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HUD's 2001 Budget
Congressional Justifications for Estimates

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT
Salaries and Expenses

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, [P. L. 102-550, Section 1313(a)], Title XIII of the Housing and Community Development Act of 1992 (1992 Act), established the Office of Federal Housing Enterprise Oversight (OFHEO) as an independent office in the Department of Housing and Urban Development (HUD). The Act requires OFHEO to develop a stress test to determine risk-based capital requirements and to conduct other research and financial analysis necessary for effective regulatory oversight of the two largest government sponsored enterprises (GSEs)--Fannie Mae and Freddie Mac. OFHEO is also required by statute to conduct annual examinations of Fannie Mae and Freddie Mac to determine the condition of each Enterprise for the purpose of ensuring their financial safety and soundness.

OFHEO's Mission Statement

OFHEO effectively protects the interests of the American taxpayer and contributes to the strength and vitality of the nation's housing finance system through independent and fair safety and soundness regulation of Fannie Mae and Freddie Mac.

OFHEO's fiscal year 2001 Budget Request is essential for OFHEO to be able to meet its congressionally mandated mission of ensuring the financial safety and soundness of Fannie Mae and Freddie Mac. The scope and complexity of the Enterprises' housing finance activities have expanded dramatically, as has the range of risks embedded in those activities.

Since OFHEO's creation in June 1993, the amount of mortgages on which the Enterprises are exposed to credit risk has doubled to over $2 trillion. The bulk of this growth in mortgage volumes occurred in their retained portfolio of mortgages and mortgage-backed securities. During the four quarters ending in September 1999, the combined amount of the Enterprises' retained mortgage portfolios grew by over 40 percent so that the amount of mortgage assets on which they manage interest rate risk exceeded $870 billion, nearly five times as large as the combined amount they managed when OFHEO was created.

The Enterprises' funding and hedging strategies associated with their retained mortgage portfolio include the broad use of the most sophisticated derivative and debt instruments available in the financial markets. The Enterprises' increasing reliance on issuing debt with Treasury-like characteristics has further integrated the Enterprises with the financial markets and has served to strengthen the market's perception of an implied government guarantee. OFHEO's fiscal year 2001 Budget Request asks for the resources necessary to adequately supervise these two very large and sophisticated financial enterprises.

APPROPRIATION HIGHLIGHTS

Although subject to the appropriations process, OFHEO is not funded with taxpayer dollars. Section 1316 of the 1992 Act authorizes the collection of annual assessments from Fannie Mae and Freddie Mac to cover OFHEO's annual operating costs to the extent appropriated. The following table summarizes the funding and staffing included in this request.

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  1. The Office of Management and Budget (OMB) approved OFHEO's request to recover prior year obligations for re-obligation during fiscal year 1999. OMB reapportioned $286,521 to OFHEO as an increase in budgetary resources available to OFHEO during fiscal year 1999. OFHEO has estimated that about $150,000 in prior year obligations will be recovered during fiscal year 2000 and reapportioned by OMB to OFHEO for re-obligations in fiscal year 2000.
  1. The amount reflected as reimbursement collected pertains to a reimbursement from the Agency for International Development for work performed in the prior year.

SUMMARY OF 2001 BUDGET REQUEST

The rapid growth and complexity of the Enterprises' operations are stressing the capacity of OFHEO to provide effective safety and soundness oversight. The fiscal year 2001 request of $25,800,000, therefore, represents a 32 percent increase from the fiscal year 2000 enacted budget of $19,493,000. This request provides OFHEO with sufficient capacity to ensure effective oversight of the Enterprises, as well as to continue to enhance its knowledge of the mortgage and capital markets.

OFHEO's resources have not kept pace with the growing size and complexity of the Enterprises' operations. Resource constraints have forced OFHEO to move slower than expected in promulgating risk-based capital requirements. Once implemented, OFHEO will need additional capacity to ensure that the risk-based capital standard will appropriately reflect, in a timely fashion, new innovations in the marketplace that can significantly impact the risk profile of the Enterprises. Both Congress and the Enterprises have expressed concern that OFHEO may not have the capacity to do so.

The Enterprises increased appetite for managing interest rate risk and the associated increased use of derivative and debt instruments requires OFHEO to bolster its capacity to analyze these sophisticated transactions so that we can appropriately assess their impact on the risk profiles of the Enterprises. OFHEO must have sufficient capacity to model these transactions for purposes of determining capital adequacy and to examine the Enterprises' operations to ensure that these activities are conducted in a safe and sound manner.

The fiscal year 2001 budget supports 118 full-time equivalent (FTE) workyears. This is an increase of 23 FTE over the current fiscal year 2000 plan. The staffing increase is necessary to maintain OFHEO's capacity to supervise the Enterprises. The request targets increased staffing to areas in which a lack of capacity leaves the Office most vulnerable in the achievement of its mission. The bulk of the new workyears is planned to directly involve the collection and analysis of Enterprise data or the dissemination of information regarding the Enterprises and housing markets. The remaining workyears will strengthen the infrastructure by providing project management and support across OFHEO in automated systems, budget, finance and human resources. This increase in staffing continues OFHEO's strategy to minimize risk in key functions and to reduce reliance on more costly contractor services.

The fiscal year 2001 Budget also requests continued support for the maintenance and enhancement of OFHEO's research system environment (the computer hardware and software used to house and analyze Enterprise financial data, including the stress test). This request also seeks funds to determine the feasibility and benefits of developing an integrated examiner workstation that allows examiners to look at quantitative and qualitative assessments of risks simultaneously.

In addition to bolstering OFHEO's institutional capacity, the fiscal year 2001 Budget requests $1 million to secure integrated personnel, payroll, procurement, budget and accounting systems from a single Federal agency providing these services on a reimbursement basis. Currently, OFHEO is serviced by a number of Federal agencies whose systems are not linked. This requires labor intensive manual reconciliation of data and duplication of data entries. An integrated system would comply with the new single data entry concept for financial systems established by the Joint Financial Management Improvement Program (JFMIP).

Keeping external audiences informed about OFHEO's regulatory activities is an essential component of our mission. The level of dialogue, interaction, and information exchange between OFHEO, the Congress, private industry, trade groups, and the public continues to increase at a substantial rate. OFHEO's request again includes a $500 Reception and Representation Fund. The funds would facilitate hosting meetings with industry and external stakeholders to disseminate information and exchange ideas.

Funding

The following table summarizes obligations for OFHEO by object class.

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      a/ Actual obligations include a recovery of $286,521 of prior-year obligations.

      b/ Current estimate includes $150,000 anticipated recovery of prior year obligations in fiscal year 2000.

  1. CHANGES FROM ESTIMATES INCLUDED IN 2000 BUDGET

    2. A fundamental change in estimates from the fiscal year 2000 Budget Request reflects the changing environment pertaining to the publication of the notice of proposed rulemaking on risk-based capital and oversight required of the complex and evolving business practices of the Enterprises. During late fiscal year 1999, OFHEO re-evaluated program goals and resources and concluded it was necessary to hire additional staff to provide focused direction in evaluating comments received in response to the proposed risk-based capital rule and in developing a final risk-based capital rule. The additional staff also bolstered OFHEO's analytic capability of Enterprise data and supports the effective and efficient oversight of the Enterprises.

  2. ANALYSIS OF INCREASES AND DECREASES

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EXPLANATION BY OBJECT CLASS

Personal Services. OFHEO's fiscal year 2001 budget seeks to increase its staffing level sufficiently to ensure that the office has the capacity to fulfill its important safety and soundness oversight of Fannie Mae and Freddie Mac. Accordingly, OFHEO is requesting funding to increase its institutional capacity. The fiscal year 2001 budget request would enable OFHEO to increase staffing from 95 FTE to 118 by the end of fiscal year 2001. OFHEO has already begun this initiative by restructuring its workforce in fiscal year 2000, by deploying fiscal year 2000 resources to critical areas and by bringing additional talent and expertise to OFHEO.

OFHEO's experience in fiscal years 1998 and 1999 with the loss of key Federal employees and contract staff reinforced OFHEO's growing concern about its ability to maintain institutional capacity in mission-critical activities with the current size and mix of staff and contract resources. OFHEO's experience in developing the proposed risk-based capital standard for the Enterprises has led OFHEO to conclude that the office needs more resources to effectively and efficiently operationalize the rule.

OFHEO plans to use fiscal year 2001 resources to bolster OFHEO's capacity to determine the capital adequacy of the Enterprises pursuant to the risk-based capital standard. It is necessary to increase resources to adequately analyze innovations in the Enterprises' lending and credit enhancement programs, as well as their use of new and more sophisticated derivatives, debt, and other hedging strategies. These resources are also necessary to ensure timely inclusion of the Enterprises' evolving risk profiles in the stress test and associated risk-based capital regulation. Equally important, the resources requested will also help immunize OFHEO from the key-person risk that the office is currently facing in the lean staffing environment in the capital adequacy area.

Specifically, the additional resources requested for fiscal year 2001 would strengthen OFHEO's economics, finance, policy analysis, and systems development capacity. This will enable OFHEO to efficiently produce quarterly risk-based capital calculations, analyze and diagnose the sources of risk facing the Enterprises and undertake ongoing changes to the stress test and its underlying software in response to innovations in the marketplace and in the way the Enterprises conduct their businesses.

The fiscal year 2001 budget also seeks to bolster OFHEO's capacity to examine the Enterprises. The Enterprises' rapid expansion of their retained mortgage portfolios and the potential increased interest rate risk exposure associated with this growth requires that OFHEO expand and strengthen its capacity to examine the Enterprises' management of interest rate risk. OFHEO will also improve the efficiency and effectiveness of its examination program by conducting sophisticated analyses of financial data, using OFHEO's newly created Surveillance and Monitoring (SAM) System, to assist the entire examination staff.

Early in fiscal year 2000, OFHEO hired its first Chief Information Officer. At the same time, OFHEO hired IT staff to replace contractor-provided services in critical IT functions. OFHEO is requesting resources in fiscal year 2001 to further enhance its ability to oversee IT investments and to encourage more efficient use of IT resources. The resources requested for fiscal year 2001 will provide technical support to a growing number of customers and to an increasingly complex IT systems environment. These resources will also help manage the external connections to other Federal agencies (HUD, the Department of the Treasury, the Office of Management and Budget, the Department of Veterans Affairs and the National Finance Center) and the Internet. OFHEO requires additional resources in fiscal year 2001 to timely assess new software applications and equipment so that OFHEO can continue to leverage technology effectively to support program activities.

As part of OFHEO's initiative to keep invaluable institutional knowledge concerning the risk-based capital regulations, OFHEO will also supplement existing resources in the human resources and the budget and financial support functions. As OFHEO matures as a regulatory agency, the increased level of staff and increased level of transactions has made it necessary to request additional support staff to continue acceptable levels of service. The requested resources for fiscal year 2001 will enable OFHEO to minimize contractor services in these areas and improve work processes and institutional knowledge.

OFHEO independently manages and reports on its funds and has in the past augmented Federal employees with more costly temporary contractor support. For the most recent completed external audit, OFHEO was awarded a clean audit opinion on its financial statements, internal controls and compliance with laws and regulations. While issuing a clean audit opinion, the auditors also observed that staffing in the finance area might not be inadequate to perform all of the necessary control activities on an on-going basis. The auditor recommended that OFHEO review the staffing requirements and determine whether it should increase staffing in this function. OFHEO concluded that it should increase resources to ensure that it could continue to independently manage and report on its funds. OFHEO will use additional resources requested in 2001 to strengthen this area.

In the human resources area, OFHEO also has had to rely on intermittent contract support for normal operations. OFHEO manages its own human resources function, and administers its own compensation system. The additional resources requested in fiscal year 2001, will enable OFHEO to enhance recruitment and outreach efforts to support the mission programs in filling vacancies with highly qualified and diverse staff. These additional staff will also help enhance the development and administration of an effective personnel security program as well as help to efficiently process personnel actions and payroll transactions.

Travel. OFHEO is requesting an increase of $127,000 in travel over the current fiscal year 2000 estimate of $167,000. Nearly 32 percent of the travel funds requested for fiscal year 2001 support the examination function. The increase represents examiner certification-related travel as well as the impact of the increase in planned workyears. In addition, the fiscal year 2001 request supports travel associated with increasing external communication requirements on regulatory matters. The fiscal year 2001 Budget Request supports continued participation of OFHEO staff in professional seminars, meetings, and joint training projects with other financial regulators which benefit mission-related work and support activities.

Transportation of Things. OFHEO's fiscal year 2001 Budget Request reflects a small increase over the fiscal year 2000 estimate. This reflects the assumption that OFHEO will provide relocation benefits to some of the staff hired to fill vacancies in fiscal year 2001. The budget also supports shipping charges for supplies, subscriptions and equipment.

Rent, Communications and Utilities. The fiscal year 2001 Budget Request includes full-year funding for existing space and utilities and communications and an increase in rental costs for a re-configuration of existing space or new space to house OFHEO employees.

Printing and Reproduction. OFHEO believes that printing costs in fiscal year 2001 will exceed those estimated for fiscal year 2000. This relates to the need to update the risk-based capital standard. These regulations will be lengthy and the costs to publish regulations in the Federal Register are fixed by the Federal Register. The fiscal year 2001 Budget continues to support publishing the Annual Report to Congress as well as technical and analytical studies.

Other Services. The fiscal year 2001 Budget Request for the $6 million for other services includes over $2.7 million to maintain and strengthen OFHEO's Research System Environment (computer hardware and software platform needed to run the stress test and other computationally sensitive analyses) and associated applications, and to support changes necessary to this environment as the risk based capital regulation is modified. The funds will be used to modi the Research System Environment to evaluate Enterprises new business practices and to perform financial research to support policy development. In addition, the funds will support the development of a prototype of a proposed examination workstation application through a cost-benefit analysis. The application will integrate qualitative and quantitative assessments of risk simultaneously. The examination workstation application will continue to leverage staff resources through the effective use of technology. Funding for developing and implementing the application will be requested in the fiscal year 2002 budget if OFHEO decides to move forward to develop and implement the application.

The fiscal year 2001 Budget Request also includes funding to secure an integrated human resources, payroll, procurement and financial system from a single Federal service provider. The integrated system will comply with new JFMIP system requirements and the U.S. Treasury Standard General Ledger. It will have a single data entry point for financial transactions and capability to link disparate but related data to perform financial analyses and prepare financial reports required by Treasury and OMB. Currently OFHEO is serviced on a number of systems owned by other agencies and the systems are not linked. This stovepipe environment requires labor intensive manual reconciliation and duplicate data entry. The new system will strengthen automated controls over financial data, streamline existing processes, and redistribute staff resources for analytic work rather than record maintenance. The new system also supports the Administration's goal of getting an unqualified audit opinion on the governmentwide financial statements.

The budget request continues to fund administrative support systems and services through Interagency Agreements with other Federal agencies, contract services for information systems and specialized support services, and training for OFHEO employees.

Supplies and Materials. The fiscal year 2001 Budget Request reflects a nine percent increase over the current estimate for fiscal year 2000. This represents the impact of additional workyears planned for
2001 .

Furniture and Equipment. The increase requested for fiscal year 2001 reflects planned upgrades of equipment in the Research Systems Environment, additional furniture and equipment for new staff and planned replacement of office automation equipment.

Program Description

  1. SCOPE OF ACTIVITY

    2. OFHEO functions as an independent office within HUD, responsible for regulation of Fannie Mae and Freddie Mac in matters of capital adequacy and financial safety and soundness. The Office is headed by the Director who is appointed by the President for a 5-year term and is responsible for the overall operation of OFHEO.

    The Act requires OFHEO to develop and support a stress test to determine risk-based capital requirements and to conduct other research and financial analysis necessary for effective regulatory oversight of the GSEs. OFHEO is also required by statute to conduct annual examinations of Fannie Mae and Freddie Mac to determine the condition of each Enterprise for the purpose of ensuring their financial safety and soundness. The examinations are designed to identify the overall risks in the business activities of the Enterprises, and to determine if those risks are being prudently managed, controlled, and monitored. Additional special examinations may be conducted as necessary, as determined by the Director.

  2. WORKLOAD

    1. Accomplishments

      2. Following are specific accomplishments during 1999:

      RULEMAKING

      • submitted draft notice of proposed rulemaking for risk-based capital (NPR2) to OMB for approval. Briefed representatives of OMB and other agencies on the implications and impact of the proposed rule. Modified the text of NPR2 in response to interagency review process. Obtained clearance of the Rule from OMB;

      • published NPR2 in the Federal Register. Placed NPR2 and explanatory material on the OFHEO website to enhance public access to and understanding of the proposal;

      • briefed Congress, the Enterprises, and the private sector on NPR2;

      • continued to update explanatory material regarding NPR2 on the website in response to ongoing inquiries from interested parties. Extended comment period on NPR2 in response to requests from potential commenters;

      • issued the final regulation on release of information, which implemented the provisions of the Freedom of Information Act (FOIA);

      • reviewed and analyzed comments on the proposed regulation and drafted a final regulation establishing the Rules of Practice and Procedure related to the conduct of enforcement actions; and

      • issued interim final regulation, followed by final regulation implementing the Debt Collection Act.

      RESEARCH AND POLICY ANALYSIS

      • classified each of the Enterprises as "adequately capitalized" each quarter applying regulatory minimum capital standards;

      • continued quarterly publication of OFHEO's House Price Index documenting changes in home prices for the nation, each State and the nine Census regions;

      • responded to inquiries regarding technical aspects of the proposed stress test with extensive technical analyses developed for this purpose;

      • updated documentation of the initial version of the stress test software to reflect the second notice of proposed rulemaking on risk-based capital;

      • continued work on the comprehensive Enterprise Data Warehouse which houses the large volume of data that OFHEO receives from the Enterprises, and enhanced the efficiency of the stress test software, stress test operations and OFHEO's supervisory surveillance and monitoring capability;

      • completed data standardization structures in the Data Warehouse for single family and multi-family loans;

      • completed development of a flexible reporting interface for the comprehensive Enterprise Data Warehouse to facilitate the surveillance and monitoring component of the examination program and analyses of the Enterprises;

      • monitored changes to the comparability of executive compensation and the reasonableness of termination packages at the Enterprises; and

      • published an Annual Report to the Congress on June 15, 1999.

      EXAMINATION AND OVERSIGHT

      • completed the first and initiated the second annual continuous risk-based examination process with regular risk assessments of the core risks of the Enterprises to ensure a comprehensive, ongoing assessment of the safety and soundness of the Enterprises;

      • provided feedback to the Enterprises on the ongoing examination;

      • monitored the progress of the Enterprises for "Year 2000" compliance, including regular briefings by the Enterprises. Periodically reported to Congress on the Enterprises' "Year 2000" readiness;

      • maintained and enhanced surveillance and monitoring programs to ensure that they provide a comprehensive and timely assessment of the safety and soundness of the Enterprises. Analyzed the financial condition and performance of the Enterprises as well as specific activities and risks of the Enterprises;

      • hosted and participated in joint meetings of the examination staffs from Federal agencies that supervise other Government Sponsored Enterprises; and

      • participated in professional development programs and joint training projects with other financial regulators to broaden examiners' expertise and maintain objectivity.

      OFHEO INFRASTRUCTURE

      • received an unqualified (clean) audit opinion on OFHEO's fiscal year 1998 Financial Report.

      • initiated implementation of the auditor's management letter recommendations to strengthen staffing and key controls over high risk transactions. During fiscal year 1999, OFHEO implemented enhanced controls over payroll transactions and reviewed staffing which resulted in OFHEO's request for additional staff in this area in fiscal year 2001. OFHEO also coordinated with its financial system service provider, the Department of Veterans Affairs (VA), to streamline the processing of financial transactions for travel and payroll;

      • continued to monitor the performance of the Financial Management System installed in fiscal year 1997 and to strengthen controls over financial data linked to other systems such as the National Finance Center payroll system;

      • installed upgraded software on the Office's Local Area Network and provided training to staff;

      • tracked OFHEO progress to ensure "Year 2000" compliance and monitored "Year 2000" compliance of administrative cross-servicing providers; and

      • implemented revisions to OFHEO's Performance Evaluation Management System based on evaluation recommendations.

    2. 2000 Plan

      3. OFHEO has identified the following strategic objectives for completion in 2000:

      RULEMAKING

      • review and analyze all comments on the two notices of proposed rulemaking for the risk-based capital regulation (NPR1 and NPR2) and perform the follow-up work and/or evaluation of alternatives necessary to complete a final risk-based capital regulation;

      • issue a proposed regulation implementing the Electronic FOIA Amendments;

      • issue the final regulation establishing the Rules of Practice and Procedure related to the conduct of enforcement actions;

      • issue the proposed regulation implementing the Equal Access to Justice Act;

      • issue the proposed regulation implementing the prompt corrective action provisions of the 1992 Act; and

      • issue the proposed regulation implementing the Rehabilitation Act.

      RESEARCH AND POLICY ANALYSIS

      • continue quarterly classification of the capital adequacy of the Enterprises, applying regulatory minimum capital standards;

      • continue quarterly publication of OFHEO's House Price Index, documenting changes in home prices for the nation, each State and the nine census regions;

      • make a full and complete report to Congress on OFHEO's activities and the condition of the Enterprises;

      • complete necessary analysis and fine tuning of stress test and stress test software to support follow-up work and evaluation of alternatives to complete a final risk-based capital regulation;

      • complete construction of the comprehensive Data Warehouse, the central repository for Enterprise data used by the financial simulation model for the risk-based capital stress test and for the surveillance and monitoring component of the examination programs. Complete remaining data standardization structures in the Data Warehouse;

      • update documentation of the stress test software to reflect the final risk-based capital regulation;

      • enhance the flexible reporting interface for the comprehensive Enterprise Data Warehouse to facilitate the surveillance and monitoring component of the examination program and analyses of the Enterprises;

      • respond to inquiries regarding the technical aspects of the proposed stress test and complete technical analysis materials to respond to inquiries;

      • research and analyze new risks and risk-measurement technologies for future incorporation in the stress test;

      • continue to monitor changes to the comparability of executive compensation and the reasonableness of any termination packages at the Enterprises; and

      • continue to evaluate new programs proposed by either Enterprise to determine if they would risk significant deterioration of the financial condition of that Enterprise.

      EXAMINATION AND OVERSIGHT

      • continue to monitor and test the Enterprises' "Year 2000" readiness efforts. Evaluate the Enterprises' management and resolution of any issues that arise from the onset of the Year 2000. Periodically report to interested constituents on the Enterprises' efforts and respond in the event there are issues that arise pertaining to the Enterprises or the secondary mortgage market during the millennium transition;

      • complete the calendar year (CY) 1999 and initiate the CY 2000 annual continuous risk-based examination with regular risk assessments of the core risks of the Enterprises to ensure a comprehensive, ongoing assessment of the safety and soundness of the Enterprises;

      • use results of the survey of the Enterprises to enhance the continuous annual risk-based examination process to maintain the effectiveness of communications between OFHEO examination staff and the Enterprises and to ensure the timely implementation of examination recommendations by the Enterprises;

      • conduct periodic meetings with the boards of directors and management of the Enterprises and issue annual reports of examination to the Enterprises;

      • use OFHEO's stress test software to assist in the evaluation of the interest rate risk and credit risk of the Enterprises as part of the examination process;

      • maintain and enhance surveillance and monitoring programs (including staffing, analytics, and data bases) to ensure that this component of the examination program provides a comprehensive and timely assessment of the safety and soundness of the Enterprises;

      • conduct flood insurance compliance reviews of the Enterprises to assess the adequacy of procedures at the Enterprises to comply with the requirements of applicable laws pertaining to flood insurance and report on the adequacy of compliance in the OFHEO Annual Report;

      • conduct a comprehensive program of financial analysis to ensure that OFHEO is knowledgeable of all risk exposures of the Enterprises. Prepare reports on the financial condition and performance of the Enterprises as well as specific activities and risks of the Enterprises;

      • host and participate in meetings of the examinations staffs from Federal agencies that supervise other Government Sponsored Enterprises; and

      • participate in professional development programs and joint training projects with other financial regulators to broaden examiners' expertise and maintain objectivity.

      OFHEO INFRASTRUCTURE

      • continue to develop, implement and improve administrative systems and policies to support OFHEO's activities using the principles of the National Performance Review, the Government Performance and Results Act, the Government Management Reform Act, and the Information Technology Management Reform Act;

      • complete verification at the beginning of the fiscal year, of all systems to ensure that they are "Year 2000" compliant and continue to monitor compliance by cross-servicing providers and implement contingency plans if necessary; and

      • implement recommendations and improvements to financial accounting processes resulting from the independent audit of OFHEO's fiscal year 1999 financial statements. Continue independent audit process for fiscal year 2000 financial statements.

    3. 2001 GOALS

      4. RULEMAKING

      • submit draft final rule for risk-based capital to OMB for approval. Brief representatives of OMB and other agencies on the implications and impact of the proposed rule. Modify the text of the draft to develop a final rule in response to the interagency review process;

      • issue the final rule on the risk-based capital standard, setting forth the stress test for determining risk-based capital;

      • issue the final regulation implementing the Equal Access to Justice Act;

      • issue the final regulation implementing the prompt corrective action provisions of the 1992 Act; and

      • issue the final regulation implementing the Electronic FOIA amendments.

      RESEARCH AND POLICY ANALYSIS

      • continue quarterly classification of the capital adequacy of the Enterprises, applying regulatory minimum capital standards;

      • continue quarterly publication of OFHEO's House Price Index, documenting changes in home prices for the nation, each State and nine census regions;

      • make a full and complete report to Congress on OFHEO's activities and the condition of the Enterprises;

      • maintain the Data Warehouse, the central data repository for Enterprise data used in the risk-based capital stress test and for the surveillance and monitoring component of the examinations program;

      • complete documentation of the stress test software to reflect the final risk-based capital regulation;

      • prepare systems and data submission processes for quarterly production of the risk-based capital classification;

      • develop appropriate stress test treatments and corresponding software enhancements to accommodate new Enterprise activities in the stress test calculations;

      • research and analyze new risks and risk-measurement technologies for future incorporation in the stress test, with primary emphasis on the effect of credit scoring on factors that affect Enterprise safety and soundness;

      • respond to inquiries regarding technical aspects of the stress test;

      • continue to monitor comparability of executive compensation at the Enterprises and determine the reasonableness of any termination packages; and

      • continue to evaluate new programs proposed by either Enterprise to determine if the new program would risk significant deterioration of the financial condition of that Enterprise.

      EXAMINATION AND OVERSIGHT

      • complete calendar year 2000 examination and provide report of examination to Boards of Directors;

      • initiate calendar year 2001 examination and discuss interim findings with the Enterprises;

      • enhance the continuous annual risk-based examination process to maintain the effectiveness of communications between OFHEO examination staff and the Enterprises and to ensure the timely implementation of examination recommendations by the Enterprises;

      • use OFHEO's stress test software to assist in the evaluation of the interest rate risk and credit risk of the Enterprises as part of the examination process;

      • maintain and enhance the surveillance and monitoring programs (including staffing, analytics, and data bases) to ensure that this component of the examination program provides a comprehensive and timely assessment of the safety and soundness of the Enterprises;

      • conduct a feasibility study and pilot project to determine the effectiveness of the examination workstation application of the surveillance and monitoring system. These integrated software products would fully utilize the Data Warehouse structure, and allow examiners to combine the data with narrative assessments to fully integrate the risk assessment examination process;

      • conduct a comprehensive program of financial analysis to ensure that OFHEO is knowledgeable of all risk exposures of the Enterprises. Prepare reports on the financial and performance of the Enterprises as well as specific activities and risks of the Enterprises;

      • host and participate in meetings of the examinations staffs from Federal agencies that supervise other Government Sponsored Enterprises; and

      • participate in professional development programs and joint training projects with other financial regulators to broaden examiners' expertise and maintain objectivity.

      OFHEO INFRASTRUCTURE

      • continue to develop, implement and improve administrative systems and policies to support OFHEO's activities using the principles of the National Performance Review, the Government Performance and Results Act, the Government Management Reform Act, and the Information Technology Management Reform Act;

      • implement an integrated human resources, financial management and purchasing system to meet JFMIP Standards; and

      • continue to seek independent audit of OFHEO's financial statements and implement applicable audit recommendations from the prior year audit.

    4. SUMMARY OF STAFFING REQUIREMENTS

      5. All personnel in this office are assigned to Headquarters. OFHEO has no field offices. The FTE is as follows:

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