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GAO-13-78R: 

United States Government Accountability Office: 
Washington, DC 20548: 

November 15, 2012: 

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

The Honorable Spencer Bachus: 
Chairman: 
The Honorable Barney Frank: 
Ranking Member:
Committee on Financial Services: 
House of Representatives: 

Subject: Financial Audit: Federal Housing Finance Agency’s Fiscal 
Years 2012 and 2011 Financial Statements: 

This report transmits the GAO auditor’s report on the results of our 
audits of the fiscal years 2012 and 2011 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 2012. 

As discussed more fully in the auditor’s report that begins on page 74 
of the enclosed PAR, we found: 

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

* FHFA maintained, in all material respects, effective internal 
control over financial reporting as of September 30, 2012; and; 

* no reportable noncompliance in fiscal year 2012 with provisions of 
laws and regulations 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: Fannie Mae, Freddie Mac, the 12 Federal Home Loan Banks, 
and the Office of Finance.[Footnote 2] The 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 are sending copies of this report to the Chairman of the Federal 
Housing Finance Oversight Board; the Secretary of 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, this 
report is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you have questions about 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, 122 Stat. 2654, (July 30, 2008). The 12 
Federal Home Loan Banks and the Office of Finance, whose primary 
function is to issue and service all debt securities for the FHLBanks, 
comprise the Federal Home Loan Bank System. 

[2] The Office of Finance is operated on behalf of the 12 Federal Home 
Loan Banks. Its primary function is to issue and service all debt 
securities for the Federal Home Loan Banks, while obtaining the most 
cost-effective terms possible given current market conditions. 

[End of letter] 

Federal Housing Finance Agency: 

2012: 
Performance and Accountability Report: 

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: 

Message from the Acting Director: 

How the Report is Organized: 

Management’s Discussion and Analysis: 

Strategic Goals and Resource Management Strategy: 

Alignment of Resource Allocation with Strategic Goals: 

FHFA at a Glance: 

Organization: 

Management Challenges and What Lies Ahead: 

Performance Highlights by Strategic Goal: 

FY 2012 Performance Summary: 

Overview of FHFA’s Seven Key Performance Measures: 

Program Evaluations: 

Analysis of Financial Statements: 

Analysis of Systems, Controls and Legal Compliance: 

Management Report on Final Actions: 

FHFA’s Statement of Assurance: 

Performance Section: 

Managing and Measuring Performance: 

Strategic Human Capital Management: 

Strategic Goal 1: Safety and Soundness: 

Strategic Goal 2: Stable, Liquid, and Efficient Mortgage Market: 

Strategic Goal 3: Preserve and Conserve Enterprise Assets: 

Resource Management Strategy: 

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: 

Other Accompanying Information: 

Performance Goals and Measures No Longer Reported: 

Inspector General’s FY 2013 Management and Performance Challenges: 

Summary of Financial Statements Audit and Management Assurances: 

Appendix: 

Glossary: 

Acronyms: 

Index of Figures and Features: 

Acknowledgements: 

FHFA Agency Key Management Officials: 

[End of section] 

Message from the Acting Director: 

I am pleased to present the Federal Housing Finance Agency’s (FHFA’s) 
FY 2012 Performance and Accountability Report. FHFA is an independent 
agency responsible for providing effective supervision, regulation, 
and housing mission oversight of Fannie Mae and Freddie Mac (the 
Enterprises), the Federal Home Loan Banks (FHLBanks) and the FHLBank’s 
joint Office of Finance to promote their safety and soundness, support 
housing finance, affordable housing, and a stable and liquid mortgage 
market. Together, these 14 regulated entities are known as the housing 
government-sponsored enterprises, or housing GSEs. 

This report describes FHFA’s performance highlights, the challenges we 
face in supervising the regulated entities, the collective work among 
FHFA and the Enterprises to assist homeowners and support the housing 
market, and the ongoing initiatives by the agency to ensure FHFA meets 
the strategic goals that are set. 

FHFA’S FY 2012 Strategic Goals And Resource Management Strategy: 

1. The housing GSEs operate in a safe and sound manner and comply with 
legal requirements. 

2. The housing GSEs support a stable, liquid, and efficient mortgage 
market including sustainable homeownership and affordable housing.

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.

4. FHFA has the personnel, resources, and infrastructure to manage 
effectively and efficiently to achieve its mission and goals.

Enterprises: 

The Enterprises have been in conservatorships since September 2008 and 
they have maintained a functioning conventional mortgage market 
throughout that period. Under FHFA direction, the Enterprises made 
significant progress remediating the problems that led to their being 
placed in conservatorships and refining programs designed to keep 
borrowers in their homes. 

However, open-ended conservatorships cannot continue indefinitely. In 
February 2012, FHFA released A Strategic Plan for Enterprise 
Conservatorships. This plan identifies three strategic goals for the 
next phase of the conservatorships: 

* Build a new infrastructure for the secondary mortgage market; 

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

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

The plan is a roadmap for work FHFA and the Enterprises will undertake 
while the companies remain in conservatorship. FHFA created the Office 
of Strategic Initiatives to help the agency execute the activities 
associated with this plan.

Federal Home Loan Banks: 

The FHLBanks continued to improve their financial condition and 
performance during the fiscal year. Balances of private-label 
mortgage- backed securities (MBS) continued to decline and credit 
losses on these securities subsided, allowing the FHLBanks to generate 
positive net income and augment their retained earnings. 

In April 2012, FHFA concluded that the FHLBank of Chicago had 
satisfied the requirements established by the cease and desist order 
that had been in place since October 2007 and removed that cease and 
desist order. In September 2012, FHFA determined that the FHLBank of 
Seattle was adequately capitalized under the risk-based capital 
framework, removing the discretionary undercapitalized designation 
that had been in place. 

The FHLBanks’ capital levels remained at or near historic highs during 
the fiscal year. Retained earnings have increased dramatically in the 
past five years and now top $9 billion. Retained earnings should 
continue to increase because of the capital plan provisions adopted 
last year to set aside 20 percent of income in restricted retained 
earnings. 

New FHFA Strategic Plan: 

FHFA developed a new Strategic Plan for FHFA for Fiscal Years 2013- 
2017 and released it in early October 2012. The plan sets four 
strategic goals: 

FHFA’S FY 2013–2017 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 new strategic plan builds on the agency’s earlier document, A 
Strategic Plan for Enterprise Conservatorships and lays out a series 
of initiatives and strategies designed to improve current mortgage 
processes, inspire greater confidence among potential market 
participants and set the stage for an improved future system of 
housing finance. 

In addition, the agency’s FY 2013 Annual Performance Plan includes new 
performance measures for monitoring progress toward meeting the 
strategic and performance goals described in the Strategic Plan for 
FHFA for Fiscal Years 2013-2017. 

Program Data and Financial Performance: 

For the fourth consecutive year, FHFA received an unqualified (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 Circular A-123. FHFA met or exceeded 23 (92 
percent) of its performance measures. The agency did not meet two (8 
percent) of the measures (see the Performance Summary section on page 
34).

Conclusion: 

The conservatorships of the Enterprises were never intended as a long- 
term solution but were meant primarily as a “time out.” However, in 
the four years since FHFA established the conservatorships, we have 
made significant strides towards maintaining a functioning mortgage 
market. The cornerstone of A Strategic Plan for Enterprise 
Conservatorships is to build a new securitization platform that could 
serve both Fannie Mae and Freddie Mac while in conservatorship—and 
potentially serve the secondary mortgage market in a post- 
conservatorship world that has multiple issuers of mortgage-backed 
securities. 

The FHLBanks have continued to play an important role in housing 
finance. There are many opportunities and challenges ahead, and the 
role of the FHLBanks in the country’s housing finance system will be 
part of the policy discussion.

While the future structure of housing finance remains undetermined, 
the nation’s confidence in the housing market seems to be returning. 
FHFA looks forward to working with the Administration, Congress, and 
market participants in continuing the work of rebuilding the country’s 
housing finance system.

Signed by: 

Edward J. Demarco: 
Acting Director: 

November 15, 2012: 

[End of section] 

How the Report is Organized: 

This report highlights the agency’s accomplishments in FY 2012 and our 
future challenges. This report has five sections, as follows: 

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 Accompanying 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, acknowledgements, and an index of figures and 
features.

[End of section] 

Management’s Discussion and Analysis: 

* Strategic Goals and Resource Management Strategy; 

* Alignment of Resource Allocation with Strategic Goals; 

* FHFA at a Glance; 

* Organization; 

* Management Challenges and What Lies Ahead; 

* Performance Highlights by Strategic Goal; 

* FY 2012 Performance Summary; 

* Overview of FHFA’s Seven Key Performance Measures; 

* Program Evaluations; 

* Analysis of Financial Statements; 

* Analysis of Systems, Controls and Legal Compliance; 

* Management Report on Final Actions; 

* FHFA’s Statement of Assurance. 

[End of section] 

Strategic Goals and Resource Management Strategy:; 

Strategic Goal 1: Safe And Sound Housing GSES: 

The housing government-sponsored enterprises (GSEs)-—Fannie Mae, 
Freddie Mac, and the Federal Home Loan Banks-—operate in a safe and 
sound manner and comply with legal requirements.

Strategic Goal 2: Housing Mission: 

The housing GSEs support a stable, liquid, and efficient mortgage 
market including sustainable homeownership and affordable housing.

Strategic Goal 3: Conservatorship: 

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.

Resource Management Strategy: 

FHFA has the personnel, resources, and infrastructure to manage 
effectively and efficiently to achieve its mission and goals.

Alignment of Resource Allocation with Strategic Goals: 

FHFA tracks resource allocations and program costs according to 
strategic goals. Figure 1 illustrates the costs that FHFA expended 
from FY 2010 to FY 2012 to accomplish its three strategic goals. 
Figure 2 shows the number of full-time equivalent employees working on 
each goal. Resources associated with the Resource Management Strategy 
were distributed proportionately to Strategic Goals 1 through 3 based 
on the percentage of direct costs of each strategic goal to the total 
direct costs for FHFA. 

Figure 1: Actual Dollars Fy 2010–2012 (Dollars In Millions): 

[Refer to PDF for image: vertical bar graph] 

Strategic Goal 1: 
2010: $95.9; 
2011: $126.0; 
2012: $153.6. 

Strategic Goal 2: 
2010: $16.0; 
2011: $17.2; 
2012: $24.9. 

Strategic Goal 3: 
2010: $16.7; 
2011: $24.2; 
2012: $39.0. 

[Enmd of figure] 

Figure 2: Actual Full-Time Equivalents Fy 2010–2012: 

[Refer to PDF for image: vertical bar graph] 

Strategic Goal 1: 
2010: 326; 
2011: 421; 
2012: 426. 

Strategic Goal 2: 
2010: 54; 
2011: 69; 
2012: 82. 

Strategic Goal 3: 
2010: 57; 
2011: 36; 
2012: 43. 

[End of figure] 

FHFA at a Glance: 

Overview:

The Federal Housing Finance Agency was created as an independent 
agency on July 30, 2008, when the President signed the Housing and 
Economic Recovery Act of 2008 (HERA). This law merged the staffs at 
the Office of Federal Housing Enterprise Oversight, the Federal 
Housing Finance Board, and certain staff from the U.S. Department of 
Housing and Urban Development (HUD). FHFA is responsible for 
overseeing the financial safety and soundness and housing mission 
compliance of the housing GSEs. 

Regulator Of The Enterprises And The FHL Banks: 

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 FHFA 
Director is appointed by the President, subject to Senate approval. 
The Director represents the agency on FSOC and FinSOB, and chairs the 
Federal Housing Finance Oversight Board. 

Conservator Of The Enterprises: 

In accordance with the Federal Housing Enterprises Financial Safety 
and Soundness Act of 1992 as amended by HERA, FHFA was appointed 
conservator of Fannie Mae and Freddie Mac on September 6, 2008. 

As conservator, 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, FHFA holds authority over the management, boards, and 
shareholders of the Enterprises in conservatorship. However, the 
Enterprises continue to operate as business corporations. For example, 
they have chief executive officers and boards of directors, and must 
follow the laws and regulations governing financial disclosure, 
including requirements of the Securities Exchange Commission.

Like other 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, the focus of the conservatorships is 
not to manage every aspect of the Enterprises’ 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 carrying out FHFA responsibilities as 
conservator.

FY 2012 Profile:  

* During each calendar year (CY), FHFA completes examinations for 
Fannie Mae, Freddie Mac, each of the 12 FHLBanks, and the Office of 
Finance. FHFA presents reports of examination to the respective boards 
of directors, though the scheduling of examination fieldwork and 
reviews of examination reports may vary from year to year. Results of 
the examinations are reported to Congress. 

* FHFA consolidated its operations from three separate locations to a 
new headquarters at Constitution Center in Washington, D.C., in 
January 2012. This move allowed the headquarters staff to work in a 
single location, which facilitates coordination and communications 
across the agency’s divisions and offices and contributes to more 
effective and efficient operations for the agency. 

* FHFA developed two new strategic plans during FY 2012—A Strategic 
Plan for Enterprise Conservatorships that describes the initiatives 
that will be undertaken in the next phase of the conservatorships and 
the Strategic Plan for FHFA for Fiscal Years 2013-2017. 

* FHFA created the Office of Strategic Initiatives to coordinate and 
oversee activities associated with A Strategic Plan for Enterprise 
Conservatorships. 

* FHFA expanded its regulatory presence at the Enterprises by 
increasing the number of examiners permanently onsite at Fannie Mae 
and Freddie Mac. 

* FHFA handled 246 congressional inquiries, 2,065 non-consumer general 
public inquiries, and 2,554 consumer inquiries in FY 2012. 

* FHFA worked with the Enterprises to complete foreclosure prevention 
actions, which helped 522,575 homeowners avoid foreclosure from 
October 2011 to August 2012. These actions are intended to assist 
homeowners whose mortgages are in distress to maintain their homes. 
The Home Affordable Refinance Program (HARP) was established as a pre- 
distressed action to enable homeowners to refinance their mortgages 
and lower their monthly payments. From October 2011 to August 2012, 
711,409 mortgages were refinanced through HARP. 

* FHFA increased its staff by 64 employees in FY 2012, ending the year 
at 574 employees. 

* FHFA’s budget for FY 2012 was $185.8 million (excluding the Office 
of Inspector General); the agency’s FY 2011 budget was $176.4 million. 

Figure 3: FHFA’s Workforce By Specialized Area: 

[Refer to PDF for image: table] 

FHFA Employees (by specialized area): 

Examinations: 
2012 Year End: 242; 
2013 Budgeted: 272. 

Other Mission: 
2012 Year End: 139; 
2013 Budgeted: 134. 

Office of the Director: 
2012 Year End: 27; 
2013 Budgeted: 30. 

Legal: 
2012 Year End: 40; 
2013 Budgeted: 42. 

Information Technology: 
2012 Year End: 53; 
2013 Budgeted: 54. 

Infrastructure: 
2012 Year End: 73; 
2013 Budgeted: 78. 

Total: 
2012 Year End: 574; 
2013 Budgeted: 610. 

[End of figure] 

[End of section] 

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, 
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 4).

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 FHFA Director, Congress, and the public of any problems or 
deficiencies relating to programs and operations. OIG activities 
assist FHFA staff and program participants in ensuring the 
effectiveness, efficiency, and integrity of FHFA’s programs and 
operations. The office was established by HERA in 2008 and 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. The office was 
created by regulation under HERA and commenced operation in March 2011.

The Office of Chief Operating Officer oversees the agency’s day-to-day 
operations, including facilities management, contingency planning, 
continuity of operations, financial and strategic planning and 
budgeting. The office also directs 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. 

[Photograph: FHFA staffers chat before the annual employee awards 
ceremony in June 2012] 

Figure 4: FHFA Principal Organization Units: 

[Refer to PDF for image: organizational chart] 

Top level: 
Office of the Director: 
* Inspector General; 
* Office of the Ombudsman. 

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

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

[End of figure] 

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 visitations. 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 promote 
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 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 also is 
responsible for working with other federal financial regulators on 
identifying and assessing emerging risks and regulatory best practices 
as well as working 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, and 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 that involve data analysis, 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 Fannie Mae’s and Freddie Mac’
 s assets and property. The office ensures that the Enterprises focus 
on their mission—providing stability, liquidity, and affordability to 
the housing market. The office interacts with the Enterprises and the 
conservator to help restore confidence in the Enterprises, enhance 
their ability to fulfill their mission, and mitigate issues of 
systemic risk leading to market instability. 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, 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 to achieve the objectives set forth 
therein. It oversees FHFA activities involving engagement with the 
Enterprises on specific 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 staff against 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 setion] 

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 5).

The Enterprises have operated under conservatorship since 2008 with 
FHFA as the legal conservator. The U.S. Department of the Treasury 
supports the Enterprises through 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. To manage the work of overseeing the 
Enterprises’ conservatorships and to assist the FHFA Director, FHFA 
created the Office of Conservatorship Operations in 2008. In February 
2012, FHFA released A Strategic Plan for Enterprise Conservatorships 
that describes the next phase of the conservatorships. The Management 
Challenges and Performance Highlights sections of this report detail 
more about the strategic plan on pages 20–21 and 29. 

Figure 5: FHFA Oversight And Conservatorship Roles — 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. 

Borrower: 
Borrower applies for mortgage; Borrower received loan. 

Lender: 
Lenders Sell Loans that Meet Underwriting and Product Standards. 


Secondary Mortgage Market: 

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

Lenders Receive Cash or MBS. 

Fannie Mae and Freddie Mac: (FHFA is the Conserator) Credit Guarantee 
Business: 
* Issues MBS; 
* Buys MBS; 
Portfolio Investment Business: 
* Issues Debt; 
* Buys Debt. 
FHFA: Financial Safety and Soundness Regulator. 

Lenders Sell MBS Received from Fannie Mae or Freddie Mac to Wall 
Street; 
Lenders Receive Cash. 

Wall Street: 
* Sells MBS & Debt to Investors; 
* Buys MBS & Debt. 

Investors: 
* Individual; 
* Institutional; 
* Foreign. 

[End of figure] 

Despite being in conservatorship, the Enterprises continue to play a 
dominant role in the secondary mortgage market. At the end of August 
2012, the Enterprises owned or guaranteed nearly $5.2 trillion of 
mortgages consisting of approximately $1.2 trillion in mortgages and 
MBS held in the Enterprises’ investment portfolios and nearly $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. As of 
August 2012, for example, the share of total MBS issued by the 
Enterprises stood at 78 percent. When combined with the 22 percent 
share for the Government National Mortgage Corporation (Ginnie Mae), 
the government sector accounted essentially for all issuances of MBS 
(see Figure 6). 

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—$116.2 billion to Fannie Mae and $71.3 billion to 
Freddie Mac. In the most recent quarterly accounting period (second 
quarter 2012) and for the first time since 2008, neither Enterprise 
needed additional funding from the Treasury Department.

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 
fiscal year 2012, there were 7,699 FHLBank members, which included: 

* 1,004 thrifts;
* 5,266 commercial banks; 
* 1,158 credit unions; and; 
* 271 insurance companies. 

Figure 6: Enterprises’ Market Share—mbs Issuance Volume: 

[Refer to PDF for image: multiple line graph and associated data. 

Volume is dipicted for: 
Private-Label; 
Ginnie Mae; 
Freddie Mac; 
Fannie Mae. 

Year: 2001. 
Enterprises: 67%; 
Ginnie Mae: 13%; 
Total Agency: 80%. 

Year: 2002; 
Enterprises: 68%; 
Ginnie Mae: 9%; 
Total Agency: 78%. 

Year: 2003; 
Enterprises: 70%; 
Ginnie Mae: 8%; 
Total Agency: 78%. 

Year: 2004; 
Enterprises: 47%; 
Ginnie Mae: 7%; 
Total Agency: 54%. 

Year: 2005; 
Enterprises: 41%; 
Ginnie Mae: 4%; 
Total Agency: 45%. 

Year: 2006; 
Enterprises: 40%; 
Ginnie Mae: 4%; 
Total Agency: 44%. 

Year: 2007; 
Enterprises: 58%; 
Ginnie Mae: 5%; 
Total Agency:63%. 

Year: 2008; 
Enterprises: 73%; 
Ginnie Mae: 22%; 
Total Agency: 95%. 

Year: 2009; 
Enterprises: 72%; 
Ginnie Mae: 25%; 
Total Agency: 97%. 

Year: 2010; 
Enterprises: 70%; 
Ginnie Mae: 26%; 
Total Agency: 96%. 

Year: 2011; 
Enterprises: 73%; 
Ginnie Mae: 25%; 
Total Agency: 98%. 

Year: 2012, Q1; 
Enterprises: 79%; 
Ginnie Mae: 20%; 
Total Agency: 99%. 

Year: 2012, Q2; 
Enterprises: 74%; 
Ginnie Mae: 26%; 
Total Agency: 100%. 

Year: 2012, Q3; 
Enterprises: 78%; 
Ginnie Mae: 22%; 
Total Agency: 100%. 

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

[End of figure] 

As of September 30, 2012, with total assets of $749 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 Met Life—are larger. 

The FHLBank of Atlanta, with assets of $112.1 billion, is the largest 
FHLBank, and the FHLBank of New York, with assets of $107.1 billion, 
is the second largest. The FHLBank of Dallas is the smallest in the 
System at $35.2 billion in assets, followed by Topeka, at $35.4 
billion in assets as of September 30, 2012 (see Figure 7). 

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 8). Advances are the largest 
category of FHLBank assets and no FHLBank has ever incurred a credit 
loss on an advance. FHLBank advances and other credit-related products 
increase the availability of credit for residential mortgages.

As a condition of membership in 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. Approximately 58 percent of members are borrowers (see Figure 
9). Each FHLBank district comprises whole contiguous states, including 
the District of Columbia and U.S. territories. The districts range in 
size from two to nine states (see Figure 10).

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 (AMA) 
programs to purchase mortgages from their members. The volume of loan 
purchases is low relative to advances, and AMA balances have generally 
declined over the past five to seven years. 

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 $4.1 billion in subsidy to this program as 
of September 30, 2012.

Figure 7: Total Assets Of The FHLBanks At September 30, 2012: 

[Refer to PDF for image: vertical bar graph] 

Atlanta: $112.1 billion; 
New York: $107.1 billion; 
San Francisco: $94.2 billion; Cincinnati: $67.2 billion; 
Chicago: $66.4 billion; 
Pittsburgh: $60.1 billion; 
Des Moines: $48.7 billion; 
Boston: $45.7 billion; 
Indianapolis: $41.2 billion; Seattle: $35.6 billion; 
Topeka: $35.4 billion; 
Dallas: $35.2 billion. 

[End of figure] 

Figure 8: FHFA Oversight Role — FHLBankS: 

[Refer to PDF for image: illustration] 

Investors: 
* Individual; 
* Institutional; 
* Foreign. 

Investors Purchase Bonds from Underwriters on Wall Street; Wall Street 
Sells Bonds to Investors. 

Wall Street: 
Issues Debt to Underwriters; Receives Cash from Underwriters. 

Office Of Finance: [FHFA Ensures Financial Safety and Soundness] All 
Debt Is Issued through the Office of Finance. 

FHLBank: [FHFA Ensures Financial Safety and Soundness] Lender Pledges 
Collateral[A]; Lender Receives Cash (Advance). 

Lender: 
Borrower Applies for Mortgage; Borrower Receives Loan. 

[A] 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 9: Number Of FHLBank Members And Percent Of Members That Borrow: 

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

Graph depicts number of members and percent borrowing for the time 
period of December 1991 through June 2012. 

[End of figure] 

Figure 10: Bank Locations: 

[Refer to PDF for image: illustrated U.S. 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 og section] 

Management Challenges and What Lies Ahead: 

[Photograph: Acting Director Edward J. Demarco addresses FHFA staff at 
a town hall meeting on the Conservatorship Strategic Plan in March 
2012] 

FHFA continues to face numerous challenges as regulator of the housing 
GSEs and conservator of the Enterprises. 

Managing The Enterprises:  

In the four years since the establishment of the conservatorships of 
the Enterprises, FHFA has made significant progress in maintaining a 
functioning mortgage market; but there is still more to do. In 
February 2012, FHFA Acting Director Edward DeMarco formalized the agency
’s plans about long-term improvements to the housing finance system 
into A Strategic Plan for Enterprise Conservatorships. The plan 
details three strategic goals for the next phase of conservatorship 
and outlines an expansive and aggressive agenda of activities for 
FHFA, Fannie Mae, and Freddie Mac. 

In conjunction with the strategic plan, FHFA developed a 
conservatorship scorecard for the Enterprises. This scorecard will 
hold management at the Enterprises accountable for meeting certain 
objectives. FHFA has also established the Office of Strategic 
Initiatives to coordinate and oversee the initiatives associated with 
the plan. Several of the more challenging initiatives organized by 
goal, are described below. 

Building a New Infrastructure for the Secondary Mortgage Market: 

Securitization Platform: 

FHFA and the Enterprises have begun work on a possible design for a 
common securitization platform to replace the Enterprises’ current 
proprietary systems, which are aging, inflexible and in need of 
substantial improvement. This important infrastructure investment will 
provide a sound securitization platform designed to issue securities 
supported with or without a government guarantee.

FHFA issued a white paper entitled Building a New Infrastructure for 
the Secondary Mortgage Market on October 4, 2012. The white paper 
identifies the core components of mortgage securitization necessary in 
the housing finance system going forward, including two cornerstone 
operational features: 1) a securitization platform to process payments 
and perform other functions that could be used by multiple MBS 
issuers, and 2) a contractual framework supporting the new 
infrastructure. FHFA requested public input on the concepts outlined 
in the paper. 

As the agency looks ahead to 2013, FHFA will continue to coordinate 
Enterprise efforts on new systems and a common platform while seeking 
input from industry stakeholders throughout this process. FHFA will 
remain mindful of policymakers’ possible future determinations about 
the degree of government involvement and support in the nation’s 
housing finance system. 

Model Pooling and Servicing Agreements:  

Building for the future also requires developing and implementing 
standards for underwriting, disclosures, and servicing. Creating a 
robust and standardized pooling and servicing agreement is essential 
to improving the existing system. The white paper entitled Building a 
New Infrastructure for the Secondary Mortgage Market, published in 
October 2012 by the agency, also sought industry feedback on a 
potential contractual framework for standardized pooling and servicing 
agreements. 

The conservatorship scorecard sets a goal for the Enterprises to 
propose a model pooling and servicing agreement framework, seek public 
feedback and produce final recommendations for standard Enterprise 
trust documentation by December 31, 2012. The longer-term goal is to 
develop pooling and servicing standards that not only create more 
efficiencies and best practices for the Enterprises, but also provide 
an option for other investors and participants to enter the secondary 
market by using a functional contractual framework that could address 
many of the shortcomings in today’s private-label structures. 

Contracting the Enterprises’ Footprint in the Market:

Raising Guarantee Fees:

FHFA has been taking steps to improve the Enterprises’ pricing of 
credit risk. In addition to strengthening market practices, these 
steps contribute to the strategic goal of gradually reducing the 
Enterprises’ footprint in the mortgage market. Since being placed into 
conservatorship, the Enterprises have steadily raised guarantee fees, 
which should gradually reduce taxpayers’ risk. 

During fiscal year 2012, there were two guarantee fee increases. The 
first increase was an across-the-board 10-basis-point increase 
mandated by Congress and used to fund the temporary payroll tax cut. 
The second was designed to average 10 basis points, but the actual 
increase will vary depending on loan terms and other factors.

The agency plans to continually increase guarantee fees in 
anticipation of a future market where credit risk is borne principally 
or exclusively by private capital. These increases may also encourage 
private firms to increase their participation in the mortgage market. 

FHFA will also consider guarantee fee pricing based on the costs of 
doing business in different parts of the country. FHFA sent a Notice 
to the Federal Register in September 2012, presenting an approach to 
adjust the guarantee fees that the Enterprises charge on single-family 
mortgages in states where costs related to foreclosure practices are 
statistically higher than the national average. 

More Private Sector Risk Sharing: 

Shifting mortgage credit risk from the Enterprises to private 
investors is central to Goal 2—Contracting Enterprise Operations— 
outlined in A Strategic Plan for Enterprise Conservatorships. FHFA is 
considering a number of alternatives, including expanded use of 
mortgage insurance and security structures that allow for private 
sharing of risk. 

Risk sharing is a complex, nuanced process that requires the 
evaluation of various avenues for investors to deploy private capital. 
In the private sector, the role of credit risk-taking through 
securitization can be divided into two categories: 1) operating 
companies such as the two GSEs and mortgage insurance companies that 
provide credit guarantee for a fee; and 2) investors in non-agency or 
private label securities (PLS). 

A Strategic Plan for Enterprise Conservatorships focuses on creating a 
securitization framework of the future to facilitate mortgage funding. 
Among various alternatives for credit risk transfer, FHFA has 
considered expanded use of mortgage insurance and senior-subordinate 
securities structures that allow for private sharing of risk with the 
Enterprises. In addition to evaluating various mechanisms for risk 
transfer with regard to market opportunities, FHFA and the Enterprises 
also need to make operational changes and develop proper risk metrics 
and controls. FHFA and the Enterprises are working diligently and 
making progress on this and other complex risk-related issues.

Retained Portfolio Contraction: 

FHFA ensured that Fannie Mae and Freddie Mac contracted their 
respective retained portfolios consistent with the Senior Preferred 
Stock Purchase Agreements (SPSPA). FHFA is working with both GSEs to 
ensure that both remain in compliance with the revised SPSPA executed 
by the Treasury Department and FHFA as conservator in August 2012 (see 
sidebar regarding SPSPA on page 31).

Maintaining Foreclosure Prevention Efforts and Credit Availability: 

Improving Loss Mitigation Efforts: 

The third goal outlined in A Strategic Plan for Enterprise 
Conservatorships—maintaining foreclosure prevention activities and 
credit availability—continues to be central to the conservator’s 
obligation to preserve and conserve the assets and property of the 
Enterprises. Foreclosure prevention efforts are designed to reduce 
credit losses, primarily on mortgages originated in the years before 
conservatorship. 

Although loss mitigation efforts that focus on helping delinquent 
households as early as possible are in place, high levels of mortgage 
delinquencies continue. Since the conservatorships began, the 
Enterprises’ foreclosure prevention activities, including loan 
modifications and short sales, have helped nearly 2.5 million 
borrowers avoid foreclosure as of August 2012. The Home Affordable 
Modification Plan (HAMP) and other modification programs have enabled 
the Enterprises to help more than one million families modify their 
loans since the start of the conservatorships. Both Enterprises have 
used HAMP as the first option for troubled borrowers.

In 2012, FHFA also announced steps to align and consolidate a number 
of previously existing short sales programs into one program. This 
streamlining will enable lenders and servicers to more quickly and 
easily qualify eligible borrowers for a short sale. FHFA also 
announced that the Enterprises would accelerate review and approvals 
of short sale transactions. FHFA will continue to find ways to help 
homeowners avoid foreclosure, reduce taxpayer losses, and help 
stabilize communities.

The Home Affordable Refinance Program (HARP) was modified in late 2011 
to expand eligibility for participation. From January 2012 to August 
2012, the new and streamlined HARP 2.0 has helped more than 618,217 
borrowers refinance their loans. As FHFA continues to gain insight 
from the program, we will make adjustments as necessary to enhance 
access to HARP.

Although loss mitigation efforts have greatly improved, FHFA remains 
committed to enhancing these programs further. FHFA and the 
Enterprises will continue to improve existing programs for loan 
modifications, refinances, and other foreclosure avoidance tools. 

In addition to the initiatives related to the strategic plan, the 
following initiatives support the goals of FHFA. 

Improving Housing GSEs Supervision: 

Fully Implemented Realignment of Supervision Staff: 

In August 2012, Acting Director DeMarco announced organizational 
refinements that will place additional examiners on-site at each 
Enterprise. This move will consolidate core examination activities and 
provide in-depth technical support, advice, and analysis to enhance 
supervision under the examiners-in-charge at the Enterprises. 

This supervision structure emphasizes: 

* The authority and responsibility of the examiner-in-charge as the 
focal point for FHFA’s supervision; 

* Communication with the Enterprises; and; 

* FHFA’s collaborative and coordinated approach to supervision. 

Coordination and transition to new positions and offices have begun, 
but the agency is challenged to have the restructured division fully 
staffed and operating by the start of the 2013 exam cycle.

Implementing Examiner Development Program: 

In August 2012, FHFA Acting Director DeMarco emphasized at an all- 
hands meeting the agency’s commitment to examiner development, 
including establishing an examiner-commissioning program and a “ 
corporate university”-styled training program. FHFA has already made 
progress on developing an examiner- commissioning program, which it 
expects to introduce in FY 2013. The FHFA corporate university will 
focus on continuous training for all employees, offering courses to 
improve skills and encourage professional development. 

[Photograph: Executives Steve Cross (left), Wanda DeLeo (center) and 
Jon Greenlee (right) spoke to FHFA staff at the annual supervision 
conference in December 2011] 

Monitoring The FHLBankS In A Changing Environment: 

Aligning Operating Expenses to Assets: 

Despite the 12 FHLBanks’ earnings improvements, the System still faces 
challenges. Advances and total assets of the System have contracted, 
but operating expenses have remained relatively steady.

The combination of lower interest income and level operating expenses 
means the FHLBanks spend a larger share of net interest income on 
operating costs. The ratio of operating expenses to net interest 
income was 21 percent in 2012, compared to the 2008 ratio of 14 
percent. 

To address this challenge, FHFA must ensure that the FHLBanks better 
align operating expenses with assets. However, FHFA also must ensure 
that the FHLBanks do not cut operating expenses imprudently, which may 
increase operational risks.

Expanding Core Business in a Weak Economy:

Over the past year, FHLBank earnings have felt downward pressure 
because of the low interest-rate environment and a decline in demand 
for advances. The low interest-rate environment adversely affects the 
FHLBanks’ net interest income by reducing return on invested capital, 
while fewer advances can lead to fewer return-generating assets.

FHFA’s challenge is to make sure the FHLBanks stay focused on their 
core business—particularly advances to members—and promote competitive 
and balanced mortgage finance and servicing systems. 

After increasing during the financial crisis to an historic high of 
more than $1 trillion in October 2008, advances fell to approximately 
$412 billion in September 2012. The decline was in part a reversal of 
the increase observed during the crisis. In addition, low loan 
generation and thriving deposits leave members with less need for the 
liquidity offered by FHLBank advances. FHLBanks price advances with 
relatively narrow spreads over funding costs to make them competitive 
to other sources of liquidity available to members, but advances have 
still dropped precipitously from their 2008 peaks.

The percentage of members with outstanding advances decreased to 58.4 
percent as of June 30, 2012, compared with 60.3 percent on December 
31, 2011. However, demand for advances has begun to show some signs of 
regional stabilization and some FHLBank members have increased their 
use of advances during the third quarter of 2012. 

[End of section] 

Performance Highlights by Strategic Goal:

Strategic Goal 1:
The housing government-sponsored enterprises operate in a safe and 
sound manner and comply with legal requirements. 

Completed 2011 Examinations Of The Enterprises And FHLBankS And 
Reported Summaries To Congress:  

FHFA released its 2011 annual Report to Congress in June 2012. The 
report contains the results and conclusions of the annual examinations 
of the Enterprises and the FHLBanks. 

Report of Examinations of the Enterprises: 

The overall ratings for both Enterprises did not change from FY 2010 
to FY 2011. However, Fannie Mae improved in three categories, 
including governance, which changed from significant concerns to 
limited concerns while both the market risk and operational risk 
management improved from critical concerns to significant concerns. 
The management and the boards at both Enterprises were responsive 
throughout 2011 to FHFA findings while continuing to take appropriate 
steps to resolve identified issues. 

Report of Examinations of the FHLBanks:

The FHLBanks showed some improvements in 2011. Overall, governance 
practices improved. The FHLBanks’ financial condition and performance 
in terms of return on assets and return on equity remained fairly 
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 
while mortgage assets continued to be the greatest source of market 
risk for the FHLBanks. 

A Year In The Life Of An Examiner: 

FHFA’s staff examiners collectively perform annual safety and 
soundness assessments of the 12 Federal Home Loan Banks, the Office of 
Finance, Freddie Mac and Fannie Mae. During these annual assessments, 
examiners perform a variety of tasks onsite at the subject 
institutions with the goal of identifying significant credit, market, 
and operational risks. Additionally, examiners evaluate effectiveness 
of board and senior management oversight during the onsite 
examination. Key duties performed by an examiner before, during and 
after examinations include: 

* Collaborates internally with FHFA staff to develop supervisory plans; 

* Identifies issues, trends and concerns on a broad range of business 
processes; 

* Plans, organizes and leads examinations; 

* Performs multiple complex tasks concurrently; 

* Directs, guides and consults with FHFA staff; 

* Observes FHLBank/Enterprise management meetings and conducts 
interviews with their staff; 

* Evaluates effectiveness of risk management practices; 

* Ensures pertinent regulations, policies and procedures are followed; 

* Communicates with FHLBank/Enterprise representatives in a tactful 
and effective manner; 

* Prepares report of examination, memoranda and other written 
communications; 

* Presents results to management and board of directors in a 
professional manner; 

* Documents support for findings, conclusions and annual assessments; 

* Exercises restraint and tact when approaching adversarial situations; 

* Provides performance input on examination team members; 

* Consults with examiners and senior agency officials on major 
oversight issues; 

* Reviews and edits examiners’ work products internally. 

Appointment Of New CEOs For Fannie Mae And Freddie Mac: 

During FY 2012, FHFA as conservator for both Fannie Mae and Freddie 
Mac appointed new chief executive officers (CEOs) for their respective 
companies. Both CEOs possess a breadth of knowledge and experience in 
housing finance and financial services. They will also lead efforts in 
continuing to strengthen their companies while promoting foreclosure 
prevention activities and supporting A Strategic Plan for Enterprise 
Conservatorships. 

Improved Financial Condition Of The Enterprises Reducing Need For 
Additional Treasury Support: 

To date, the Enterprises drew $187.5 billion from Treasury to maintain 
positive net worth. FHFA's projections on the financial performance of 
the Enterprises (using data as of October 2012), including potential 
draws under the Senior Preferred Stock Purchase Agreements with the 
Treasury Department show cumulative Treasury draws are reduced and 
more stable compared to previous projections. The key drivers to these 
results include an overall reduction in actual and projected credit- 
related expenses and changes in the dividend structure contained in 
the Senior Preferred Stock Purchase Agreements, which eliminates the 
need to borrow from the Treasury Department to pay dividends.

Modeling results under three different Moody's house price paths, 
ranging from stronger near-term rebound, current baseline, and deeper 
second recession, reveal that Freddie Mac would not require additional 
Treasury draws after 2012 in any of the three scenarios while Fannie 
Mae would not require additional Treasury draws after 2012 in two of 
the three scenarios (only in the deeper second recession scenario). 

FHFA Terminates FHLBank Of Chicago Cease And Desist Order: 

In October 2007, the FHLBank of Chicago entered into a consent cease 
and desist order with one of FHFA’s predecessor agencies, the Federal 
Housing Finance Board. The cease and desist order limited the Bank’s 
ability to redeem, repurchase, or pay dividends on its capital stock, 
and required the FHLBank to implement new management policies and 
practices acceptable to FHFA. 

Following a period of improvement, in January 2012, the FHLBank of 
Chicago converted its capital structure to comply with statutory 
requirements enacted as part of the Gramm-Leach-Bliley Act of 1999, 
making the Chicago Bank the last FHLBank to make this conversion. In 
April 2012, FHFA terminated the cease and desist order on the FHLBank 
of Chicago because of improvements in its financial and capital 
positions, the resolution of risk management concerns, and 
consideration of specific commitments and assurances made by the FHLBank
’s board of directors to FHFA. This includes the limitation of 
dividends, maintenance of retained earnings, and the reduction of 
excess stock so long as certain financial thresholds are maintained.

FHLBank Of Seattle Adequately Capitalized: 

In 2010 as a result of deterioration in the value of its private-label 
MBS and other issues principally related to its capitalization, the 
FHLBank of Seattle entered into a consent order with FHFA. The consent 
order provided for a stabilization period for the FHLBank to meet 
financial thresholds related to retained earnings, securities 
impairments, and market value before the FHLBank Seattle could resume 
certain activities, including the paying of dividends and the 
repurchase or redemption of its capital stock.

In September of 2012, FHFA reclassified the FHLBank of Seattle as ‘ 
adequately capitalized’. This designation now permits the FHLBank of 
Seattle to repurchase excess capital stock, which is something it had 
been unable to do since December 2008. This reclassification is a 
significant milestone as the FHLBank of Seattle works its way back to 
autonomous activities.

[End of Strategic Goal 1] 

Strategic Goal 2: 
The housing government-sponsored enterprises support a stable, liquid, 
and efficient mortgage market including sustainable homeownership and 
affordable housing. 

Borrower Assistance Activities: 

The Enterprises completed 389,741 home retention actions that allowed 
homeowners to save their homes from October 2011 to August 2012. Home 
retention actions include loan modifications, repayment plans, 
forbearance plans, and charge-offs-in-lieu. These actions are intended 
to assist homeowners whose mortgages are in distress with the goal of 
maintaining their homes. This number does not include HARP refinancing. 

HARP Enhancements: 

HARP was established in 2009 to assist homeowners unable to refinance 
due to a decline in home values. The program was originally designed 
to provide these borrowers with an opportunity to refinance by 
permitting the transfer of existing mortgage insurance to their newly 
refinanced loan, or by allowing those without mortgage insurance on 
their previous loan to refinance without obtaining new coverage.

During FY 2012, FHFA worked collaboratively with the GSEs and other 
industry participants in an effort to increase access to the program 
for responsible borrowers. The result of these efforts was a series of 
enhancements to the program (HARP 2.0) which included: 

* removing the 125 percent loan-to-value (LTV) ceiling for fixed-rate 
loans; 

* waiving of certain lender representations and warranties; 

* eliminating the need for an appraisal in many cases; 

* eliminating certain risk-based fees for borrowers refinancing into a 
shorter term; and; 

* lowering fees for other borrowers, and extending the HARP end date 
to December 31, 2013. 

Consequently, 711,409 refinances were completed through HARP from 
October 2011 to August 2012 compared with 448,746 refinances from 
October 2010 to September 2011. For the month of August 2012, 51 
percent of refinances through HARP have been to underwater borrowers 
with a LTV ratio greater than 105 percent, a substantial improvement 
over the month of September 2011 when such borrowers accounted for 
just 17 percent of HARP refinances (see Figure 11). Since the program’ 
s inception in April 2009, the Enterprises have financed more than 1.6 
million loans through HARP as of August 2012. HARP was established as 
a pre- distressed action to enable homeowners to refinance their 
mortgages and lower their monthly payments. 

The continued high volume of HARP loans is attributed to record-low 
mortgage rates and program enhancements (see Figures 11a). 

Figure 11: HARP Refinances: 

[Refer to PDF for image: vertical bar graph] 

HARP Refinances: 
OCT 2011–AUG 2012: 711,409; 
OCT 2010–SEP 2011: 448,746. 

HARP Refinances Share Of Harp Refinances LTV> 105%: AUG 2012: 51%; 
SEPT 2011: 17%. 

[End of figure] 

Figure 11a: Monthly HARP Volume by LTV. 

[Refer to PDF for image: stacked line graph] 

Graph depicts the following: HARP LTV >80%-105%; 
HARP LTV >105%-125%; 
HARP LTV >125%; 
for the time period Q3, 2009 through August 2012. 

Thenumber of completed HARP refinancies reported to deeply underwater 
borrowers increased sharly in June 2012 as further enhancements to HRP 
went into effect. Starting June 1, 2012, lenders became able to 
deliver loans with lon-to-value ratios greater than 125% refinanced 
through HARP to the Enterprises to be securititzed. 

[End of figure] 

Streamlining Short Sales: 

In August 2012, Fannie Mae and Freddie Mac published aligned guidance 
that consolidates four existing short sale programs into one Standard 
Short Sale program. The newly enhanced and streamlined program rules 
will enable servicers to quickly and easily qualify eligible borrowers 
for a short sale.

The new guidelines went into effect on November 1, 2012, and permit 
borrowers with a Fannie Mae or Freddie Mac mortgage who have an 
eligible hardship to sell their home in a short sale, even if they are 
current on their mortgage. Servicers will not need Fannie Mae or 
Freddie Mac approval to expedite short sales that provide relief for 
borrowers with the following hardships: death of a borrower or co- 
borrower, divorce, disability, or employment relocation of more than 
50 miles. 

Military service members who relocate under Permanent Change of 
Station (PCS) orders will automatically be eligible for a short sale, 
even if they are current on their existing mortgage. Moreover, service 
members with PCS orders will not be obligated to contribute funds to 
cover the shortfall between the outstanding loan balance and the sales 
price for principal residences purchased on or before June 30, 2012.

As part of the approval process, servicers will evaluate borrowers for 
capacity to cover some or all of the shortfall between the outstanding 
loan balance and the property sales price. Fannie Mae and Freddie Mac 
will waive the right to pursue deficiency judgments for a financial 
contribution for all approved short sales. Borrowers who sell their 
home through a short sale will not be eligible for a new mortgage 
backed by Fannie Mae or Freddie Mac for at least two years after the 
short sale. 

The new Standard Short Sale policies allow for a streamlined approach 
for borrowers who are seriously delinquent and who have low credit 
scores. In addition, Fannie Mae and Freddie Mac will offer up to 
$6,000 to second lien holders who expedite a short sale. 

From October 2011 to August 2012, the Enterprises completed 132,834 
short sales and deeds-in-lieu (nonforeclosure-home forfeiture actions) 
compared to 107,382 during the same period in 2011. 

Improvements to Foreclosure Attorney Networks:  

In an effort to produce uniform foreclosure processing standards to 
assist servicers, homeowners, and lenders, FHFA directed the 
Enterprises to change the procedures for selecting foreclosure 
attorneys. FHFA instructed the Enterprises to transition away from 
current foreclosure attorney network programs and move to a system 
where mortgage servicers select qualified law firms that meet certain 
minimum, uniform criteria. These changes will support the consent 
orders entered into by financial regulators and servicers. FHFA is 
also working with other regulators and industry stakeholders to create 
uniform qualifications and oversight of foreclosure attorneys. 

Oversight Of Federal Home Loan Banks’ Housing And Community Investment 
Programs: 

FHFA has a responsibility to ensure that all FHLBanks comply with 
statutory and regulatory requirements. As required by law, the 
FHLBanks direct 10 percent of their previous year’s annual earnings to 
the Affordable Housing Program (AHP). In both 2011 and 2012, the 

FHLBanks fully funded their AHP programs consistent with their 
statutory mandate. In 2012, FHFA developed an examination module for 
the AHP and the Community Investment Program (CIP).This module is 
currently being pilot tested. AHP examiners conducted on-site 
examinations of all 12 FHLBanks and additional on-site visitations. 
During this reporting period, FHFA conducted on-site data integrity 
reviews of AHP and CIP data for five FHLBanks. All 12 FHLBanks 
complied with AHP and CIP data reporting requirements in a timely 
manner. 

The Federal Home Loan Bank Act requires each FHLBank to appoint an 
advisory council made up of community representatives with experience 
in affordable housing. The law further requires that each council 
annually report to FHFA on the low-income housing activities of the 
FHLBanks. FHFA, in turn, analyzes the councils’ reports and delivers a 
consolidated report to the councils on the low-income housing 
activities of all of the FHLBanks. The FHLBanks’ advisory councils and 
FHFA fully complied with these requirements. 

On November 10, 2011, FHFA issued proposed amendments to its community 
support regulation (12 CFR 1290). The proposed amendments, among other 
things, would require the FHLBanks to monitor and assess the 
eligibility of each member institution for long-term advances based on 
compliance with the regulation’s Community Reinvestment Act of 1977 
and first-time homebuyer standards.

[End of Strategic Goal 2] 

Strategic Goal 3: 
FHFA preserves and conserves assets and property of the Enterprises, 
ensures focus on their housing mission, and facilitates their 
financial stability and emergence from conservatorship. 

Strategic Plan For The Conservatorships Developed: 

FHFA released A Strategic Plan for Enterprise Conservatorships that 
describes the next phase of conservatorship for the Enterprises in 
February 2012. The plan sets forth a series of initiatives and 
strategies to improve current mortgage processes, inspire greater 
confidence among prospective market participants, and set the stage 
for an improved future system of housing finance. The plan also sets 
forth objectives that are consistent with FHFA’s legal mandate and the 
policy direction that emerged from the Administration and Congress. 
The three strategic goals identified for the next phase of the 
conservatorships are discussed in detail on pages 64–66. 

Office of Strategic Initiatives: 

During FY 2012, FHFA appointed an executive to lead the newly 
established Office of Strategic Initiatives in coordinating and 
overseeing the activities associated with A Strategic Plan for 
Enterprise Conservatorships. This position reports directly to the 
Director and is responsible for identifying and organizing key 
stakeholders, work streams, and deliverables that flow from the plan.

Conservatorship Scorecards Developed for Enterprises to Achieve the 
Plan: 

A month after the release of A Strategic Plan for Enterprise 
Conservatorships, FHFA published a Conservatorship Scorecard to 
provide the implementation roadmap for the plan. The strategic plan is 
a multi-year endeavor; the scorecard sets forth performance goals 
under the plan for the current calendar year. FHFA, in concert with 
the Enterprises implemented the following initiatives: 

Servicing Alignment Initiative:  

FHFA directed the Enterprises to develop the Servicing Alignment 
Initiative (SAI) to focus more aggressively on delivery of foreclosure 
prevention options. Through SAI, the Enterprises: 

* Established new borrower communication requirements that ensure 
borrowers are contacted at the earliest stage of delinquency, when 
alternatives to foreclosure are most successful; 

* Required that servicers simultaneously consider borrowers for the 
full range of loss mitigation options (as opposed to treating the 
consideration of each option as a separate process); and; 

* Required that servicers refer a loan to foreclosure only after an 
independent review of the case to ensure that the borrower was, in 
fact, considered for an alternative. 

Under SAI, FHFA and the Enterprises have taken a highly targeted 
approach with the goal of refocusing the servicers’ resources and 
attention on moving all borrowers into alternatives to foreclosure, 
quickly, efficiently, and aggressively. To accomplish this, the 
Enterprises aligned their requirements for servicing troubled loans 
and removed a significant barrier for homeowners seeking a loan 
modification—inconsistencies that caused servicers confusion and delay.

Uniform Mortgage Data Program: 

FHFA first announced the Uniform Mortgage Data Program in May of 2010, 
when Fannie Mae and Freddie Mac were directed to develop uniform 
standards for data reporting on mortgage loans and appraisals. This 
initiative is designed to improve the consistency, quality, and 
uniformity of data collected at the front-end of the mortgage process. 
By identifying potential defects as early in the origination and 
delivery process as possible, the Enterprises will improve the quality 
of mortgage purchases, which should reduce repurchase risk for 
originators. 

In the last two years, substantial progress has been made. In March 
2012, use of the Uniform Collateral Data Portal became mandatory, 
which ensures that all lenders are now submitting standard appraisal 
forms and appraisal data electronically. This allows the Enterprises 
to evaluate the information in a more seamless and efficient manner. 

The Enterprises also developed the Uniform Loan Delivery Dataset 
standards that dictate the file format required at loan delivery for 
all mortgages delivered to the Enterprises on or after July 23, 2012, 
with applications dated on or after December 1, 2011. The Uniform 
Mortgage Data Program requires lenders to adopt this file format in an 
effort to further streamline and improve submissions of mortgage data. 
These efforts pave the way for future enhancements and offer an 
integrated and efficient way for mortgage investors to access basic 
loan-level information.

Enhanced Loan-Level MBS Disclosure Initiative: 

During FY 2012, Fannie Mae began making public disclosures of loan- 
level data about the mortgages backing newly issued single-class, 
single-family MBS, which are comparable to the MBS disclosures that 
Freddie Mac has been making to investors since 2005. Both Fannie Mae 
and Freddie Mac now disclose loan- level information when MBS are 
issued, and they will both issue monthly ongoing disclosures over the 
life of each security after Fannie Mae begins disclosures in the first 
quarter of FY 2013. 

The Enterprises also jointly developed and submitted a template with a 
comprehensive list of loan-level disclosure data elements for their 
single-class, single- family fully guaranteed MBS. In FY 2012, the 
Enterprises also began working, at FHFA’s direction, to develop plans 
to implement enhancements of their loan-level MBS disclosures 
consistent with the template. They are now working on a second version 
of the template that will encompass data elements needed to support 
nonguaranteed mortgage securities.

Changes In Enterprise Guarantee Fees: 

In December 2011, Congress directed FHFA in the Temporary Payroll Tax 
Cut Continuation Act of 2011 to increase single-family guarantee fees 
by at least an average of 10 basis points. In fulfillment of that 
mandate, FHFA directed the Enterprises to raise guarantee fees by 10 
basis points beginning in April 2012.

In August 2012, FHFA directed the Enterprises to make further changes 
to the single-family guarantee fees they charge lenders to be 
effective in December 2012. These changes will:

* Result in the Enterprises increasing guarantee fees on single-family 
mortgages by an additional 10 basis points on average; 

* Make the guarantee fees the Enterprises charge lenders that deliver 
small and large volumes of loans more uniform; and; 

* Begin to address the cross-subsidization of pricing that exists 
whereby lower-risk loans currently subsidize the pricing of higher- 
risk loans. 

In addition, FHFA announced in August 2012 that it was soliciting 
public comment on an approach to impose an up-front fee on newly 
acquired loans originated in specific states where the Enterprises are 
likely to incur default- related losses much higher than the national 
average because of the individual laws in these states.

Real Estate Owned Disposition Initiative:  

The Real Estate Owned (REO) Disposition Initiative is a joint 
initiative with the Treasury Department, Department of Housing and 
Urban Development, Federal Deposit Insurance Corporation, the Federal 
Reserve System, and the Enterprises. 

The REO Initiative is designed to reduce taxpayer losses, stabilize 
neighborhoods and home values, shift to more private management of 
properties, and reduce the supply of REO properties in the 
marketplace. This initiative holds promise for providing support to 
local neighborhoods that were especially hard hit by the housing 
crisis and will help meet the rising demand for rental housing in many 
communities.

FHFA began the initiative with a Request for Information aimed at 
garnering industry ideas on how to sell REO properties of Fannie Mae, 
Freddie Mac, and the Federal Housing Administration. After reviewing 
more than 4,000 responses, FHFA announced the first pilot transaction 
under the initiative in February 2012, targeting some of the 
metropolitan areas hardest hit by the housing market crisis—Atlanta, 
Chicago, Las Vegas, Los Angeles, Phoenix, and parts of Florida. 

Investors were qualified to bid after a rigorous evaluation process. 
The process consisted of several factors, including financial 
strength, asset management experience, property management expertise 
and experience in the geographic area.

The winning bidders for the REO initiative were chosen to purchase 
approximately 1,772 single-family Fannie Mae foreclosed properties. 
Pacifica Companies, LLC has purchased 699 Fannie Mae properties in 
Florida, The Cogsville Group, LLC has purchased 94 properties in 
Chicago, and Colony Capital, LLC has purchased 970 properties in 
California, Arizona and Nevada. Although the Atlanta properties have 
not been awarded, they will be evaluated for future transactions.

This pilot is not intended to be a nationwide program. It is a 
targeted effort only in markets with a large number of foreclosed 
properties where local market conditions suggest a possible benefit 
from this approach.

Modifications To The Treasury Senior Preferred Stock Purchase 
Agreements: 

In August 2012, FHFA and the Treasury Department modified the Senior 
Preferred Stock Purchase Agreements. Key components of the changes 
include: 

* Accelerating reduction of the retained mortgage investment 
portfolios of the Enterprises from 10 percent per year to 15 percent 
per year. To begin with, the upaid principal balance (UPB) of 
Enterprise- related investments portfolio may not exceed $650 billion 
on December 31, 2012. Also, on December 31 of each year thereafter, 
each Enterprise’s portfolio will not be allowed to exceed 85 percent 
of the aggregate amount of the preceding year’s UPB until the 
portfolio reaches $250 billion. 

* Requiring an annual risk management plan from the Enterprises while 
they are in conservatorship. Plans will detail actions each Enterprise 
will take to reduce both the financial and operational risk associated 
with each reportable business segment. 

* Replacing the 10 percent fixed-dividend payment with a variable 
payment based on the Enterprise’s net worth to ensure all earnings 
generated by the Enterprise benefit taxpayers and eliminate the need 
to borrow from the Treasury Department and pay back dividends.

Senior Preferred Stock Purchase Agreements: 

The Enterprises continue to operate under conservatorship, as they 
have since 2008. The U.S. Department of the Treasury provides the 
Enterprises with financial support through the Senior Preferred Stock 
Purchase Agreements, established at the same time the Enterprises 
entered conservatorship. The Senior Preferred Stock Purchase 
Agreements were designed to ensure each Enterprise maintained positive 
net worth. If FHFA determines, on a quarterly basis, that an Enterprise’
 s liabilities have exceeded its assets under generally accepted 
accounting principles, the Treasury Department will contribute cash 
capital to the Enterprise in an amount equal to the difference between 
liabilities and assets. An amount equal to such contribution will be 
added to the senior preferred stock of the Enterprise held by the 
Treasury Department. The terms of the agreements require a 15 percent 
reduction in the Enterprises’ retained portfolios each year. The only 
material additions to these portfolios come from delinquent mortgages 
pulled out of Enterprise mortgage-backed securities after being four 
months delinquent. The Enterprises are required to pay the Treasury 
Department a variable payment based upon the Enterprise’s net worth. 

Resource Management Strategy: FHFA has the personnel, resources and 
infrastructure to manage effectively and efficiently to achieve its 
mission and goals. 

Consolidating Agency Resources To Improve Collaboration And 
Communication – Constitution Center: 

FHFA consolidated its operations from three separate locations into 
its new headquarters at Constitution Center in Washington, D.C., in 
January 2012. This move has improved collaboration and communications 
among the staff and program areas. It also allows for expansion in, 
and greater integration of, our examination and supervisory personnel 
and programs. The new headquarters is in the same building as the 
Office of the Comptroller of the Currency and located directly across 
the street from the Department of Housing and Urban Development. 

[Photograph: Chief Operating Officer Rick Hornsby spoke to the agency’
s supervision divisions at the December 2011 annual FHFA supervision 
conference] 

[Photograph: FHFA has won the CEAR award for four years] 

FHFA Support For 40 External Audits, Surveys, And Evaluations: 

During FY 2012, FHFA staff and management effectively responded to 40 
different external audits, evaluations, and surveys. As a result, 
significant amounts of resources were allocated into these efforts, 
especially in the mission areas. In order to more efficiently manage 
the volume of these outside reviews, FHFA expanded its capacity by 
assigning additional staff for audit follow-up and by developing an 
automated system to track audit recommendations and agency responses.

Certificate Of Excellence In Accountability Reporting: 

FHFA has received the Certificate of Excellence in Accountability 
Reporting from the Association of Government Accountants each year 
since 2008, our first year as a new agency. This award demonstrates 
the agency’s commitment to accountability and spotlights the high 
quality of our performance and financial information reporting.

Freedom Project: 

In FY 2010, FHFA began a special set of events called the Freedom 
Project to highlight and demonstrate how Americans of all races and 
backgrounds have contributed to the freedoms we enjoy in America. The 
Freedom Project brings agency employees together throughout the year 
to reflect on and celebrate the accomplishments of great men and women 
of our past and present. During FY 2012, the Freedom Project 
recognized and celebrated Veterans Day, Martin Luther King (MLK), Jr. 
Day, Washington’s Birthday, Memorial Day, Independence Day, and 
Constitution Day. 

Table: FY 2012 Freedom Project Events: 

Veterans Day: 
FHFA held a special luncheon to honor all the employees who are 
military veterans. The veterans spoke about their time in the 
military, their service, and how long they served. 

MLK & Washington’s Birthday: In February 2012, Dr. Daisy Nelson 
Century, a historical reenactor, portrayed Sojourner Truth in her 
later years remembering life from childhood through adulthood. She 
also recited Truth’s most famously and oft-quoted speech, “Ain’t I a 
Woman?”

Freedom Lecture: 
U.S. Representative John Lewis is often called “one of the most 
courageous persons” the Civil Rights Movement ever produced. 
Representative Lewis shared with FHFA his contributions to the Civil 
Rights Movement and to building what he calls “The Beloved Community” 
in America.

Memorial Day: 
Thomas Sherlock, senior historian of Arlington National Cemetery, 
spoke to employees about the history of America’s most famous burial 
ground to celebrate Memorial Day as part of the Freedom Project.

Independence Day: 
Abigail Adams reminded FHFA of her famous plea to “Remember the Ladies”
 in the creation of the Constitution of the United States. Adams was 
the wife of President John Adams and mother of President John Quincy 
Adams. She was portrayed by actress and re- enactor Kim Hanley.

Constitution Day: 
FHFA celebrated Constitution Day with copies of a ”Pocket Constitution”
 that contains the Declaration of Independence, the Constitution of 
the United States, the Bill of Rights, Amendments XI-XXVII and 
Significant Dates for the staff.

[End of table] 

[End of Strategic Goal 3] 

FY 2012 Performance Summary:  

This section describes FHFA’s strategic and performance- planning 
framework, performance measures not met, the reasons why, proposed 
improvements, and the seven key performance measures that most closely 
reflect the agency’s achievements and desired outcomes. For a 
comprehensive list of performance measures, see pages 54–70. FHFA’s 
performance measures are rated as:

Target Met; or
Target Not Met.

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 2012, FHFA had 25 performance measures. The agency met or exceeded 
23 of its measures and failed to meet two performance measures (see 
Figure 12). 

Figure 12: FY 2012 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). 

[End of figure] 

FHFA met 92 percent and did not meet eight percent of its performance 
measures in FY 2012. For additional details on unmet measures see 
Figure 13.

Figure 13: Status Of Performance Measures Unmet: 

[Refer to PDF for image: table] 

Unmet Measure: Measure 1.1.1: Improve component ratings at each 
Enterprise. 
Reason: 
Component ratings at the Enterprises remain unchanged given the 
absence of capital, the continuation of credit losses and subpar 
financial performance. Improvements in the ratings are also hampered 
by the ongoing challenges the Enterprises face in strengthening the 
operational risk environment and improving corporate governance; Steps 
Required To Meet: 
FHFA will continue to conduct examinations and ongoing monitoring of 
the Enterprises and give feedback on remediation efforts. 

Unmet Measure: Measure 4.3.2
Ensure management completes corrective action on OIG findings within 
agreed timeframe; 
Reason: 
One recommendation was originally closed by FHFA in the 4th quarter 
and then re-opened per agreement with the OIG. Steps Required To Meet: 
FHFA and the OIG agreed to extend the timeline to close the 
recommendation to February 28, 2013, since the recommendations 
identified required work beyond FY 2012. This will enable the required 
final actions to be completed. 

[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 record in meeting its performance 
measures through quarterly performance tracking meetings with the 
senior executive leadership team. 

The FHFA Director chairs these quarterly meetings. FHFA staff prepare 
the 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.

During FY 2012, FHFA operated under its FY 2009-2014 strategic plan. 
FHFA began working on a new strategic plan after enactment of the 
Government Performance and Results Act Modernization Act of 2010. The 
agency published a new Strategic Plan for FHFA for Fiscal Years 2013- 
2017 in October 2012. This plan 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. FHFA is also in 
the process of developing an automated performance measurement system 
that will be in place at the end of the first quarter of FY 2013. 

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. 

FY 2012 Annual Performance Plan: 

FHFA’s FY 2012 Annual Performance Plan includes 25 performance 
measures (four that are new) and 14 performance goals to support our 
three strategic goals and one resource management strategy. The new 
measures represent ongoing activities related to the Office of 
Inspector General and FHFA’s A Strategic Plan for Enterprise 
Conservatorships. The link to this plan is located at [hyperlink, 
http://www.fhfa.gov/webfiles/23344/StrategicPlanConservatorshipsFINAL.pd
 f].

This section also describes the agency’s performance against its FY 
2012 Annual Performance Plan, which outlined the means and strategies 
to achieve the annual performance goals and related measures for the 
past year. Eight measures were deleted from the FY 2012 plan: seven, 
which were process-oriented, and one that was met in FY 2011. (See 
page 105 for a list of the deleted measures in the Other Accompanying 
Information section.)

[End of section] 

Overview of FHFA’s Seven Key Performance Measures: 

FHFA identified seven of the 25 performance measures for FY 2012 as 
key performance measures. These measures are critical to achieving our 
strategic goals and objectives. The key performance measures address 
external and internal influences at the housing GSEs, loss mitigation 
efforts, and promptly responding to the Inspector General’s 
recommendations. The seven key performance measures apply to all the 
agency’s three strategic goals and the resource management strategy.

During FY 2012, FHFA met or exceeded all but two of the key 
performance measures.

Strategic Goal 1: 
The housing government-sponsored enterprises operate in a safe and 
sound manner and comply with legal requirements

The focus of Strategic Goal 1 is to promote the safety and soundness 
of the housing GSEs through prudential supervision and regulation (see 
pages 54–57 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. During FY 2012, FHFA reassigned some 
examiners to the Enterprises to improve the efficiency and 
effectiveness of examinations and oversight functions. To consolidate 
core examination activities under the supervision of the examiner-in- 
charge at each of the regulated entities, FHFA also restructured the 
Division of Enterprise Regulation and the former Division of 
Examinations and Program Support (renamed the Division of Supervision 
Policy and Support). These changes will improve the oversight and risk 
focus of examinations and encourage more coordination and 
communication among the examination staff. Performance measure 1.1.1 
requires an improvement in component ratings at each Enterprise. The 
measure was not met. As stated in Figure 13, improvements in the 
ratings are hampered by ongoing challenges the Enterprises face in 
strengthening the operational risk environment and improving corporate 
governance. FHFA will continue to conduct examinations and ongoing 
monitoring of the Enterprises and provide feedback on remediation 
efforts.

Table 1: Key Performance Measures For Safety And Soundness Of The 
Housing GSES: 

Performance Goal 1.1: Fannie Mae and Freddie Mac comply with legal 
requirements and operate in a safe and sound manner with adequate 
capital and access to funds and capital.

Performance Measure: 1.1.1: Improve component ratings at each 
Enterprise. 

FY 2010: 
Target: Improve in one or more by September 30, 2010: Performance 
Results Key: Goal Fulfillment: Target Not Met; 

FY 2011: 
Target: Improve in one or more by September 30, 2011: Performance 
Results Key: Goal Fulfillment: Target Not Met; 

FY 2012: 
Target: Improve in one or more by September 30, 2012: Performance 
Results Key: Goal Fulfillment: Target Not Met. 

Performance Goal 1.2: 
The FHLBanks and the Office of Finance comply with legal requirements 
and operate in a safe and sound manner with adequate capital and 
access to funds and capital.

Performance Measure: 1.2.1: Composite rating at each FHLBank. Note: If 
rating is less than “2”, an acceptable performance improvement plan 
shall be included with the Bank’s response to the Report of Examination.

FY 2010: 

Target: “2” or better or, within 180 days of a rating downgrade to 
below “2”, operating under an approved capital restoration plan 
Performance Results Key: Goal Fulfillment: Target Not Met. 

FY 2011: 
Target: “2” or better or, within 180 days of a rating downgrade to 
below “2”, operating under an approved capital restoration plan 
Performance Results Key: Goal Fulfillment: Target Met; 

FY 2012: 
Target: “2” or better or, within 180 days of a rating downgrade to 
below “2”, operating under an acceptable performance improvement plan: 
Quarterly; 
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Strategic Goal 2: 
The housing government-sponsored enterprises support a stable, liquid, 
and efficient mortgage market including sustainable homeownership and 
affordable housing. 

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 to homeowner 
and rental housing markets at an efficient and reasonable price.

Table 2 summarizes the key performance measures for the housing 
mission. During FY 2012, the housing GSEs met or exceeded their 
required liquidity levels. A recent change to the Senior Preferred 
Stock Purchase Agreements with the Treasury Department will improve 
stability in the housing finance market and decrease the roles of the 
Enterprises in the market over the longer term. See the Performance 
Highlights section on page 31 for more about the amendment and pages 
58–62 of the Performance Section for a list of all measures associated 
with this goal.

Table 2: Key Performance Measures For The Housing Mission

Performance Goal 2.1: FHFA ensures the housing GSEs support a stable, 
liquid and efficient mortgage market. 

Performance Measure 2.1.1 Ensure liquidity levels at Fannie Mae and 
Freddie Mac meet or exceed required levels or are brought into 
compliance within 5 business days.

FY 2010: 
Target: Monthly; 
Performance Results Key: Goal Fulfillment: Target Not Met; 

FY 2011: 
Target: 95 Percent; 
Performance Results Key: Goal Fulfillment: Target Met; 

FY 2012: 
Target: 95 Percent Quarterly; Performance Results Key: Goal 
Fulfillment: Target Met. 

Performance Measure 2.1.2: Ensure liquidity levels at the FHLBanks 
meet or exceed required levels or are brought into compliance within 5 
business days.

FY 2010: 
Target: Annually; 
Performance Results Key: Goal Fulfillment: Target Met; 

FY 2011: 95 Percent; 
Performance Results Key: Goal Fulfillment: Target: Target Met; 

FY 2012: 
Target: 95 Percent Quarterly; Performance Results Key: Goal 
Fulfillment: Target Met. 

[End of table] 

Strategic Goal 3: 
FHFA preserves and conserves assets and property of the Enterprises, 
ensures focus on their housing mission, and facilitates their 
financial stability and emergence from conservatorship

The focus of Strategic Goal 3 is on conservatorship of the 
Enterprises. As conservator, FHFA’s role is to foster improvement in 
the Enterprises’ financial condition, underwriting practices, and 
operational capacity so they can fulfill their role in the nation’s 
housing finance system.

Table 3 summarizes the key performance measures that demonstrate FHFA’ 
s goal to preserve and conserve the Enterprise assets. During FY 2012, 
FHFA made significant progress improving loss mitigation strategies by 
streamlining the short sale process, and implementing HARP 2.0. 

FHFA met or exceeded the key measures of performance goal 3 during FY 
2012. Pages 63–66 of the Performance Section includes a list of all 
measures associated with this goal.

Table 3: Key Performance Measure Demonstrating FHFA’s Goal Of 
Preserving And Conserving Enterprise Assets:  

Performance Goal 3.3: Ensure the Enterprises have effective programs 
that respond to problems in mortgage markets by reducing preventable 
foreclosures.

Performance Measure 3.3.1: Prevent current loans from going delinquent 
by helping borrowers to refinance.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: New Measure for 2012. 

FY 2012: 
Target: Maintain the volume of HARP refinances as a percent of total 
refinances at 10 percent or higher; Performance Results Key: Goal 
Fulfillment: Target Met. 

Performance Measure 3.3.2: Maintain the percentage of modified loans 
that are 60 plus days delinquent, nine months after modification, at 
or below 20 percent.

FY 2010: 
Target: 35 Percent or less; 
Performance Results Key: Goal Fulfillment: Target Met; 

FY 2011: 
Target: 35 Percent or less; 
Performance Results Key: Goal Fulfillment: Target Met; 

FY 2012: 
Target: Less than or equal to 20 percent; Performance Results Key: 
Goal Fulfillment: Target Met. 

[End of table] 

Resource Management Strategy: FHFA has the personnel, resources and 
infrastructure to manage effectively and efficiently to achieve its 
mission and goals

The focus of the resource management strategy is to create and sustain 
an infrastructure responsive to mission- critical program management. 
FHFA ensures effectiveness and efficiency in this area through the 
recruitment and retention of a diverse and highly skilled staff.

Table 4 summarizes the key performance measure that demonstrates FHFA’
s use of its resources. Pages 67–70 of the Performance Section 
includes a list of all measures associated with this goal. Performance 
measure 4.3.2 was not met. This measure requires management to 
complete corrective action on OIG findings within an agreed timeframe. 
One recommendation was originally closed by FHFA in the 4th quarter 
and later re-opened after a mutual agreement between FHFA and the OIG. 
The timeline was extended to close the recommendation by February 28, 
2013.

Table 4: Key Performance Measure Demonstrating FHFA’s Use Of Resources: 

Performance Goal 4.3: FHFA has effective financial and risk management 
programs.

Performance Measure 4.3.2: Ensure management completes corrective 
action on OIG findings within agreed timeframe.

FY 2010: 
Target: New Measure for 2012; 

FY 2011: 
Target: New Measure for 2012;

FY 2012: 
Target: No overdue corrective actions outstanding; Performance Results 
Key: Goal Fulfillment: Target Not Met. 

[End of table] 

[End of section] 

Program Evaluations: 

During fiscal year 2012, FHFA operated under its FY 2009-2014 
strategic plan. In October 2012, the agency released a new Strategic 
Plan for FHFA for Fiscal Years 2013-2017. 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. FHFA did not have 
an independent external evaluation conducted this fiscal year.

FHFA’s Office of Inspector General began operations in October 2010. 
OIG assessed several of FHFA’s most serious management issues during 
FY 2012. See pages 106–114 of the Other Accompanying Information 
section. 

FHFA reviewed 10 audits, 7 evaluations, 2 evaluation surveys, and 3 
white papers issued by the OIG in FY 2012. The OIG also issued 50 
recommendations that were due in FY 2012. FHFA completed/closed 49 
recommendations while one recommendation will remain open due to final 
actions that will extend beyond FY 2012—the new timeline was extended 
to February 28, 2013. 

As of September 2012, OIG had completed the following evaluations of 
FHFA:

Table: OIG Performance Evaluations:  

Evaluation: FHFA’s Oversight of Troubled Federal Home Loan Banks – 
January 2012; 
Summary: 
Although FHFA has taken several important steps to monitor closely and 
control the four troubled FHLBanks, FHFA lacks a clear consistent and 
transparent written enforcement policy. The lack of a management 
reporting system as well as FHFA’s practice of not consistently 
documenting troubled FHLBank interactions (i.e., recommending that 
FHLBank boards of directors remove certain senior officers), also 
impedes outside oversight of the agency. Summary of FHFA’s Response: 
FHFA disagrees with a number of statements, characterizations, or 
inferences in the report but generally agrees with the substance of 
the report’s recommendations. FHFA will develop and implement a 
written enforcement policy; develop an automated information system 
for agency managers cataloguing examination findings, planned 
corrective actions, timeframes and status; and develop guidelines for 
documenting significant oral and written actions involving an FHLBank, 
including actions relating to the removal or replacement of senior 
officers.

Evaluation: Evaluation of FHFA’s Management of Legal Fees for 
Indemnified Executives – February 2012; Summary: 
FHFA confronts a challenging balance of interests in avoiding 
potential losses by effectively defending ongoing lawsuits against the 
Enterprises while having an interest in controlling significant costs, 
particularly the tens of millions of dollars of payments made to 
attorneys and others involved in representing former senior 
executives. OIG recommends that FHFA work to limit legal expenses to 
the extent possible and reasonable and continue to control costs of 
legal expenses.
Summary of FHFA’s Response: 
FHFA concurs with the recommendations and will undertake additional 
steps to address future indemnification agreements. FHFA will continue 
its efforts at cost control and work expeditiously to seek greater 
standardization in the administration of such legal costs by the 
Enterprises while increasing its scrutiny of legal costs. FHFA will 
also document oversight mechanisms and provide a summary report to OIG.

Evaluation: FHFA’s Oversight of the Federal Home Loan Bank’s Unsecured 
Credit Risk Management Practices – June 2012; Summary: 
As part of FHFA’s ongoing horizontal review of unsecured credit 
practices at the FHLBanks, OIG recommends that FHFA follow up on any 
potential evidence of violations of the existing regulatory limits and 
take supervisory and enforcement actions as warranted, determine the 
extent to which inadequate systems and controls may compromise the 
FHLBanks’ capacity to comply with regulatory limits, and take any 
supervisory actions necessary to correct such deficiencies, as 
warranted. 
To strengthen the regulatory framework around the extension of 
unsecured credit by the FHLBanks, OIG recommends, as a component of 
future rulemakings, that FHFA consider the utility of establishing 
maximum overall exposure limits; lowering the existing individual 
counterparty limits; and ensuring that the unsecured exposure limits 
are consistent with the FHLBank System’s housing mission. Summary of 
FHFA’s Response: 
FHFA agrees with both recommendations. FHFA has alerted the FHLBanks 
of violations of existing regulatory limits identified by the OIG 
evaluation. Factors that led to those violations are being addressed. 
FHFA will follow-up on the adequacy of those efforts through its 
FHLBank examination program. The Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 require a review and modification of 
FHFA regulations that rely on such ratings. This effort is currently 
underway – FHFA will consider the factors recommended by OIG as part 
of its review and modification of the regulation governing unsecured 
credit at the FHLBanks. FHFA will complete its assessment and propose 
revisions to its rule governing unsecured credit at the FHLBanks by 
April 15, 2013.

Evaluation: FHFA’s Certifications for the Preferred Stock Purchase 
Agreements – August 2012; 
Summary: 
OIG recommended and FHFA agreed to: (1) adhere to the requirements to 
certify both that the Enterprises have complied with the preferred 
stock agreement covenants and that the Enterprises’ financial 
statements and related documents are free of materially false or 
misleading representations; and (2) monitor the implementation of its 
oversight procedures to ensure that they are effective. These 
certifications enhance oversight of the preferred stock agreements and 
reduce the potential for errors and waste of taxpayer dollars. Summary 
of FHFA’s Response: 
FHFA took immediate action to strengthen oversight controls for the 
preferred stock agreements identified by OIG. FHFA established 
processes to enhance ongoing compliance with the agreements and has 
implemented additional procedures to oversee the certification 
processes including the engagement of the Enterprises’ external 
auditors to independently test the covenant compliance. These actions 
will improve the oversight of the Preferred Stock Purchase Agreement 
process.

Evaluation: Follow-up on Freddie Mac’s Loan Repurchase Process – 
September 2012; 
Summary: 
FHFA and Freddie Mac have acted on the concerns raised in OIG’s report 
by adopting a more expansive loan review process. Specifically, 
Freddie Mac changed its policies to review for potential repurchase 
claims significantly larger numbers of loans that defaulted more than 
two years after origination. FHFA and Freddie Mac should continue to 
carry out the loan review and related reforms they have initiated 
since OIG’s original report was issued. Summary of FHFA’s Response: 
FHFA agrees that reforms currently in place or underway will address 
the weaknesses identified by OIG and Freddie Mac Internal Audit. 
Additional steps are not planned at this time, but as noted in the 
follow-up report, three measures remain in progress for FHFA senior 
management: 1) ensure that Freddie Mac management resolves concerns 
associated with ‘unsatisfactory’ audit opinion; 2) initiate an 
independent assessment of Enterprise repurchase practices; and 3) 
evaluate whether the Enterprises should adopt consistent review 
practices for repurchase claims.

Evaluation: Evaluation of FHFA’s Oversight of Fannie Mae’s Transfer of 
Mortgage Servicing Rights from Bank of America (BOA) to High Touch 
Servicers – September 2012; 
Summary: 
Fannie Mae’s purchase of mortgage servicing rights (MSR) was the most 
recent of several transactions executed as part of an ongoing 
initiative. BOA transaction was the largest of the transfers in the 
High Touch Servicing Program to date – however, the amount that Fannie 
Mae paid was consistent with the amount it had paid to other servicers 
from which it purchased MSR under the program. FHFA OIG found that 
Fannie Mae relied on a single consultant to price most of the MSR 
transactions under the program. OIG determined that FHFA can improve 
its oversight of Fannie Mae’s program. Summary of FHFA’s Response: 
FHFA agrees with the following recommendations: 1) to consider 
revising FHFA’s Delegation Authorities to require FHFA approval of 
unusual, high new initiatives; 2) ensure Fannie Mae does not have to 
pay a premium to transfer inadequately performing portfolios; 3) 
ensure Fannie Mae applies additional scrutiny and rigor to pricing 
significant MSR transactions and consider requiring Fannie Mae to 
assess the valuation methods of multiple MSR valuators in order to 
discern best practices; and 4) access the efficacy of the program and 
direct any necessary modifications.

Evaluation: FHFA’s Oversight of Freddie Mac’s Investment in Inverse 
Floaters – September 2012; 
Summary: 
OIG uncovered no evidence that FHFA or Freddie Mac obstructed homeowners
’ abilities to refinance their mortgages in an effort to influence the 
yields of the inverse floating-rate bonds that the Enterprise retained 
in its investment portfolio. Freddie Mac has an “information wall” 
policy to prevent its capital markets business from using non-public 
information to guide its investments. OIG found that FHFA’s position 
on inverse floaters could have been communicated more clearly.
Summary of FHFA’s Response: 
The following are FHFA’s responses to the OIG recommendations: 1) FHFA 
will continue to follow Freddie Mac’s portfolio and its hedging 
activities closely for many years (-this activity is part of our 
ongoing supervision program); 2) FHFA will incorporate reviews of 
Freddie Mac’s information wall as part of its risk-based supervision 
of Freddie Mac’s investment activities (-this activity is part of our 
ongoing supervision program); 3a) FHFA does not agree with the 
implication that there was confusion based on the timeline provided in 
our response, FHFA nevertheless agrees it is important to confirm 
supervisory views in writing and will continue to make this a critical 
part of our supervisory process; 3b) FHFA agrees that supervisory work 
and supervisory concerns should be based on the agency’s work and 
analysis; and that the facts and high level timeline provided 
demonstrate that we base our supervisory work, discussions and 
findings on work that was well underway or completed prior to the 
reports, including the receipt of a confirming communication from 
Freddie Mac; 4) FHFA strongly believes that the public statement 
issued regarding inverse floaters accurately reflected all relevant 
facts and is supported by the timeline referenced in this memorandum 
and documentation provided to OIG. 

[End of table] 

[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 2012 Financial Statement Audit: 

FHFA achieved an unqualified 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 2012 and 2011. Financial statements and 
notes for fiscal years 2012 and 2011 appear on pages 82–103. 
Highlights of the financial information presented in the principal 
financial statements are shown below. 

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. The Balance Sheet reflects total assets of $144.8 
million, a 44 percent increase over FY 2011. The increase is primarily 
due to a $40.0 million increase in Property, Equipment, and Software 
due to leasehold improvements and furniture, fixtures and equipment 
purchases associated with FHFA’s new location at Constitution Center. 
FHFA’s total liabilities increased by $29.8 million, a 122 percent 
increase over FY 2011. The increase is primarily due to a tenant 
allowance provided to FHFA related to the new Constitution Center 
lease and an increase in deferred rent. As a result, FHFA’s net 
position as of September 30, 2012 was $90.7 million, a $14.2 million 
increase over the $76.4 million net position as of September 30, 2011 
see Figure 14).

Statement of Net Cost: 

The Statement of Net Cost presents the components of FHFA’s net cost, 
which is the gross cost incurred less any revenues earned. FHFA’s FY 
2012 total program net (income)/costs, as reflected on the Statement 
of Net Cost, were -$8.4 million (or net revenue) as compared to the - 
$33.4 million in FY 2011. This change reflects the increase in gross 
costs and earned revenue needed to carry out its mission as reflected 
in its FY 2012 operating budget. The operating budget increase between 
fiscal years is the result of increased mission costs. However, during 
the course of the year, FHFA was unable to fully expend its FY 2012 
earned revenue, thereby resulting in an excess of revenue over cost. 

Consistent with the Government Performance and Results Act of 1993, 
the Statement of Net Cost is reported by FHFA’s strategic goals. FHFA 
tracked resource allocations and program costs to the strategic goals 
(responsibility segments) developed for FHFA’s strategic plan. 
Strategic Goals, 1–Safety and Soundness; 2–Affordable Housing (Housing 
Mission); and 3–Conservatorship, guide program offices to carry out FHFA
’s vision and mission. FHFA has a Resource Management Strategy, which 
is distributed proportionately to Strategic Goals 1-3 based on the 
percentage of direct costs of each goal to the total direct costs for 
FHFA. FHFA places a significant emphasis on Strategic Goal 1, Safety 
and Soundness, which comprises a major portion of the total program 
costs. FHFA-OIG allocated their costs to FHFA’s Resource Management 
Strategy, which is distributed proportionately to Strategic Goals 1-3 
based on the percentage of direct costs of each goal to the total 
direct costs for FHFA (see Figure 15). 

Figure 14: Assets And Liabilities (Dollars in Thousands): 

[Refer to PDF for image: vertical bar graph] 

$0$40,000$80,000$120,000$160,000

SEPTEMBER 2011: 
Assets: $100,781; 
Liabilities: $24,350. 

SEPTEMBER 2012: 
Assets: $144,799; 
Liabilities: $54,126. 

[End of figure] 

Figure 15: Total Net (Income From)/cost Of Operations (Dollars in 
Thousands): 

[Refer to PDF for image: vertical bar graph] 

September 2011: 
Strategic Goal 1: Safety and Soundness: -$9,336; Strategic Goal 2: 
Affordable Housing: -$20,814; Strategic Goal 3: Conservatorship: -
$3,232. 

September 2012: 
Strategic Goal 1: Safety and Soundness: $28,890; Strategic Goal 2: 
Affordable Housing: -$39,688; Strategic Goal 3: Conservatorship: 
$2,366. 

[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, 2012 increased $14.2 million (see Figure 16). 

Figure 16: Statement Of Changes In Net Position (Dollars in Thousands): 

[Refer to PDF for image: vertical bar graph] 

Cumulative Results Of Operations: September 2011: $76,431; 
September 2012: $90,673. 

Net Income Of Operations: 
September 2011: -$33,382; 
September 2012: -$8,432. 

Total Financing Sources: 
September 2011: $5,193; 
September 2012: $5,810. 

Beginning Balances: 
September 2011: $37,856; 
September 2012: $76,431. 

[End of figure] 

Statement of Budgetary Resources: 

This statement provides information about the budgetary resources 
available to FHFA and the status of these resources and the outlay of 
budgetary resources for the years ending September 30, 2012 and 2011. 
The statement shows that FHFA had $304.6 million in total budgetary 
resources for the 12 months ended September 30, 2012. The 20 percent 
increase in budgetary resources is the result of an increase in 
mission costs. Obligations incurred increased 15 percent to $259.1 
million. Gross outlays increased 40 percent to $262.3 million (see 
Figure 17). 

Figure 17: Statement Of Budgetary Resources Comparisons: 

[Refer to PDF for image: vertical bar graph] 

Budgetary Resources: 
September 2011: $253,568; 
September 2012: $304,635. 

Obligations Incurred: 
September 2011: $225,896; 
September 2012: $259,100. 

Gross Outlays: 
September 2011: $186,945; 
September 2012: $262,252. 

Source of Funds:  

HERA authorizes FHFA to collect annual assessments from its 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 12 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 $224.4 million during FY 2012, which included a $5.4 million 
special assessment on the Enterprises related to conservatorship 
activities and a $38.8 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 read with the realization that they are 
for a component of the U.S. Government, a sovereign entity. 

Analysis of Systems, Controls and Legal Compliance: 

Management Assurances: 

Federal Managers’ Financial Integrity Act:  

During FY 2012, 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 2012, 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 Examination Programs and Support, the Deputy 
Director for Housing Mission and Goals, the General Counsel, and the 
Associate Director Office of Quality Assurance. 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 2012, 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, 2012 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, the FHFA-OIG formed 
an ECIC and established a senior assessment team headed by the Chief 
of Staff to assess the internal controls of the 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 OIG offices have developed and 
maintained effective internal controls for FY 2012, and no significant 
deficiencies or material weaknesses have been 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 
at each 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. As such, the FHFA-OIG ECIC recommended 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 OIG; internal control over 
financial reporting, effectiveness and efficiency of operations, and 
compliance with laws and regulations. 

Federal Management System 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 
the Public Debt for its accounting services and that agency’s 
financial management system (FMS) which includes (1) a core accounting 
system—Oracle Federal Financials; (2) three feeder systems—PRISM 
(procurement), GovTrip (travel), and Citidirect (charge card); (3) a 
reporting system—Discoverer; and (4) an inventory tracking system. 
FHFA is responsible for overseeing the Bureau of the Public Debt’s 
performance of accounting services for the agency. A financial 
oversight document outlines the assignment of activities between FHFA 
and the Bureau of the Public Debt. FMS includes manual and automated 
procedures and processes from the point at which a transaction is 
initiated to 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, 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. During 
FY2011 and into FY2012, OMB issued guidance requiring federal agencies 
to continuously monitor the security posture of information systems to 
enable timely decision making regarding identified vulnerabilities and 
threats. In FY2012, OMB directed Federal Agencies to increase 
monitoring of security-related events and to acquire tools to automate 
security activities. 

The FHFA-OIG is required to review the agency’s information security 
program annually and report the results to OMB as required by FISMA. 
FHFA’s information security program activities during FY2012 reflect 
efforts focused on enhancing the Agency’s continuous monitoring 
program as well as increasing automation capabilities. 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. The 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 FY2012 information security program activities include 
implementing an enhanced vulnerability management capability, updating 
information security policy with corresponding procedures, and 
performing annual security control assessments of FHFA information 
systems, including the Agency’s Financial Management System (FMS). 
FHFA maintained security authorization on 100 percent of all major 
systems in production which included a significant upgrade to the 
general support system as a result of the Agency’s move to a new 
building. FHFA developed and distributed monthly, non-technical cyber 
security newsletters to all employees to enhance user awareness and 
successfully provided annual security training to all employees and 
contractors. FHFA also addressed security-related weaknesses for 
systems noted in the prior year FISMA review as well as mitigating 
vulnerabilities identified during other SA&A activities. 

To support the annual FY2012 FISMA review, the OIG conducted several 
audits, including a network vulnerability assessment that resulted in 
a clean audit with no findings. The FY2012 FISMA audit report is in 
the final stages of OIG management review.

Management 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 that follow provide 
information on final action taken by management on audit reports for 
the Federal fiscal year period October 1, 2011, through September 30, 
2012.

Table 5: Management Report On Final Action On Audits With Disallowed 
Costs For Fiscal Year 2012: 




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: 0; 
Disallowed Costs: $0. 

Audit Report: C. Total reports pending Final action during the period 
(A and B); 
Number of Reports: 0; 
Disallowed Costs: $0. 

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: 0; 
Disallowed Costs: $0. 

[End of table] 

Table 6: Management Report On Final Action On Audits With 
Recommendations To Put Funds To Better Use For Fiscal Year 2012: 

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: 0; 
Disallowed Costs: $0. 

Audit Report: C. Total reports pending Final action during the period 
(A and B);  
Number of Reports: 0; 
Disallowed Costs: $0. 

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 receommendations 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 tablew] 

Table 7: Audit Reports Without Final Actions But With Management 
Decisions Over One Year Old For Fiscal Year 2012: 

Management Action In Process: 

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: 
In 2012, FHFA has completed 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. 

Recommendation: 
* FHFA should continue to withhold approval of Freddie Mac repurchase 
settlements until such time as it is confident that the concerns about 
the Enterprise’s loan review process have been resolved. Management 
Action: 
* Completed. 

Recommendation: 
* FHFA senior management should ensure that Freddie Mac management 
resolves the concerns that prompted their internal auditors to issue 
an “Unsatisfactory” audit opinion. Management Action: 
* In-process, FHFA senior management has met regularly with Freddie Mac’
s Chief Enterprise Risk Office and its General Auditor and agree that 
progress has been made but work remains to be completed.

Recommendation: 
* FHFA senior management should oversee Freddie Mac’s “out-of-sample” 
loan testing and consider independently validating the testing. 
Management Action: 
* In-process, Freddie Mac continues to perform “out-of- sample” loan 
testing. FHFA is currently in the process of independently validating 
the conclusions. Freddie Mac’s internal auditors also intend to 
validate the out-of- sample testing.

Recommendation: 
* FHFA should evaluate whether Fannie Mae and Freddie Mac should adopt 
consistent review practices for repurchase claims. Management Action: 
* In-process, FHFA issued a directive covering future repurchase 
claims by Fannie Mae and Freddie Mac. FHFA continues to assess the 
sampling strategies and implications for legacy repurchase claims. 

Recommendation: 
* FHFA senior management should initiate an independent assessment of 
Enterprise repurchase practices in order to ensure that they are 
maximizing their repurchase claim recoveries Management Action: 
* In-process, FHFA issued a directive covering future repurchase 
claims by Fannie Mae and Freddie Mac. FHFA continues to assess the 
sampling strategies and implications for legacy repurchase claims. 

Recommendation: 
* FHFA should issue internal guidance regarding its handling of future 
repurchase settlements, should they arise. Management Action: 
* Completed

Expected Completion Date: FHFA will monitor the repurchase settlement 
process throughout fiscal year 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] 

October 15, 2012: 

Federal Managers' Financial Integrity Act: Statement of Assurance: 
Fiscal Year 2012: 

The Federal Housing Finance Agency (FliFA) 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 (FMFIA). 

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 effectiveness and efficiency of 
operations and compliance with applicable laws and regulations as of 
September 30, 2012 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 
internal 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, 2012 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, 2012. 

Signed by: 

Edward J. DeMarco: 
Acting Director: 

[End of section] 

Performance Section: 

* Managing and Measuring Performance; 

* Strategic Human Capital Management; 

* Strategic Goal 1: Safety and Soundness;

* Strategic Goal 2: Housing Mission;

* Strategic Goal 3: Conservatorship;

* Resource Management Strategy. 

Managing and Measuring Performance: 

During FY 2012, FHFA retooled its performance measures to align with 
initiatives that are mission critical and reflective of how the 
housing market has evolved. The agency identified eight performance 
measures that will no longer be reported on externally. Although these 
performance measures will no longer be reported on externally, they 
remain important and will continue to be tracked and reviewed 
internally (see page 105 of the Other Accompanying Information for 
more information). 

The Performance Section is organized by strategic goals to describe FHFA
’s efforts to meet the goals defined in the agency’s FY 2009–2014 
strategic plan. In October 2012, FHFA released a new Strategic Plan 
for FHFA for Fiscal Years 2013-2017. As a result of this plan and in 
concert with the initiatives associated with the new A Strategic Plan 
for Enterprise Conservatorships, four new performance measures will be 
added in FY 2013. The initiatives associated with the conservatorship 
strategic plan will be guided by our newly created Office of Strategic 
Initiatives. 

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

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 while 
providing the means and strategies that will be utilized. Performance 
measures also highlight the achievement level towards the overarching 
performance goal. In FY 2012, there were 14 performance goals; 10 
supported the agency’s three strategic goals and 4 supported our 
resource management strategy.

Figure 18 shows the hierarchy of FHFA’s performance goals and 
measures. It also depicts how FHFA intends to devote its resources to 
fulfill its mission in practical and measurable ways.

The annual performance budget describes how FHFA achieves its goals 
and the costs, systems, and initiatives associated with them. 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; and; 

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

FHFA continued to employ 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 number of the performance goal, and the third 
digit is the number of 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 
goal.

Figure 18: Fhfa’s Goal Hierarchy: 

[Refer to PDF for imagh: illustration] 

Execution & Monitoring: Increasing bottom to top of pyramid; 

Planning: Decreasing top to bottom of pyramid. 

Pyramid: 

Base: Performance Measures; 
Second layer: Performance Goals; Third layer: Strategic Goals; Top: 
Mission. 

[End of figure] 

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 throughout the year to determine the success of program 
activities. During FY 2012, senior executives and supporting staff 
submitted quarterly reports on progress they made toward achieving 
performance measures for which they were accountable. These reports 
are reviewed and analyzed by the Performance Management and Strategic 
Planning staff to ensure accuracy, validity of information being 
reported, and progress toward achieving planned performance levels. 
The FHFA Acting Director then holds quarterly performance tracking 
meetings with senior executive leaders to review accomplishments and 
make required adjustments to programs. The agency uses the quarterly 
reports as the basis for developing the Performance and Accountability 
Report. See Figure 19 for an outline of FHFA’s performance management 
cycle. 

Figure 19: FHFA’s Performance Management Cycle: 

[Refer to PDF for image: cycle illustration] 

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

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

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

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

[End of figure] 

Most of FHFA’s performance measures, with the exception of data used 
as input for capital calculations, reflect internal milestones. Some 
of the performance measures depend on the actions and results of the 
regulated entities. Figure 20 depicts FHFA’s achievement of 
performance measures for FY 2012.

Figure 20: FY 2012 Performance Measures: 

[Refer to PDF for image: pie-chart] 

Target Met: 92%; 
Target Not Met: 8%. 

[End of figure] 

Verification And Validation Of Performance Data: 

Information reported in this Performance and Accountability Report is 
complete and reliable. The sources of data are identified and verified 
to ensure accuracy, reliability, and completeness. Individual offices 
maintain a checks and balances system that is reflective of their 
performance measures, e.g., measures that are more reflective to 
external influence versus internal influence. The data for all the 
performance goals are complete and reliable. The data are created 
internally, reported in the agency’s performance tracking system, and 
reviewed each quarter by 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; 
* 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 the quality assurance staff and 
FHFA management.

Strategic Human Capital Management: 

FHFA’s Human Capital strategic plans, programs, and operations are 
aligned to fully support the agency’s mission and performance goals. 
FHFA’s workforce is its most valuable resource. Attracting, hiring, 
developing, rewarding, and retaining a diverse staff with cutting- 
edge professional skills that possess the breadth and depth of 
knowledge to support FHFA’s mission and strategic performance goals is 
critical to the success of the agency. The FHFA Human Capital 
Management Balanced Scorecard highlights 18 key objectives that 
provide the structure and direction needed to achieve a high– 
performing workforce in support of FHFA’s important mission and for 
furthering an agency culture that encourages collaboration, 
flexibility, and fairness to enable individuals to participate to 
their full potential. 

[End of section] 

Strategic Goal 1: The housing GSEs operate in a safe and sound manner 
and comply with legal requirements. 

FHFA’s primary duty as regulator and conservator is to ensure that the 
housing GSEs have the financial strength, operational capacity, and 
risk management controls to fulfill their critical role in the nation’ 
s housing finance system. Providing a comprehensive and effective 
oversight program for the housing GSEs requires attention to all 
aspects of operations and management, the risks inherent in their 
activities, and the dynamic environment in which they operate.

During FY 2012, FHFA completed key organizational changes and 
established a new supervisory strategy to lead and coordinate the agency
’s activities highlighted in this strategic goal. Through its 
examination process, FHFA is improving the efficiency and 
effectiveness of examinations by integrating examination resources and 
standards. In addition, FHFA verifies that the GSEs are timely in 
managing required improvements, remedial actions, and litigation.

Table: Performance Goal 1.1: Fannie Mae and Freddie Mac (the 
Enterprises) comply with legal requirements and operate in a safe and 
sound manner with adequate capital and access to funds and capital. 

Performance Measure: 1.1.1 Improve component ratings at each Enterprise.

FY 2010: 
Target: Improve in one or more by September 30, 2010; Performance: The 
market risk rating for Freddie Mac improved from critical to 
significant concerns for the quarter ending March 31, 2010, based on 
improvements in interest rate risk management. Component ratings did 
not improve at Fannie Mae during FY 2010. Several areas, improved, 
increasing the likelihood that some component ratings will improve 
during the next fiscal year. Performance Results key: Goal 
Fulfillment: Target Not Met. 

FY 2011: 
Target: Improve in one or more by September 30, 2011; Performance: The 
composite ratings for both Fannie Mae and Freddie Mac are critical 
concerns. Stress on the mortgage market and poor financial performance 
by the Enterprises continues. Target met for Fannie Mae though not for 
both Enterprises as Freddie Mac did not have component improvements; 
Performance Results key: Goal Fulfillment: Target Not Met. 

FY 2012: 
Target: Improve in one or more by September 30, 2012; Performance: 
Examinations have been conducted through the course of 2012. Ratings 
will be assigned and included in the 2012 Reports of Examination for 
the Enterprises, which are scheduled to be prepared, finalized, and 
reported to the Enterprises in 2013. Target met for Fannie Mae though 
not for both Enterprises as Freddie Mac did not have component 
improvements.
Performance Results key: Goal Fulfillment: Target Not Met. 

Performance Measure 1.1.2: Matters Requiring Attention (MRAs) that are 
more than 120 days old are resolved or are being resolved in 
accordance with an acceptable remediation plan.

FY 2010:
Target: 90 percent Quarterly Performance: 80 MRAs were cited. Of 
those, 61 (76 percent) 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 performance 
measure the last three quarters of the fiscal year, but the target was “
not met” because of the failure to meet the target in the first 
quarter of FY 2010. Performance Results Key: Goal Fulfillment: Target 
Not Met. 

FY 2011: 
Target: 90 percent Quarterly Performance: 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 100 percent each 
quarter of FY 2011. Performance Results Key: Goal Fulfillment: Target 
Met. 

FY 2012: 
Target: At least 90 percent Quarterly Performance: 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 at least 99 percent each quarter of 
FY 2012. Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 1.1:  

FHFA conducts risk-based supervision and examinations at the 
Enterprises to ensure they operate in a safe and sound manner. Key 
areas of risk include: credit risk, market risk, operational risk, 
governance, solvency and earnings. While FHFA did not meet performance 
measure 1.1.1 in FY 2012, examinations were conducted and ratings will 
be assigned and included in the 2012 Reports of Examination (ROE). The 
absence of capital and the continuation of credit losses jeopardized 
improving the Enterprises’ ability to make improvements in those 
areas. Human capital flight and the uncertainty of the conservatorship 
status jeopardized improvement in Governance, Market Risk, and 
Operational Risk. FHFA will continue to focus on the improvement of 
Enterprise operations. Key challenges to meeting this goal in the 
future will be the health of the U.S. economy, house prices, and human 
capital risk at the Enterprises. It should be noted that this 
performance measure has not been carried forward for the next fiscal 
year. FHFA will continue to conduct examinations and ongoing 
monitoring of the Enterprises, and ratings will be assigned in 
accordance with the revised FHFA ratings system. 

For performance measure 1.1.2, FHFA met its quarterly target of 90 
percent in FY 2012, requiring the submission, review and resolution of 
remediation plans within 120 days of issuance of an MRA. FHFA 
accomplished this goal by meeting with the Enterprises biweekly to 
track progress and reconcile to Enterprise remediation packages. The 
FHFA is in the process of developing an enhanced process for tracking 
MRA remediation due dates. FHFA continues to expend effort and 
resources to address high levels of nonperforming loans and evaluate 
the success of U.S. government programs, while maintaining a core 
risk- based supervision program. Throughout the supervision process, 
FHFA works with the Enterprises to ensure the MRAs have been resolved 
within 120 days of identifying an issue by requiring and monitoring 
corrective action plans. FHFA will continue to monitor the 
effectiveness of loss mitigation efforts to support the conservation 
of GSE assets.

Figure: Did You Know? 

[Refer to PDF for image: illustration] 

Total New Business[A]: 
FY 2011: $1.08 Trillion; 
vs. 
FT 2012: $1.31 Trillion. 

Total Enterprise HARP Refinances: FY 2011: 448,746; 
vs. 
FT 2012: 711,409[b]. 

Interest Rates:  
FY 2011: 4.11% (Month of September 2011); vs. 
FT 2012: 3.47% (Month of September 2012). 

Delinquency Rates: 

Single Family, Fannie Mae: 
FY 2011: 4.00%; 
vs. 
FT 2012: 3.41%. 

Single Family, Freddie Mac: 
FY 2011: 3.51%; 
vs. 
FT 2012: 3.37%. 

Multi-Family, Fannie Mae: 
FY 2011: 0.57%; 
vs. 
FT 2012: 0.28%. 

Multi-Family, Freddie Mac: 
FY 2011: 0.33%; 
vs. 
FT 2012: 0.27%. 

Retained Mortgage Portfolio: FY 2011: $1.40 Trillion; 
vs. 
FT 2012: $1.22 Trillion. 

Total MBS Outstanding: 
FY 2011: $3.90 Trillion; 
vs. 
FT 2012: $3.94 Trillion. 

[A] Data includes purchases of mortgages into portfolio and issuances 
of the MBS. 

[B] FY 2012 total HARP refinancesis from Oct 2011–Aug 2012. 

[End of figure] 

Table: Performance Goal 1.2: The FHLBanks and the Office of Finance 
comply with legal requirements and operate in a safe and sound manner 
with adequate capital and access to funds and capital.

Performance Measure 1.2.1: Composite rating at each FHLBank.

Note: If rating is less than “2”, an acceptable performance 
improvement plan shall be included with the Bank’s response to the 
Report of Examination.

FY 2010: 
Target: “2” or better or, within 180 days of a rating downgrade to 
below 2, operating under an approved capital restoration plan; 
Performance: 
Seven institutions were rated below 2 in FY 2010. Four were operating 
under an acceptable performance improvement plan within 90 days of the 
downgrade, three were not.
Performance Results Key: Goal Fulfillment: Target Not Met. 

FY 2011: 
Target: “2” or better or, within 180 days of a rating downgrade to 
below 2, operating under an approved capital restoration plan; 
Performance: 
One institution was downgraded below 2 during FY 2011 and developed a 
remediation plan within 180 days of the downgrade. Performance Results 
Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: “2” or better or, within 180 days of a rating downgrade to 
below 2, operating under an acceptable performance improvement plan; 
Performance: 
No FHLBanks were downgraded below 2 in FY 2012. Performance Results 
Key: Goal Fulfillment: Target Met. 

Performance Measure: 1.2.2 Classify capital rating at each FHLBank.

FY 2010: 
Target: Quarterly; 
Performance: 
Eleven of the 12 FHLBanks were adequately capitalized throughout FY 
2010. One Bank was classified as undercapitalized. That Bank 
subsequently stipulated to a consent order, which constituted its 
approved capital restoration plan. Performance Results Key: Goal 
Fulfillment: Target Not Met. 

FY 2011: 
Target: Classified as “adequately capitalized” or, within 180 days of 
a rating downgrade, operating under an approved capital restoration 
plan Quarterly; 
Performance: 
Eleven of the 12 FHLBanks were adequately capitalized throughout FY 
2011. FHFA has continued to classify one Bank as undercapitalized. The 
consent order and associated agreement constitute the FHLBank’s 
capital restoration plan.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: Classified as “adequately capitalized” or, within 180 days of 
a rating downgrade, operating under an approved capital restoration 
plan Quarterly; 
Performance: 
All of the 12 FHLBanks were adequately capitalized at the end of FY 
2012. One FHLBank, previously classified as undercapitalized through a 
discretionary downgrade, was upgraded to adequately capitalized for 
the quarter ending June 30, 2012. Performance Results Key: Goal 
Fulfillment: Target Met. 

Performance Measure 1.2.3: MRAs that are more than 90 days old are 
resolved or being resolved in accordance with an acceptable 
remediation plan.

FY 2010: 
Target: 90 percent Quarterly; Performance: 
FHFA examiners identified MRAs at FHLBanks during FY 2010. All matters 
requiring attention were either successfully resolved or in the 
process of being resolved in accordance with an approved remediation 
plan within 90 calendar days. Performance Results Key: Goal 
Fulfillment: Target Met. 

FY 2011: 
Target: 90 percent Quarterly; Performance: 
FHFA examiners identified MRAs at FHLBanks during FY 2011. All MRAs 
more than 90 days old were either successfully resolved or being 
resolved with an acceptable remediation plan within 90 calendar days. 
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: At least 90 percent each Quarter; Performance: 
FHFA examiners identified MRAs at FHLBanks during FY 2012. All matters 
requiring attention were either successfully resolved or in the 
process of being resolved in accordance with an approved remediation 
plan within 90 calendar days. Performance Results Key: Goal 
Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 1.2: 

FHFA supervises each FHLBank to ensure it operates in a safe and sound 
manner. In FY 2012, FHFA conducted supervisory examinations primarily 
through on-site examinations and off-site monitoring and analysis.

During FY2012, composite ratings were assigned at each FHLBank. No 
FHLBanks were downgraded during FY 2012. All Reports of Examination 
regardless of a Bank’s composite rating, contain a summary of 
examination issues identified and Matters Requiring Attention (MRA), 
which include follow-up dates by which the Bank is to resolve the 
identified issues.

In FY 2012, all of the FHLBanks were adequately capitalized per Prompt 
Corrective Action (PCA) rule thresholds. It should be noted that one 
FHLBank previously classified as undercapitalized through a 
discretionary downgrade, was upgraded to adequately capitalized for 
the quarter ending June 30, 2012. Although the PCA capital 
classification was upgraded to adequately capitalized and reflected 
on- going improvement in key risk metrics of the Bank, FHFA continues 
to monitor concerns with the level of retained earnings and the poor 
quality of the Bank’s private label securities portfolio. 

FHFA employs a risk-based examination program that focuses on five key 
areas: market risk, credit risk, operational risk, governance, and 
financial condition and performance. FHFA provides its ROE and related 
findings to FHLBank management and their boards of directors. FHFA 
also provides information on the condition of each FHLBank and the 
Office of Finance in its Annual Report to Congress.

In FY 2012, the FHLBanks successfully resolved or began resolving all 
MRAs with an acceptable remediation plan. All ROE contain a summary of 
examination issues identified and MRAs, which include follow-up dates 
by which the Bank is to resolve the identified issues. The resolution 
of some MRAs are long-term in nature (e.g., those that are information 
technology (IT)-related often do not lend themselves to short-term 
resolution). 

[End of section] 

Strategic Goal 2: 
The housing GSEs support a stable, liquid, and efficient mortgage 
market, including sustainable home ownership and affordable housing.

The housing GSEs contribute to the smooth operation of the markets by 
providing liquidity and stability and by meeting housing goals. 
Fostering a stable, liquid, and efficient secondary mortgage market 
promotes a steady stream of funds for sustainable homeownership and 
affordable housing. Since the housing GSEs comprise a large share of 
an increasingly dynamic and complex market, their role is critical in 
providing liquidity and stability and in addressing affordable housing 
needs. 

During FY 2012, the housing GSEs have continued to have a central role 
in the mortgage market. FHFA’s policy research and analysis helps 
inform stakeholders and contributes to effective supervision. FHFA’s 
affordable housing goals are intended to influence the housing GSEs’ 
actions. Further, they set a baseline for the housing finance system 
that includes community investment and affordable housing. 

Table: Performance Goal 2.1: FHFA ensures the housing GSEs support a 
stable, liquid and efficient mortgage market. 

Performance Measure 2.1.1: Ensure liquidity levels at Fannie Mae and 
Freddie Mac meet or exceed required levels or are brought into 
compliance within 5 business days.

FY 2010: 
Target: Monthly; 
Performance: 
Fannie Mae did not maintain liquidity levels consistent with FHFA 
requirements. All the other housing GSEs met the liquidity 
requirements. Performance Results Key: Goal Fulfillment: Target Not 
Met. 

FY 2011: 
Target: 95 percent; 
Performance: 
Both Fannie Mae and Freddie Mac maintained liquidity levels consistent 
with FHFA requirements.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: 95 percent Quarterly; Performance: 
In FY 2012, both Fannie Mae and Freddie Mac maintained liquidity 
levels consistent with FHFA requirements. Performance Results Key: 
Goal Fulfillment: Target Met. 

Performance Measure 2.1.2: Ensure liquidity levels at the FHLBanks 
meet or exceed required levels or are brought into compliance within 5 
business days.

FY 2010: 
Target: Annually; 
Performance: 
Liquidity levels at the FHLBanks met the required levels consistent 
with FHFA requirements.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2011: 
Target: 95 percent; 
Performance: 
All FHLBanks maintained liquidity levels consistent with FHFA 
requirements.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: 95 percent Quarterly; Performance: 
During FY 2012, liquidity levels at the FHLBanks met the required 
levels consistent with FHFA requirements. Performance Results Key: 
Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 2.1: 

Both Enterprises and FHLBanks support the health of the secondary 
mortgage market through their regular activities of guaranteeing, 
securitizing, and purchasing mortgage loans and securities. This 
support reduces the cost of mortgages to the public and promotes 
sustainable home ownership. The 95 percent target for each measure 
represents a very good level of compliance based on daily 
observations. Not falling within the liquidity limit would represent 
something that happens once every month at most.

The Enterprises must each meet certain liquidity criteria: maintain at 
least 30 calendar days of liquidity; hold at least 50 percent of their 
expected 30-day cash needs in Treasury and/or Federal deposits; and 
maintain at least 100 percent of their expected 365 day cash needs in 
cash and unencumbered assets. During FY 2012, liquidity levels were 
monitored daily at the Enterprises and as a result, the Enterprises 
exceeded required liquidity levels. Given ongoing problems in Europe 
and the U.S. debt ceiling debate, each Enterprise reduced or 
eliminated unsecured bank deposits and increased Treasury and/or 
Federal deposits to enhance liquidity.

FHFA also monitored each FHLBank’s liquidity level to ensure their 
ongoing ability to respond to market demands. Specifically, FHFA 
requires each FHLBank to maintain positive cash balances for 15 days 
assuming no access to the capital markets while allowing maturing 
advances to roll off, and for 5 days assuming no maturing advances 
roll off. FHFA prepares a report each week to assess FHLBank 
compliance with these standards. Every FHLBank met the liquidity 
requirements for each week during FY 2012.

Table: Performance Goal 2.2: FHFA ensures the housing GSEs provide 
leadership in housing finance and affordable housing by operating 
these programs in an effective and efficient manner, developing 
products, establishing partnerships, and financing homes for very low, 
low, and moderate income households.

Performance Measure 2.2.1: Ensure all FHLBanks award affordable 
housing program (AHP) funds at least equal to statutory minimums.

FY 2010: 
Target: September 30, 2011; 
Performance: 
FHFA completed AHP examinations at all 12 FHLBanks. FHFA identified 
one violation and recommended remediation. Performance Results Key: 
Goal Fulfillment: Target Met. 

FY 2011: 
Target: 100 percent; 
Performance: 
FHFA completed AHP examinations at all 12 FHLBanks. Performance 
Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: 100 percent; 
Performance: 
FHFA completed AHP examinations at all 12 FHLBanks. All FHLBanks 
awarded AHP funds at least equal to statutory minimums. Performance 
Results Key: Goal Fulfillment: Target Met. 

Performance Measure 2.2.2: Regulated entities will provide updated 
performance plans within 180 days in response to agency notification 
of potential performance shortfalls in meeting housing goals.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: 100 percent; 
Performance: FHFA required no updated performance plans during FY 2011 
and met the target.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: 100 percent; 
Performance: Each FHLBank provided updated performance plans during FY 
2012.
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 2.2: 

The Bank Act requires each FHLBank to establish an affordable housing 
program (AHP) to enable members to provide long-term subsidized 
financing for very low-, low-, and moderate- income owner-occupied and 
affordable rental housing. These subsidies may be in the form of 
grants or subsidized interest rates on an advance to a member. 

The Bank Act also requires each FHLBank to contribute at least 10 
percent of its net earnings from the previous year to its AHP, subject 
to a minimum annual combined contribution by all 12 FHLBanks of $100 
million. FHFA conducts on-site examinations and visitations of each 
FHLBank to ensure compliance with AHP regulations and to evaluate the 
effectiveness of the FHLBanks’ programs. During FY 2012, FHFA did not 
identify nor were we advised of any violations of this statutory 
requirement, and met performance measure 2.2.1.

In response to agency notification of potential performance shortfalls 
in meeting housing goals, FHFA met its goal of requiring the 
Enterprises to provide updated performance plans in FY 2012. Each 
performance plan addresses unique benchmarks for the Enterprises. FHFA’
 s approach while Fannie Mae and Freddie Mac are under conservatorship 
is to compare the Enterprises’ affordable housing attainment to the 
overall volume of affordable housing produced in the primary market. 
With this fluctuating target, an indicative measure will not be set 
but the affordable housing objective remains an important component of 
the Enterprises’ activities. 

Table: Performance Goal 2.3: FHFA supports an efficient secondary 
mortgage market through research that increases transparency of the 
housing GSEs’ risks and activities and improves understanding of 
mortgage market developments.

Performance Measure 2.3.1: Develop and publish house price indexes 
that omit or reduce the influence of distressed sales from the 
estimation sample for Metropolitan Statistical Areas (MSAs) or states.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: New Measure for 2012. 

FY 2012: 
Target: By September 30, 2012; Performance: 
The updated Housing Price Index (HPI) published in July 2012 included 
new price indexes that omit or reduce the influence of distressed 
sales from the estimation sample for MSAs or states. Performance 
Results Key: Goal Fulfillment: Target Met. 

Performance Measure 2.3.2: Ensure working papers, mortgage market 
notes, or research papers are published.

FY 2010: 
Target: Six by September 30, 2010; Performance: 
FHFA published two working papers, six research papers, and three 
mortgage market notes during FY 2010. Performance Results Key: Goal 
Fulfillment: Target Met. 

FY 2011: 
Target: At least 6; 
Performance: 
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 Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: At least 6. 
Performance: 
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 [hyperlink, 
http://www.fhfa.gov/Default.aspx?Page=5]. Performance Results Key: 
Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 2.3: 

During FY 2012, FHFA continued to provide information to promote an 
efficient secondary mortgage market. The presentation of accurate and 
timely information is critical to understanding mortgages, mortgage 
markets and the housing GSEs’ risks and activities. FHFA publishes a 
variety of data and reports throughout the year to increase the 
transparency of mortgage market developments, as well as the housing 
GSEs’ risks and activities. 

FHFA conducted market research to assess likely distress-indicators 
that enabled the production of a distress-free Housing Price Index 
(HPI). The distress “discount” reflects a number of factors, including 
(frequently) deteriorated property condition. Many users of the HPI 
would prefer to remove the effects of those factors from FHFA’s 
metrics. To satisfy that demand and to improve public understanding of 
housing market developments, FHFA met its goal of developing and 
publishing distress-free house price indexes that are available to the 
public [hyperlink, http://www.fhfa.gov/Default.aspx?Page=14]. 

During FY 2012, FHFA also published several research papers, staff 
working papers, and mortgage market notes aimed at improving the public’
 s understanding of mortgages, mortgage markets and the nation’s 
housing financial system. These various publications cover topics 
related to the economic environment and complement FHFA’s supervision 
of the housing GSEs. These publications include:

* Fannie Mae and Freddie Mac Single-Family Guarantee Fees in 2010 and 
2011 [hyperlink, 
http://www.fhfa.gov/webfiles/24558/rp_sf_guarantee_fees_2010_2011.pdf]; 

* FHFA Technical Analysis of Principal Forgiveness [hyperlink, 
http://www.fhfa.gov/webfiles/24557/rp_technicalanalysisprincipalforgive.
 pdf]; 

* Countercyclical Capital Regime: A Proposed Design and Empirical 
Evaluation [hyperlink, 
http://www.fhfa.gov/webfiles/24538/countercyclicalcapitalregime122.pdf];
 

* House Price Indexes for Homes in Different Price Tiers: Biases and 
Corrections [hyperlink, 
http://www.fhfa.gov/webfiles/24272/FHFA_Working_Paper_12-1.pdf]; 

* 20 Year vs. 30 Year Refinance Option [hyperlink, 
http://www.fhfa.gov/webfiles/24521/FHFA_Mortgage_Market_Note_12- 
2.pdf]; and; 

* A Primer on Price Discount of REO Properties [hyperlink, 
http://www.fhfa.gov/webfiles/24490/FHFA_Mortgage_Market_Note_12-1.pdf].


In June 2012, FHFA delivered its 2011 Annual Report to Congress and 
published the report on its website [hyperlink, 
http://www.fhfa.gov/webfiles/24009/FHFA_RepToCongr11_6_14_508.pdf]. 
The report includes the conclusions and findings of the agency’s 
annual examination of the Enterprises and the FHLBanks.

In 2012, FHFA leaders testified at various congressional hearings, met 
and briefed Congress on current FHFA issues, provided technical 
assistance to members of Congress on proposed legislation, gave 
presentations at industry functions, and responded to inquiries from 
members of Congress on a variety of issues.

Table: Performance Goal 2.4: FHFA collaborates with other federal 
agencies and stakeholders to share information concerning mortgage 
markets, the nation’s housing finance system, and regulatory issues. 

Performance Measure: 2.4.1 Respond to Ccongressional inquiries within 
15 business days.

FY 2010: 
Target: 90 percent; 
Performance: 
For FY 2010, FHFA responded to 253 formal congressional inquiries, and 
FHFA responded to 88 percent of those inquiries within 15 business 
days. 
Performance Results Key: Goal Fulfillment: Target Not Met. 

FY 2011: 
Target: 85 percent; 
Performance: 
For FY 2011, 86 percent of the responses to congressional inquiries 
completed within 15 business days. Performance Results Key: Goal 
Fulfillment: Target Met. 

FY 2012: 
Target: 85 percent; 
Performance: 
During FY 2012, FHFA responded to 246 formal congressional inquiries, 
and FHFA responded to 88 percent of those inquiries within 15 business 
days.
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 2.4: 

Communication with other federal agencies and stakeholders is key to 
FHFA’s support of an efficient secondary mortgage market. FHFA 
provides information on the housing GSEs that includes the risks they 
face, the economic environment in which they operate, and policy 
issues facing the agency.

FHFA works with other federal agencies including the U.S. Department 
of Housing and Urban Development, the U.S. Department of the Treasury 
and the Federal Reserve System, and other stakeholders to share 
information and discuss issues of common interest to promote an 
efficient secondary mortgage market. FHFA promotes regular 
communication among financial regulators and works with the Financial 
Stability Oversight Council (FSOC) to develop regulatory standards 
that will improve safety and soundness, promote affordable housing, 
and ensure an efficient secondary mortgage market. 

Congress is a key stakeholder. During FY 2012, FHFA met its goal of 
responding to congressional inquiries within 15 days. The inquiries 
tracked are formal inquiries regarding constituent or policy issues. 
Over the entire fiscal year, FHFA responded to a total of 246 
congressional inquiries. Of the 246 inquiries, 216 received a response 
within 15 business days, which translates into 87.8 percent receiving 
a response within the target range of 15 business days. The annual 
average response time was 10 days. FHFA received congressional 
inquiries on a wide range of topics, including: Principal forgiveness, 
Home Affordable Refinance Program (HARP), Real Estate Owned (REO) bulk 
sales pilot, executive compensation at the Enterprises, constituent 
inquiries regarding their mortgages, Property Assessed Clean Energy 
(PACE) loans, Enterprise attorney networks, minority and women 
inclusion, Freddie Mac investments, and the proposed qualified 
residential mortgage regulation. 

FHFA staff is also in continuous communication with relevant 
congressional staff on an informal basis. FHFA also provided outreach 
through meetings with industry stakeholders on mortgage market 
developments, policy positions, and activities of the agency that 
serve to develop an improved understanding of the financial condition 
of the housing GSEs. FHFA met with key organizations and associations 
in the housing industry regarding A Strategic Plan for Enterprise 
Conservatorships. 

[End of section] 

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.

The conservatorships of Fannie Mae and Freddie Mac allow FHFA to 
preserve the assets of the Enterprises, ensure they focus on their 
housing mission and remediate operational and risk management 
shortcomings. As conservator, FHFA seeks to strengthen the Enterprises 
financial condition, minimize losses, and strive for operations, 
controls and risk management that meet or exceed industry standards. 
FHFA will continue to promulgate regulations mandated by HERA and to 
strengthen the Enterprises’ safety and soundness. FHFA has also 
directed Fannie Mae and Freddie Mac to pursue appropriate foreclosure 
mitigation activities, including loan modifications in a way intended 
to conserve the Enterprises’ assets while providing foreclosure 
alternatives to eligible distressed borrowers. FHFA will continue to 
closely monitor market conditions, guide the Enterprises’ activities 
and decisions, and work to improve their operations to ensure they are 
safe and sound and promote liquidity and stability in the housing 
market.

Table: Performance Goal 3.1: Preserve and conserve each Enterprise’s 
assets and property. 

Performance Measure 3.1.1: Each Enterprise submits an acceptable asset 
disposition plan for assets identified by FHFA.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: September 30, 2011; 
Performance: 
The plans the Enterprises submitted to FHFA in 2011 did not meet the 
requirements and were unacceptable. Performance Results Key: Goal 
Fulfillment: Target Not Met. 

FY 2012: 
Target: September 30, 2012; 
Performance: 
Both of the Enterprises submitted acceptable asset disposition plans 
to FHFA during FY 2012.
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 3.1.2: Complete quarterly review of both 
Enterprises assets, partnerships, contracts and litigation activities.

FY 2010: 
Target: Quarterly, beginning December 31, 2009; Performance:
FHFA received Fannie Mae’s inventory on July 13, 2010, and Freddie Mac’
s inventory on July 16, 2010. Performance Results Key: Goal 
Fulfillment: Target Not Met. 

FY 2011: 
Target: 100% Quarterly; 
Performance: 
Neither Enterprise submitted inventories on time. Performance Results 
Key: Goal Fulfillment: Target Not Met. 

FY 2012: 
Target: 100% Quarterly; 
Performance: 
Both Enterprises submitted all their quarterly inventories on time, 
allowing FHFA to conduct and complete its review of the Enterprises’ 
submissions relative to assets, partnerships, contracts, and 
litigation activities.
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 3.1: 

FHFA placed both Fannie Mae and Freddie Mac in conservatorship in 2008 
to preserve and conserve their assets and put both entities in a sound 
and solvent condition. During FY 2012, FHFA worked with the 
Enterprises to ensure they took important steps in asset disposition. 
The Senior Preferred Stock Purchase Agreement (SPSPA) required both 
Enterprises to reduce their retained mortgage portfolios by 10 percent 
from the previous year’s maximum allowed portfolio level by December 
31, 2011(see page 31 in the MD&A Section for SPSPA description). On 
December 31, 2011, both Enterprises were in compliance with this 
requirement. In addition, each quarter of the year, the Enterprises 
submitted quarterly asset inventories to FHFA. During the second 
quarter, Fannie Mae submitted an asset disposition plan through the 
Financial Activities Review (FAR) process. Furthermore, as part of FHFA’
 s REO Initiative targeted to the hardest-hit metropolitan areas, 
which was announced in August of 2011, both Enterprises submitted 
acceptable plans to FHFA regarding REO disposition. 

During FY 2012, FHFA reviewed non-core assets for feasibility of sale 
or liquidation, consistent with minimizing taxpayer’s losses and the 
portfolio shrinkage required by the SPSPA with the U.S. Department of 
Treasury. FHFA reviewed the quarterly asset inventory submissions, the 
GSEs’ non-mission activity reports, and the detail of specific 
accounts. We coordinated within FHFA to begin the process for 
automated submission of certain information from the asset inventory 
report. As part of the review, FHFA performed a comparison between 
quarters identifying any unusual activities and changes among accounts 
along with litigation trends (if any), new claims, dissolutions or new 
partnerships. The challenges faced include identifying assets and 
other items in the asset inventory submission in sufficient detail to 
make meaningful quarter to quarter comparisons. FHFA will continue to 
monitor developments in the markets and work to stabilize each 
Enterprise. 

Table: Performance Goal 3.2: Delegate appropriate authorities to each 
Enterprise’s management to continue with or improve upon the Enterprises
’ mission and their business operations.

Performance Measure 3.2.1: 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. 

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: New Measure for 2012. 

FY 2012: 
Target: Within 15 calendar days of receipt of the request. Performance: 
All requests submitted through the email box were presented at CGC 
meetings or emailed to the CGC meetings and assigned to lead offices 
within 15 calendar days.
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 3.2: 

As conservator, FHFA has delegated operational and other duties to the 
Enterprises’ directors and officers. FHFA manages all conservator 
requests received through the FHFA Conservator Decision email box, 
which are brought to the Conservator Governance Committee (CGC) and 
then assigned to a lead office for resolution within 15 calendar days 
of receipt of the request.

FHFA met this performance measure target for each quarter during FY 
2012, assigning within 15 calendar days a lead office for resolution 
of all conservatorship requests. FHFA ensures the decision making 
process is timely and appropriately coordinated throughout the agency. 

Table: Performance Goal 3.3: Ensure the Enterprises have effective 
programs that respond to problems in mortgage markets by reducing 
preventable foreclosures.

Performance Measure 3.3.1: Prevent current loans from going delinquent 
by helping borrowers to refinance.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: New Measure for 2012. 

FY 2012: 
Target: Maintain the volume of HARP refinances as a percent of total 
refinances at 10% or higher
Performance: 
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%.
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 3.3.2: Maintain the percentage of modified loans 
that are 60-plus days delinquent, nine months after modification, at 
or below 20%. 

FY 2010: 
Target: 35 percent or less; 
Performance: 
Less than 35 percent of modified loans were 60-plus days delinquent 
after modification in three of the four quarters. During one quarter, 
the percentage of modified loans 60-plus days delinquent was 35 
percent. 
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2011: 
Target: 35 percent or less; 
Performance: 
Approximately 16 percent of modified loans were 60-plus days 
delinquent six months after completion of a loan modification. 
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: Less than or equal to 20 percent; Performance: 
Approximately 13 percent of modified loans were 60-plus days 
delinquent nine months after modification in four out of the four 
quarters.
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 3.3: 

Performance measure 3.3.1 is an indicator of the ability of current 
borrowers with high loan-to-value loans to obtain refinances, which 
may prevent delinquency at a later date. During FY 2012, FHFA tracked 
the Enterprises’ efforts to prevent avoidable foreclosures through a 
variety of mechanisms including loan modifications, refinances and 
short sales. This information was reported publicly in a monthly 
foreclosure prevention report. HARP, one of the refinance programs, 
accounted for 17.9 percent of total loan refinances between October 1, 
2011 and August 31, 2012. 

FHFA exceeded the annual target of having less than or equal to 20 
percent of modified loans that are 60- plus days delinquent, nine 
months after modification. For loans modified between July 1, 2011 and 
September 30, 2011, 13 percent were 60-plus days delinquent nine 
months after completion of a loan modification. FHFA continues to work 
with the Enterprises and mortgage servicers to implement a Servicing 
Alignment Initiative to standardize their approaches to loss 
mitigation and foreclosure prevention. However, high levels of 
unemployment and underemployment and the decline of house prices 
continue to affect the ability and willingness of some borrowers to 
pay their mortgages.

Table: Performance Goal 3.4: Work with the Administration and Congress 
to develop an effective structure for the Enterprises to emerge from 
conservatorship.

Performance Measure 3.4.1: 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.

FY 2010: 
Target: Ongoing; 
Performance: 
FHFA provided technical assistance to the Administration and Congress 
regarding the secondary mortgage market and post conservatorship 
outcomes for the Enterprises through congressional testimony, full 
participation in the President’s Working Group on Financial Markets, 
and meetings with key representative to explore topics related to 
overall housing policy.
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2011: 
Target: Participate in interagency meetings at least Quarterly; 
Performance: 
FHFA provided technical assistance to the Administration and Congress 
through participation in meetings where options related to the future 
of the secondary mortgage market and post conservatorship outcomes for 
the Enterprises were discussed. Performance Results Key: Goal 
Fulfillment: Target Met. 

FY 2012: 
Target: Develop and disseminate a strategic plan prescribing the next 
phase of the conservatorships for Fannie Mae and Freddie Mac; 
Performance: 
FHFA published a strategic plan for the Conservatorships on February 
21, 2012 and provided technical assistance to the Administration and 
Congress through participation in meetings and speeches on the 
secondary mortgage market and post- conservatorship outcomes. In 
addition, FHFA participated in interagency meetings on Dodd-Frank, 
including risk retention, Strategically Important Financial 
Institutions (SIFI’s), and Strategically Important Financial Market 
Utilities (SIFMU’s).
Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 3.4.2: Discuss the progress regarding the 
objectives outlined in the Conservatorship Scorecard with each 
Enterprise.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: New Measure for 2012. 

FY 2012: 
Target: Quarterly; 
Performance: 
During FY 2012, FHFA held meetings with Fannie Mae and Freddie Mac to 
review the progress made on the Conservatorship Scorecard goals. 
Assessments are reviewed quarterly. Each goal has an FHFA owner who 
provides input on their assessment of Fannie Mae’s and Freddie Mac’s 
achievements and obstacles.
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 3.4: 

During FY 2012, FHFA provided technical assistance to Congress on a 
variety of legislative measures to address the future of secondary 
mortgage markets and mortgage securities markets. FHFA published A 
Strategic Plan for Enterprise Conservatorships detailing the agency’s 
plans, and later published a Conservatorship Scorecard describing 
specific projects for the Enterprises to work on and accomplish in 
order for the Plan to be implemented. Many of the items on the 
Scorecard require Freddie Mac and Fannie Mae to work together in order 
to achieve success. These projects focused on: (1) building a new 
infrastructure for the secondary mortgage market; (2) gradually 
contracting the Enterprises’ dominant position in the marketplace 
while simplifying and shrinking their operations; and (3) maintaining 
foreclosure prevention activities and credit availability for new and 
refinanced mortgages. 
[End of section] 

Resource Management Strategy: FHFA has the personnel, resources, and 
infrastructure to manage effectively and efficiently to achieve its 
mission and goals.

FHFA approaches the resources management strategy by ensuring that the 
agency is addressing its administrative and workforce needs including 
information technologies and systems, and financial and human 
resources programs and processes. FHFA management is successful with 
the integration of strategic planning efforts into everyday 
operations. Significant progress has been made with the implementation 
of new training programs for employees, upgrading information 
technology systems, updating infrastructure, and implementing a new 
strategic plan to provide a focus and direction for the next five years.

Table: Performance Goal 4.1: FHFA has a diverse workforce that is 
highly skilled, highly motivated and results oriented.

Performance Measure 4.1.1: Improve FHFA Employee Viewpoint Survey 
(EVS) results in the area of “Communication.”

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: Improvement over previous year’s results; Performance: 
FHFA increased scores in 6 of 10 questions in the area of 
communication. 
Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: Improvement over previous year’s results; Performance: 
FHFA increased scores in 6 of 10 questions in the area of 
communication. 
Performance Results Key: Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 4.1: 

FHFA’s workforce continues to be its most valuable resource. In 
accordance with Title 5, Code of Federal Regulations (CFR), part 250, 
federal agencies are required to annually survey employees. The 
Federal Employee Viewpoint Survey (FEVS) is administered each year by 
the Office of Personnel Management (OPM), and is a tool used to 
measure employees’ feelings and perceptions in topic areas such as 
Talent, Leadership and Knowledge Management, Performance Culture, and 
Job Satisfaction. The ultimate goal of the survey is to provide 
agencies with information to build on identified strengths and focus 
on areas requiring additional attention, based on survey results. OPM 
is responsible for calculating and preparing survey result reports for 
each federal agency, based on the number of participating employees 
and the number of responses received. Agencies are responsible for 
analyzing and interpreting the results and using them to inform human 
capital management policies, programs, and initiatives. 

The annual FEVS results in the area of communication indicates FHFA 
increased scores in six of the ten communication related questions. 
Based on the survey results and subsequent comparison, FHFA fully met 
the fiscal year 2012 measure to improve FHFA FEVS results in the area 
of “Communication” over fiscal year 2011 results. 

Table: Performance Goal 4.2: FHFA demonstrates a strong commitment to 
equal employment opportunity that supports diversity in employment, 
operations and the contracting of services.

Performance Measure 4.2.1: 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.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: 10 Annually; 
Performance: 
FHFA participated in 10 conference events and career fairs with 
minority and women groups during FY 2011. Performance Results Key: 
Goal Fulfillment: Target Met. 

FY 2012: 
Target: 10 Annually; 
Performance: 
FHFA participated in 17 conference events and career fairs with 
minority and women groups during FY 2012. Performance Results Key: 
Goal Fulfillment: Target Met. 

Performance Measure 4.2.2: Percentage or number of contracts that are 
executed with minority-owned and women-owned businesses above 2011 
levels.

FY 2010: 
Target: New Measure for 2012. 

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. 

[End of table] 

Overview Of Performance Goal 4.2: 

FHFA expanded its efforts to recruit qualified minority and women 
candidates by leveraging the Agency’s resources with those of 
professional organizations that promote and advocate for minority and 
women financial services professionals. Measure 4.2.1 was designed to 
reflect the number of organizations the Agency has worked with as well 
as an estimate of the number of applications received as a result of 
these endeavors. FHFA’s hiring practices follow merit system 
principles and OPM regulatory standards in addition to the hiring 
flexibilities provided to it by law.

During FY 2012, the agency participated in 17 events sponsored by 
different organizations to recruit qualified minority and women 
candidates for FHFA. FHFA also met with representatives of several 
organizations that promote workforce diversity in order to increase 
their awareness of FHFA and our job opportunities. FHFA also worked 
directly with the regulated entities during this period to follow up 
on the results of targeted events and outreach activities. FHFA also 
supports diversity in the contracting of services by encouraging the 
use of small business, veteran-owned small business, service-disabled 
veteran- owned small business, Historically Underutilized Business 
Zone (HUBZone) small business, small disadvantaged business, and 
women- owned small business concerns in its acquisition of goods and 
services, whether as contractors or subcontractors. 

During FY 2012 FHFA sought partnerships, alliances, and agreements 
with organizations in order to enhance its ability to include and 
utilize minorities, women, disabled individuals and minority-owned, 
women-owned, and disabled-owned businesses when contracting for goods 
and services. FHFA has experienced a positive increase in contracting 
actions with minority- and women-owned businesses (MWOBs) in FY 2012. 
The number of transactions increased from 63 in FY 2011 to 140 in FY 
2012. The 140 contracting actions represent $7.3 million dollars of 
business with minority- and women-owned firms and represent 
approximately 21 percent of the total dollars obligated during FY 2012.

Table: Performance Goal 4.3: FHFA has effective financial and risk 
management programs.

Performance Measure 4.3.1: Percentage of FHFA's external audits and 
reviews that receive unqualified opinions with no material weaknesses 
or unacceptable risks.

FY 2010: 
Target: 100 percent; 
Performance: In FY 2010, all external audits and reviews had 
unqualified opinions with no material weaknesses. Performance Results 
Key: Goal Fulfillment: Target Met. 

FY 2011: 
Target: 100 percent; 
Performance: In FY 2011, all external audits and reviews had 
unqualified opinions with no material weaknesses or unacceptable 
risks. Performance Results Key: Goal Fulfillment: Target Met. 

FY 2012: 
Target: 100 percent; 
Performance: In FY 2012, all external audits and reviews had 
unqualified opinions with no material weaknesses or unacceptable 
risks. Performance Results Key: Goal Fulfillment: Target Met. 

Performance Measure 4.3.2: Ensure management completes corrective 
action on OIG findings within agreed timeframe.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: New Measure for 2012. 

FY 2012: 
Target: No overdue corrective actions outstanding; Performance: 
In FY 2012, 49 of 50 corrective actions were completed and closed on 
time. One recommendation was originally closed by FHFA in the 4th 
quarter and then re-opened per agreement with the OIG. Performance 
Results Key: Goal Fulfillment: Target Not Met. 

[End of table] 

Overview Of Performance Goal 4.3: 

To ensure resources are managed effectively and efficiently, FHFA will 
continue to expand its use of financial and performance information in 
managing program operations, integrating its budget and performance 
development, and making program improvements. FHFA must continue to 
maintain a strong internal control and risk management program. This 
includes financial management, information security and other 
management and operating processes. 

During FY 2012, FHFA supported GAO’s FY 2012 audit of FHFA’s financial 
statements and revised agency policies and procedures, ensuring that 
resources were effectively and efficiently used to achieve agency 
strategic and performance goals. FHFA cooperated with the OIG, GAO and 
external auditors to conduct internal reviews of agency activities and 
respond to all audit findings and recommendations to improve agency 
operations.

FHFA did not meet Performance Goal 4.3.2 because one recommendation 
that was originally closed in the 4th quarter of fiscal year 2012 was 
re-opened per agreement with the OIG. FHFA completed 49 of 50 
corrective actions on time during fiscal year 2012. The timeline for 
the one outstanding corrective action was extended to February 2013 
since the recommendations that were identified would require actions 
beyond FY 2012. 

Table: Performance Goal 4.4: FHFA has the information technology and 
physical infrastructure needed to achieve its mission and goals.

Performance Measure 4.4.1: Percentage of incidents responded to by 
Help Desk personnel within 15 business minutes.

FY 2010: 
Target: New Measure for 2012. 

FY 2011: 
Target: 80 percent or more; 
Performance: 
Help Desk personnel responded to more than 80 percent of requests 
within 15 minutes each quarter of FY 2011. Performance Results Key: 
Goal Fulfillment: Target Met. 

FY 2012: 
Target: 80 percent or more Quarterly; Performance: 
Help Desk personnel responded to more than 93 percent of requests 
within 15 minutes each quarter of FY 2012. Performance Results Key: 
Goal Fulfillment: Target Met. 

[End of table] 

Overview Of Performance Goal 4.4: 

FHFA’s supervision of the housing GSEs is highly dependent upon the 
strategic use of technology. FHFA effectively uses IT to provide 
independent analysis of safety and soundness issues to accomplish FHFA’
s mission. 

During FY 2012, 93 percent of Help Desk requests were responded to 
within 15 minutes. FHFA closely monitors Help Desk trouble tickets to 
ensure expectations are met for customers. The consolidation of users 
and Help Desk resources from three buildings into one facility helped 
with workload management and dispatching logistical support. 

FHFA links IT initiatives to the annual performance budget which 
supports the agency in achieving its long term goals. FHFA will 
continue to ensure maximum availability of FHFA information resources, 
and continue to enhance the security, reliability and capacity of FHFA’
 s IT infrastructure, consistent with the Federal Information Security 
Management Act, Federal Information Processing Standards, National 
Institute of Science and Technology special publications, and annual 
reviews and updates of common controls and continuous monitoring. 

[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’s Response to Auditor’s Report; 

* Financial Statements; 

* Notes to the Financial Statements. 

[End of section] 

Message from the Chief Financial Officer: 

I am pleased to present the FY 2012 financial statements for the 
Federal Housing Finance Agency as an important component of the agency’
 s 2012 Performance and Accountability Report (PAR). Once again, FHFA 
received an unqualified 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 2012 
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.

In addition to a clean audit opinion, FHFA received the Certificate 
for Excellence in Accountability Reporting (CEAR) award for its FY 
2011 PAR from the Association of Government Accountants, the fourth 
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 year’s PAR represents the last reporting year on FHFA’s 2009-2014 
Strategic Plan. FHFA developed a new Strategic Plan for the years 
2013- 2017 that will guide the agency’s future activities and serve as 
the basis for performance reporting for next year’s PAR. The new 
Strategic Plan continues to maintain the agency’s focus on its core 
responsibilities for regulating the housing GSEs and managing the 
conservatorships of the Enterprises. In addition, the new plan 
incorporates all of the key elements contained in the Strategic Plan 
for Enterprise Conservatorships that was released by the agency to the 
public in February 2012. 

Finally, the commitment of senior management and staff to maintain 
effective programs of internal control over agency activities and 
financial reporting provides the solid foundation necessary for 
managing and monitoring the effective and efficient use of FHFA 
resources.

Sincerely, 

Signed by: 

Mark Kinsey: 

Chief Financial Officer: 

November 15, 2012: 

[End of section] 

Independent Auditor’s Report: 

United States Government Accountability Office: Washington, DC 20548: 

Independent Auditor's Report: 

To the Acting Director of the Federal Housing Finance Agency: 

In accordance with the Housing and Economic Recovery Act of 2008 
(HERA), we are responsible for conducting annual audits of the 
financial statements of the Federal Housing Finance Agency (FHFA). In 
our audits of FHFA's fiscal years 2012 and 2011 financial statements, 
we found: 

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

*       FHFA maintained, in all material respects, effective internal 
control over financial reporting as of September 30, 2012; and; 

*       no reportable noncompliance in fiscal year 2012 with 
provisions of laws and regulations we tested. 

The following sections discuss in more detail (1) these conclusions; 
(2) required supplementary information and other information included 
with the financial statements; (3) our audit objectives, scope, and 
methodology; and (4) FHFA's comments on a draft of this report. 

Opinion on Financial Statements: 

FHFA's financial statements, including the accompanying notes, present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, its assets, liabilities, and net 
position as of September 30, 2012 and 2011, and its net cost of 
operations, changes in net position, and budgetary resources for the 
fiscal years then ended. 

As discussed in note 1A of the financial statements, FHFA's fiscal 
years 2012 and 2011 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. 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, 2012, 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 an asset far its 
investment in Fannie Mae and Freddie Mac and a liability for future 
payments to the two entities in its financial statements. 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 and because the 
nature of the conservatorships and 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 1] OMB reaffirmed this conclusion with respect to fiscal 
years 2009 through 2012. 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 2012 and 2011 financial statements. Should circumstances 
change, such as the inclusion of Fannie Mae and Freddie Mac in the 
federal budget, this decision would need to be revisited. 

Opinion on Internal Control: 

FHFA maintained, in all material respects, effective internal control 
over financial reporting as of September 30, 2012, that provided 
reasonable assurance that misstatements, losses, or noncompliance 
material in relation to the financial statements would be prevented or 
detected and corrected on a timely basis. Our opinion on internal 
control is based on criteria established under 31 U.S.C. § 3512 (c), 
(d), commonly known as the Federal Managers' Financial Integrity Act 
of 1982 (FMFIA). 

During fiscal year 2012, FHFA made progress but did not yet complete 
all actions necessary to fully resolve internal control deficiencies 
related to accounting and monitoring procedures, access controls, and 
information security management that we identified in our prior 
audits. During our fiscal year 2012 audit, we also identified 
additional deficiencies in accounting procedures and controls over 
FHFA's information security. We do not consider the remaining 
deficiencies from our fiscal years 2009, 2010, and 2011 financial 
audits, and those found during our fiscal year 2012 audit, 
individually or in the aggregate, to constitute material weaknesses or 
significant deficiencies.[Footnote 2] We have communicated these 
matters to management and, where appropriate, will report on them 
separately. 

Compliance with Laws and Regulations: 

Our tests of FHFA's compliance with selected provisions of laws and 
regulations for fiscal year 2012 disclosed no instances of 
noncompliance that would be reportable under U.S. generally accepted 
government auditing standards. The objective of our audit was not to 
provide an opinion on overall compliance with laws and regulations. 
Accordingly, we do not express such an opinion. 

Required Supplementary Information: 

U.S. generally accepted accounting principles require that required 
supplementary information (RSI) be presented to supplement the 
financial statements.[Footnote 3] This information, although not a 
part of the financial statements, is required by the Federal 
Accounting Standards Advisory Board (FASAB), who considers it to be an 
essential part of financial reporting for placing the financial 
statements in appropriate operational, economic, or historical 
context. 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 infornnation[Footnote 4] contains a wide range of 
information, some of which is not directly related to the financial 
statements. This information is presented for purposes of additional 
analysis and is not a required part of the financial statements or 
required supplementary information. 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. 

Objectives, Scope, and Methodology: 

FHFA management is responsible for (1) preparing the financial 
statements in conformity with U.S. generally accepted accounting 
principles; (2) preparing, measuring, and presenting the RSI in 
accordance with the prescribed guidelines in 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) establishing 
and maintaining effective internal control over financial reporting 
and evaluating its effectiveness; and (5) complying with applicable 
laws and regulations. FHFA management evaluated the effectiveness of 
FHFA's internal control over financial reporting as of September 30, 
2012, based on the criteria established under FMFIA. FHFA management's 
assertion based on its evaluation is included in appendix I. 

We are responsible for planning and performing the audit to obtain 
reasonable assurance and provide our opinion about whether (1) FHFA's 
financial statements are presented fairly, in all material respects, 
in conformity with U.S. generally accepted accounting principles, and 
(2) FHFA management maintained, in all material respects, effective 
internal control over financial reporting as of September 30, 2012. We 
are also responsible for (1) testing compliance with    selected 
provisions of laws and regulations that have a direct and material 
effect on the financial statements and (2) applying certain limited 
procedures to the RSI and other information included with the 
financial statements.   

In order to fulfill these responsibilities, we: 

* examined, on a test basis, evidence supporting the amounts and 
disclosures in FHFA's financial statements; 

* assessed the accounting principles used and significant estimates 
made by         FHFA management; 

* evaluated the overall presentation of FHFA's financial statements; 

* obtained an understanding of FHFA and its operations, including its 
internal control over financial reporting; 

* considered FHFA's process for evaluating and reporting on internal 
control over financial reporting that FHFA is required to perform by 
FMFIA; 

* assessed the risk of (1) material misstatement in FHFA's financial 
statements and (2) material weakness in its internal control over 
financial reporting; 

* evaluated the design and operating effectiveness of internal control 
over financial reporting based on the assessed risk; 

* tested relevant internal control over FHFA's financial reporting; 

* tested compliance with selected provisions of the following laws and 
their related regulations: 31 U.S.C. § 3902 (a), (b), (f) — Interest 
penalties under the     Prompt Payment Act; 31 U.S.C. § 3904 — 
Limitations on Discount Payments        Under the Prompt Payment Act; 
Presidential Memorandum on Freezing     and     Federal Employee Pay 
Schedules       Rates That Are Set by Administrative    Discretion, 75 
Fed. Reg. 81829 (Dec. 29, 2010); Federal Employees'     Retirement 
System Act of 1986, as amended; Tax Relief Unemployment Insurance 
Reauthorization and Job Creation Act of 2010, Pub. L. No. 111-  312, 
tit. VI, 124 Stet, 3296, 3309 (Dec. 17, 2010) (reprinted in 26 U.S.C. 
1401 note); Temporary Payroll Tax Cut Continuation Act of 2011, Pub. 
L. No. 112-     78, tit. I, 125 Stat. 1280, 1281-82 (Dec. 23, 2011) 
(reprinted in 26 U.S.C. 1401    note); Middle Class Tax Relief and Job 
Creation Act of 2012, Pub. L. No. 112-96, tit. I, 126 Stat. 156, 158- 
59 (Feb. 22, 2012) (reprinted in 26 U.S.C. 1401 note); Social Security 
Act of 1935, as amended; Federal Employees Health       Benefits Act 
of 1959, as amended; 12 U.S.C. § 4515 — Personnel; Federal      
Housing Enterprises Financial Safety and Soundness Act of 1992, as 
amended by the Housing and Economic Recovery Act of 2008; 12 U.S.C. 
§       4517(h) — Appointment of accountants, economists, and 
examiners; and 12       C.F.R. Part 1206 — Assessments; 

* conducted inquiries of management about the methods of preparing the 
RSI and compared this 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; 

* read the other information included with the financial statements in 
order to identify material inconsistencies, if any, with the audited 
financial statements; and; 

* performed such other procedures as we considered necessary in the 
circumstances. 

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 conformity 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 the 
laws governing the use of budget authority and other laws and 
regulations that could have a direct and material effect on the 
financial statements. 

We did not evaluate all internal control relevant to operating 
objectives as broadly established under FMFIA, such as those controls 
relevant to preparing statistical reports 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 the effectiveness of 
internal control over financial reporting and may not be sufficient 
for other purposes. Consequently, our audit may not identify all 
deficiencies in internal control over financial reporting that are 
less severe than a material weakness. Because of inherent limitations, 
internal control may not prevent or detect and correct misstatements 
due to error or fraud, losses, or noncompliance. 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. 

We did not test compliance with all laws and regulations applicable to 
FHFA. We limited our tests of compliance to selected provisions of 
laws and regulations that have a direct and material effect on the 
financial statements for fiscal year 2012. We caution that 
noncompliance may occur and not be detected by these tests and that 
such testing may not be sufficient for other purposes. 

We performed our audit in accordance with U.S. generally accepted 
government auditing standards. We believe our audit provides a 
reasonable basis for our opinions and other conclusions. 

Agency Comments: 

In commenting on a draft of this report, the acting Director of FHFA 
stated that he accepted the audit findings and commented that the 
agency would continue to work to enhance its internal controls and 
ensure the reliability of its financial reporting, its soundness of 
operations, and public confidence in its mission. 

The complete text of FHFA's comments is reprinted in appendix II. 

Signed by: 

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

November 8, 2012: 

Footnotes: 

[1] The conclusive and indicative criteria used in deciding what to 
include as part of a financial reporting entity is included in the 
Statement of Federal Financial Accounting Concepts No. 2, Entity and 
Display. 

[2] A material weakness is a deficiency, or a combination of 
deficiencies, in internal control such that there is a reasonable 
possibility that a material misstatement of the entity's financial 
statements will not be prevented or detected and corrected on a timely 
basis. A significant deficiency is a deficiency, or combination of 
deficiencies, in internal control that is less severe than a material 
weakness, yet important enough to merit attention by those charged 
with governance. A 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] RSI comprises Management's Discussion and Analysis and the 
Statement of Budgetary Resources that is included with the financial 
statements. 

[4] Other information comprises 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 the laws governing the use of budget 
authority and other laws and regulations that could have a direct and 
material effect on the financial statements. 

FHFA management is responsible for establishing and maintaining 
effective internal control over financial reporting. FHFA management 
evaluated the effectiveness of the agency's internal control over 
financial reporting as of September 30, 2012, based on the criteria 
established under 31 U.S.C. sec. 3512 (c), (d) (commonly known as the 
Federal Managers' Financial Integrity Act). 

Based on that evaluation, we concluded that, as of September 30, 2012, 
FHFA's internal control over financial reporting was effective. 

Federal Housing Finance Agency: 

Signed by: 
Edward J. DeMarco: 
Acting Director: 

Signed by: 

Mark A. Kinsey: 
Chief Financial Officer: 

November 8, 2012: 

[End of section] 

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

Federal Housing Finance Agency: Office of the Director: 

November 8, 2012: 

Mr. J. Lawrence Malenich: 
Director, Financial Management and Assurance: U.S. Government 
Accountability Office: 441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Malenich: 

Thank you for the opportunity to respond to the Government 
Accountability Office's (GAO) draft audit report titled, Financial 
Audit: Federal Housing Finance Agency's Fiscal Years 2012 and 2011 
Financial Statements (GAO-13-124R). This report presents GAO's opinion 
on the fiscal years 2012 and 2011 financial statements of the Federal 
Housing Finance Agency (FHFA). The report also presents GAO's opinion 
on the effectiveness of FHFA's internal controls as of September 30, 
2012 and GAO's evaluation of FHFA's compliance with laws and 
regulations. 

I am pleased to accept GAO's unqualified opinion on the FHFA financial 
statements and to note that there were no material weaknesses or 
significant deficiencies identified during the fiscal year 2012 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. 

Yours truly, 

Signed by: 

Edward J. DeMarco: 
Acting, Director: 

[End of section] 

Federal Housing Finance Agency:  Consolidated Balance Sheets As Of 
September 30, 2012 And 2011 (In Thousands): 

The accompanying notes are an integral part of these financial 
statements.

Assets:

Intragovernmental: 

Fund Balance With Treasury - Note 2; 2012: $20,998; 
2011: $16,445. 

Investments - Note 3; 
2012: $77,420;
2011: $78,252. 

Accounts Receivable - Note 4; 2012: 0; 
2011: $19. 

Total Intragovernmental: 
2012: $98,418; 
2011: $94,716. 

Accounts Receivable, Net - Note 4; 2012: $13; 
2011: $5. 

Property, Equipment, and Software, Net - Note 5; 2012: $45,528; 
2011: $5,569. 

Prepaid Expenses; 
2012: $840; 
2011: $491. 

Total Assets: 
2012: $144,799; 
2011: $100,781. 

Liabilities:

Intragovernmental: 

Accounts Payable; 
2012: $766; 
2011: $1,221. 

Other Intragovernmental Liabilities - Note 7; 2012: $2,727; 
2011: $1,219. 

Total Intragovernmental: 
2012: $3,493; 
2011: $2,440. 

Accounts Payable; 
2012: $9,728; 
2011: $6,601. 

Other Liabilities - Note 7; 
2012: $40,905; 
2011: $15,309. 

Total Liabilities: 
2012: $54,126; 
2011: $24,350. 

Net Position: 

Cumulative Results of Operations: 2012: $90,673; 
2011: $76,431. 

Total Net Position: 
2012: $90,673; 
2011: $76,431. 

Total Liabilities and Net Position: 2012: $144,799 
2011: $100,781. 

[End of table] 

Federal Housing Finance Agency:  Consolidated Statements Of Net Cost 
For The Years Ended September 30, 2012 AND 2011 (In Thousands): 

Program Costs by Strategic Goal: 

Safety and Soundness:

Gross Costs;  
2012: $153,621; 
2011: $125,961. 

Less: Earned Revenue; 
2012: ($124,731);
2011: ($135,297). 

Net Safety and Soundness (Income from)/Cost of Operations; 2012: 
$28,890; 
2011: ($9,336). 

Affordable Housing:

Gross Costs; 
2012: $24,919; 
2011: $17,240. 

Less: Earned Revenue; 
2012: ($64,607);
2011: ($38,054). 

Net Affordable Housing (Income from)/Cost of Operations; 2012: 
($39,688);
2011: ($20,814). 

Conservatorship:

Gross Costs; 
2012: $38,961; 
2011: $24,200. 

Less: Earned Revenue; 
2012: ($36,595);
2011: ($27,432). 

Net Conservatorship (Income from)/Cost of Operations; 2012: $2,366; 
2011: ($3,232). 

Total Gross Program Costs: 
2012: $217,501; 
2011: $167,401. 

Less: Total Earned Revenue; 
2012: ($225,933);
2011: ($200,783). 

Net (Income from)/Cost of Operations: 2012: ($8,432);
2011: ($33,382). 

[End of table] 

Federal Housing Finance Agency Consolidated Statements Of Changes In 
Net Position For The Years Ended September 30, 2012 And 2011 (In 
Thousands): 

Cumulative Results of Operations:

Beginning Balance: 
2012: $76,431; 
2011: $37,856.

Budgetary Financing Sources:

Imputed Financing Sources: 
2012: $5,810; 
2011: $5,193. 

Total Financing Sources: 
2012: $5,810; 
2011: $5,193. 

Net Income From Operations: 
2012: $8,432; 
2011: $33,382. 

Net Change: 
2012: $14,242; 
2011: $38,575. 

Cumulative Results of Operations: 2012: $90,673;
2011: $76,431. 

Net Position: 
2012: $90,673; 
2011: $76,431. 

[End of table] 

Federal Housing Finance Agency: Combined Statements Of Budgetary 
Resources For The Years Ended September 30, 2012 And 2011 (In 
Thousands): 

Budgetary Resources:

Unobligated Balance Brought Forward, October 1; 2012: $27,672; 
2011: $22,743. 

Recoveries of Prior Year Unpaid Obligations; 2012: $11,018; 
2011: $1,033. 

Unobligated Balance From Prior Year Budget Authority, Net; 2012: 
$38,690; 
2011: $23,776. 

Appropriations;
2012: $224,352; 
2011: $200,689. 

Spending Authority From Offsetting Collections; 2012: $41,593; 
2011: $29,103. 

Total Budgetary Resources;
2012: $304,635; 
2011: $253,568. 

Status of Budgetary Resources:

Obligations Incurred - Note 11; 2012: $259,100; 
2011: $225,896. 

Unobligated Balance, End of Year:

Exempt from Apportionment;
2012: $45,535; 
2011: $27,672. 

Total Unobligated Balance, End of Year; 2012: $45,535; 
2011: $27,672. 

Total Budgetary Resources;
2012: $304,635; 
2011: $253,568. 

Change in Obligated Balance:

Unpaid Obligations, Brought Forward, October 1; 2012: $67,053; 
2011: $9,135. 

Uncollected Customer Payments From Federal Sources, Brought Forward, 
October 1;
2012: ($28);
2011: 0. 

Obligated Balance, Start of Year; 2012: $67,025; 
2011: $29,135. 

Obligations Incurred; 
2012: $259,100; 
2011: $225,896. 

Outlays (Gross);
2012: ($262,252);
2011: ($186,945).

Change in Uncollected Customer Payments From Federal Sources; 2012: 
$28; 
2011: ($28).

Recoveries of Prior Year Unpaid Obligations; 2012: ($11,018);
2011: ($1,033).

Obligated Balance, End of Year:

Unpaid Obligations, End of Year (Gross); 2012: $52,883; 
2011: $67,053. 

Uncollected Customer Payments From Federal Sources, End of Year; 2012: 
0; 
2011: ($28).

Obligated Balance, End of Year, Net; 2012: $52,883; 
2011: $67,025. 

Budget Authority and Outlays, Net:

Budget Authority (Gross);
2012: $265,945; 
2011: $229,792. 

Actual Offsetting Collections; 2012: ($41,621);
2011: ($29,075)

Change in Uncollected Customer Payments From Federal Sources; 2012: 
$28; 
2011: ($28).

Budget Authority, Net;
2012: $224,352; 
2011: $200,689. 

Outlays (Gross);
2012: $262,252; 
2011: $186,945. 

Actual Offsetting Collections; 2012: ($41,621);
2011: ($29,075).

Outlays, Net;
2012: $220,631; 
2011: $157,870. 

Distributed Offsetting Receipts; 2012: ($224,353);
2011: ($200,689).

Agency Outlays, Net;
2012: ($3,722);
2011: ($42,819).

[End of tzble] 

Federal Housing Finance Agency: Notes to the Financial Statements FOR 
THE YEARS Ended September 30, 2012 AND 2011: 

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 twelve 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 fiscal year 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 for fiscal year 2009, with which FHFA concurs. OMB continued 
to hold this view in the President’s fiscal year 2010, 2011, 2012 and 
2013 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. 

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 in 2010, 2011 and 2012 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. 

Table: Enterprise Draws On Treasury Agreements: 

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. 

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.

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 
budget in August 2012 and 2011. 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 
twelve 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 fiscal years 2012 and 
2011.

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. 
Assessments received prior to due dates are available for investment 
but are unavailable for obligation. These assessments are recorded as 
deferred revenue.

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 fiscal years 2012 and 2011 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. 

F. Earmarked Funds: 

FASAB’s Statement of Federal Financial Accounting Standards (SFFAS) 
No. 27 “Identifying and Reporting Funds from Dedicated Collections” 
established certain disclosure requirements for funds defined as “ 
funds from dedicated collections.” SFFAS No. 27 states that “funds 
from dedicated collections are financed by specifically identified 
revenues, provided to the government by non-federal sources, often 
supplemented by other financing sources, which remain available over 
time. These specifically identified revenues and other financing 
sources are required by statute to be used for designated activities, 
benefits or purposes and must be accounted for separately from the 
Government’s general revenues.” The standard also presents three 
required criteria for a fund from dedicated collections. Based on the 
standard’s criteria, FHFA determined that it has no funds from 
dedicated collections.

G. 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.

H. 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, which are normally held to maturity and carried 
at amortized cost. Investments are adjusted for unamortized premiums 
or discounts. Premiums and discounts are amortized and interest is 
accrued using the level- yield, scientific method of effective 
interest amortization over the term of the respective issues.

I. 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.

J. Property, Equipment, and Software, Net: 

Property, Equipment and Software is recorded at historical cost. It 
consists of tangible assets and software. Based on a review of 
capitalization policy thresholds of 22 other agencies, FHFA 
implemented new capitalization thresholds beginning in June 2011. The 
new capitalization thresholds are being applied prospectively. 

Under FHFA’s Oversight Procedures for the Identification of 
Capitalized Assets, revised June 2011, 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] 

Prior to the revision in June 2011, the capitalization thresholds were 
as follows:

Description: Furniture and Equipment; Threshold: $25,000. 

Description: Leasehold Improvements; Threshold: $25,000. 

Description: Internal Use Software; Threshold: $25,000. 

Description: Capitalized Leases; Threshold: $25,000. 

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, Fixtures, and Equipment; Useful Life (Years): 
3. 

Description: Internal Use Software; Useful Life (Years): 3. 

[End of table] 

A leasehold improvement’s useful life is equal to the remaining lease 
term or the estimated useful life of the improvement, whichever is 
shorter. 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.

K. 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 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.

L. 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 rent, 
deferred liability 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 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. This determination and 
recording of deferred rent is applicable to the lease agreements on 
the properties at 400 7th Street Constitution Center and 5080 Spectrum 
Drive (See Note 8. Leases).

M. 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. For most employees, annual leave may be accrued up 
to 240 hours each year. The FHFA executive employees 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 
in fiscal year 2010 and 100% beginning in fiscal year 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. In 
addition, all employees have 1.45% of gross earnings withheld to pay 
for future Medicare coverage.

N. Retirement Plans: 

FHFA employees participate in the retirement plans offered by OPM, 
which consist of CSRS, CSRS – Offset, or FERS (FERS is provided under 
calculations for both regular employees as well as law enforcement 
employees in the Office of the Inspector General). The employees who 
participate in CSRS are beneficiaries of FHFA’s contribution, equal to 
7% of pay, distributed to the employee’s annuity account in the Civil 
Service Retirement and Disability Fund. Prior to December 31, 1983, 
all employees were covered under the CSRS program. From January 1, 
1984 through December 31, 1986, employees had the option of remaining 
under CSRS or joining FERS. As of January 1, 1987, hires to FHFA 
without previous Federal service are automatically covered under FERS. 
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 matching share of 
Social Security.

FERS employees and CSRS – Offset employees are eligible to participate 
in the Social Security program after retirement. In these instances, 
FHFA remits the employer’s share of the required contribution, which 
is 11.9% for FERS and 7% for CSRS.

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 employees are eligible to 
contribute to the 401(K). Only FERS employees contributing at least 3% 
to the TSP are eligible to participate in 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.

O. 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 consists of an Operating Fund and a Working 
Capital Fund. The funds in the Working Capital Fund were fully 
invested during fiscal years 2012 and 2011. Fund Balance with Treasury 
(FBWT) account balances as of September 30, 2012 and 2011, were as 
follows (dollars in thousands):

Fund Balances: Operating Fund; 2012: ($20,998); 
2011: ($16,445)

Fund Balances: Total; 
2012: ($20,998); 
2011: ($16,445).

Status of Fund Balance with Treasury:

Unobligated Balance: Available; 2012: $45,535; 
2011: $27,672. 

Obligated Balance Not Yet Disbursed; 2012: $52,883; 
2011: $67,025. 

Investments;
2012: ($77,420);
2011: ($78,252).

Total:
2012: $20,998; 
2011: $16,445. 

(See Note 12. Legal Arrangements Affecting Use of Unobligated Balances) 

[End of table] 

Note 3. Investments: 

Investments as of September 30, 2012 consist of the following (dollars 
in thousands):

Intragovernmental Securities:

Non-Marketable, Market-Based
Cost: $77,420 
Amortized (Premium) Discount: 0; Interest Receivable: 0; 
Investments Net: $77,420 
Market Value Disclosure: $77,420

Investments as of September 30, 2011 consist of the following (dollars 
in thousands):

Intragovernmental Securities:

Non-Marketable, Market-Based; Cost: $78,252 
Amortized (Premium) Discount: 0; Interest Receivable: 0; 
Investments Net: $78,252
Market Value Disclosure: $78,252

[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 or 
interest receivable on investments as of September 30, 2012 or 2011. 
Interest earned on investments was $57,000 and $66,000 for fiscal 
years 2012 and 2011, respectively.

Note 4. Accounts Receivable: 

Accounts Receivable balances as of September 30, 2012 and 2011, were 
as follows (dollars in thousands):

Intragovernmental: 

Accounts Receivable; 
2012: 0; 
2011: $19. 

With the Public: 

Accounts Receivable; 
2012: $13; 
2011: $5. 

Total Accounts Receivable: 
2012: $13; 
2011: $24. 

There are no amounts that are deemed uncollectible as of September 30, 
2012 and 2011. 

[End of table] 

Note 5. Property, Equipment, And Software, Net: 

Schedule of Property, Equipment, and Software as of September 30, 2012 
(dollars in thousands):

Major Class: Equipment; 
Acquisition Cost: $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: Capital Lease; 
Acquisition Cost: 0; 
Accumulated Amortization/Depreciation: 0; Net Book Value: 0. 

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: $– Net Book Value: $1,067. 

Major Class: Total: 
Acquisition Cost: $61,565; 
Accumulated Amortization/Depreciation: $16,037; Net Book Value: 
$45,528. 

Schedule of Property, Equipment, and Software as of September 30, 2011 
(dollars in thousands):

Major Class

Acquisition Cost

Accumulated Amortization/ Depreciation

Net Book Value

Major Class: Equipment; 
Acquisition Cost: $13,958; 
Accumulated Amortization/Depreciation: $10,874; Net Book Value: $3,084. 

Major Class: Leasehold Improvements; Acquisition Cost: $6,974; 
Accumulated Amortization/Depreciation: $6,902; Net Book Value: $72. 

Major Class: Capital Lease; 
Acquisition Cost: $22; 
Accumulated Amortization/Depreciation: $22; Net Book Value: 0. 

Major Class: Internal-Use Software; Acquisition Cost: $30,316; 
Accumulated Amortization/Depreciation: $29,286; Net Book Value: $1,030. 

Major Class: Construction-in-Progress; Acquisition Cost: $1,383; 
Accumulated Amortization/Depreciation: 0; Net Book Value: $1,383. 

Major Class: Total; 
Acquisition Cost: $52,653; 
Accumulated Amortization/Depreciation: $47,084; Net Book Value: $5,569. 

The leasehold improvement acquisition cost for September 30, 2012 
includes a Constitution Center tenant allowance in the amount of $21 
million. 

[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, 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. 

Other Liabilities;
Covered: $6,503; 
Not-Covered: $34,402; 
Total: $40,905. 

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. 

Liabilities Covered and Not Covered By Budgetary Resources as of 
September 30, 2011 consist of the following (dollars in thousands):

Intragovernmental Liabilities:

Accounts Payable;
Covered: $1,221; 
Not-Covered: 0; 
Total: $1,221. 

Other Intragovernmental Liabilities; Covered: $1,216; 
Not-Covered: $3; 
Total: $1,219. 

Total Intragovernmental Liabilities: Covered: $2,437; 
Not-Covered: $3; 
Total: $2,440. 

Accounts Payable;
Covered: $6,601; 
Not-Covered: 0; 
Total: $6,601. 

Other Liabilities;
Covered: $5,809; 
Not-Covered: $9,500; 
Total: $15,309. 

Total Public Liabilities:
Covered: $12,410; 
Not-Covered: $9,500; 
Total: $21,910. 

Total Liabilities:
Covered: $14,847; 
Not-Covered: $9,503; 
Total: $24,350. 

[End of table] 

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 taxes payable, deferred 
liabilities and unfunded leave. Payroll accruals represent payroll 
expenses that were incurred prior to year-end but were not paid. 
Deferred liabilities represent recording of the deferred rent that is 
associated with the leased premises at 400 7th Street SW – 
Constitution Center and at the leased premises at 5080 Spectrum Drive. 
The deferred liabilities also include the Constitution Center tenant 
allowance. 

Other Liabilities as of September 30, 2012 consist of the following 
(dollars in thousands):

Intragovernmental Liabilities:

Funded FECA Liability;
Non Current: 0; 
Current: $11; 
Total: $11. 

Accrued Funded Payroll;
Non Current: 0; 
Current: $36; 
Total: $36. 

Payroll Taxes Payable;
Non Current: 0; 
Current: $1,500; 
Total: $1,500. 

Advances and Prepayments;
Non Current: 0; 
Current: $1,180; 
Total: $1,180. 

Total Intragovernmental Other Liabilities; Non Current: 0; 
Current: $2,727; 
Total: $2,727. 

With the Public:

Payroll; 
Non Current: 0; 
Current: $713; 
Total: $713. 

Accrued Funded Payroll;
Non Current: 0; 
Current: $5,790; 
Total: $5,790. 

Unfunded Leave;
Non Current: $10,485; 
Current: 0; 
Total: $10,485. 

Deferred Lease Liabilities;
Non Current: $22,352; 
Current: $1,565; 
Total: $23,917. 

Total Public Liabilities:
Non Current: $32,837;
Current: $8,068; 
Total: $40,905. 

Other Liabilities as of September 30, 2011 consist of the following 
(dollars in thousands):

Intragovernmental Liabilities:

Funded and Unfunded FECA Liability; Non Current: 0; 
Current: $3; 
Total: $3. 

Unemployment Insurance Liability; Non Current: 0; 
Current: $1; 
Total: $1. 

Payroll Taxes Payable;
Non Current: 0; 
Current: $1,215; 
Total: $1,215. 

Total Intragovernmental Other Liabilities; Non Current: 0; 
Current: $1,219; 
Total: $1,219. 

With the Public:

Payroll Taxes Payable;
Non Current: 0; 
Current: $624; 
Total: $624. 

Accrued Funded Payroll;
Non Current: 0; 
Current: $5,185; 
Total: $5,185. 

Unfunded Leave;
Non Current: 0; 
Current: $9,500; 
Total: $9,500. 

Total Public Liabilities:
Non Current: 0; 
Current: $15,309; 
Total: $15,309. 

[End of table] 

NOTE 8. LEASES: 

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 at 1625 Eye Street NW. The FHFA-OIG 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. 

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 
the 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 as of September 30, 2012 is $679 thousand. 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.

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. 

The minimum future payments for the 400 7th Street SW, 1625 Eye Street 
NW, and 5080 Spectrum Drive operating leases are as follows (dollars 
in thousands):

Fiscal Year: 2013;
Amount: $19,544. 

Fiscal Year: 2014;
Amount: $19,951. 

Fiscal Year: 2015;
Amount: $19,362. 

Fiscal Year: 2016;
Amount: $16,703. 

Fiscal Year: 2017;
Amount: $16,982. 

Fiscal Year: Thereafter;
Amount: $77,557. 

Total Future Payments:
Amount: $170,099.

The minimum future receipts for the IAA with CFPB for the 1625 Eye 
Street NW space are as follows (dollars in thousands):

Fiscal Year: 2013;
Amount: $2,877. 

Fiscal Year: 2014;
Amount: $2,992. 

Fiscal Year: 2015;
Amount: $2,319 

Fiscal Year: 2016;
Amount: 0. 

Fiscal Year: 2017;
Amount: 0. 

Fiscal Year: Thereafter;
Amount: 0. 

Total Future Operating Lease Receivables: Amount: $8,188. 


Additionally, FHFA leases contingency space at an undisclosed 
location. The lease expires on March 31, 2013.

Total rental payments for the fiscal years ended September 30, 2012 
and 2011 were $15.6 million and $6.1 million, respectively. 

[End of table] 

Note 9. Commitments And Contingencies: 

FHFA did not have any material commitments or contingencies that met 
disclosure requirements as of September 30, 2012 and 2011.

Note 10. Program Costs: 

Pursuant to HERA, FHFA was established to supervise and regulate the 
fourteen Regulated Entities. The Regulated Entities include Freddie 
Mac, Fannie Mae and the twelve FHLBanks. FHFA tracks resource 
allocations and program costs to the strategic goals (responsibility 
segments) developed for FHFA’s strategic plan. Strategic Goals, 1– 
Safety and Soundness; 2–Affordable Housing; and 3–Conservatorship, 
guide program offices to carry out FHFA’s vision and mission. FHFA has 
a Resource Management Strategy, which is distributed proportionately 
to Strategic Goals 1–3 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’s revenue was 
provided by the Regulated Entities through assessments. FHFA-OIG 
received their funding through a $38.8 million transfer from FHFA in 
fiscal year 2012 and a $29 million transfer in fiscal year 2011. FHFA- 
OIG’s total expenses for fiscal years 2012 and 2011 were $36.2 million 
and $17.3 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 rent paid to OCC, 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 miscellaneous revenue. 
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): 

Safety and Soundness: 

Intragovernmental Costs;
2012: $31,042; 
2011: $27,364. 

Public Costs;
2012: $122,579; 
2011: $98,597. 

Total Program Costs;
2012: $153,621; 
2011: $125,961. 

Less: Intragovernmental Earned Revenue; 2012: $904; 
2011: $108. 

Less: Public Earned Revenue;
2012: $123,827 
2011: $135,189. 

Net Safety and Soundness Program (Income)/Costs; 2012: $28,890; 
2011: ($9,336).

Affordable Housing: 

Intragovernmental Costs;
2012: $6,059; 
2011: $4,216. 

Public Costs;
2012: $18,860; 
2011: $13,024. 

Total Program Costs;
2012: $24,919; 
2011: $17,240. 

Less: Intragovernmental Earned Revenue; 2012: $468; 
2011: $30. 

Less: Public Earned Revenue;
2012: $64,139; 
2011: $38,024. 

Net Affordable Housing Program (Income)/Costs; 2012: ($39,688);
2011: ($20,814).

Conservatorship: 

Intragovernmental Costs;
2012: $267; 
2011: $2,683. 

Public Costs;
2012: $38,694; 
2011: $21,517. 

Total Program Costs;
2012: $38,961; 
2011: $24,200. 

Less: Intragovernmental Earned Revenue; 2012: $265; 
2011: $22. 

Less: Public Earned Revenue;
2012: $36,330; 
2011: $27,410. 

Net Conservatorship Program (Income)/Costs; 2012: $2,366; 
2011: ($3,232).

Total Intragovernmental costs; 2012: $37,368; 
2011: $34,263. 

Total Public costs;
2012: $180,133; 
2011: $133,138. 

Total Costs;
2012: $217,501; 
2011: $167,401. 

Less: Total Intragovernmental Earned Revenue; 2012: $1,637 
2011: $160. 

Less: Total Public Earned Revenue; 2012: $224,296 
2011: $200,623. 

Total Net (Income)/Cost:
2012: ($8,432);
2011: ($33,382).

[End of table] 

Note 11. Apportionment Categories Of Obligations Incurred: 

All obligations incurred are characterized as Category C, Exempt from 
apportionment (i.e. not apportioned), on the Statement of Budgetary 
Resources. Obligations incurred and reported in the Statement of 
Budgetary Resources in fiscal years 2012 and 2011 consisted of the 
following (dollars in thousands):

Direct Obligations, Category C: 2012: $256,340; 
2011: $225,802. 

Reimbursable Obligations, Category C: 2012: $2,760; 
2011: $94. 

Total Obligations Incurred: 
2012: $259,100; 
2011: $225,896. 

[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, 2012 and 
2011, the unobligated balance was $45.5 million and $27.7 million. The 
portion of the fiscal year 2012 unobligated available balance that 
will be credited against the Regulated Entities’ April 2013 
assessments is $19.9 million with the remaining $10 million retained 
in the working capital fund and $15.6 million retained for 
conservatorship activities. The portion of the fiscal year 2011 
unobligated balance that was credited against the Regulated Entities’ 
April 2012 assessment was $9.5 million with the remaining $9 million 
retained in the working capital fund and $9.2 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 fiscal year 2012 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 2013 Budget 
of the United States Government, with the “Actual” column completed 
for 2011, 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, 2012 and 2011, budgetary 
resources obligated for undelivered orders amounted to $35.2 million 
and $52.7 million, respectively.

Note 15. Incidental Custodial Collections: 

FHFA’s custodial collections primarily consist of Freedom of 
Information Act requests and civil penalties assessed. 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 also collects civil penalties 
assessed against the Regulated Entities. FHFA’s custodial collections 
are $6.7 thousand for the year ended September 30, 2012. Custodial 
collections totaled $3.4 thousand for the year ended September 30, 
2011. There were no civil penalties assessed or collected in fiscal 
year 2011 or 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;
2012: $259,100; 
2011: $225,896. 

Spending Authority from Offsetting Collections and Recoveries; 2012: 
($52,611);
2011: ($30,136).

Obligations Net of Offsetting Collections and Recoveries; 2012: 
$206,489; 
2011: $195,760. 

Offsetting Receipts;
2012: ($224,353);
2011: ($200,689).

Net Obligations;
2012: ($17,863);
2011: ($4,929).

Other Resources: 

Imputed Financing from Costs Absorbed by Others; 2012: $5,810; 
2011: $5,193. 

Net Other Resources Used to Finance Activities; 2012: $5,810; 
2011: $5,193. 

Total Resources Used to Finance Activities; 2012: ($12,053);
2011: $264. 

Resources Used to Finance Items Not Part of the of the Net Cost of 
Operations: 

Change in Budgetary Resources Obligated for Goods, Services and 
Benefits Ordered But Not Yet Provided; 2012: $18,689; 
2011: ($32,083).

Resources That Fund Expenses Recognized in Prior Periods; 2012: ($10);
2011: ($55).

Resources That Finance the Acquisition of Assets; 2012: ($47,679);
2011: ($5,226).

Total Resources Used to Finance Items Not Part of the Net Cost of 
Operations;
2012: ($29,000);
2011: ($37,364).

Total Resources Used to Finance the Net Cost of Operations; 2012: 
($41,053);
2011: ($37,100).

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; 2012: $986; 
2011: $1,662. 

Other;
2012: $23,917; 
2011: $2. 

Total Components of Net Cost of Operations That Will Require or 
Generate Resources in Future Periods; 2012: $24,903;
2011: $1,664.

Components Not Requiring or Generating Resources: 

Depreciation and Amortization; 2012: $6,907; 
2011: $2,164. 

Revaluation of Assets or Liabilities; 2012: $963; 
2011: 0. 

Other;
2012: ($152);
2011: ($110).

Total Components of Net Cost of Operations That Will Not Require or 
Generate Resources;
2012: $7,718;
2011: $2,054.

Total Components of Net Cost of Operations That Will Not Require or 
Generate Resources in the Current Period; 2012: $32,621;
2011: $3,718.

Net (Income from)/Cost of Operations: 2012: ($8,432);
2011: ($33,382).

[End of table] 

[End of section] 

Other Accompanying Information: 

* Performance Goals and Measures No Longer Reported; 

* Inspector General’s FY 2013 Management and Performance Challenges; 

* Summary of Financial Statement Audit and Management Assurances. 

FHFA FY 2011 Performance Goals and Measures No Longer Reported: 

Performance Measures: 

Strategic Goal 2: 

The housing GSEs support a stable, liquid, and efficient mortgage 
market including sustainable homeownership and affordable housing.

Measure 2.2.3: Finalize the duty to serve regulation. Why Discontinued: 
Although the final rule continues to be under consideration, FHFA is 
reassessing the duty to serve requirements in light of changing 
economic conditions, and the financial condition of the Enterprises to 
determine the best manner in which to proceed.

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.

Measure 3.3.1: Number of loan modifications and foreclosure 
alternatives completed by the Enterprises. Why Discontinued:
This measure was not discontinued but refined; the measure now reads “ 
Prevent current loans from going delinquent by helping borrowers to 
refinance.”

Measure 3.3.2: Percentage of modified loans that are 60-plus days 
delinquent.
Why Discontinued: 
This measure was not discontinued but refined; the measure now reads “ 
Maintain the percentage of modified loans that are 60 plus days 
delinquent, nine months after modification, at or below 20 percent.”

Resource Management Strategy: FHFA has the personnel, resources, and 
infrastructure to manage effectively and efficiently to achieve its 
mission and goals.

Measure 4.1.2: Percentage of FHFA supervisors who receive supervisory, 
management, or leadership training in compliance with 5 CFR, part 412, 
which requires agencies to train new supervisors within one year of 
appointment and retrain every three years. Why Discontinued: 
Progress in supervisory training as gauged by this measure did not 
offer fair illustration of the wide-ranging trainings FHFA managers 
are exposed to.

Measure 4.2.1: Number of partnerships, alliances, and agreements FHFA 
established to increase diversity in its workforce. Why Discontinued:
 FHFA currently has two measures which successfully reflect the 
outlook in this discontinued indicator (The activities within 4.2.1 
and 4.2.3 are represented in the two measures that were kept that 
speak to (i) outreach events and (ii) number of contracts awarded).

Measure 4.2.3: Number and variation of targeted outreach events 
designed to provide information, education and capacity building 
assistance to potential minority and women owned businesses to 
increase procurement contracts awarded for goods, services, and 
technical assistance provided to FHFA. Why Discontinued: 
FHFA currently has two measures which successfully reflect the outlook 
in this discontinued indicator (The activities within 4.2.1 and 4.2.3 
are represented in the two measures that were kept that speak to (i) 
outreach events and (ii) number of contracts awarded).

Measure 4.3.2: Percentage of FHFA resources allocated directly to 
supervision of the housing GSEs – Strategic Goals 1 and 2. Why 
Discontinued: 
This indicator is not illustrative of current agency resource 
apportionments which now include management of the two conservatorships.

Measure 4.4.1: Ensure FHFA’s infrastructure systems are continuously 
available for use by FHFA staff. Why Discontinued: 
While systems availability is a priority for the agency and continues 
to be monitored internally, FHFA regards this measure as more of a 
process indicator that does not warrant external reporting.

[End of section] 

Inspector General’s FY 2013 Management and Performance Challenges: 

Office of Inspector General: Federal Housing Finance Agency: 400 7th 
Street, SW. 
Washington DC 20024: 

October 16, 2012: 

To:     Edward J. DeMarco, Director (Acting): 

From:   [Signed by] Steve A. Limek, Inspector General: 

Subject:        FY 2013 Management and Performance Challenges: 

Since beginning operations in October 2010, the Federal Housing 
Finance Agency (FHFA or Agency) Office of Inspector General (FHFA-01G) 
has initiated audits and evaluations of FHFA's programs and 
operations. A significant area of focus has been on the risks in key 
FHFA mission areas, such as regulating and supervising the government- 
sponsored enterprises (GSEs) — Fannie Mac, Freddie Mac, and the 
Federal Home Loan Banks — and operating the Fannie Mae and Freddie Mac 
(Enterprise) conservatorships. FHFA-OIG has also participated in 
investigations involving the GSEs. 

FHFA-OIG's work has identified three serious management and 
performance challenges facing the Agency in FY 2013. FHFA is 
challenged to: (1) manage in an uncertain environment; (2) improve its 
management of the Fannie Mae and Freddie Mac conservatorships; and (3) 
adequately supervise and regulate the GSEs. As required by the Reports 
Consolidation Act of 2000, FHFA-OIG has attached its summary of these 
challenges and an assessment of FHFA's progress in meeting them. 

In general, the Agency can make meaningful headway on these challenges 
by independently testing and validating the Enterprises' 
determinations rather than deferring to their decision-making and by 
being more proactive in its risk management and oversight of the GSEs. 

If you or your staff has any questions, please contact Russell Rau, 
Deputy Inspector General for Audits, at (202) 730-0390, or Laura 
Benton, Audit Director, at (202) 730-0443. 

cc: 
Richard Hornsby, Chief Operating Officer: Mark Kinsey, Chief Financial 
Officer: Alfred Pollard, General Counsel: Bruce Crandlemire, Senior 
Advisor for IG Operations: John Major, Internal Controls and Audit 
Follow-Up Manager: 

[End of letter] 

The Federal Housing Finance Agency Office of Inspector General's FY 
2013 Management and Performance Challenges: 

In FY 2012, FHFA-OIG summarized three management and performance 
challenges facing FHFA: (1) leading and directing the GSEs; (2) 
improving its management of the Fannie Mae and Freddie Mac 
conservatorships; and (3) adequately supervising and regulating the 
GSEs. With FHFA's recently released strategic plan for 2013-2017, 
increased supervisory staffing, reorganization to facilitate GSE 
oversight, and a more focused approach to fulfilling its 
responsibilities, the Agency has made significant progress in 
addressing the first challenge. However, the Agency's ability to 
provide leadership and direction may pose a challenge in the future 
given that FHFA still does not have a permanent director and Congress 
may enact changes affecting the Enterprises. 

Because the Enterprises' ultimate fate and the broader structure of 
the secondary housing finance market remain undetermined, FHFA-OIG 
recognizes that FIIFA faces challenges managing in an uncertain 
environment. The Agency must simultaneously fulfill its current 
responsibilities while remaining open to potential legislative reform 
ranging from eliminating the GSEs to making them permanent parts of 
the government. Below, FHFA-OIG outlines the nature of this challenge 
for FY 2013 and describes the Agency's progress on the two challenges 
that remain from last year. 

1. FHFA is Challenged to Manage in an Uncertain Environment: 

In February 2012, FHFA's Acting Director described the difficulty of 
fulfilling the Agency's oversight responsibilities in the midst of 
uncertainty about the Enterprises' future: 

At FHFA we are faced with a fundamental task of directing the 
operations of two companies that account for roughly three-quarters of 
current mortgage originations and have approximately $5 trillion in 
outstanding obligations and credit guarantees. FHFA's task is 
complicated by the uncertain future of the Enterprises and increasing 
dissatisfaction with various aspects of their business operations. 
[Footnote 1] 

In other words, FHFA must effectively direct the Enterprises' 
operations while fundamental questions about its role and theirs 
remain unanswered. For example, in September 2008, when Fannie Mae and 
Freddie Mac entered into conservatorships overseen by FHFA, it was 
generally assumed that FHFA's role as conservator would be temporary 
and short-lived. Yet, four years later, Fannie Mae and Freddie Mac are 
still in conservatorships. The current $187.5 billion in assistance 
received by the Enterprises is so large that, "the companies cannot 
repay the taxpayers in any foreseeable scenario."[Footnote 2] Indeed, 
no one is sure how long the Enterprises will exist in their current 
form and, consequently, their future role in the housing finance 
market. FHFA's strategic plan sets a goal of preparing for the future 
of housing finance in the United States, which will continue to be a 
challenge for the foreseeable future. 

Related to this, human resource issues will remain a challenge for 
FHFA and the Enterprises. Not only does the uncertain future present a 
challenge in recruiting and retaining employees, the Agency is 
hampered in making longer-term staffing allocations because it does 
not know what its future role, and thus the associated staffing needs, 
will be. For example, the Enterprises have experienced turnover in key 
management positions and face significant challenges in recruiting and 
retaining experienced personnel. As noted by the Acting Director, 
"[A]chieving the goals of conservatorship depended on retaining 
capable and knowledgeable staff....it was and remains imperative that 
the Enterprises attract and retain the particular specialized skills 
ncedcd."[Footnote 3] 

2. FHFA is Challenged to Improve Its Oversight of the Fannie Mae and 
Freddie Mac Conservatorships: 

In FY 2012, FHFA-OIG identified FHFA's conservatorship operations as a 
management challenge. In general, FHFA was challenged to engage more 
fully with its role as conservator of Fannie Mae and Freddie Mac by, 
for example, proactively overseeing significant Enterprise business 
activities and decisions and guiding their housing finance policy. 
FHFA-OIG determined that the Agency needed a longer-term management 
approach since there was (and still is) no end in sight for the 
conservatorships. FHFA has made strides toward improving its 
conservatorship oversight, in part by developing a strategic plan for 
the Enterprises and establishing an organizational structure to effect 
the plan. However, FHFA-OIG's work has shown that the Agency can 
further strengthen its oversight by independently testing and 
validating the Enterprises' determinations and decision-making because 
some matters are sufficiently important to warrant greater involvement 
and scrutiny by FHFA, especially because it is unclear that the 
interests of the Agency and the Enterprises always align. 

In a number of recently issued reports FHFA-OIG found that FHFA 
continues to give undue deference to Enterprise determinations. For 
example: 

* In a March 22, 2012, report, FHFA-OIG found that: (1) the Agency's 
oversight of underwriting, along with the accompanying variances that 
effectively further loosen underwriting standards, is limited; (2) 
FHFA relies on the Enterprises to oversee and establish underwriting 
standards and to grant variances; and (3) it currently does not have a 
formal process to review the Enterprises' underwriting standards and 
variances from them.[Footnote 4] 

* In a September 18, 2012, report, FHFA-DIG found that FHFA had 
inconsistent involvement in an initiative involving multiple transfers 
of mortgage servicing rights for over 700,000 loans with an unpaid 
principal balance in excess of $130 billion. As part of the High Touch 
Servicing Program, an initiative that utilizes specialty services to 
work with higher risk borrowers to reduce the number of defaults in 
mortgages owned or guaranteed by Fannie Mae, the Enterprise paid Bank 
of America a $421 million fee to transfer mortgage servicing rights 
for approximately 384,000 mortgage loans to high touch mortgage 
servicers. Although FHFA reviewed the Bank of America transaction and 
allowed it to proceed, it did not conduct similar reviews of other 
transactions in the High Touch Servicing Program, nor did it analyze 
the program as a whole.[Footnote 5] 

*       In a September 27, 2012, report, FHFA-OIG found that FHFA 
unduly relied on information provided by Fannie Mae when it issued a 
"no objection" response to Fannie Mae's request to make an investment 
of between $55 million and $70 million in order to protect an existing 
$40 million investment. Fannie Mae requested the Agency's approval as 
conservator to buy a loan made to a business by another lender in 
order to protect its existing loan to the same business. On the same 
day as the request, FHFA stated that given the complex nature of the 
transaction and the short timeframe for its decision, the Agency could 
not assess the reasonableness of the proposal but still it gave "no 
objection" to the transaction.[Footnote 6] 

* In the same report, FHFA-OIG also found that over a three-year 
period Fannie Mae took over 4,500 actions to increase the Enterprise's 
counterparty risk limits without first obtaining conservator approval, 
despite the fact that risk limit increases are a matter for which the 
Enterprise does not have delegated authority. Although Freddie Mac had 
submitted counterparty risk limit increases for conservator approval, 
Fannie Mae's lapse was not identified by the conservatorship. 
[Footnote 7] 
 
On the other hand, FHFA has taken steps towards improving oversight of 
the conservatorships. FITFA's recent strategic plan for the 
Enterprises demonstrates the Agency's longer-term commitment to its 
role as their conservator. In February 2012, FHFA's conservatorship 
plan listed three broad goals outlining how the Agency intends to 
guide the Enterprises through 2017. The first goal is to build a new 
infrastructure for the secondary mortgage market, such as a 
securitization platform. 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. 

FHFA has also taken organizational steps to ensure that the plan comes 
to fruition. In March 2012, FHFA released a conservatorship scorecard 
that outlines a roadmap for implementing the plan. Then, in June 2012, 
FHFA established the Office of Strategic Initiatives to oversee all 
FHFA activities involving Enterprise conservatorship projects and 
initiatives associated with the strategic plan. Further, FHFA is 
contracting for project management expertise to strengthen its 
oversight of conservatorship activities. 

Additionally, FHFA-OIG reports have shown that the Agency has made 
progress towards employing additional testing and validation in its 
role as conservator. For example: 

* In an August 23, 2012, report, FHFA-OIG found that FHFA began 
providing Treasury with all three certifications required under the 
Senior Preferred Stock Purchase Agreements governing Treasury's 
investments in the Enterprises. Previously, the Agency was making only 
one of the three required certifications and for the other two, was 
relying on work and certifications of the Enterprises.[Footnote 8] 

* In a September 13, 2012, follow up report, FHFA-OIG found that FHFA 
acted on concerns regarding Freddie Mac's process to review non- 
performing mortgage loans for potential repurchase claims, and the 
Enterprise is now reviewing a significantly larger number of loans 
defaulting more than two years after origination. It is estimated that 
the expanded loan review process will generate additional recoveries 
ranging from $0.8 billion to $1.2 billion for loans selected for 
review in 2012 and $2.2 billion to $3.4 billion overall.[Footnote 9] 

3. FHFA is Challenged to Ensure Adequate Supervision and Regulation of 
the GSEs: 

In FY 2012, FHFA-OIG described FHFA's ability to fully staff and train 
its examination team as its most significant challenge. In general, 
FHFA-OIG found that FI-WA had difficulties identifying new and 
emerging risks potentially impacting the GSEs, issuing guidance and 
regulations governing risk management at the OSEs, and providing 
strong and consistent enforcement for violations of policy. FHFA has 
taken positive steps to meet this challenge, including adding staff 
and developing consistent examination guidance in some areas, but the 
Agency still needs more proactive oversight to identify and mitigate 
risks and enforce for violations of its policies. 

The limitations on FHFA's ability to detect and address possible 
problem areas through its regulatory functions become especially 
important in the context of FHFA's challenges in its role as 
conservator. The largely hands-off approach to the conservatorships 
exacerbates FHFA's challenges in anticipating problems in its 
supervisory capacity. 

Several examples demonstrate that within its regulatory functions, the 
Agency needs to better identify new and emerging risks potentially 
impacting the GSEs; establish guidelines and policies governing 
Enterprise oversight; and provide strong, consistent enforcement for 
violations of policy. 

Identification of Risks: 

* In a March 7, 2012, report, FHFA-OIG found that as early as 2008, 
FHFA had information indicating that mortgage servicing represented a 
heightened risk to the Enterprises. In early 2009, FHFA became aware 
of servicers' poor performance and of weaknesses in Freddie Mac's 
oversight of its serviecrs. Yet, FHFA did not take timely or 
appropriate action to address these indicators. Even now, FHFA has not 
clearly defined its role in relation to servicers or sufficiently 
coordinated with federal banking regulators about risks and 
supervisory concerns with individual scrvicers.[Footnote 10] 

* In a July 19, 2012, report, FHFA-OIG found that since 2008, FHFA has 
consistently listed the Enterprises' large inventories of real-estate 
owned as contributing to "critical concern" ratings in their quarterly 
risk assessments. FIIFA, though, did not conduct targeted examinations 
or focused reviews of real-estate owned until 2011. FHFA's eventual 
targeted examinations in 2012 were positive supervisory steps, but 
expanding the scope of the assessments to evaluate more risks can help 
the Agency better design its supervision of real-estate owned. 
[Footnote 11] 

* In another July 19, 2012, report, FIIFA-OIG found that FHFA was not 
fully using its call report system, which gathers GSE data and is 
useful as a supervisory tool to measure risk, analyze finances, and 
examine GSE performance. For example, two FHFA supervisory divisions 
rarely use the call report system in their analysis and oversight of 
the Enterprises even though the system contains data on the 
Enterprises' total net assets.[footnote 12] 

Management of Risks: 

The Agency has not always managed identified risks by establishing 
sufficient regulations or guidance. For example: 

* In a March 22, 2012, report, FHFA-OIG found that FHFA would have 
greater assurance of the effectiveness and consistency of its 
supervision through additional guidance on examination of underwriting 
and specific procedures for oversight of compliance with the complex, 
voluminous, and interrelated factors involved in the Enterprises' 
underwriting standards and the variances from them. In 2011, FHFA 
began targeted examinations that included Fannie Mae's quality control 
of compliance with underwriting standards. This was a positive step, 
but additional guidance is needed to ensure the success of 
underwriting examinations going forward. Such guidelines should 
include criteria for independent testing of quality control, at a 
minimum. Additionally, guidance on examination planning would benefit 
from addressing comprehensive supervisory plans to lead examinations 
of underwriting, and providing more detailed information on 
underwriting variances approved by Fannie Mae, the lenders authorized 
to use them, and their effective time periods.[Footnote 13] 

*       In a June 1, 2012, report, FHFA-GIG found that FHFA can 
improve its framework for supervising advances and collateral risk 
management practices for institutions presenting heightened 
supervisory concerns. Although FHFA conducted a system-wide horizontal 
review of secured credit among the Federal Home Loan Banks (FHLBanks) 
and an internal study identified numerous significant risks, the 
Agency did not take sufficient steps to ensure that FHLBanks 
effectively managed risks posed by member banks that represented 
heightened supervisory concerns. Of the seven recommendations from its 
horizontal review,
FHFA had not implemented six, including updating the Agency's 
examination guidance for collateral reviews, providing guidance to the 
FHLBanks about effective collateral risk management, and offering 
relevant training to FHFA examiners.[Footnote 14] 

* In a September 18, 2012, report, FHFA-DIG found that FHFA has not 
timely addressed known risks presented by mortgage seller/servicers by 
developing sufficient regulations or guidance governing the 
Enterprises' oversight and risk management of such counterparties. The 
Enterprises work with numerous seller/servicers for post-origination 
mortgage work, such as collecting mortgage payments, and these 
sellerlservicers represent an important risk to the Enterprises. 
Specifically, FHFA has not published standards for the development of 
contingency plans related to failing or failed high-risk 
counterparties. Contingency plans help to manage such risks because 
they identify actions to pursue when a counterparty's changing 
financial or other circumstances pose a financial threat to an 
Enterprise. Counterparty contingency plans will not eliminate losses, 
but they can serve as a road map to help reduce the Enterprises' risk 
exposure. Contingency plans can also prepare the Enterprises for 
unexpected collapses of counterparties that handle a concentrated, 
high-volume of their business. Managing such sellethervicer risk is 
important, as the Enterprises have incurred losses of $6.1 billion 
from failures at just four of their counterparties since 
2008.[Footnote 15] 

Enforcement of Directives: 

The Agency has not consistently enforced its directives to ensure that 
identified risks are, in fact, adequately addressed. As conservator 
and regulator, FHFA's authority over the Enterprises is broad and 
includes the ability to discipline or remove Enterprise personnel in 
order to ensure compliance with Agency mandates. FHFA-01G has reported 
that FHFA's supervision and regulation of the GSEs is strengthened by 
exercising this authority when warranted. 

* For instance, FHFA has not compelled Fannie Mae's compliance with 
the requirement to have an effective operational risk management 
program. Fannie Mae's lack of an acceptable and effective risk program 
may have resulted in missed opportunities to strengthen oversight of 
law firms with which it contracts to process foreclosures.[Footnote 16] 

The benefit of stronger FHFA enforcement also extends to FHLBanks. For 
example, since 2008 at least four FHLBanks have faced significant 
financial and operational difficulties, primarily due to their 
investments in high-risk mortgage securities. The Agency has oversight 
responsibility for FHLBanks and recognizes the need to ensure that 
they do not abuse their GSE status and engage in imprudent activities. 

* However, an FHFA-OIG report revealed that FHFA has not established a 
consistent and transparent written enforcement policy for troubled 
FHLBanks classified as having "supervisory concerns." This has 
contributed to instances in which FIIFA may not have held these banks 
and their officers sufficiently accountable for engaging in 
questionable risk taking.[Footnote 17] 

* Another FHFA-OIG report identified FHFA's current regulation 
governing unsecured lending by the FHLBanks as possibly outdated and 
overly permissive, as well as identifying non-compliance with the 
Agency's existing regulation.[Footnote 18] 

FHFA has improved its ability to supervise and regulate the GSEs by 
augmenting and aligning its organization to meet that challenge and by 
developing a common examination approach. For example, FHFA has 
improved its examination staffing by adding 24 employees in the 
supervision area and is implementing a program to certify its 
examiners. The Agency has also committed to recruit new examination 
and oversight staff until it can provide adequate supervisory 
coverage. In addition, FHFA has consolidated its operations; instead 
of having examination staff divided between three locations, they now 
work together in one, which facilitates communication and 
collaboration. FHFA also established a framework for written 
examination findings that applies to all the GSEs and is field-testing 
a common examination manual. 

Further, in August 2012, FHFA's Acting Director announced that he 
would continue to refine the Agency's organization so that it could 
better examine and oversee the GSEs. FHFA plans to place at least 25 
examiners onsite at each Enterprise. Additionally, Examiners-in-Charge 
of each regulated entity will supervise core examination activities, 
which will improve risk focus. 

In sum, FHFA made significant strides to address FY 2012 management 
challenges, such as developing conservatorship and strategic plans, 
increasing oversight staff, and reorganizing to facilitate 
supervision. For FY 2013, FHFA-OIG challenges the Agency to show 
continuing progress by: (1) managing 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. FHFA-OIG's work highlights FHFA's opportunities to meet 
these challenges by routinely testing and validating the Enterprises' 
decision-making and by proactively overseeing the GSEs and enforcing 
Agency policy. 

Footnotes: 

[1] Statement of Edward J DeMarco, Acting Director, Federal Housing 
Finance Agency, Before the U.S. Senate Committee on Banking Housing, 
and Urban Affairs On the State of the U.S. Housing Market: Removing 
Barriers to Economic Recovery, pg. 6 (February 28, 2012). Accessed 
October 16, 2012, at [hyperlink, 
http://www.fhfa.gov/webfiles/23408102- 28-
12%2FINAL%20DeMarco%20Testimony%2OSBC.pdf]. 

[2] A Strategic Plan for Enterprise Conservatorships: The Next Chapter 
in a Story that Needs an Ending, page 9 (February 21, 2012). Accessed 
October 16, 2012, at [hyperlink, 
http://www.fhfa.gov/webfiles/23344/StrategicPlanConservatorshipsFINAL.pd
 f]. 

[3] Statement of Edward .I. Deklarco, Acting Director, Federal Housing 
Finance Agency, Before the US. Senate Committee on Banking, Housing, 
and Urban Affairs on Oversight of the Federal Housing Finance Agency, 
page 12 (November 15, 2011), Accessed October 16, 2012, at [hyperlink, 
http://www.fhfa.gov/webfiles/122754/SBCTestimonv111511.pdf]. 

[4] FHFA 's Oversight of Fannie Mae's Single-Family Underwriting 
Standards (AUD-2012-003, March 22, 2012); available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/AUD-2012-003_0.pdf]. 

[5] Evaluation of FHFA's Oversight of Fannie Mae's Transfer of 
Mortgage Servicing Rights from Bank of America toHigh Touch Servicers 
(EVL-2012-008, September l8, 2012); available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/EVL-2012-008.pdf]. 

[6] FHFA 's Conservator Approval Process for Fannie Mae and Freddie 
Mac Business Decisions (AUD-2012-008, September 27, 2012); available 
at [hyperlink, http://www.fhfaoig.gov/Content/Files/AUD-2012-008.pdf]. 

[7] Id. 

[8] FHFA 's Certifications for She Preferred Stock Purchase Agreemepus 
(EVL-2012-006, August 23, 2012); available at [hyperlink, 
http://www.fhfaoig.gov/Content/Fiies/EV1,2012-0063.pdf]. 

[9] Follow-up an Freddie Mac's Loan Repurchase Process (EVL-2012-007, 
September 13, 2012); available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/EVL-2012-007.pdf]. 

[10] FHFA's Supervision of Freddie Mac's Controls over Mortgage 
Servicing Contractors (AUD-2012-001, March 7, 2012); available at 
[hyperlink, http://www.fhfaoig.gov/Content/Fiies/AUD%202012-0010.pdf]. 

[11] FHFA's Supervisory Risk Assessment for Single-Family Real Estate 
Owned (ALID-2012-005, July 19, 2012); available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/ALID-2012-0052.pdf]. 

[12] FHFA's Call Report System (AUD-2012-006, July 19, 2012); 
available at [hyperlink, http://www.fhfaoig.gov/Content/Files/EVL-
2012- 0063.pdf]. 

[13] FHFA's Oversight of Fannie Mae's Single-Family Underwriting 
Standards (AUD-2012-003, March 22, 2012); available at [hyperlink, 
http://www.fhfaoig.gov/Content/Files/AUD-2012-0030.pdf]. 

[14] 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]. 

[15] FHFA's Oversight of the Enterprises' Management of High-Risk 
Seller/Servicers (AUD-2012-007, September 18, 2012); available at 
[hyperlink, http://www.fhfaoig.gov/Content/Files/AUD-2012-007.pdf]. 

[16] Evaluation of FHFA's Oversight of Fannie Alae's Management of 
Operational Risk (EVL-2011-004, September 23, 2012); available at 
[hyperlink, http://www.fhfaoig.gov/Content/Files/EVL-2011-004.pdf]. 

[17] FHFA's Oversight of Troubled Federal Home Loan Banks (EVL-2012- 
00I, January ll, 2012); available at [hyperlink, 
http;//www.fhfaoig.gov/Content/Files/Troubled%Banks%20EVL-2012- 
001.pdf]. 

[18] FHFA's Oversight of the Federal Home Loan Banks' Unsecured Credit 
Risk Management Practices (EVL-2012-005, June 28, 2012); available at 
[hyperlink, http://www.fhfaoig.gov/Content/Files/EVL-2012-00510.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: 
Beginning Balance: 0; 
New: 0; 
Resolved: 0; 
Consolidated: 0; 
Reassessed: 0; 
Ending Balance: 0; 
Total Material Weaknesses: 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; 
Reassessed: 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; 
Reassessed: 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; 
Reassessed: 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 or $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. 

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 2012, the dollar amount subject to prompt 
payment was $71.9 million. The amount of interest penalty paid in FY 
2012 was $372 or 0.00052 percent of the total dollars disbursed. 

[End of section] 

Appendix: 

* Glossary; 

* Acronyms; 

* Index of Figures and Features;

* Acknowledgements;

* 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 a change in 
value. Basis points are commonly used to express a change of less than 
one percent. For example, 50 basis points denote a 0.5 percent shift.

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 requiring 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 property.

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) – Represent 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 a loan modification or a 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. 

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 reputational risk. 

Government Sponsored Enterprises (GSE) – Fannie Mae, Freddie Mac and 
the twelve 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 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-values 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 enhancements—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.

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.

Permanent Change of Station (PCS) – The official relocation of an 
active duty military service member or a civilian employee along with 
any family members living with him or her to a different duty location 
such as a military base – the permanent move may be within or outside 
the continental United States. A permanent change of station applies 
until muted by another PCS order, completion of active duty service, 
or some other preemptive event.

Portfolio – A collection of investments, either diverse or similar in 
nature, held by an institution or individual. 

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.

Repayment Plans – An agreement between the servicer and a borrower 
that gives the borrower a defined period to reinstate the mortgage by 
paying normal regular payments plus an additional agreed upon amount 
in repayment of the delinquency.

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 a 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. 

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.

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: 

BOA: 
Bank of America: 

C&D: 
Cease and Desist: 

CEO: 
Chief Executive Officer: 

CFR: 
Code of Federal Regulations: 

CGC: 
Conservatorship Governance Committee: 

CY: 
Calendar Year: 

DBR: 
Division of FHLBank Regulation: 

DER: 
Division of Enterprise Regulation: 

DOL: 
U.S. Department of Labor: 

DSPS: 
Division of Supervision Policy and Support: 

ECIC: 
Executive Committee on Internal Controls: 

EESA: 
Emergency Economic Stabilization Act of 2008: 

EIC: 
Examiner in Charge: 

EVS: 
Employee Viewpoint Survey: 

Fannie Mae: 
Federal National Mortgage Association: 

FASAB: 
Federal Accounting Standards Advisory board: 

FBWT: 
Fund Balance with Treasury: 

FECA: 
Federal Employees Compensation Act: 

FEVS:  
Federal Employee Viewpoint Survey: 

FHA: 
Federal Housing Administration: 

FHFA: 
Federal Housing Finance Agency: 

FHFB: 
Federal Housing Finance Board: 

FHLBank: 
Federal Home Loan Bank: 

FICO: 
Fair Isaac Corporation: 

FinSOB:  
Financial Stability Oversight Board: 

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: 

HUBZone: 
Historically Underutilized Business Zone: 

ICP:  
Incentive Compensation Plan: 

IT: 
Information Technology: 

LLC: 
Limited Liability Company: 

LTV: 
Loan-to-Value: 

MBS: 
Mortgage-backed Securities: 

MHA: 
Making Homes Affordable (Program): 

MRA: 
Matter Requiring Attention: 

MSA: 
Metropolitan Statistical Area: 

MSR:  
Mortgage Servicing Rights:  

MWOBs: 
Minority-and-Women-Owned Businesses: 

OMB: 
Office of Management and Budget: 

OF: 
Office of Finance:  

OFHEO:  
Office of Federal Housing Enterprise Oversight: 

OIG: 
Office of Inspector General: 

OPM: 
Office of Personnel Management: 

PACE: 
Property Assessed Clean Energy: 

PCA: 
Prompt Corrective Action: 

PCS: 
Permanent Change of Station: 

PLMBS: 
Private-label Mortgage-backed securities: 

POA&Ms: 
Plan of Action and Milestones: 

PRISM: 
Procurement Request Information System Management: 

PSPA(s): 
Preferred Stock Purchase Agreement: 

REO: 
Real Estate-Owned: 

RFI: 
Request for Information: 

ROE: 
Reports of Examination: 

SA&A: 
Security Assessment & Authorization: 

SAI: 
Service Alignment Initiative: 

SBR: 
Statement of Budgetary Resources: 

SIFI: 
Strategically Important Financial Institutions: 

SIFMU: 
Strategically Important Financial Market Utilities: 

SPSPA: 
Senior Preferred Stock Purchase Agreement: 

TARP: 
Troubled Asset Relief Program: 

TSP: 
Thrift Savings Plan: 

UPB: 
Unpaid Principal Balance: 

[End of section] 

Index of Figures and Features

Figures: 

Figure 1. Actual Dollars for FY 2010–2012: 

Figure 2. Actual Full-Time Equivalents for FY 2010–2012: 

Figure 3. FHFA Employees (by specialized areas: 

Figure 4. FHFA Principal Organization Units: 

Figure 5. FHFA Oversight of Fannie Mae and Freddie Mac: 

Figure 6. Enterprise’s Market Share-MBS Issuance Volume: 

Figure 7. Total Assets of the FHLBanks: 

Figure 8. FHFA’s Oversight Role – FHLBanks: 

Figure 9. Number of FHLBank Members and Percent of Members that Borrow: 

Figure 10. Federal Home Loan Bank Districts: 

Figure 11. HARP Refinances: 

Figure 11a. Monthly HARP Volume by LTV: 

Figure 12. FY 2012 Performance Results: 

Figure 13. Status of Performance Measures Unmet: 

Figure 14. Assets and Liabilities: 

Figure 15. Total Net (Income from)/Cost of Operations: 

Figure 16. Statement of Changes in Net Position: 

Figure 17. Statement of Budgetary Resources Comparisons: 

Figure 18. FHFA Goal Hierarchy: 

Figure 19. FHFA’s Performance Management Cycle: 

Figure 20. FY 2012 Performance Measures: 

Photo Credits: 

Photos appearing in the text were taken in-house. 

Acknowledgements: 

This Performance and Accountability Report was produced through the 
energies and talents of the FHFA staff. To them we offer our sincerest 
thanks and acknowledgement. 

We would also like to acknowledge the U.S. Government Accountability 
Office for the professional manner in which they conducted the audit 
of FHFA’s FY 2012 Financial Statements.

Key Management Officials: 

Edward J. DeMarco: 
Acting Director, Deputy Director of Housing, Mission and Goals: 

Richard Hornsby: 
Chief Operating Officer: 

Alfred Pollard: 
General Counsel: 

Jon Greenlee: 
Deputy Director, Division of Enterprise Regulation: 

Stephen Cross: 
Deputy Director, Division of Federal Home Loan Bank Regulation: 

Wanda DeLeo: 
Deputy Director, Office of Strategic Initiatives: 

Fred Graham: 
Acting Deputy Director, Division of Supervision Policy and Support: 

Jeffrey Spohn: 
Senior Associate 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: 

Lee Bowman: 
Associate Director, Office of Minority and Women Inclusion: 

Michael Powers: 
Ombudsman: 

Steve Linick: 
Inspector General: 

FHFA Oversight Board: 

Edward J. DeMarco: 
Chairman: 

Timothy F. Geithner: 
Secretary of the Treasury: 

Shaun Donovan: 
Secretary of Housing and Urban Development: 

Mary L. Schapiro: 
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: [hyperlin, 
http://www.fhfa.gov]

Federal Housing Finance Agency: 400 7th Street, SW: 
Washington, DC 20024: 
202-649-3800: 
[hyperlink, http://www.fhfa.gov] 

[End of section] 

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