CUOMO RELEASES INDEPENDENT AUDIT, ACTUARIAL REPORT THAT SHOW FHA'S FINANCIAL HEALTH CONTINUES TO IMPROVE

WASHINGTON - Housing Secretary Andrew Cuomo today released an independent audit by KPMG, Peat Marwick LLP and an actuarial report by Price Waterhouse that show the once-troubled Federal Housing Administration Insurance Fund is considerably stronger than it was before President Clinton took office.

The audit report notes: "FHA is changing for the better. We applaud management for its consistency in its efforts to make FHA relevant in, and responsive to, the marketplace."

"The independent audit and actuarial report are proof that our reinvention of FHA is paying dividends for American taxpayers, communities, and homeowners," Cuomo said. "The favorable audit and actuarial report are a vote of confidence in the FHA that strengthen our commitment to building strong, viable communities through increased homeownership. A healthy FHA Insurance Fund saves taxpayer dollars and ensures that HUD will continue to play a vital role in helping more hardworking families achieve the American Dream."

In addition, FHA continued to contribute to the rise in homeownership among first-time homebuyers, with 76 percent of new loans insured in 1997 going to new homeowners. Cuomo said that FHA's success and strong Fund are clear indications that the Department's proposal to raise the FHA loan limit to $227,150 would provide an even greater boost to the nation's homeownership rate.

The audit noted that the Department has made significant progress toward developing processes to effectively manage its current insured portfolio and inventory of notes and properties while continuing to serve the needs of the housing market; implemented an oversight tool that will help identify troubled and potentially troubled housing projects; and reached an agreement with the Department of Health and Human Services that will help increase FHA's ability to manage individual facilities in its $5 billion hospital portfolio.

These additional indicators cited in the audit attest to FHA's improved financial health:

• FHA's Mutual Mortgage Insurance Fund, which backs single family mortgages, exceeded Congressional goals for the year 2000 for the third consecutive year. The MMI Fund's capital ratio, a measure of the Fund's cushion against unexpected insurance losses, increased to 2.81 percent, exceeding the Congressional target of 2 percent by the year 2000. At the beginning of the decade, the ratio was -0.88 percent. The Actuarial Study also states that the projected economic value of the Fund increased from $2.7 billion at the end of fiscal year 1990 to $11.3 billion at the end of fiscal year 1997.

• Multifamily loss reserves continue to decline, illustrating lower risk to taxpayers of future insurance losses. FHA adjusted its loss reserves for multifamily insurance, including the estimated potential impact of expiring Section 8 contracts, resulting in total multifamily loss reserves of $9.9 billion, down approximately $300 million from FY 1996.

• FHA's successful loan sales program continued to reduce inventories of single family and multifamily notes and increase recovery rates. In fiscal years 1996 and 1997, FHA completed five single family note sales that resulted in the reduction of 82,800 notes that had an unpaid principal balance of $4.3 billion. The multifamily notes inventory declined 55 percent to 1,083, from a high of 2,409 at the end of 1993. Since the end of 1993, FHA has reduced the inventory on notes by 74 percent, from $11 billion to $3.3 billion .

• Single family and multifamily loan sales have resulted in higher weighted average recoveries when compared to 1994, the year before the note sales program began. For single family, recoveries were 89 percent of unpaid principal balance in fiscal year 1997, compared to 70 percent recovered in fiscal year 1994. Multifamily recoveries were 69 percent of unpaid principal balance in fiscal year 1997, compared to 23 percent recovered in fiscal year 1994.

By approving the audit, KPMG, Peat Marwick LLP has for the fifth consecutive year provided a "clean opinion" of FHA's financial statements, attesting to their confidence that the statements reflect accurately the agency's cash flows, financial position, and results of operation.