Number range CHAPTER**Section III: Current Status of the MMI Fund**

As of the end of FY 2005, the MMI Fund had an estimated economic value
of \$21.621 billion and a capital ratio of 6.02 percent. The economic
value is slightly lower than that of the FY 2004 Review mainly due to
the newly identified high claim rates on loans with down payment gift
supports from non-relatives. On the other hand, due to the significant
decrease in the volume of new books of business, the IIF decreased from
last year, causing the capital ratio to be higher comparing with the
figure in FY2004. In this section, a more detailed analysis of the MMI
Fund\'s current status is presented. The analysis examines the Fund\'s
end-of-FY 2005 situation and the projected future performance for FYs
2006 through 2012. This section includes a description of the basic
components of the Fund\'s economic value and an explanation of the
historical and estimated claim and prepayment rates that served as the
foundation for estimating future performance.

**A. Estimating the Current Economic Value of the MMI Fund**

According to the NAHA, the economic value (or economic net worth) of the
Fund is defined as the \"cash available to the Fund, plus the net
present value of all future cash inflows and outflows expected to result
from the outstanding mortgages in the Fund\". We base our estimate of
this value on the level of capital resources as stated on the MMI Fund
FY 2004 balance sheet plus the net total return from investments, the
net income of the mortgage insurance policies, and the present value of
expected future cash flows of the existing loan portfolio as estimated
from our financial models.

The MMI Fund assets comprise cash, investments, properties and
mortgages, and other assets and receivables. Capital resources are the
total assets net of the liabilities of the Fund. Due to the accelerated
schedule of the Actuarial Review, the actual amount of the capital
resources as of the end of FY 2005 was not available at the time this
Review was prepared. We had to project the end-of-FY 2005 capital
resources based on the audited capital resources as of the beginning of
the year with an estimate of the net cash income occurring during the
year.

The present value of expected future cash flows is calculated by a
financial model that uses the most current information available to
estimate cash flows, including the present value of the expected cash
inflows (upfront premiums, annual premiums and investment returns) and
outflows (claim payments, premium refunds, administrative expenses, and
distributive shares).[^1] The cash flows included in these calculations
are those from the origination year to the year of maturity, *e.g.*, 30
years from the first policy year for 30-year mortgages. The steps in
calculating the current economic value and capital ratio of the MMI Fund
are tabulated as Exhibit III-1.

**1. Capital Resources**

Capital resources are the net assets of the Fund that, if necessary,
could be converted into cash to meet the Fund\'s obligations. It is
computed by subtracting total liabilities from total assets. These
assets consist of cash, investments, properties and mortgages, other
assets and net of miscellaneous receivables and payables. Exhibit III-1
reports the estimate of MMI Fund's capital resources at the beginning of
FY 2005 at \$22.823 billion.

The next step in estimating the capital resources as of the end of FY
2005 is to estimate the source and use of funds that are generated by
the MMI Fund portfolio. Two sources of cash flows are estimated: (1) the
net gain/loss from investment of the capital resources at the beginning
of FY 2005; and (2) the net cash income from the mortgage insurance
policies. The net total returns on the beginning capital resources was
estimated to be \$509 million during FY 2005, assuming the capital
resources realize a return equal to 2.23 percent.

Based on the econometric models and economic forecast, we estimated the
cash flows that were generated by the FY 1976 to FY 2005 books of
business during FY 2005. These cash flows and any interest earned from
reinvestment become part of the total assets of the Fund. Exhibit III-2
shows the results of this analysis. The present value of the net cash
flow received during FY 2005 was calculated as -\$167 million.

Exhibit III-1

  -------------------------------------------- -------------- -------------
  **Estimates of MMI Fund Economic Value as                   
  End of FY 2005**                                            

  **(\$ Millions)**                                           

  **Item**                                     **End of FY    **End of FY
                                               2004^a^**      2005**

                                                               

  Cash                                         \$ 4,874       

  Investments                                  23,424         

  Properties and Mortgages                     1,462          

  Other Assets and Receivables                 460            

  Total Assets                                 \$ 30,220      

  Liabilities                                  7,397          

  Total Capital Resources                      \$ 22,823      

  Net Gain from Investments                                   509 ^b^

  Net Insurance Income in FY 2005                             \(167\)

  **Total Capital Resources**                                 **23,165**

                                                              

  PV of Future Cash Flows                                     (1,544)

  **Economic Value**                           **\$           **21,621**
                                               21,977**^c^    

                                                              

  Unamortized Insurance-In-Force               397,285^c^     358,871

  **Current Capital Ratio**                    **5.53%**^c^   **6.02%**

  ** **                                                       

  Amortized Insurance-In-Force                                332,393

  **Current Capital Ratio with Amortized                      **6.50%**
  Insurance-In-Force**                                        
  -------------------------------------------- -------------- -------------

^a^ Source: Audited Financial Statements for FY 2004.

^b^ Assuming the total capital resources as of the end of FY 2004 earns
an investment return equal to 2.23 percent during FY 2005.

^c^ From the FY 2004 Actuarial Review.

Exhibit III-2

+-------+-------+--------+-------+-------+--------+-------+--------+
| **Net |       |        |       |       |        |       |        |
| Cash  |       |        |       |       |        |       |        |
| Flow  |       |        |       |       |        |       |        |
| D     |       |        |       |       |        |       |        |
| uring |       |        |       |       |        |       |        |
| FY    |       |        |       |       |        |       |        |
| 2     |       |        |       |       |        |       |        |
| 005** |       |        |       |       |        |       |        |
+=======+=======+========+=======+=======+========+=======+========+
| **by  |       |        |       |       |        |       |        |
| O     |       |        |       |       |        |       |        |
| rigin |       |        |       |       |        |       |        |
| ation |       |        |       |       |        |       |        |
| F     |       |        |       |       |        |       |        |
| iscal |       |        |       |       |        |       |        |
| Year  |       |        |       |       |        |       |        |
| and   |       |        |       |       |        |       |        |
| Mor   |       |        |       |       |        |       |        |
| tgage |       |        |       |       |        |       |        |
| Type^ |       |        |       |       |        |       |        |
| a^(\$ |       |        |       |       |        |       |        |
| M     |       |        |       |       |        |       |        |
| illio |       |        |       |       |        |       |        |
| ns)** |       |        |       |       |        |       |        |
+-------+-------+--------+-------+-------+--------+-------+--------+
| **F   | ## F  | **FRM  | **    | **SR  | **SR   | **SR  | **T    |
| iscal | RM 30 | 15**   | ARM** | 30**  | 15**   | ARM** | otal** |
| Y     |       |        |       |       |        |       |        |
| ear** |       |        |       |       |        |       |        |
+-------+-------+--------+-------+-------+--------+-------+--------+
|       |       |        |       |       |        |       |        |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1976  | 0     |        |       |       |        |       | 0      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1977  | 0     |        |       |       |        |       | 0      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1978  | 1     |        |       |       |        |       | 1      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1979  | 1     |        |       |       |        |       | 1      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1980  | 1     |        |       |       |        |       | 1      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1981  | 0     |        |       |       |        |       | 0      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1982  | 0     |        |       |       |        |       | 0      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1983  | 1     |        |       |       |        |       | 1      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1984  | 0     |        |       |       |        |       | 0      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1985  | -1    |        | 0     |       |        |       | -1     |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1986  | -3    |        | 0     | 0     |        |       | -3     |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1987  | -4    |        | 0     | -1    |        | 0     | -5     |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1988  | -3    |        | 0     | 0     |        | 0     | -3     |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1989  | -3    |        | 0     | 0     |        | 0     | -4     |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1990  | -5    | 0      | 0     | 0     | 0      |       | -5     |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1991  | -5    | 0      | 0     | 0     | 0      | 0     | -6     |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1992  | -7    | 0      | -1    | 0     | 0      | 0     | -8     |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1993  | -8    | 0      | -1    | -3    | 0      | 0     | -13    |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1994  | -8    | 0      | -1    | -5    | 0      | 0     | -14    |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1995  | -10   | 0      | -1    | 0     | 0      | 0     | -11    |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1996  | -28   | 0      | -3    | -2    | 0      | 0     | -33    |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1997  | -34   | 0      | -7    | -1    | 0      | 0     | -43    |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1998  | -65   | 0      | -7    | -2    | 0      | -1    | -75    |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 1999  | -112  | -1     | -4    | 3     | -1     | 0     | -114   |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 2000  | -146  | -1     | -11   | 0     | 0      | 0     | -158   |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 2001  | -208  | -1     | -3    | -8    | 0      | -1    | -221   |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 2002  | -253  | -2     | -14   | -15   | 0      | -7    | -291   |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 2003  | -195  | -3     | -10   | 33    | 4      | -8    | -179   |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 2004  | -27   | -1     | 1     | 28    | 3      | -4    | 0      |
+-------+-------+--------+-------+-------+--------+-------+--------+
| 20    | 634   | 9      | 94    | 208   | 21     | 48    | 1015   |
| 05^b^ |       |        |       |       |        |       |        |
+-------+-------+--------+-------+-------+--------+-------+--------+
| **To  | -487  | 0      | 32    | 235   | 26     | 27    | -167   |
| tal** |       |        |       |       |        |       |        |
+-------+-------+--------+-------+-------+--------+-------+--------+

^a^ See Section IV for description of loans included in each loan type
category

^b^ Based on forecasted volume and composition distribution between the
second quarter of FY 2004 and the first quarter of FY 2005.

**2. Present Value of Future Cash Flows**

The present value of all future cash flows of the MMI Fund is also
aggregated from separate estimates of the present value of each book of
business and each major mortgage type. Exhibit III-3 shows the present
values of future cash flows of major mortgage types from book years FY
1976 through FY 2005. These present values represent simulated cash
flows during FY 2006 and future years. This exhibit is offered to
facilitate comparison among books of business and mortgage types
according to cash flows that have not yet been incurred as of the end of
FY 2005. It is reported in Exhibit III-3 that the total present value of
future cash flow is -\$1,544 million dollars. Note that this amount was
-\$88 million before taking into account the different performance of
loans with various gift sources. The higher expected claim loss of the
gift loans represents a decrease \$1.46 billion dollar in the present
value of future cash flows.

Exhibit III-3

+-------+-------+-------+-------+-------+-------+-------+--------+
| ##    |       |       |       |       |       |       |        |
|  Pres |       |       |       |       |       |       |        |
| ent V |       |       |       |       |       |       |        |
| alue  |       |       |       |       |       |       |        |
| of Fu |       |       |       |       |       |       |        |
| ture  |       |       |       |       |       |       |        |
| Cash  |       |       |       |       |       |       |        |
| Flows |       |       |       |       |       |       |        |
|  as t |       |       |       |       |       |       |        |
| he En |       |       |       |       |       |       |        |
| d of  |       |       |       |       |       |       |        |
| FY 20 |       |       |       |       |       |       |        |
| 05^a^ |       |       |       |       |       |       |        |
+=======+=======+=======+=======+=======+=======+=======+========+
| **by  |       |       |       |       |       |       |        |
| O     |       |       |       |       |       |       |        |
| rigin |       |       |       |       |       |       |        |
| ation |       |       |       |       |       |       |        |
| F     |       |       |       |       |       |       |        |
| iscal |       |       |       |       |       |       |        |
| Year  |       |       |       |       |       |       |        |
| &     |       |       |       |       |       |       |        |
| Mor   |       |       |       |       |       |       |        |
| tgage |       |       |       |       |       |       |        |
| Type  |       |       |       |       |       |       |        |
| (\$   |       |       |       |       |       |       |        |
| M     |       |       |       |       |       |       |        |
| illio |       |       |       |       |       |       |        |
| ns)** |       |       |       |       |       |       |        |
+-------+-------+-------+-------+-------+-------+-------+--------+
| **F   | **FRM | **FRM | **    | **SR  | **SR  | **SR  | **T    |
| iscal | 30**  | 15**  | ARM** | 30**  | 15**  | ARM** | otal** |
| Y     |       |       |       |       |       |       |        |
| ear** |       |       |       |       |       |       |        |
+-------+-------+-------+-------+-------+-------+-------+--------+
|       |       |       |       |       |       |       |        |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1976  | 0     |       |       |       |       |       | 0      |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1977  | 0     |       |       |       |       |       | 0      |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1978  | 1     |       |       |       |       |       | 1      |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1979  | 2     |       |       |       |       |       | 2      |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1980  | 1     |       |       |       |       |       | 1      |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1981  | 1     |       |       |       |       |       | 1      |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1982  | 0     |       |       |       |       |       | 0      |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1983  | 2     |       |       |       |       |       | 2      |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1984  | -1    |       |       |       |       |       | -1     |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1985  | -2    |       | 0     |       |       |       | -2     |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1986  | -5    |       | 0     | 0     |       |       | -5     |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1987  | -6    |       | 0     | -1    |       | 0     | -7     |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1988  | -4    |       | 0     | 0     |       | 0     | -5     |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1989  | -5    |       | 0     | 0     |       | 0     | -6     |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1990  | -8    |       | 0     | 0     |       |       | -8     |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1991  | -9    | 0     | 0     | 0     | 0     | 0     | -9     |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1992  | -10   | 0     | -2    | -1    | 0     | 0     | -13    |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1993  | -13   | 0     | -2    | -5    | 0     | 0     | -20    |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1994  | -15   | 0     | -3    | -7    | 0     | -1    | -26    |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1995  | -15   | 0     | -2    | 0     | 0     | 0     | -17    |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1996  | -36   | 0     | -4    | -2    | 0     | 0     | -43    |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1997  | -46   | 0     | -8    | -1    | 0     | 0     | -55    |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1998  | -82   | 0     | -7    | -7    | 0     | -1    | -97    |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 1999  | -155  | -1    | -6    | -11   | -1    | -1    | -175   |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 2000  | -177  | -1    | -19   | -1    | 0     | -1    | -198   |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 2001  | -132  | -1    | -5    | 23    | -1    | 0     | -116   |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 2002  | -140  | -3    | -27   | 57    | -2    | -4    | -120   |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 2003  | -141  | -9    | -41   | 425   | 0     | -13   | 221    |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 2004  | -482  | -9    | -94   | 201   | 1     | -23   | -406   |
+-------+-------+-------+-------+-------+-------+-------+--------+
| 2005  | -455  | -6    | -101  | 143   | 4     | -29   | -445   |
+-------+-------+-------+-------+-------+-------+-------+--------+
| **To  | -     | -32   | -322  | 812   | 1     | -73   | -1,544 |
| tal** | 1,932 |       |       |       |       |       |        |
+-------+-------+-------+-------+-------+-------+-------+--------+

^a^Based on forecasted volume and composition distribution during the
first two quarters.

The present values of future books discounted to the end of each
corresponding future fiscal year are tabulated in Exhibit III-4. Since
the future books of business are assumed to have the same high portion
of gift loans as the most recently insured loans, their expected present
values are considerably lower than those estimated in FY 2004's Review.
Note that the present values for FRM 30 product are negative in most
years, indicating the current premium structure is not enough to pay for
the future claim losses. These negative values are offset by the
positive present values realized in other product types and still yield
positive value for every future book of business.

# Exhibit III-4

+-------+-------+--------+--------+-------+--------+--------+--------+
| **Pr  |       |        |        |       |        |        |        |
| esent |       |        |        |       |        |        |        |
| Value |       |        |        |       |        |        |        |
| of    |       |        |        |       |        |        |        |
| F     |       |        |        |       |        |        |        |
| uture |       |        |        |       |        |        |        |
| Book  |       |        |        |       |        |        |        |
| ^a^** |       |        |        |       |        |        |        |
+-------+-------+--------+--------+-------+--------+--------+--------+
| **by  |       |        |        |       |        |        |        |
| O     |       |        |        |       |        |        |        |
| rigin |       |        |        |       |        |        |        |
| ation |       |        |        |       |        |        |        |
| Ye    |       |        |        |       |        |        |        |
| ar^b^ |       |        |        |       |        |        |        |
| &     |       |        |        |       |        |        |        |
| Mor   |       |        |        |       |        |        |        |
| tgage |       |        |        |       |        |        |        |
| Type  |       |        |        |       |        |        |        |
| (in   |       |        |        |       |        |        |        |
| \$    |       |        |        |       |        |        |        |
| Milli |       |        |        |       |        |        |        |
| on)** |       |        |        |       |        |        |        |
+-------+-------+--------+--------+-------+--------+--------+--------+
| **Fis | **FRM | **FRM  | *      | **SR  | **SR   | **SR   | **T    |
| cal** | 30**  | 15**   | *ARM** | 30**  | 15**   | ARM**  | otal** |
|       |       |        |        |       |        |        |        |
| **Y   |       |        |        |       |        |        |        |
| ear** |       |        |        |       |        |        |        |
+-------+-------+--------+--------+-------+--------+--------+--------+
| 2006  | -68   | 3      | 14     | 310   | 24     | 34     | 318    |
+-------+-------+--------+--------+-------+--------+--------+--------+
| 2007  | 61    | 3      | 24     | 341   | 25     | 44     | 499    |
+-------+-------+--------+--------+-------+--------+--------+--------+
| 2008  | 76    | 4      | 27     | 353   | 26     | 49     | 534    |
+-------+-------+--------+--------+-------+--------+--------+--------+
| 2009  | 23    | 5      | 26     | 352   | 28     | 53     | 486    |
+-------+-------+--------+--------+-------+--------+--------+--------+
| 2010  | -31   | 5      | 32     | 378   | 31     | 60     | 476    |
+-------+-------+--------+--------+-------+--------+--------+--------+
| 2011  | -47   | 6      | 38     | 420   | 36     | 70     | 523    |
+-------+-------+--------+--------+-------+--------+--------+--------+
| 2012  | -62   | 6      | 44     | 470   | 40     | 79     | 578    |
+-------+-------+--------+--------+-------+--------+--------+--------+

^a.^ Present values are estimated as of the end of each corresponding
fiscal years.

^b.^ Assume the current share of downpayment gifts by sources as in the
FY 2005 book will remain the same for all future books of business.

**3. Amortization of Current Books of Business**

In order to calculate the MMI Fund\'s capital ratio, we need also to
estimate the unamortized IIF, although it is instructive to consider the
capital ratio based on amortized IIF, which is the basis the General
Accounting Office (GAO) used when it estimated the capital ratio of the
MMI Fund in the mid-1990's. At any given time, the dollar value that is
actually at risk is the amortized IIF. Exhibit III-5 shows the volume of
new mortgage originations for all types of mortgages, the unamortized
IIF and the amortized IIF, as of the end of FY 2005.

As Exhibit III-5 indicates, the FY 2005 book of business constitutes
approximately 17 percent of the Fund\'s total amortized IIF. Mortgage
endorsements dropped dramatically after the FY 2003 book of business,
which contributed the largest portion of mortgage endorsement volume,
the three most recent books together represent over 60 percent of the
total unamortized insurance in force of the current MMI Fund. The heavy
concentration in these recent books of business implies that the claim
rate of the MMI Fund could gradually increase during the coming years as
these three books enter their peak claim years.

The decrease of mortgage endorsement volume in FY 2004 and FY 2005
reflects the rapid decline of HUD\'s market share. The FHA market shares
continued to decrease from 12.18 percent in FY 2002 to an estimated 3.77
percent in FY 2005. This declining trend was incorporated in FHA's lower
(than last year's) volume forecast for new books of business.

#  Exhibit III-5

+----------------+-----------------+----------------+-----------------+
| **Endorsements |                 |                |                 |
| and            |                 |                |                 |
| Insu           |                 |                |                 |
| rance-in-Force |                 |                |                 |
| for All        |                 |                |                 |
| Mortgages**    |                 |                |                 |
+================+=================+================+=================+
| **As of End of |                 |                |                 |
| FY 2005 (in \$ |                 |                |                 |
| Millions)**    |                 |                |                 |
+----------------+-----------------+----------------+-----------------+
| **Book of      | **Mortgage      | **Unamortized  | **Amortized     |
| Business^a^**  | Endorsement**   | Insurance in   | Insurance in    |
|                |                 | Force^b^**     | Force^b^**      |
+----------------+-----------------+----------------+-----------------+
|                |                 |                |                 |
+----------------+-----------------+----------------+-----------------+
| 1976           | 5,569           | 178            | 9               |
+----------------+-----------------+----------------+-----------------+
| 1977           | 6,932           | 390            | 46              |
+----------------+-----------------+----------------+-----------------+
| 1978           | 9,627           | 562            | 113             |
+----------------+-----------------+----------------+-----------------+
| 1979           | 14,996          | 773            | 225             |
+----------------+-----------------+----------------+-----------------+
| 1980           | 14,216          | 426            | 160             |
+----------------+-----------------+----------------+-----------------+
| 1981           | 9,732           | 158            | 72              |
+----------------+-----------------+----------------+-----------------+
| 1982           | 6,894           | 26             | 14              |
+----------------+-----------------+----------------+-----------------+
| 1983           | 25,654          | 222            | 130             |
+----------------+-----------------+----------------+-----------------+
| 1984           | 15,696          | 490            | 322             |
+----------------+-----------------+----------------+-----------------+
| 1985           | 24,059          | 795            | 554             |
+----------------+-----------------+----------------+-----------------+
| 1986           | 57,728          | 3,028          | 2,030           |
+----------------+-----------------+----------------+-----------------+
| 1987           | 70,215          | 5,063          | 3,406           |
+----------------+-----------------+----------------+-----------------+
| 1988           | 37,425          | 2,180          | 1,583           |
+----------------+-----------------+----------------+-----------------+
| 1989           | 39,759          | 1,927          | 1,464           |
+----------------+-----------------+----------------+-----------------+
| 1990           | 47,123          | 2,166          | 1,686           |
+----------------+-----------------+----------------+-----------------+
| 1991           | 44,034          | 2,198          | 1,695           |
+----------------+-----------------+----------------+-----------------+
| 1992           | 44,922          | 3,314          | 2,496           |
+----------------+-----------------+----------------+-----------------+
| 1993           | 73,664          | 6,833          | 4,891           |
+----------------+-----------------+----------------+-----------------+
| 1994           | 79,537          | 9,304          | 6,841           |
+----------------+-----------------+----------------+-----------------+
| 1995           | 41,416          | 3,305          | 2,765           |
+----------------+-----------------+----------------+-----------------+
| 1996           | 61,563          | 5,563          | 4,704           |
+----------------+-----------------+----------------+-----------------+
| 1997           | 65,358          | 5,883          | 5,150           |
+----------------+-----------------+----------------+-----------------+
| 1998           | 88,453          | 11,360         | 10,083          |
+----------------+-----------------+----------------+-----------------+
| 1999           | 109,961         | 17,892         | 16,117          |
+----------------+-----------------+----------------+-----------------+
| 2000           | 86,734          | 9,436          | 8,807           |
+----------------+-----------------+----------------+-----------------+
| 2001           | 119,771         | 18,329         | 17,301          |
+----------------+-----------------+----------------+-----------------+
| 2002           | 128,768         | 33,581         | 31,883          |
+----------------+-----------------+----------------+-----------------+
| 2003           | 149,450         | 86,016         | 82,594          |
+----------------+-----------------+----------------+-----------------+
| 2004           | 92,647          | 71,387         | 69,661          |
+----------------+-----------------+----------------+-----------------+
| 2005           | 58,264^c^       | 56,085         | 55,591          |
+----------------+-----------------+----------------+-----------------+
| ### Total      | 1,630,167       | 358,871        | 332,393         |
+----------------+-----------------+----------------+-----------------+

^a^ End of year insurance-in-force

^b^ Based on March 31, 2005 data extract and model projected performance
of outstanding loans during the last two quarters of fiscal year 2005

^c^ Estimated by FHA

Exhibit III-6 shows the estimated capital ratios of the Fund using
amortized IIF while unamortized IIF is used elsewhere in this report. If
amortized IIF were substituted for unamortized IIF, the Fund\'s
estimated capital ratios for FY 2005 and FY 2012 are 6.50 percent and
7.31 percent, respectively. Following the definition by NAHA, we
continue to use the unamortized IIF measure (as generally defined) in
calculating the capital ratio elsewhere in this Review.

# Exhibit III-6

+-------+---------+---------+----------+---------+---------+---------+
| *     |         |         |          |         |         |         |
| *Proj |         |         |          |         |         |         |
| ected |         |         |          |         |         |         |
| MMI   |         |         |          |         |         |         |
| Fund  |         |         |          |         |         |         |
| P     |         |         |          |         |         |         |
| erfor |         |         |          |         |         |         |
| mance |         |         |          |         |         |         |
| for   |         |         |          |         |         |         |
| FYs   |         |         |          |         |         |         |
| 2005  |         |         |          |         |         |         |
| to    |         |         |          |         |         |         |
| 2012  |         |         |          |         |         |         |
| ^a^** |         |         |          |         |         |         |
+=======+=========+=========+==========+=========+=========+=========+
| **(\$ |         |         |          |         |         |         |
| M     |         |         |          |         |         |         |
| illio |         |         |          |         |         |         |
| ns)** |         |         |          |         |         |         |
+-------+---------+---------+----------+---------+---------+---------+
| **F   | **E     | **      | **Volume | **Amor  | **E     | **I     |
| iscal | conomic | Capital | of New   | tized** | conomic | nterest |
| Y     | Value   | Ratio   | Endors   |         | Value   | Return  |
| ear** | of the  | (%)**   | ements** | **In    | of New  | on Fund |
|       | Fund**  |         |          | surance | Book of | Bal     |
|       |         |         |          | in      | Bus     | ances** |
|       |         |         |          | Force** | iness** |         |
+-------+---------+---------+----------+---------+---------+---------+
|       |         |         |          |         |         |         |
+-------+---------+---------+----------+---------+---------+---------+
|       |         |         |          |         |         |         |
+-------+---------+---------+----------+---------+---------+---------+
| 2005  | 21,621  | 6.50    | 58,264   | 332,393 | 570     |         |
+-------+---------+---------+----------+---------+---------+---------+
| 2006  | 22,702  | 6.69    | 54,664   | 339,595 | 318     | 764     |
+-------+---------+---------+----------+---------+---------+---------+
| 2007  | 24,130  | 6.98    | 54,965   | 345,832 | 499     | 929     |
+-------+---------+---------+----------+---------+---------+---------+
| 2008  | 25,729  | 7.19    | 57,065   | 357,678 | 534     | 1,065   |
+-------+---------+---------+----------+---------+---------+---------+
| 2009  | 27,434  | 7.34    | 60,973   | 373,955 | 486     | 1,219   |
+-------+---------+---------+----------+---------+---------+---------+
| 2010  | 29,286  | 7.37    | 69,231   | 397,441 | 476     | 1,377   |
+-------+---------+---------+----------+---------+---------+---------+
| 2011  | 31,361  | 7.34    | 79,308   | 427,104 | 523     | 1,552   |
+-------+---------+---------+----------+---------+---------+---------+
| 2012  | 33,680  | 7.31    | 88,898   | 460,712 | 578     | 1,741   |
+-------+---------+---------+----------+---------+---------+---------+

^a^ All values are as of the end of each fiscal year.

[^1]: The administrative expense was discontinued since the FY 2002
    Actuarial Review according to the federal credit reform requirement.
    The distributive share has been suspended since 1990. There is no
    indication that it would be resumed in the foreseeable future.