ATTACHMENT 3 Entity Profile.pdf

ATTACHMENT 4 - ENTITY PROFILE

PART A - HUD

PART B - FHA

PART C- GINNIE MAE

PART A

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

ENTITY PROFILE

The U.S. Department of Housing and Urban Development (HUD) was created in 1965 to (1) provide housing subsidies for low and moderate income families, (2) provide grants to States and communities for community development activities, (3) provide direct loans and capital advances for construction and rehabilitation of housing projects for the elderly and persons with disabilities, and (4) promote and enforce fair housing and equal housing opportunity. In addition, HUD insures mortgages for single family and multifamily dwellings, insures loans for home improvements and manufactured homes, and facilitates financing for the purchase or refinancing of millions of American homes.

HUD is a cabinet-level department of the executive branch of the U.S. government, with its headquarters in Washington, DC, and field offices located throughout the country to help headquarters staff assist and monitor HUD funding recipients. The Secretary of HUD is the head of the organization and reports to the President of the United States. Other high-level officials of HUD that are required by statute include the Deputy Secretary, eight Assistant Secretaries, General Counsel, Inspector General, Chief Financial Officer, Chief Information Officer, and President of the Government National Mortgage Association. HUD high-level officials that are not required by statute include Chief Procurement Officer and Assistant Deputy Secretary for Field Policy & Management. The Secretary establishes broad policy guidelines that affect all HUD employees and programs, while delegating much of the authority for managing HUD’s individual programs to other officials within the organization.

HUD’s Component Entities

The Federal Housing Administration (FHA) was created in 1934 by the National Housing Act, and in 1948 became a wholly-owned government corporation subject to the Government Corporation Control Act, as amended. The FHA was merged into HUD when the department was created in 1965. HUD’s Assistant Secretary for Housing—Federal Housing Commissioner, who reports to the Secretary of HUD, heads the FHA. (Refer to Part B of this attachment, FHA Entity Profile, for additional information.)

The Government National Mortgage Association (Ginnie Mae) was created in 1968 as a wholly-owned government corporation within HUD to administer mortgage support programs that could not be carried out in the private market. Ginnie Mae guarantees the timely payment of principal and interest on mortgage-backed securities issued by approved private mortgage institutions and backed by pools of mortgages insured or guaranteed by FHA, the U.S. Department of Agriculture Rural Housing Service, the Department of Veterans Affairs and the HUD Office of Public and Indian Housing (PIH). (Refer to Part C of this attachment, Ginnie Mae Entity Profile, for additional information.)

HUD’s Office of the Chief Financial Officer-Managed Component (HUD Proper) - Significant Program Offices & Activities

The Office of the Chief Financial Officer (OCFO) is charged with providing leadership in financial management, fiscal responsibility, and accountability for the Department. OCFO staff functions include: accounting, budget, and financial management for HUD's budget and Congressional appropriation. In addition, OCFO financial systems process millions of transactions annually to support HUD projects and meet the needs of the housing community. HUD program offices that administer significant program activities include the Office of Housing (Housing), the Office of Public and Indian Housing (PIH), and the Office of Community Planning and Development (CPD).

Significant Offices

Housing administers Single family and Multifamily housing, and certain healthcare mortgage insurance programs; Section 8 Project-based Rental Assistance; Section 202 Housing for the Elderly; Section 811 Housing for the Disabled; and Housing Counseling programs.

PIH administers Section 8 Tenant-based Rental Assistance, the Public Housing Operating Fund, the Public Housing Capital Fund, Indian and Native Hawaiian Housing Block Grants, and Loan Guarantee Funds.

CPD administers the Community Development Block Grant (CDBG) and HOME Investment Partnerships (HOME) programs; Loan Guarantee Fund; and Homeless Assistance Grants. In addition, CPD disburses grants authorized by Congress to assist communities in recovering from natural disasters; and, administers the Neighborhood Stabilization Program (NSP).

Additional offices within HUD administer smaller programs and perform administrative and support functions.

Significant Programs

The Section 8 Rental Housing Assistance programs provide housing assistance to low income families. These programs are the Federal government’s largest income-driven program to help families obtain decent, safe, sanitary, and affordable housing. The subsidy makes up the difference between what a low- and very low-income family can afford and the approved rent cost for an adequate housing unit. Under Section 8 is the Tenant-based voucher program, which provides rental subsidies for eligible families http://hudatwork.hud.gov/HUD/cfo/po/f/accounting/accounting http://hudatwork.hud.gov/HUD/cfo/po/f/budget/budget http://hudatwork.hud.gov/HUD/cfo/po/f/finmgmt/finmgmt http://hudatwork.hud.gov/HUD/cfo/po/f/systems/systems for standard-quality units chosen by the tenant and provided by individual landlords in the private market. The Section 8 Project-based voucher program provides rental assistance to eligible families who live in privately owned housing developments, projects, or units through housing assistance payment contracts with private owners.

The Public Housing Operating Fund provides an annual operating subsidy to public housing authorities operating publicly owned housing development projects to help them fulfill operating and management expenses.

The Public Housing Capital Fund provides funding to public housing authorities operating publicly owned housing developments.

Funding is provided to public housing authorities for capital and management activities, including development, financing, and modernization of public housing projects. According to Section 9 of the U.S. Housing Act of 1937, public housing authorities may use up to 20 percent of funds received through the Public Housing Capital Fund for operating expenses. The Public Housing Capital Fund Financing program allows public housing authorities to borrow from banks or issue bonds using future Capital Fund grants as debt service, subject to annual appropriations.

HUD also provides housing assistance subsidies to Tribally-Designated Housing Entities through the Indian Housing Block Grant program. This program is a formula grant that provides a range of affordable housing on Indian reservations and in areas with a high Indian population. Eligible recipients are Federally-recognized Indian tribes and a limited number of State-recognized tribes. Eligible recipients must submit an Indian Housing Plan to HUD each year to receive funding and at the end of each year, an Annual Performance Report reporting on their progress in meeting the goals and objectives in their Indian Housing Plans. Recipients may use the grants for housing development, housing services to eligible families and individuals, and crime prevention and safety, among other things.

The Community Development Block Grant (CDBG) program provides funds for metropolitan cities, small cities, urban counties, and other communities to revitalize neighborhoods, economic development, and providing improved community facilities and services. CDBG funds are awarded on a formula basis and may be used for a wide range of activities. At least 70 percent of the funds must be used for activities that benefit low- and moderate-income families and individuals. Actual uses of the funds are determined by State and local jurisdictions through the comprehensive planning process developed by HUD. These entities are also responsible for reporting to HUD on how efficiently and effectively these funds are spent. Under the Section 108 Loan Guarantee component of the CDBG program, communities can also obtain financing for economic development, housing rehabilitation, and large-scale physical development projects. To participate, communities must pledge their current and future CDBG funds as security for the loan guarantee.

The HOME Investment Partnerships program provides grants to States, local governments, and Indian tribes to implement local housing strategies designed to increase home ownership and affordable housing opportunities for low- and very low-income families.

Funds are distributed on a formula basis and are administered locally through community development departments or housing finance agencies. Participating jurisdictions must provide a 25 percent match for housing activities funded by the HOME Investment Partnerships program.

HUD’s Homeless Assistance Programs are designed to address the critical problem of homelessness. HUD's homeless assistance programs are broken down into two main categories: formula (non-competitive) and competitive. The formula grant program, Emergency Solutions Grants (ESG) (formerly, the Emergency Shelter Grant program), is designed to do the following: (1) help improve the quality of existing emergency shelters for the homeless, (2) make available additional shelters, (3) meet the costs of operating shelters, (4) provide essential social services to homeless individuals, and (5) help prevent homelessness. The competitive programs, Shelter Plus Care, Supportive Housing Program, and Moderate Rehabilitation/Single Room Occupancy were consolidated into the Continuum of Care Program, under the Homeless Emergency Assistance and Rapid Transition to Housing (HEARTH) Act of 2009 (Public Law 111-22). The Continuum of Care Program coordinates a community-based process of identifying the physical, economic, and/or social needs of the homeless and building a system to address those needs.

Under the CDBG program, the Disaster Recovery Assistance Program provides flexible grants to help cities, counties, and States recover from presidentially declared disasters. These grants are especially for low-income areas and subject to availability of supplemental appropriations. For example, the Additional Supplemental Appropriations for Disaster Relief Act, 2019, provided HUD $2.43 billion to the Community Development Fund for activities authorized under title I of the Housing and Community Development Act of 1974 related to disaster relief, long-term recovery, restoration of infrastructure and housing, economic revitalization, and mitigation in the most impacted and distressed areas resulting from a major disaster that occurred in 2018 or 2019 pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act.

The Neighborhood Stabilization Program (NSP) was initially established by the Housing and Economic Recovery Act of 2008 (HERA). The HERA version of NSP (NSP1 and NSP3) provided $3.92 billion and $1 billion, respectively, in funding for emergency assistance to States and local governments. Round 2 of NSP (NSP 2) was funded by the American Recovery and Reinvestment Act (ARRA) and provided $1.93 billion to eligible grantees. NSP is a component of the CDBG program.

HUD’s Other Programs consist of other programs that provide grants, subsidy funding, direct loans, and loan guarantees to cover public housing projects operating needs and support other HUD objectives such as fair housing and equal opportunity, energy conservation, rehabilitation of housing units, removal of lead hazards, home ownership, and HUD’s salaries and administrative expenses.

The chart below shows the assets, budgetary resources, and net costs associated with each of HUD’s major programs:

Overview of HUD’s Assets, Budgetary Resources, and Net Costs by Program Area as of September 30, 2019

Program/Entities Total Assets ($ in Millions) %

Budgetary Resources

($ in millions)* % Net Cost

($ in millions) %

FHA

$100,725 46%

$111,877 48% ($24,837) -92%

Ginnie Mae

26,494 12%

27,416 12% (686) -3%

OCFO-Managed Total**

90,361 42%

95,845 41% 52,404 195%

Consolidated Total

217,580 100%

235,138 100% 26,881 100%

OCFO-Managed Programs

Section 8 Rental Assistance

$9,849 11%

$35,830 37% $ 34,813 66%

PIH

6,510 7%

3,719 4% 2,856 5%

Homeless Assistance Grants

6,224 7%

5,838 6% 2,144 4% Housing for the Elderly and Disabled

2,420 3%

1,439 2% 880 2%

CDBG

54,129 60%

36,720 38% 5,088 10%

HOME

3,760 4%

1,783 2% 961 2%

All Other

7,683 9%

10,516 11% 5,662 11%

Eliminations

(214) 0% - 0% - 0%

OCFO-Managed Total

90,361 100%

95,845 100% 52,404 100%

* The budgetary resources listed include the non-budgetary financing account amounts, which total $58,103 million for FHA, $7,677 million for Ginnie Mae, and $325 million for HUD.

** This includes eliminations- see second portion of the table for breakout

Overview of HUD’s Principal and Consolidated Financial Statements

HUD prepares its principal financial statements to report its financial position (balance sheet), net cost (statement of net cost), changes in net position (statement of changes in net position), and budgetary resources (statement of budgetary resources) in accordance with the Office of Management and Budget Circular A-136, Financial Reporting Requirements, and in conformance with Federal Generally Accepted Accounting Principles (GAAP) following the Federal Accounting Standards Advisory Board’s (FASAB) Statements of Federal Financial Accounting Standards (SFFAS). Along with HUD OCFO-managed programs, FHA and Ginnie Mae’s financial statements are consolidated into HUD’s consolidated financial statements. FHA and Ginnie Mae maintain separate accounting systems and accounting personnel.

FHA follows FASAB standards, while Ginnie Mae follows the Financial Accounting Standards Board (FASB). Ginnie Mae adjusts its trial balance to follow FASAB standards for consolidation, with the exception of its nonpooled loans, which cannot be converted because the treatment for these kinds of loans is not specified by FASAB. For FASAB reporting, Ginnie Mae calls its non-pooled loans Other Non-Credit Reform Loans and its disclosures are presented in accordance with guidance in FASB ASC 310: Receivables, ASC 820: Fair Value Measurement, ASC 825: Financial Instruments, Accounting Standards Codification (ASC) 835: Interest, as well as relevant industry practices based on the U.S. Securities and Exchange Commission’s Regulation S-X.

HUD’s shared service provider, the U.S. Department of the Treasury’s Bureau of Fiscal Service Administrative Resource Center (ARC), produces HUD’s consolidated financial statements using Ginnie Mae and FHA’s Governmentwide Treasury Account Symbol (GTAS) submissions and HUD proper trial balances from Oracle. ARC also produces all of the tables used in HUD’s notes, and HUD produces the narratives.

The financial statements are presented on the accrual and budgetary basis of accounting. Under the accrual method, HUD recognizes revenues when earned, and expenses when a liability is incurred, without regard to receipt or payment of cash. The budgetary basis of accounting recognizes the obligation of funds according to legal requirements, which in many cases occurs prior to an accrual-based transaction. The use of budgetary accounting is essential for compliance with legal requirements and controls over the use of Federal funds.

The Department’s disbursement policy permits grantees/recipients to request funds to meet immediate cash needs to reimburse themselves for eligible incurred expenses and eligible expenses expected to be received and paid within three days or as subsidies payable in accordance with the Cash Management Improvement Act of 1990. Therefore, HUD recognizes the expense when it disburses funds to the grantee. The exception is PIH’s Housing Choice Voucher and Moving to Work programs, where funds are paid on the first day of the month to cover rental expenses for that month. Funds are also advanced to Indian Housing Block Grant grantees for investment. Since these funds are prepaid, HUD estimates a quarterly prepayment and reports it as an advance (PIH prepayments) on its financial statements. HUD also records an expense when it accrues grant liabilities quarterly.

HUD uses estimates primarily to estimate its 1) net loans receivable, related foreclosed property, and the loan guarantee liability, 2) prepayments to public housing authorities in the Housing Choice Voucher and Indian Housing Block Grant programs, and 3) grant accruals in accordance with SFFAS 5, technical release 12- Accrual Estimates for Grant Programs.

Overview of HUD’s Systems and Computing Environment

On July 30, 2013, HUD signed an interagency agreement with Treasury’s Bureau of Fiscal Service Administrative Resource Center (ARC) to utilize its financial management services. HUD migrated to ARC’s Oracle solution as its financial system of record and Oracle Federal Financials became HUD’s financial system of record. The Oracle commercial-off-the-shelf products included in the platform are Budget Execution, Purchasing, Accounts Payable, Accounts Receivable, General Ledger, Federal Reporting and Oracle Business Intelligence.

While the benefits of the transition have improved HUD’s financial management function, the transition did not decrease HUD’s dependence on legacy systems because commitments, obligations, and disbursements for programmatic funds remain in legacy systems.

To facilitate the transfer of data between HUD’s legacy systems and ARC, HUD implemented the New Core Interface Solution (NCIS). On a daily basis, transactions are transmitted through NCIS to Oracle General Ledger (i.e., the daily GL interface). Budgets for all funds are manually loaded into Oracle via ARC’s budget templates (Excel files); templates are completed by HUD and sent to ARC, who then loads the data into Oracle. Budget authority for specific programmatic funds is transmitted daily from Oracle to HUDCAPS, through NCIS (i.e., Budget Interface).

In fiscal year 2018, ARC began using One Stream, which resides on the Microsoft Azure cloud environment, for financial reporting.

Currently, ARC uploads HUD-proper trial balances from Oracle and GTAS data from Ginnie Mae and FHA to One Stream to produce HUD’s consolidated financial statements and notes. ARC is working on implementing a direct connection between these two systems in fiscal year 2020. In March 2020, HUD reported that ARC was in the testing phase of implementation, and that the connection would be implemented soon.

ARC is responsible for producing external reports and HUD’s consolidated financial statements and notes. HUD is responsible for validating and certifying all external reports and the financial statements for inclusion in its annual Agency Financial Report.

HUD OIG reported a significant deficiency related to HUD’s financial management systems and computing environment in fiscal year 2019. HUD OIG also reported that HUD did not substantially comply with the Federal Financial Management Improvement Act of 1996 (FFMIA) in fiscal year 2019. HUD OIG continued to report on various weaknesses with general system controls and controls over certain applications as well as weak security management. These deficiencies increased risks associated with safeguarding funds, property, and assets from waste, loss, unauthorized use, or misappropriation.

General Support Systems

The IBM and Unisys mainframes are the general support platforms on which many of HUD's critical housing, financial, and administrative application systems reside. Some of the major systems supported by the IBM mainframes are the Tenant Rental Assistance Certification System (TRACS), Single Family Acquired Asset Management System (SAMS), HUD Central Accounting and Program System (HUDCAPS) and the Integrated Disbursement and Information System (IDIS). Some of the major systems supported by the Unisys mainframes are the Line of Credit Control System (LOCCS), Program Accounting System (PAS), and the Single Family Computerized Home Underwriting Management System (CHUMS). The Department is undergoing a modernization effort to migrate five of HUD’s most critical business systems off of the Unisys mainframe to the HUD cloud. Two of the five systems are owned by the Office of the Chief Financial Officer (LOCCS and PAS) and are core HUD financial systems.

HUD’s Microsoft Azure General Support System (GSS) is an open and flexible cloud platform that enables HUD to quickly build, test, deploy, and manage its applications and product development across a network of Microsoft-managed datacenters. The Azure GSS also provides infrastructure for major and minor applications, by HUD’s definition. The New Core Interface Solution (NCIS) resides on the Cloud GSS.

The Internet general support system platform provides the general public, banks, mortgage lenders, public housing authorities, and others access to HUD programs and data. It enables the Department to communicate with business partners, educational institutions, other government agencies, commercial vendors, nonprofit organizations, and public at-large. The platform supports all web-based applications and is available to all users Departmentwide, at Headquarters and all field offices.

The Intranet GSS supports web, application, directory and database servers as well as other commercial-off-the-shelf packages.

HUD’s FHA Subsidiary Ledger application is on the Intranet GSS.

The LAN GSS provides the infrastructure needed to support internal HUD systems locally at all HUD locations. HUD’s Loan Accounting System (LAS) and Single Family Housing Enterprise Data Warehouse are on the LAN GSS.

Overview of HUD’s System Architecture

As of the end of fiscal year 2019, HUD reported 33 financial management systems in use by different offices. Of the 33 systems, HUD reported that nine systems were noncompliant with FFMIA requirements. While HUD uses a Federal shared services provider for the Oracle General Ledger, programmatic legacy systems remain in use as subsidiary ledgers and to process disbursements for programmatic funds. In FY 2018, ARC implemented One Stream to serve as a financial reporting arm of Oracle Federal Financials.

In addition, HUD implemented NCIS to maintain data integrity between Oracle and the legacy systems. Key financial management systems are identified below.

ARC-Provided Systems and Subsystems

Oracle Federal Financials Oracle Federal Financials R12 is the core financial management system, providing purchasing, accounts payable, accounts receivable, general ledger, budget execution, project costing and billing, order management, inventory, and fixed assets functionality. Oracle Federal Financials is Joint Financial Management Improvement Program (JFMIP)-certified to meet federal government accounting needs. ARC personnel operate and maintain the system.

ARC has also developed and implemented several proprietary add-ons to Oracle Federal Financials to integrate key activities such as e-payroll, procurement, purchase card, e-travel, Federal investments, grants, and Intragovernmental Payment and Collection (IPAC) collections.

HUD-Owned Applications

TRACS: The Tenant Rental Assistance Certification System (TRACS) is designed to process subsidy contracts, tenant rental assistance information, and owner requests for payment (vouchers). TRACS checks eligibility for Section 8 programs (income, dependents, family composition, unit information, etc.) and is responsible for monitoring and managing the Section 8 contract portfolio, including budget projections and funding. Interfacing with the Department’s core financial management systems, TRACS obligates nearly $10 billion in new budgetary authority annually for subsidy payment disbursement.

SAMS: A description of the Single Family Acquired Asset Management System (SAMS) is included in Part B, FHA Entity Profile, of this attachment.

HUDCAPS: The HUD Central Accounting and Program System (HUDCAPS) is HUD’s subsidiary general ledger system, and provides the capability of capturing, recording, and summarizing HUD’s financial results of operations across all business areas.

HUDCAPS uses customized program financial management software in combination with the Federal Financial System (FFS®) software, to provide an integrated financial solution. HUDCAPS previously served as the Departmental general ledger and continues to operate as the accounting system for the Section 8 Tenant-based Rental Assistance Program and as a payment system disbursing over $18 billion in payments each year. HUDCAPS remains a key component of the information interchange between legacy programmatic systems, the NCIS interface, and the Oracle General Ledger.

IDIS (Integrated Disbursement and Information System) supports HUD’s Office of Community Planning and Development consolidated planning, disbursement, and reporting requirements for the entitlement grant programs (HOME, Community Development Block Grant [CDBG], Emergency Shelter Grants [ESG], and Housing Opportunities for Persons with AIDS [HOPWA]) as well as the 2009 American Recovery and Reinvestment Act (ARRA) programs (Tax Credit Assistance Program [TCAP], CDBG-R, and Homelessness Prevention and Rapid Re-housing [HPRP]). IDIS is classified as a mixed financial system that interfaces with

LOCCS.

LOCCS: The Line of Credit Control System (LOCCS), a mixed financial system, is a disbursement and cash management system that services over 100 major HUD program areas and 68,000 grantees; and, controls payments for over 100,000 projects. The system disburses over $28 billion annually. LOCCS is both a payment system and a HUD post–award financial grants management system which services the funding needs of HUD's grant, loan, and subsidy clients. In addition, LOCCS generates Internal Revenue Service Form SF–1099 reporting and uses on–line, real–time processing to accept payment requests from grantees, validates the request for payment per program guidelines, and when appropriate, applies payment offsets.

PAS: The Program Accounting System (PAS) is a mixed financial system that provides fund accountability and an integrated subsidiary for the Department’s grant, subsidy, and loan programs. PAS activity is sent through HUDCAPS/NCIS for general ledger processing. Data entry to PAS is achieved by interface from HUDCAPS for establishing budgets; program office files of commitment, obligation, and contract documents used to record accounting transactions; by interface from LOCCS to record disbursement, receivables and collections accounting transactions and by on–line data entry by staff in the Fort Worth Accounting Center and by Headquarters staff. On November 23, 2019, PAS functionality migrated into LOCCS. As a result, OCFO is working with OCIO to decommission PAS.

CHUMS: A description of the Single Family Computerized Home Underwriting Management System (CHUMS) is included in Part B, FHA Entity Profile, of this attachment.

NCIS: The New Core Interface Solution (NCIS) supports the interface of data from HUD legacy systems with HUD’s financial system of record, Treasury ARC Oracle Federal Financials. NCIS is a custom-developed application hosted by Oracle Managed Cloud Services. NCIS is a two-tier architecture, consisting of the application tier and database tier. NCIS performs the Extract, Transform, and Load (ETL) functions, as well as a variety of error processing, reconciliation, and interface file management functions to support the interface of HUD systems with ARC’s systems. NCIS has a user interface which permits a small community of users within OCFO Systems to upload and maintain crosswalk tables, monitor interface processes, and resolve errors. All data is sent to and from the NCIS via HUD’s Secure File Transfer Protocol (SFTP) server.

LAS: The Loan Accounting System (LAS, A21) is a Windows-based commercial-off-the-shelf application, Nortridge Loan System (NLS). LAS is a mixed financial system that performs the direct loan servicing activities required to support the Section 202, Section 201, Section 236 Excess Rental Income Program, Green Retrofit Program, and the Emergency Home Loan Program. It maintains the loan amortization schedules, generates the monthly interest and principal amounts due, and applies collections to the interest and principal amounts due and all excess amounts are recorded in the project/loan suspense account. Collections for the repayment of Section 202 loans are offsets taken from the Section 8 subsidy program and are recorded through the LOCCS interface to LAS. Other electronic collections are recorded via interface from P299 HUD Pay.gov Common Service, which is interfaced from the Treasury Pay.gov System. Accounting transactions generated by LAS are posted in Oracle (HUD’s general ledger) by way of LAS LOCCS

HUDCAPS NCIS.

DRGR: The Disaster Recovery Grant Reporting (DRGR) system is a web-based grants management application providing real-time disbursement, tracking, and reporting activities for HUD’s disaster grant programs. DRGR is classified as a mixed financial system that interfaces with LOCCS. DRGR enables grantees to establish strategic plans, citizen participation plans, and action plans; draw program funds; and report on the activities, beneficiaries, properties, matching funds, and other accomplishment data.

eSNAPS: The electronic Special Needs Assistance Program System (eSNAPS) is a grants management system that automates the intake, scoring, selection, award, and performance reporting of the HEARTH and Continuum of Care programs. eSNAPS is a web-based commercial-off-the-shelf application and is classified as a mixed financial system.

Budgetary Resources and Restrictions

HUD OCFO-managed program activities are funded almost exclusively by Congressional appropriations. As such, HUD must comply with the budgetary restrictions contained in laws, regulations, and circulars applicable to the appropriations process (see next section for details). Ginnie Mae does not receive appropriations, but, instead receives offsetting collections, which are considered funds from dedicated collections and must be used to create sufficient reserves to meet anticipated claims and to pay salaries and expenses up to the amount noted in the appropriations bill.

FHA receives both appropriations and material offsetting collections to cover its costs. The FHA auditors are responsible for ensuring it is in compliance with applicable budgetary restrictions; however, the list of FHA budgetary restrictions is as follows:

Fund Appropriation Restriction for majority of funds Other restrictions Mutual Mortgage Iinsurance

(MMI)

$400 billion – New commitments to guarantee single family loans insured under the MMI fund

Funds to remain available until September 30, 2021 (2-year funds)

During fiscal year 2020, obligations to make direct loans to carry out the purposes of section 204(g) of the National Housing Act, as amended, shall not exceed $1 million. The foregoing amount shall be for loans to nonprofit and governmental entities in connection with sales of single-family real properties owned by the Secretary and formerly insured under the MMI Fund.

$130 million – For administrative contract expenses

Funds to remain available until September 30, 2021 (2-year funds)

To the extent guaranteed loan commitments exceed $200 billion on or before April 1, 2020, an additional $1,400 for administrative contract expenses shall be available for each $1 million in additional guaranteed loan commitments, but in no case shall funds made available by this proviso exceed $30 million.

General $30 billion – New Funds to remain available During fiscal year 2020, gross obligations for the majority of funds Other restrictions Insurance/Special Risk Insurance

(GI/SRI)

commitments to guarantee loans insured under the GI/SRI funds until September 30, 2021 (2-year funds) principal amount of direct loans, as authorized by sections 204(g), 207(l), 238, and 519(a) of the National Housing Act, shall not exceed $1 million, which shall be for loans to nonprofit and governmental entities in connection with the sale of single family real properties owned by the Secretary and formerly insured under the Act.

Significant Laws

HUD administers a number of grant, subsidy, and assistance programs that came from a variety of enacted legislation. Additionally, other pieces of legislation have specified changes in how HUD structures or administers its programs. The following laws and regulations are applicable:

Housing Acts - These Acts established HUD programs:

1. U.S. Housing Act of 1937 (as amended by the Quality Housing and Work Responsibility Act of 1998 and subsequent amendments by other Acts) created the U.S. Housing Authority and gave it the authority to make loans to local public housing agencies for low-rent housing and to provide capital grants to local housing agencies under specified conditions and subsidize rents in coordination with income levels. This Act created the Public and Indian Housing program.

2. Housing Act of 1949 established the national housing objective to provide Federal aid to assist slum-clearance, community development, and redevelopment programs. (July 15, 1949)

3. Housing Act of 1954 created Section 701 comprehensive planning assistance. (August 2, 1954)

4. Housing Act of 1959 created direct loans for senior citizen housing and authorized Section 202 Supportive Housing for the

Elderly Program. (September 23, 1959)

5. Housing Act of 1964 created Section 312 rehabilitation loans. (September 2, 1964)

6. Housing and Urban Development Act of 1968 added Sections 235, 236, 237, and 238 to the National Housing Act. The act also established the Government National Mortgage Association (Ginnie Mae) to expand availability of mortgage funds for moderate income families using government guaranteed mortgage-backed securities. (August 1, 1968)

7. Housing and Community Development Act of 1974 created the Community Development Block Grant program (CDBG).

8. Amendment to U.S Housing Act of 1937 in 1974- The Section 8 program was authorized by Congress in 1974 and developed by HUD to provide rental subsidies for eligible tenant families (including single persons) residing in newly constructed, rehabilitated, and existing rental and cooperative apartment projects.

9. Housing and Community Development Act of 1977 substantially changed the CDBG program and (1) established Urban Development Action Grants and Small Cities development studies, (2) allowed graduated payment mortgages, (3) extended elderly and handicapped provisions, (4) directed submission of an annual report on National Urban Policy, (5) extended flood insurance provisions, and (6) established the Community Reinvestment Act of 1977. (October 12, 1977).

10. Housing and Community Development Amendments of 1978 made substantial changes to the CDBG program and (1) established assistance payments to owners of multifamily projects, (2) extended elderly and handicapped provisions, and (3) established the Neighborhood Self-Help Development Act of 1978. (October 31, 1978)

11. Housing and Community Development Act of 1980 amended and extended certain Federal laws relating to housing, community and neighborhood development and preservation, and related programs. (October 8, 1980)

12. Housing and Urban-Rural Recovery Act of 1983 created Housing Development Action Grant and Rental Rehabilitation programs. The Act also created the Housing Voucher program as an alternative to Section 8 rent certificates. (November 30, 1983)

13. Stewart B. McKinney Act created 15 programs that provide a range of services to homeless people, including the Continuum of Care Programs, Supportive Housing Program, Shelter Plus Care Program, and Single Room Occupancy Program, as well as the Emergency Shelter Grant Program. (July 22, 1987)

14. Division B of Public Law 111-22, also known as the "Homeless Emergency Assistance and Rapid Transition to Housing Act of 2009" ("HEARTH Act"), amended the McKinney-Vento Act. Specifically, the HEARTH Act consolidated the separate homeless assistance programs carried out under Title IV of McKinney-Vento into a single program with specific eligible activities. These included the: (1) supporting housing program and related programs, (2) safe havens program, (3) Section 8 assistance program for single-room occupancy dwellings, and (4) shelter plus care program. The HEARTH Act also codified the continuum of care planning process and the integral local functions necessary to generate the local strategies for ending homelessness as well as modified the Emergency Shelter Grant program. The program was also renamed the Emergency Solutions Grant program and expanded eligible services. (May 20, 2009)

15. Indian Housing Act amended the United States Housing Act of 1937 to establish a separate program to address housing assistance for Indian and Alaskan natives. (June 28, 1988)

16. Cranston-Gonzalez National Affordable Housing Act created the HOME Investment Partnerships program, a National Homeownership Trust program, the HOPE for Elderly Independence program (HOPE IV), and Section 811 Supportive Housing for Persons with Disabilities program. (November 28, 1990)

17. VA-HUD Independent Agencies Appropriations Act provided funding and authorization for a Capital Grants program to construct or substantially rehabilitate housing for the elderly and disabled, replacing the Section 202 direct loan program. This act also created the Office of Lead Based Paint Abatement and Poisoning Prevention. (October 28, 1991)

Appropriations Law and Coronavirus Aid, Relief and Economic Security (CARES) Act

The Further Consolidated Appropriations Act, 2020 (P.L. 116-94) was signed into law on December 20, 2019. The Act identifies the purpose, amount, and time for appropriations that have been granted to program areas within HUD for fiscal year 2020. HUD also received supplemental appropriations in the CARES Act, which was signed into law on March 27, 2020, to prevent, prepare for, and respond to the Coronavirus. Most of HUD’s significant programs received supplemental appropriations, including $1.25 billion for Tenant-based rental assistance, $685 million for Public Housing, $300 million for Native American Programs, $5 billion for the Community Development Fund, $4 billion for Homeless Assistance Grants, and $1 billion for Project-based rental assistance.

Other Laws and Regulations Significant to HUD:

• National Affordable Housing Act of 1990

• McKinney-Vento Homeless Assistance Act of 1987, as amended by the HEARTH Act of 2009

• Section 601 of the Independent Agencies Act of 1999

• HUD Reform Act of 1989

• Housing and Community Development Act of 1974 (12 USC 5301)

• Public Law 110-185, Economic Stimulus Act of 2008

• Public Law 110-289, Housing & Economic Recovery Act of 2008

• Government Management Reform Act of 1994

• Government Performance and Results Act of 1993

• Chief Financial Officers Act of 1990

• Government Corporation Control Act, codified at 31 USC title VI, Chapter 91

• U.S. Code Title 31 - Money & Finance, Subtitle II - The Budget Process, Chapter 15

• Code of Federal Regulations- Title 24- Housing and Urban Development

• Title 2 of the Code of Federal Regulations, 2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit

Requirements for Federal Awards

• Public Law 113-2, Disaster Relief Appropriations Act, 2013

• Federal Credit Reform Act of 1990

• Pay and allowance system for civilian employees at chapters 51-59 of Title 5, U.S. Code

• Anti-Deficiency Act

• Prompt Payment Act

• Debt Collection Improvement Act of 1996

• United States Code Title 31, Sections 3711-3720E, Provisions Governing Claims of the United States Government

• Federal Managers Financial Integrity Act of 1982

• Federal Financial Management Improvement Act of 1996

General Guidance/Requirements Relevant to the Financial Statement Audit

• Title 7 of the Government Accountability Office (GAO) Policy and Procedure Manual for Guidance of Federal Agencies- Fiscal Guidance

• Title 2 of the GAO Policy and Procedure Manual for Guidance of Federal Agencies-Accounting

• Statements of Federal Financial Accounting Standards (SFFAS) and Concepts (SFFAC), issued by Financial Accounting

Standards Advisory Board (FASAB)

• Treasury Financial Manual

• Generally Accepted Accounting Principles (GAAP)

• GAO Financial Audit Manual

• OMB Circular A-136, Financial Reporting Requirements

• OMB Circular A-11, Preparation, Submission and Execution of the Budget

• OMB Circular A-123 Management's Responsibility for Enterprise Risk Management and Internal Control and Appendices

Significant Financial Statement Line Items

In general, identification of significant line items in HUD’s financial statements is based on whether the account balance or line item was material in the prior year’s financial statements. “Material” is defined as whether the account balance or line item exceeds the Contractor’s calculated performance materiality1 for the current year. In the fiscal year 2020 audit, in addition to the material OCFO-controlled line items, HUD OIG also selected the following line items for additional substantive testing: (1) Accounts Receivable, (2) General Property, Plant, and Equipment, and (3) Loan Guarantee Liability. While these line items were not material to the financial statements, they were selected because of their qualitative risk factors. Risk of misstatement for these line items was assessed as moderate-high because of past audit findings, manual processes involved, concerns regarding internal controls, and recent changes to processes involved. Due to these risk factors, HUD OIG believed that these line items were at risk of (1) being understated by material amounts or (2) being overstated by significant amounts that could lead to material misstatements when aggregated with other asset or liability line items. Fiscal year 2020 significant line items are shown in the following table:

1 Performance materiality is the amount or amounts set by the auditor as a portion of materiality that the auditor allocates to particular line items, accounts, classes of transactions (such as disbursements), or disclosures. The auditor should determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing, and extent of further audit procedures. Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole.

Balance Sheet Fiscal Year 2019

Consolidated (in millions)

Fiscal Year 2019 OCFO-controlled

(in millions)

Fund Balance with Treasury

$110,743

$88,589

Investments

66,120 -

Accounts Receivable, Net

Direct Loans and Loan Guarantees

37,012

1,110

Other Non-Credit Reform Loans

2,313

(213)*

General Property, Plant, and Equipment, Net

PIH Prepayment

Intragovernmental Debt

32,384

Other Intragovernmental Liabilities

3,528

Accounts Payable

Accrued Grant Liabilities

1,288

1,288

Loan Guarantee Liability

2,514

(54)*

Other Liabilities with the Public

2,389

Statement of Net Cost

Gross Costs

30,770

52,711

Earned Revenue

(3,676)

(94)

Statement of Changes in Net Position

Corrections of Errors 575 575

Appropriations Received

59,193

57,754

Other Adjustments (565) (551)

Appropriations Used

54,650

53,260

Other Financing Sources (Non-exchange)- Other

2,885

Statement of Budgetary Resources

Unobligated Balance From Prior Year Budget Authority, Net

114,622

37,242

Appropriations (discretionary and mandatory)

59,445

58,006

Borrowing Authority (discretionary and mandatory)

11,479

Spending Authority from Offsetting Collections

49,592

New Obligations and Upward Adjustments

113,447

56,531

Apportioned, Unexpired Accounts

48,224

34,449

Unapportioned, Unexpired Accounts

72,569

3,709

Expired Unobligated Balance, End of Year

Outlays, Net (Total) (discretionary and mandatory)

54,716

53,571

Distributed Offsetting Receipts (-)

(2,565)

(385)

*Note: The OCFO-controlled Other Non-Credit Reform Loans and Loan Guarantee Liability line items each include a $(213) million elimination.

PART B

FEDERAL HOUSING ADMINISTRATION

The Federal Housing Administration (FHA) was created in 1934 with the signing of the National Housing Act, and in 1948 it became a wholly-owned government corporation subject to the Government Corporation Control Act, as amended. FHA was merged into the U.S. Department of Housing and Urban Development (HUD) when the department was created in 1965. HUD’s Assistant Secretary for Housing—Federal Housing Commissioner, who reports to the Secretary of HUD, heads the FHA.

FHA supports HUD’s housing mission by providing mortgage insurance on loans made by approved lenders throughout the United States and its territories. The mortgage insurance provides lenders with protection against losses as the result of borrowers defaulting on their mortgage loans. When borrowers default on their loans, the lenders file a claim with FHA, which may result in the mortgage note or property being assigned to FHA. To cover the costs of claims, FHA charges the lenders an upfront premium and an annual premium based on the percentage of the unpaid principal balance. Today, FHA insures mortgages on single family and multifamily homes, including manufactured homes, and hospitals. It also insures home equity conversion mortgages (HECM), also known as reverse mortgages, for borrowers age 62 and older. Since 1934, FHA has insured more than 47.5 million single family home mortgages and 48,500 multifamily and healthcare project mortgages.

Significant Offices and Insurance Programs

FHA’s insurance programs are managed by four functional areas within HUD’s Office of Housing (Housing): Single Family Housing Programs, Multifamily Housing Programs, Manufactured Housing Programs, and Healthcare Programs.

Single Family Housing Programs: Single family housing programs provide mortgage insurance to mortgage lenders that, in turn, provide financing to enable individuals and families to purchase, rehabilitate, or construct homes. Some of the single family mortgage insurance programs are noted below:

• One- to Four-Family Home Mortgage Insurance - Section 203(b). This program provides insurance for the financing of new or existing one-to-four family dwellings, including manufactured homes and individual condominium units. Under this program, homebuyers can purchase homes with low down payments or refinance existing debt on such properties. The program is generally limited to owner-occupants.

• Rehabilitation Loan Insurance - Section 203(k). This is HUD’s primary program for the rehabilitation and repair of single family properties. A loan can be used to finance (1) rehabilitation of an existing property; (2) rehabilitation and refinancing of the outstanding indebtedness of a property; and (3) purchase and rehabilitation of a property. All homeowners that can make the monthly mortgage payments are eligible to apply. Cooperative units are not eligible. Currently, individual condominium units may be insured if they are in projects that have been approved by FHA and there are four () or fewer units in the building.

Rehabilitation is limited to only the interior of a unit. To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. There are other eligibility requirements for the use of the 203(k) loan on a condominium unit.

• Mortgage Insurance for Disaster Victims - Section 203(h). This program provides mortgage insurance for victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home. Any person whose home has been destroyed or severely damaged in a presidentially declared disaster area is eligible to apply for mortgage insurance under this program, even if they were renting the property. The borrower’s application for mortgage insurance must be submitted to an FHA-approved lending institution within one year of the President’s declaration of the disaster.

• Energy Efficient Mortgage Program - Section 513. This program provides mortgage insurance to finance the cost of energy efficiency measures. FHA’s Energy Efficient Mortgage program helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA-insured home purchase or refinancing mortgage.

• Home Equity Conversion Mortgage Program - Section 255. This program allows borrowers, who are at least 62 years of age, to convert the equity in their homes into a monthly stream of income or a line of credit. The borrower retains ownership of the property and may sell the home and move at any time, keeping the sales proceeds in excess of the mortgage balance. The borrower cannot be forced to sell the home to pay off the mortgage, even if the mortgage balance grows to exceed the value of the property. An FHA-insured reverse mortgage becomes due and payable under various circumstances such as the death of the last remaining borrower, when the borrower sells the home, or when the borrower fails to keep up their obligations. When the loan is due and payable, if the loan exceeds the value of the property, the borrower (or the heirs) will owe no more than the value of the property. In certain cases a non-borrowing spouse may be eligible to stay in the home for a deferral period, even when the loan is otherwise eligible to be called due and payable.

Multifamily Housing Programs: Multifamily housing programs provide mortgage insurance to facilitate the construction, rehabilitation, repair, refinancing, and purchase of multifamily housing projects such as apartment rentals, cooperatives, and mobile home parks.