F. FHA Multifamily Portfolio Reengineering. The Multifamily Assisted Housing Reform and Affordability Act of 1997 was enacted in the 1998 Appropriations Act. The permanent program takes effect in fiscal year 1999, with transition provisions for project-based Section 8 contracts that expired during fiscal year 1998. The pending expiration of over-subsidized Section 8 contracts at unsustainable rent levels in many FHA-insured housing projects has been a dominant factor in recent FHA budget projections, and the enactment of this legislation clarified the outlook for FHA activities and costs. Separate justifications for the Office of Multifamily Housing Assistance Restructuring discuss the current expectations for the mark-to-market program. Estimates of FHA liquidating account costs associated with mark-to-market in the 2000 Budget have been scaled back relative to previous estimates. The timing of FHA costs has been phased-in more gradually between 1999 and the sunset date of the program in 2001. In addition, the scope of the mortgage restructuring program has been reduced, based on information on changes in market rents that indicate a lower proportion of the FHA-insured portfolio that indicate has above market rents, than was the case when the original survey was performed. Further study is being given this year to the comparison of current rents in FHA-insured projects to comparable market rents. It is assumed that a fraction of the projects with Section 8 contracts expiring after 2001 will elect to participate in mortgage restructuring before the sunset date of the legislation.

G. Mortgage Note Sales. There were no note sales in fiscal year 1998, however sales are expected to resume late in fiscal year 1999, and pick up in 2000. Ongoing note sale activity in the future will be driven by the amount of salable notes entering the inventory. Currently a large proportion of the remaining multifamily notes are subsidized. The Department is continuing to review its options for marketing the subsidized inventory. With 5 years of successful sales, at the end of 1998 the inventory of multifamily and single family notes is at a recent historic low level. While the portfolio reengineering legislation remains in effect, the need for mortgage sales in connection with potential claims for subsidized projects with above market rents will be minimized. Nevertheless, the Department is committed to maintaining an efficient and cost-effective operation and will continue to monitor the impact that results from our aggressive servicing and portfolio restructuring activities to insure that the inventory of HUD-held mortgages does not grow to unmanageable levels.

H. HUD 2020. During fiscal year 1998, FHA engaged in a full-scale reorganization of its operating structure in response to HUD 2020 as laid out by the Secretary. This reorganization resulted in a redirecting of personnel to areas of greatest need, streamlining and consolidating operations. Fiscal year 1998 was primarily geared toward: (1) reformulating FHA mission; (2) scrutinizing and streamlining functions; and (3) expanding training efforts and shifting personnel resources.

I. Multifamily Enforcement. The multifamily enforcement strategy will continue to be integrated with the overall Department efforts through the establishment of the Real Estate Assessment Center (REAC) and the Departmental Enforcement Center (DEC). The REAC will assure that uniform portfolio wide information on the physical and financial condition of all the properties is obtained. Results will be forwarded to Housing's Multifamily Hubs for additional actions. The Multifamily Hubs are responsible for servicing the loans and overseeing subsidy contracts. In those cases where there appear to be severe performance problems, the case will be sent to the DEC. The DEC will evaluate each case it receives and, where the DEC decides that severe problems exist, the DEC will provide an action plan to be implemented by the Hubs to address the problem(s). The Department expects qualitative improvement in the assessment and enforcement effort through the centralization and specialization of these staff. The ultimate goal however, is improved living conditions for residents, improved neighborhoods and communities, and improved financial performance for FHA because performance standards for participants are raised.

J. Performance Indicators. The strategic objectives established for the Department are to: (1) increase the availability of affordable housing in standard condition to the nation's poor and disadvantaged; (2) provide empowerment and self-sufficiency opportunities to low-income individuals and families as they make the transition from dependency to work; and (3) increase homeownership opportunities, especially in central cities, through a variety of tools, such as expanding access to mortgage credit.

Last year the 1999 Budget submission contained several performance measures designed to assist in accomplishing the goals set for fiscal year 1999. During fiscal year 1998 these performance measures were then refined into a Business Operating Plan to assist the field offices, Hubs and home ownership centers in working towards the strategic objectives set forth for the Department.

The first set of measures focuses on increasing the availability of affordable housing for the poor and disadvantaged by improved program delivery methods to facilitate access to financing for rental housing and health care facilities underserved by conventional mortgage markets. The following performance measures are geared towards accomplishing this objective.

1. The 223(f) refinancing program for healthcare and multifamily buildings will be enhanced. The Department plans to use innovative ways to reduce the processing time for providing service to our clients by increased use of the FASTTRACK method of endorsing loans. The use of these methods assures that the Department's insurance program will be attractive to customers and generate increased demand.

2. The Department also plans to increase the proportion of units in multifamily rental projects insured by FHA that are affordable to households with incomes below 60 percent of area median income.

3. A performance measure is directed towards providing empowerment and self-sufficiency opportunities as individuals and families transition from welfare to work. To assist in this objective the Department will assure that the business plans for the Neighborhood Network Centers include objectives, milestones and timetables that work towards supporting low-income individuals and families during their transition period into the workforce, so that measures of the impact on residents that use these Centers can be developed.

4. The final set of performance measures is directed at attaining the objective of increasing homeownership opportunities in central cities through a variety of tools such as expanding the access to mortgage credit. The Department has set an agency wide goal to increase the overall rate of homeownership to 67.5 percent in the year 2000 and increase the home ownership rate in Central Cities to 52.5 percent by that same year.

5. The Department plans to assist in stabilizing older urban neighborhoods by revamping the 203(k) and Title 1 property improvement loan programs to rehabilitate more single family properties.

CHANGES FROM 1998 ESTIMATES INCLUDED IN 1999 BUDGET

Commitments and Mortgage Origination

Insurance was endorsed for $9.7 billion in mortgages for 111,167 single family units and $4.3 billion for 97,123 multifamily units during fiscal year 1998. These insurance written numbers represent commitments made from fiscal years 1997 through 1998.

B. CHANGES IN 1999 ESTIMATES FROM 1999 BUDGET

Commitment and Mortgage Origination

The enacted commitment limitation is $18.1 billion for 1999. This will support initiatives such as development, refinancing and risk sharing as well as recent product introductions such as mixed income, pool insurance and insurance for very small buildings (5-20 units). During fiscal year 1999, mortgage insurance-written is expected to increase slightly to $17.2 billion, compared to the estimate of $17.0 billion in the 1999 Budget. Insurance-written numbers represent estimated commitment activities from fiscal years 1998 and 1999. Single family commitments in 1999 are exceeding the strong pace maintained during fiscal year 1998, after the decline in interest rates. The flurry of refinancing activity is estimated to finally play itself out by 2000.