: 
Mark Kinsey, Chief Financial Officer: 
Alfred Pollard, General Counsel: 
John Major, Internal Controls and Audit Follow-up Manager: 

The Federal Housing Finance Agency Office of Inspector General's 
Assessment of FY 2014 Management and Performance Challenges: 

In FY 2013, OIG summarized three challenges facing FHFA: (1) managing 
in an uncertain environment, (2) improving its management of the 
Fannie Mac and Freddie Mac conservatorships; and (3) adequately 
supervising and regulating the GSEs. The agency made progress 
addressing each or these challenges. For example, FHFA issued the 2013 
conservatorship scorecard, which defines the agency's priorities and 
establishes enterprise performance goals; finalized internal guidance 
on more than 20 risk areas; and offered additional training for 
supervisory staff. 

However, FHFA has not eliminated the challenges identified in FY 2013. 
For instance, the enterprises' ultimate fate and the broader structure 
of the secondary housing finance market remain undetermined, and OIG 
recognizes that FHFA continues to face challenges managing in this 
uncertain environment. Specifically, the agency must simultaneously 
fulfill its current responsibilities while remaining open to 
legislative reform ranging from eliminating the enterprises to making 
them permanent parts of the government. 

Below, OIG elaborates on the nature of the continued challenges and 
discusses the agency's progress mitigating them. 

1. FIFA Is Challenged to Manage in an Uncertain Environment: 

FHFA must effectively direct the enterprises' operations while 
fundamental questions about its role and theirs remain unanswered. 
Fannie Mae and Freddie Mac have been in conservatorships for more than 
five years, and they have incurred significant financial losses and 
received support from taxpayers totaling $187.5 billion to date. 
However, over the course of the last two years, the enterprises' 
financial conditions have improved, and they have paid $146 billion in 
dividends as of September 30, 2013. Nevertheless, the conservatorships 
do not have a specific termination date, and they will not end simply 
as a consequence of the enterprises' improved financial condition. 

No one is sure how long the enterprises or FHFA will exist in their 
current form, nor does anyone know their future roles in the housing 
finance market. Current proposals range from eliminating the 
enterprises altogether to creating a federal mortgage in corporation. 
FHFA's strategic plan establishes a goal of preparing for the future 
of housing finance in the United States, regardless of what Congress 
may decide it to be; this goal of preparing for a variety of potential 
outcomes will represent a challenge until the related policy decisions 
are resolved. 

Moreover, FHFA must guide the enterprises through conservatorships 
without being sure of enterprise and agency employee resources. This 
uncertainty contributes to recruitment and retention challenges. As an 
example or this, the enterprises have undergone turnover at key 
management positions while in conservatorships, with both Chief 
Executive Officers in place for just over one year. Thus, FHFA must 
determine how the enterprises can invest in the personnel necessary to 
operate effectively in the present environment. This effort, however, 
is further complicated by FHFA's potential competing goal of 
contracting the enterprises' operations, which could impede employee 
recruitment and retention. 

Further, the agency is hampered in making long-term internal staffing 
allocations because it dues not know what its future role will be, and 
in turn what its associated staffing needs will be. 

2. FHFA Is Challenged to Improve Its Oversight of the Fannie Mae and 
Freddie Mac Conservatorships. 

OIG continues to identify FHFA's conservatorship operations as a 
management challenge. Effectively concurring in this assessment, in 
prepared remarks to the National Association for Business Economies on 
March 4 2013, Acting Director DeMarco stated that "FHA has overseen 
the largest. most complex conservatorships in history."[Footnote 1] 

In addition to the sheer size and complexity of the conservatorships, 
FHFA's responsibility as conservator has been complicated by the 
length of the conservatorships. In remarks to the House Committee on 
Financial Services in March 2013, Acting Director DeMarco stated: 

It is unprecedented that two enormous financial institutions such as 
these have been in conservatorship for more than four and one half 
years... The prolonged time in conservatorship has required us to 
adapt to changing circumstances, while remaining consistent with the 
fundamental responsibilities given us."[Footnote 2] 

Moreover, with no end to the conservatorships in sight, it is 
inevitable that FHFA will have to adapt to future unforeseen 
developments. 

Consequences of these challenging circumstances include the quality of 
FHFA's proactive oversight of significant enterprise business 
activities and decisions. OIG issued a report on September 23, 2012, 
that critiques FHFA's oversight of enterprise business decisions, but 
FHFA still has not implemented two important recommendations in that 
report.[Footnote 3] First, FHFA has not evaluated the enterprises' 
internal controls, including policies and procedures, to ensure the 
enterprises communicate all major business decisions requiring 
approval to the agency. Second. the agency has not implemented a risk- 
based examination plan to review the enterprises' execution of and 
adherence to conservatorship decisions. Without an evaluation of the 
enterprises' controls for communicating business decisions requiring 
conservator approval or a rigorous review of the enterprises' 
compliance with its conservator approval process, the agency has 
little assurance that it is aware of all transactions that require its 
attention. 

Nonetheless, OIG has observed that FHFA made the following 
improvements in FY 2013 related to our recommendations on its 
conservatorship oversight: 

* Completed its reassessment of non-delegated authorities and issued 
revised letters of instructions to the enterprises; 
	
* Established a governance structure at Fannie Mae for obtaining 
conservator approval of counterparty risk limits; 

* Established a clear timetable and deadline for enterprise submission 
of transactions for conservator approval; 

* Developed criteria for conducting business case analysis and 
substantiating conservator decisions; 
	
* Issued a directive for the enterprises to notify FHFA of deviations 
to previously reviewed actions so FHFA may consider those changes and 
revisit its conservatorship decision; and; 

* Implemented policies and procedures for directing and approving the 
enterprises' settlements with counterparties that exceed $50 million. 

In addition to taking actions in response to our recommendations, FHFA 
has taken other steps to improve oversight of the conservatorships. 
For example, by FHFA's 2011 conservatorship strategic priorities and 
goals for the enterprises, the agency listed how it will measure the 
enterprises' achievement of the three broad conservatorship goals. The 
first goal is to build a new infrastructure for the secondary mortgage 
market. The second goal is to contract the enterprises' dominant 
presence in the marketplace while simplifying and shrinking their 
operations. The third goal is to keep the enterprises focused on 
preventing, foreclosures and providing mortgage credit. 

The enterprises have made progress on these goals. Notably, they 
completed approximately 341,000 foreclosure prevention activities in 
FY 2013 {through May) and more than 783,000 refinances under the Home 
Affordable Refinance Program during the same time. In addition, 
Freddie Mac announced in July 2013 that it issued $500 million in 
bonds that it did not guarantee, a step toward achieving the goal 
related to contracting the enterprises' presence in the marketplace. 
Further, the enterprises continue to work on a common securitization 
platform, a key component of the first conservator goal of building a 
new infrastructure for the secondary mortgage market. 

In FY 2014, FHFA must remain diligent in monitoring the enterprises' 
progress in meeting established conservatorship goals and working 
towards achieving the conservatorship priorities. 

3. FHFA Is Challenged to Ensure Adequate Supervision and Regulation of 
the GSEs: 

In FY 2013, OIG described three main challenges to FHFA adequately 
supervising and regulating the GSEs: (1) identifying new and emerging 
risks potentially affecting the GSEs; (2) establishing guidelines and 
policies governing enterprise oversight, and (3) providing strong, 
consistent enforcement for violations of policy, FHFA has taken 
positive steps to resolve-—but not eliminate-—the FT 2013 supervisory 
challenges by issuing 21 examination modules, covering critical areas 
such as credit risk management, derivatives, and interest rate risk 
management; and introducing a voluntary commissioning program to 
ensure its examiners meet a high professional standard of training and 
experience and are qualified to examine major risk areas at the GSEs. 
For FY 2014, however, OIG sees the scope of FHFA's supervisory 
coverage as an additional challenge that FHFA management must overcome. 

FHFA traditionally has not consistently overseen the GSE's management 
of their counterparties, and has not focused on their counterparties, 
such as loan sellers and servicers, that pose various risks to the 
GSEs. This area is especially important given the enterprises' 
extensive network of mortgage sellers and servicers and the FHL Banks' 
more than 7,4500 members. The lack of FHFA oversight of such 
relationships fails to recognize the impact that they can have on the 
central mission of FHFA: ensuring the GSEs' safety and soundness. We 
acknowledge that many of the GSE counterparties have primary federal 
regulators; however, FHFA has an unique interest in the counterparties 
(e.g., ensuring their compliance with contractual and legal 
obligations) that the primary federal regulators may not understand or 
appreciate. Thus, relying on them to protect such interest may be 
imprudent. 

Recent report emphasize that the agency needs to expand the scope of 
its supervision to the GSEs' relationships with counterparties and 
their oversight of counterpart its' contractual performance. 

• In a March 26, 2013, report, OIG found that FIFA had not performed 
any reviews specific to how the enterprises monitor seller/servicer 
compliance with contractual and legal obligations. For example, the 
enterprises` seller/servicers commit to comply with all federal and 
state laws and regulations (including consumer protection statutes) 
applicable to originating, selling, and servicing loans. If a 
seller/servicer does not comply, the enterprises can require it to 
repurchase the noncompliant loan. Yet, FHFA did not monitor 
seller/servicer compliance with consumer protection laws. The lack of 
FHFA oversight becomes more troubling because OIG also found that the
enterprise only concern themselves with compliance issues when they, 
as purchasers, may he liable for noncompliance.[Footnote 4] 

* In a March 21, 2013, report, OIG found that FFFA (and Freddie Mae) 
had inadequate oversight procedures to identify servicer noncompliance 
with the Servicing Alignment Initiative`s requirements for handling 
certain consumer complaints. Freddie Mac's servicers handle borrower 
complaints and are required to report them. The more serious 
complaints are called "escalated cases" and can	involve foreclosure
actions that violate the enterprises' guidelines, complaints than 
borrowers were not evaluated appropriately for foreclosure 
alternatives, and violations of the enterprises' time frames for 
borrower outreach. Between October 2011 and November 2012, Freddie Mac 
and its eight largest servicers received over 34,000 complaints that 
became escalated cases. However, four of Freddie Mac's largest 
servicers did not report any escalated cases despite handling more 
than 20,000 such cases between October 2011 and November 2012. During 
that same period, 21% of the resolved escalated cases handled by 
Freddie Mac's eight largest servicers exceeded the 30-day limit. A 
services failure to quickly and accurately resolve these escalated 
cases can prevent foreclosure alternatives from being adequately 
explored with borrowers and may result in losses to the enterprises. 
[Footnote 5] 

* In an August 22, 2013, report, OIG concluded that FHFA could improve 
its oversight of enterprise settlements involving both compensatory 
fees imposed on servicers for failure in adhere to foreclosure 
timelines and significant mortgage servicing rights transfers. OIG 
recommended that FHFA establish a review policy for such settlements 
similar to the one it had established in 2012 (pursuant to an OIG
recommendation) for settlements of Enterprise claims against 
counterparties related to mortgage repurchases, mortgage insurance, or 
private-label mortgage-backed securities.[Footnote 6] 

* In a September 18, 2013, report OIG found that Fannie Mae had, over 
the course or 2012, reimbursed servicers some $2.9 billion for 
delinquency-related expenses. Of this amount, OIG was able to 
determine that due to processing errors by its contractor, Fannie Mae 
had made approximately $89 million in overpayments, and that it had 
also improperly withheld some $27 million from servicers, yielding an 
overall improper payment rate of 4%. OIG recommended that FHFA take 
measures to reduce overpayments by identifying their root causes, 
creating reduction targets and ensuring supervisory accountability. 
[Footnote 7] 

* In two reports dated September 24, 2013, OIG concluded that FHFA 
could enhance its oversight of the enterprises' relationships with 
their servicers, foreclosure attorneys, and deficiency collection 
vendors. Thousands of foreclosures with deficiency balances were not 
evaluated and/or pursued for collection, because of challenges with 
the enterprises' counterparties coordinating and sharing foreclosure 
information. Prioritizing deficiencies that require prompt attention, 
coordinating the exchange of information among counterparties 
necessary to evaluate and pursue deficiencies, and monitoring 
counterparty relationships is key to ensuring the enterprises' 
deficiency management programs achieve intended results.[Footnote 8] 

In summary, FIFA has made important strides addressing its FY 2013 
management challenges, such as developing conservatorship priorities 
and goals, finalizing most of its core examination manual, and 
offering additional training for supervisory staff. For FY 2014, OIG 
encourages the agency to maintain its momentum by: (1) continuing to 
manage in an uncertain environment; (2) improving its management of 
the Fannie Mae and Freddie Mac conservatorships; and (3) ensuring 
adequate supervision and regulation of the GSEs' relationships with 
their counterparties and their oversight of counterparties' 
contractual performance. 

Footnotes: 

[1] Remarks of Edward J. DeMarco, Acting Director, Federal Housing 
Finance Agency, Before the National Association of Business Economics 
29th Annual Economic Policy Conference: FHFA's Conservatorship 
Priorities for 2013, pg. 4 (March 4, 2013). Accessed August 19, 2013 
at [hyperlink: http://www.fhfa.gov_webfiles/2504/ELDNABESpeech.pdf.] 

[2] Statement of Edward J. DeMarco, Acting Director, Federal Housing 
Finance Agency, Before the U.S.Senate Committee on Banking, Housing 
and Urban Affairs on Oversight of the Federal Housing Finance Agency, 
page 12 (November 14, 2011). Accessed October 5, 2013 at [hyperlink: 
http://www.fhfa.gov_webfiles/22754/SBCTTestimony111511.pdf.] 

[3] OIG, FHFA's Conservator Approval Process for Fannie Mae and 
Freddie Mac Business Decisions (AUD-22012-0008, September 27, 2012). 
Available at [hyperlink: 
http://www.fhfaoig.gov_webfilesContent_Files/AUD-2012-008.pdf.] 

[4] OIG, FHFA Should Develop and Implement a Risk-Based Plan to 
Monitor the Enterprise' Oversight of Their Counterparties' Compliance 
with Contractual Requirements Including Consumer Protection Laws (AUD-
2013-008, March 26, 2013). Available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/AUD-2013-008_0.pdf]. 

[5] OIG, FHFA's Supervisory Framework for Federal Home Loan Banks' 
Advances and Collateral Risk Management (AUD-2012-004, June 1, 2012). 
Available at [hyperlink, http://www.fhfaoig.gov/Content/Files/AUD-2012-
004.pdf]. 

[6] OIG, FHFA's Oversight of Fannie Mae's 2013 Settlement with Bank of 
America (RVL-2013-009, August 22, 2013). Available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/EVL-2013-009.pdf]. 

[7] OIG, Evaluation of Fannie Mae's Servicer Reimbursement Operations 
for Delinquency Expenses (EVL-2013-012, September 18, 2013). Available 
at [hyperlink, http://www.fhfaoig.gov/Content/Files/EVL-2013-012.pdf]. 

[8] OIG, FHFA Can Improve Its Oversight of Freddie Mac's Recoveries 
from Borrowers Who Possess the Ability to Repay Deficiencies (AUD-2013-
010, September 24, 2013). Available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/AUD-2013-010.pdf]. 

OIG, FHFA Can Improve Its Oversight of Freddie Mac's Recoveries from 
Borrowers Who Possess the Ability to Repay Deficiencies (AUD-2013-011, 
September 24, 2013). Available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/AUD-2013-011.pdf]. 

[End of section] 

Summary of Financial Statements Audit and Management Assurances: 

Table 1: Summary of Financial Statements Audit: 

Audit Opinion: Unqualified; 
Restatement: No; 

Material Weaknesses: Total Material Weaknesses; 

Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0; 
Ending Balance: 0. 

[End of table] 

Table 2: Summary of Management Assurances 

Effectiveness Of Internal Control Over Financial Reporting (Federal 
Management Financial Integrity Act Paragraph 2): 

Statement of Assurance: Unqualified; 

Material Weaknesses: Total Material Weaknesses; 

Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0; 
Ending Balance: 0. 

Effectiveness Of Internal Control Over Operations (Federal Management 
Financial Integrity Act Paragraph 2) 

Statement of Assurance: Unqualified; 

Material Weaknesses: Total Material Weaknesses; 

Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0; 
Ending Balance: 0. 

Conformance With Financial Management System Requirements (Federal 
Management Financial Integrity Act Paragraph 4) 

Statement of Assurance: Systems conform to financial management system 
requirements; 

Non-Conformances: Total Non-Conformances; 

Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0; 
Ending Balance: 0. 

[End of table] 

Erroneous Payments: 

The Improper Payments Elimination and Recovery Act requires that 
agencies (1) review activities susceptible to significant erroneous 
payments; (2) estimate the amount of annual erroneous payments; (3) 
implement a plan to reduce erroneous payments; and (4) report the 
estimated amount of erroneous payments and the progress to reduce 
them. The Act defines significant erroneous payments as the greater of 
2.5 percent of program activities and $10 million. 

FHFA, in the spirit of compliance and as part of a sound internal 
control structure, has established controls to detect and prevent 
improper vendor payments. FHFA has identified no activities 
susceptible to significant erroneous payments that meet the Act’s 
thresholds. Additionally, FHFA pursues the recovery of all improper 
payments. 

Prompt Pay: 

The Prompt Payment Act requires federal agencies to make timely 
payments to vendors and improve the cash management practices of the 
government by encouraging the use of discounts when they are 
justified. This also means that FHFA must pay its bills within a 
narrow window of time. In FY 2013, the dollar amount subject to prompt 
payment was $73.2 million. The amount of interest penalty paid in FY 
2013 was $1,537 or 0.00210 percent of the total dollars disbursed. 

[End of section] 

Appendix: 

* Glossary; 
* Acronyms; 
* Index of Figures;
* Acknowledgments; 
* Federal Housing Finance Agency Key Management Officials (inside back 
cover), 

Glossary: 

Advances – Core mission assets in the form of loans to member 
institutions. 

Basis Points – Unit of measure used in finance to denote change in 
value. Basis points are commonly used to express change of less than 
one percent. For example, 50 basis points denotes a 0.5 percent shift. 

CAMELSO – Capital, Asset quality, Management, Earnings, Liquidity, 
Sensitivity to market risk, and Operational risk. FHFA’s new 
examination rating system for the regulated entities. 

Capitalization – The sum of a firm’s or individual’s long-term debt, 
stock and retained earnings. 

Cease and Desist Order – A directive halting certain financial 
activities and requires improvements to risk management policies and 
practices. Orders may be terminated following improvements in and 
entity’s financial condition, capital position, and resolution of risk 
management concerns. 

Collateralize – To secure a financial instrument, such as a loan, with 
an asset, such as a security or home. 

Common Securitization Platform – New utility being developed under the 
direction of FHFA that will replace the Enterprises’ current 
proprietary systems. 

Conservatorship – Statutory process designed to stabilize a troubled 
institution with the objective of maintaining normal business 
operation and restoring safety and soundness. 

Consolidated Obligations – A term for the joint obligations of the 12 
FHLBanks. Consolidated obligations are debt instruments that are sold 
to the public through the Office of Finance but are not guaranteed by 
the U.S. government. 

Earnings – Includes adequacy of earnings to build and maintain capital 
and provide acceptable returns to shareholders, the quality of 
earnings, earnings projections, the integrity of management 
information systems, and the soundness of the business model. 

Enterprise(s) – Fannie Mae and Freddie Mac. 

Enterprise Risk – Includes enterprise credit risk, market risk, and 
operational risk. 

Forbearance Plans – An agreement between the servicer and the borrower 
(or estate) to reduce or suspend monthly payments for a defined 
period, after which the borrower resumes regular monthly payments and 
pays additional money toward the delinquency to bring the account 
current; or works with the servicer to identify a permanent solution, 
such as loan modification or short sale, to address the delinquency. 

Foreclosure – A legal process dictated by state law in which the 
mortgaged property is sold to pay off the mortgage of the defaulting 
borrower. A foreclosure has a greater negative impact than a short 
sale. 

Governance – Includes policies and controls related to financial and 
regulatory reporting, leadership effectiveness of the board of 
directors and enterprise management, compliance, overall risk 
management, strategy, internal audit, and reputation risk. 

Government Sponsored Enterprises (GSEs) – Fannie Mae, Freddie Mac and 
the 12 Federal Home Loan Banks. 

Home Affordable Modification Program (HAMP) – A program designed to 
help homeowners avoid foreclosure by modifying loans to a level that 
is affordable for borrowers right away and sustainable over the long 
term. 

Home Affordable Refinance Program (HARP) – A home retention program 
that focuses on mortgages Fannie Mae and Freddie Mac already hold in 
their portfolios or guarantee through their mortgage-backed 
securities. It provides unique flexibilities on the level of credit 
enhancement required on loans with loan-to-value ratios greater than 
80 percent. Borrowers who are current on their mortgages can refinance 
into a lower mortgage payment or more sustainable mortgage without 
requiring additional credit enhancement—generally private mortgage 
insurance. 

Loan Modification – A change or changes to the original mortgage 
terms, such as a change to the product (adjustable-rate or fixed-
rate), interest rate, term and maturity date, amortization term, or 
amortized balance. 

Matter Requiring Attention (MRA) – A specific written recommendation 
made to Enterprise management that requires attention and correction, 
but does not include consent order items. Each MRA requires a due date 
for correction. 

National Mortgage Database (NMDB) – A system that will allow mortgage 
participants to have a national representation of the performance of 
first lien mortgages. The NMDB will eventually provide risk analysis 
and performance data of mortgages throughout the United States. This 
is a joint venture between FHFA and the Consumer Financial Protection 
Bureau. 

Operating Risk – The risk of possible losses resulting from inadequate 
or failed internal processes, people, and systems or from external 
events. 

Permanent Capital – The sum of common stock, preferred stock, and 
retained earnings. 

Preferred Stock Purchase Agreement (PSPA) – PSPAs ensure that the 
Enterprises maintain a positive net worth so they can continue to be 
active suppliers of housing finance. The agreements are ongoing, 
explicit, and irreversible contractual commitments of the federal 
government ensuring that Fannie Mae and Freddie Mac can meet their 
obligations and maintain a positive net worth. 

Private-label Mortgage-backed Securities (PLMBS) – A residential 
mortgage-backed security where the underlying loans are not guaranteed 
by the U.S. government or a government-sponsored agency. The 
collateral is often referred to as “nonconforming loans” because the 
loans usually do not meet all the strict requirements for a government 
or government agency guarantee. 

Reports of Examination (ROEs) – During each calendar year, FHFA 
complete ROEs for each of the 12 FHLBanks and the Office of Finance 
(OF) and presents them to their respective boards of directors. The 
scheduling of examination fieldwork and the review of ROEs may vary 
from one year to the next. 

Secondary Mortgage Market – A market in which mortgages or mortgage-
backed securities are acquired by the Enterprises and traded. 

Senior Preferred Stock – Capital stock owned by the Treasury 
Department, which pays specific dividends before preferred stock or 
common stock dividends. In the event of liquidation, senior preferred 
stock takes precedence over preferred and common stock. 

Short Sale – A sale of real estate in which the proceeds do not 
satisfy the full balance owed on the property’s loan. A short sale is 
normally a preferred alternative to a foreclosure. 

Supervisory Rating – FHFA has established four rating levels for 
supervisory concerns: (1) no or minimal concerns, (2) limited 
concerns, (3) significant concerns, and (4) critical concerns. These 
ratings describe how well risks are identified, measured, monitored, 
controlled, and managed. No or minimal concerns have very minor 
weaknesses or criticisms that affect the Enterprise’s safety and 
soundness, while critical concerns involve a consent order or formal 
agreement between FHFA and the Enterprise to ensure that appropriate 
corrective action is taken. 

Structured Agency Credit Risk (STACR) – A risk-sharing security 
developed by Freddie Mac. 

Total Capital – The sum of permanent capital, the par value of Class A 
stock outstanding, a general allowance for losses, and the amount of 
any other instruments identified in an FHLBank’s capital plan that 
FHFA has determined to be available to absorb losses. 

Undercapitalized – A state of hindered operation for an FHLBank 
resulting from limited amounts of capital. 

Underwriting Standards – The process a lender uses to determine 
whether the risk of lending to a particular borrower under certain 
parameters is acceptable. Most of the risks and terms underwriters 
consider fall under the three C’s of underwriting: credit, capacity, 
and collateral. 

[End of section] 

Acronyms: 

AGA: Association of Government Accountants: 

AHP: Affordable Housing Program: 

AMA: Acquired Member Assets: 

AOCI: Accumulated Comprehensive Income: 

BOA: Bank of America: 

C&D: Cease and Desist: 

CDF: Contractual and Disclosure Framework: 

CFPB: Consumer Financial Protection Bureau: 

CFR: Code of Federal Regulations: 

CIP: Community Investment Program: 

CSI: Common Securitization Infrastructure: 

CSP: Common Securitization Platform: 

CSRS: Civil Service Retirement System: 

CSS: Common Securitization Solutions, LLC™: 

CY: Calendar Year: 

DBR: Division of FHLBank Regulation: 

DCO: Derivatives Clearing Organization: 

DER: Division of Enterprise Regulation: 

DOL: U.S. Department of Labor: 

DTA: Deferred Tax Assets: 

ECIC: Executive Committee on Internal Controls: 

EESA: Emergency Economic Stabilization Act of 2008: 

EIC: Examiner in Charge: 

FAAS: Financial Accounting and Advisory Services: 

Fannie Mae: Federal National Mortgage Association: 

FAR: Financial Activities Review: 

FASAB: Federal Accounting Standards Advisory Board: 

FCM: Futures Commission Merchant: 

FDIC: Federal Deposit Insurance Corporation: 

FECA: Federal Employees Compensation Act: 

FEMA: Federal Emergency Management Agency: 

FBWT: Fund Balance with Treasury: 

FERS: Federal Employees Retirement System: 

FEVS: Federal Employee Viewpoint Survey: 

FHA: Federal Housing Administration: 

FHFA: Federal Housing Finance Agency: 

FHLBank: Federal Home Loan Bank: 

FICO: Fair Isaac Corporation: 

FINSOB: Financial Stability Oversight Board: 

FIRREA: The Financial Institutions Reform, Recovery, and Enforcement 
Act of 1989: 

FISMA: Financial Information Security Management Act: 

FMFIA: Federal Managers Financial Integrity Act of 1982: 

FMS: Federal Management System: 

FOIA: Freedom of Information Act: 

Freddie Mac: Federal Home Loan Mortgage Corporation: 

FSOC: Financial Stability Oversight Council: 

FTE: Full-Time Equivalent: 

FY: Fiscal Year: 

GAAP: Generally Accepted Accounting Principles 

GAO: U.S. Government Accountability Office: 

Ginnie Mae: Government National Mortgage Association: 

GSE: Government-Sponsored Enterprise: 

HAMP: Home Affordable Modification Program: 

HARP: Home Affordable Refinance Program: 

HERA: Housing and Economic Recovery Act of 2008: 

HPI: House Price Index: 

HUD: U.S. Department of Housing and Urban Development: 

ICP: Incentive Compensation Plan: 

IG: Inspector General: 

IT: Information Technology: 

LIBOR: London Interbank Offered Rate: 

LPI: Lender-placed Insurance: 

LLC: Limited Liability Company: 

LTV: Loan to value: 

MBS: Mortgage-Backed Securities: 

MIMSO: Mortgage Industry Standards Maintenance Organization: 

MHA: Making Homes Affordable (Program): 

MRA: Matter Requiring Attention: 

MSR: Mortgage Servicing Rights: 

MVE: Market Value of Equity: 

MWOBs: Minority-and-Women-Owned Businesses: 

NMDB: National Mortgage Database Initiative: 

OCC: U.S. Office of the Comptroller of the Currency: 

OCO: Office of Conservatorship Operations: 

OF: Office of Finance: 

OIG: Office of Inspector General: 

OMB: Office of Management and Budget: 

OMWI: Office of Women and Minority Inclusion: 

OPM: Office of Personnel Management: 

OTC: Over the Counter: 

PACE: Property Assessed Clean Energy: 

PCA: Prompt Corrective Action: 

PII: Personal Identifiable Information: 

PLMBS: Private-Label Mortgage-Backed Securities: 

PLS: Private Label Securities: 

POA&Ms: Plan of Action and Milestones: 

PRISM: Procurement Request Information System Management: 

PSPA(s): Preferred Stock Purchase Agreement: 

PVCS: Par Value of Capital Stock: 

REO: Real Estate Owned: 

RFI: Request for Information: 

RHS: Rural Housing Services: 

ROE: Reports of Examination: 

SA&A: Security Assessment and Authorization: 

SAI: Service Alignment Initiative: 

SBR: Statement of Budgetary Resources: 

SEC: Securities Exchange Commission: 

SIFI: Strategically Important Financial Institutions: 

SPEC: Strategic Plan for Enterprise Conservatorships: 

SPSPA: Senior Preferred Stock Purchase Agreement: 

STACR: Structured Agency Credit Risk: 

TARP: Troubled Asset Relief Program: 

TSP: Thrift Savings Plan: 

UBS: Union Bank of Switzerland: 

UMDP: Uniform Mortgage Data Program: 

UMSD: Uniform Mortgage Servicing Database: 

URLA: Uniform Residential Loan Application: 

VA: Veterans Administration: 

[End of section] 

Index of Figures 

Figure 1: Gross Costs FY 2013 (Dollars in Millions: 

Figure 2: Gross Costs FY 2010–2012 (Dollars in Millions): 

Figure 3: Actual Full-Time Equivalent - FY 2013: 

Figure 4: Actual Full-Time Equivalent - FY 2010–2012: 

Figure 5: FHFA’s Workforce By Specialized Area: 

Figure 6: FHFA Principal Organization Units: 

Figure 7: FHFA Oversight Role – Fannie Mae and Freddie Mac: 

Figure 8: Enterprises’ Market Share – MBS Issuance Volume: 

Figure 9: Total Assets of the FHLBanks at September 30, 2013: 

Figure 10: FHFA Oversight Role – FHLBanks: 

Figure 11: Number of FHLBank Members and Percent of Members That 
Borrow: 

Figure 12: Federal Home Loan Bank Districts: 

Figure 13: Enterprises Net Income (Dollars in Billions): 

Figure 14: The Enterprises Net Income (Dollars in Billions): 

Figure 15: Seriously Delinquent Loans (Count in Thousands): 

Figure 16: Loan Loss Reserves (Dollars in Billions): 

Figure 17: FHLBanks Retained Earnings (Billions): 

Figure 18: Monthly HARP Volume by Loan-to-Value Ratio: 

Figure 19: Enterprise Performance on 2012 Single-Family Housing Goals: 

Figure 20: Enterprise Performance on 2012 Multifamily Housing Goals: 

Figure 21: 2013 Conservator Scorecard Priorities: 

Figure 22: FY 2013 Performance Results: 

Figure 23: Status of Performance Measures Unmet: 

Figure 24: Condensed Balance Sheets: 

Figure 25: Summary of Total Assets – FY 2013: 

Figure 26: Trend in Total Assets FY 2009–2013: 

Figure 27: Summary of Total Liabilities – FY 2013: 

Figure 28: Trend in Total Liabilities – FY 2009–2013: 

Figure 29: Trend Gross Costs and Revenue: 
Figure 30: Net Cost of Operations by Strategic Goal – FY 2013: 

Figure 31: Trend in Budgetary Resources and Obligations Incurred – FY 
2009–2013: 

Figure 32: FHFA’s Goal Hierarchy: 

Figure 33: FHFA’s Performance Management Cycle: 

Figure 34: FY 2013 Performance Measures: 

[End of section] 

Acknowledgments: 

This Performance and Accountability Report was produced through the 
energies and talents of the FHFA staff. To them we offer our sincerest 
thanks and acknowledgment. 

We would like to acknowledge the U.S. Government Accountability Office 
for the professional manner in which they conducted the audit of 
FHFA's FY 2013 Financial Statements. 

FHFA Agency Key Management Officials: 

Edward J. DeMarco:
Acting Director, FHFA: 

Richard Hornsby: 
Chief Operating Officer: 

Alfred Pollard: 
General Counsel: 

Jon Greenlee: 
Deputy Director, Division of Enterprise Regulation: 

Fred Graham: 
Deputy Director, Division of Federal Home Loan Bank Regulation: 

Sandra Thompson: 
Deputy Director of Housing, Mission and Goals: 

Wanda DeLeo: 
Deputy Director, Office of Strategic Initiatives: 

Nina Nichols: 
Deputy Director, Division of Supervision Policy and Support: 

Jeffrey Spohn: 
Deputy Director, Office of Conservatorship Operations: 

Denise Dunckel: 
Senior Associate Director, Office of Congressional Affairs and 
Communications: 

Mark Kinsey: 
Chief Financial Officer: 

Kevin Winkler: 
Chief Information Officer: 

Nancy Burnett: 
Acting Assistant Director, Office of Minority and Women Inclusion: 

Michael Powers: 
Ombudsman: 

Michael Stephens: 
Acting Inspector General: 

FHFA Oversight Board: 

Edward J. DeMarco: 
Chairman: 

Jacob J. Lew: 
Secretary of the Treasury: 

Shaun Donovan: 
Secretary of Housing and Urban Development: 

Mary Jo White: 
Chairperson, Securities and Exchange Commission: 

Contact Information: 

We welcome your comments on how we can improve our report. Please 
provide comments or questions to: 

Toni R. Harris: 
Performance Improvement Officer: 
202-649-3800: 

FHFAinfo@fhfa.gov: 

The report can be accessed on the World Wide Web at: 

[hyperlink, http://www.fhfa.gov/webfiles/25882/PAR_2013.pdf]: 

Federal Housing Finance Agency: 
400 7th Street, SW: 
Washington, DC 20024L 
202-649-3800: 
[hyperlink, http://www.fhfa.gov] 

[End of section] 

[End of section] 

GAO’s Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO’s commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO’s website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select 
“E-mail Updates.” 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO’s 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, DC 20548. 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, DC 20548. 

[End of document]