Federal Housing Finance Board

 Performance and Accountability Report 

Fiscal Year 2007 

November 15, 2007 
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TABLE OF CONTENTS

MESSAGE FROM THE CHAIRMAN

Page

I. MANAGEMENT DISCUSSION AND ANALYSIS 

Mission, Vision, and Values............................................... 1 

The Federal Home Loan Bank System................................... 2 

The Federal Housing Finance Board.................................... 5 

Priorities, Resources, and Performance Measures....................... 7 

Program Performance Overview.......................................... 10 

The Year in Review.......................................................... 11 

Key External Factors....................................................... 15 

Management Challenges................................................... 17 

FY2007 Representative Accomplishment............................... 19 

Allocating Resources to Meet Our Goals............................... 20 

Financial Performance Overview......................................... 21 

II. PROGRAM PERFORMANCE 

Measuring and Reporting Performance.................................. 24 

Goals, Objectives, and Measures......................................... 25 

Program Evaluation......................................................... 32 

III. AUDITOR’S REPORT AND FINANCIAL STATEMENTS 
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MESSAGE FROM THE CHAIRMAN 

I am pleased to present the Federal Housing Finance Board’s (Finance Board) 

Performance and Accountability Report for fiscal year 2007 (FY2007). This Report 

summarizes the agency’s success in meeting its FY2007 goals and objectives as set forth 

in the FY2007 Annual Performance Budget and provides Finance Board financial and 

program performance information. 

The primary duty of the Finance Board is to ensure that the Federal Home Loan Banks 

(FHLBanks) and the Office of Finance operate safely and soundly. The Finance Board 

also assesses the FHLBanks’ administration of their affordable housing and community 

investment programs (AHP and CIP, respectively). 

FY2007 was a productive year at the Finance Board. The agency met the goals 

established in the FY2007 Annual Performance Budget. In addition, the Finance Board 

made substantial progress toward strengthening and positioning the agency to carry out 

its responsibilities more efficiently and effectively. 

The agency’s FY2007 financial statements, including an unqualified opinion, are 

provided in this Report. The opinion states that the financial statements are fairly 

presented and demonstrate accountability in the execution of the agency’s 

responsibilities. This Report also includes a statement of reasonable assurance that the 

Finance Board’s management accountability and internal controls are adequate and 

effective. 

The Finance Board will continue to work to promote the safety and soundness of the 

FHLBanks and build on the agency’s accomplishments. 

Ronald A. Rosenfeld 

Chairman 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 1

MANAGEMENT DISCUSSION AND ANALYSIS 

MISSION, VISION, AND VALUES 

MISSION

The Finance Board’s mission is to ensure that the FHLBanks are safe and sound so they 

serve as a reliable source of liquidity and funding for the nation’s housing finance and 

community investment needs. 

VISION

To maintain the public’s trust, the Finance Board is dedicated to the highest professional 

standards of accountability and independence in carrying out its responsibilities for 

FHLBank supervision and oversight. 

VALUES

The core values underlying the mission and vision of the Finance Board, which guide its 

organizational decisions and actions, are: 

• Independence. The Finance Board is the arm’s-length regulator of the FHLBanks 

and the Office of Finance. 

• Accountability. The Finance Board is a steward of the public’s trust and will use its 

resources efficiently and in the public interest. 

• Responsiveness. The Finance Board aligns its actions with its mission and 

responds promptly and effectively to emerging risks and opportunities in the finance 

system. 

• Integrity. The Finance Board discharges its responsibilities fairly and adheres to the 

highest standards of ethical conduct. 

• Excellence. The Finance Board strives for excellence in carrying out its 

responsibilities and recognizes the contributions of employees who demonstrate 

the highest professional standards in their work. 
MANAGEMENT DISCUSSION AND ANALYSIS 

THE FEDERAL HOME LOAN BANK SYSTEM

In 1932, Congress authorized the establishment of the FHLBanks to stimulate mortgage 

finance and provide liquidity to credit markets. Until 1989, FHLBank members consisted 

primarily of savings and loan associations engaged in home financing. In 1989, Congress 

extended eligibility for FHLBank membership to commercial banks and federally insured 

credit unions (subject to a home financing requirement). In 1999, Congress made FHLBank 

membership voluntary for all types of eligible institutions. 

FEDERAL HOME LOAN BANK DISTRICTS

The FHLBanks are privately capitalized, government-sponsored enterprises that provide 

wholesale credit to members and certain nonmembers to be used for mortgage lending 

and related activities. In addition, the FHLBanks have a mandate to promote housing and 

community investment finance. The FHLBanks provide long-term, flexible financing to 

more than 8,100 member financial institutions around the country. As of September 30, 

2007, the FHLBanks had combined assets exceeding $1.2 trillion dollars. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 2 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 3

The FHLBanks are funded principally by the issuance of consolidated obligations of the 

FHLBank System. These consolidated obligations consist of bonds (with original maturities 

of one year or longer) and discount notes (with original maturities of less than one year). 

Consolidated obligations are not guaranteed or insured by the U.S. government. However, 

their status as government-sponsored enterprises enables the FHLBanks to raise funds at rates 

slightly higher than comparable obligations issued by the U.S. Treasury. Debt issued by the 

FHLBanks through the Office of Finance is the joint-and-several obligation of all 12 

FHLBanks. 

Members use short-and long-term advances (collateralized loans) to fund their lending activities 

and to maintain liquidity for their operations. Long-term advances may be used only to support 

residential housing finance and, in the case of a community financial institution, to support 

lending to small businesses, small farms, and small agricultural businesses. The 

preponderance of the collateral supporting advances consists of mortgage assets. 

In addition to advances, the FHLBanks purchase qualifying mortgage loans from members 

under various acquired member asset programs. Under these programs, the FHLBank 

manages the market risk associated with the loans while members bear most of the credit 

risk through a loss-sharing arrangement or the purchase of mortgage insurance for the loans 

sold to the FHLBank. 

KEY FEDERAL HOME LOAN BANK FINANCIAL STATISTICS

(in millions) 

 Sep 30 Dec 31 Dec 31 

 2007 2006 2005 

Advances to Members $824,000 $640,682 $619,859 

Mortgage Loans, Net 92,963 97,974 105,242 

Investments 305,465 275,267 272,115 

Other Assets 8,228 7,215 5,904

Total Assets $1,230,656 $1,021,138 $1,003,120

Consolidated Obligations $1,136,681 $938,762 $921,475 

Deposits and Borrowings 25,965 21,186 21,769 

Other Liabilities 16,557 16,155 15,318 

Capital 51,453 45,035 44,558 

Net income $1,961* $2,586 $2,494 

*Reflects income for first 9 months of 2007 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 4

Members have access to several programs to support affordable housing and community 

investment activities. The Federal Home Loan Bank Act of 1932 (Bank Act), as 

amended, requires each FHLBank to allocate ten percent of its annual net income to fund 

a subsidy program known as the Affordable Housing Program (AHP). 

Under the AHP, each FHLBank provides funds to finance housing for very low-, low-, 

and moderate-income households through a competitive process. AHP funds also are 

awarded through the homeownership set-aside program in which members obtain AHP 

funds from the FHLBank to provide grants to eligible low- and moderate-income 

households for down payment, closing cost, and counseling cost assistance in conjunction 

with a purchase or rehabilitation of owner-occupied units. From the inception of the 

AHP in 1990 through December 31, 2006, the FHLBanks have awarded over $2.9 billion 

in subsidies to assist more than 575,000 housing units. 

 

 

AHP Overview 

 Competitive 

 Application Set-Aside 

 Program Program 

Time Period 1990-2006 1995-2006 

Units Receiving 

Assistance (in thousands) 518 57 

Total Funds Awarded 

($ in millions) $2,669 $247 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 5

THE FEDERAL HOUSING FINANCE BOARD

The Finance Board is an independent agency established by the Financial Institutions 

Reform, Recovery, and Enforcement Act of 1989. It is the successor agency to the 

former Federal Home Loan Bank Board, which was established by the Bank Act. The 

Finance Board's statutory mandate is to ensure that the FHLBanks operate in a financially 

safe and sound manner, carry out their housing finance mission, and remain adequately 

capitalized and able to raise funds in the capital markets. In addition to its supervision of 

the FHLBanks, the Finance Board has regulatory authority and supervisory oversight 

responsibility for the Office of Finance, a joint office of the FHLBanks, which issues 

FHLBank System debt. 

The Finance Board is governed by a five-member board of directors. Four of the 

directors are appointed by the President and confirmed by the Senate and must have 

extensive experience or training in housing finance or a commitment to providing 

specialized housing credit. The fifth member is the Secretary of the U.S. Department of 

Housing and Urban Development. No more than three directors may be members of the 

same political party. 

At least one appointed director must be from an organization with more than a 2-year 

history of representing consumer or community interests in banking services, credit 

needs, housing, or financial consumer protections. The appointed members of the board 

of directors serve staggered 7-year terms. The President designates the chairperson of the 

board of directors from among these appointed members. 

 

The Finance Board is organized into five Offices: 

The Office of the Board of Directors is responsible for setting the agency’s strategic 

direction and approving policies and regulations. By delegation from the full board, the 

chairperson supervises management and policy execution. The board generally meets 

monthly in public sessions. The agency’s chief information officer, who is responsible 

for the Finance Board’s technology and information systems, reports to the chairperson. 

The Office of Supervision is responsible for the supervision and examination of the 

FHLBanks and the Office of Finance. The Office of Supervision performs this function 

through annual on-site examinations, periodic visitations, and off-site monitoring. Other 

Office of Supervision responsibilities include supervisory policy and program 

development, regulatory analysis and development, and economic research and analysis. 

The Office of General Counsel provides legal support and guidance on interpretations of 

laws, regulations, and policies to Finance Board officials. The Office of General Counsel 

prepares legal documents on behalf of the Finance Board and represents the agency in 

judicial and administrative proceedings. The Office of General Counsel manages the 

Finance Board’s ethics and Freedom of Information Act programs and acts as the 

secretary to the board. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 6

The Office of Management is the principal advisor to the Chairman of the Finance Board 

on management and organizational policies and is responsible for the Finance Board's 

administrative management programs. This includes responsibility for the Finance 

Board's finance and accounting, budget, personnel, payroll, contracting and procurement, 

and facilities and property management. 

The Office of Inspector General operates pursuant to the Inspector General Act of 1978, 

as amended. The Office of Inspector General conducts and supervises audits and 

investigations related to Finance Board programs and operations, and recommends 

policies to promote economy, efficiency, and effectiveness, and to prevent and detect 

fraud and abuse. 

FEDERAL HOUSING FINANCE BOARD

ORGANIZATION CHART

 

Board Director Board Director 

Chairperson 

 

Office of the 

Board of Directors

Board Director HUD Secretary 

or Designee 

Office of General 

Counsel 

Office of 

Supervision 

Office of Inspector 

General 

Office of 

Management 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 7

PRIORITIES, RESOURCES, AND PERFORMANCE MEASURES 

The Finance Board’s planning, budgeting, and performance management process sets the 

strategic direction, determines planned activities and resources, measures and monitors 

performance throughout the year, and performs an annual performance assessment. 

These components reflect a continuous cycle of performance management centered on 

outcomes. The agency uses annual performance assessments to analyze performance and 

improve effectiveness and efficiency. 

The Finance Board produces three main reports as a result of this process. The agency’s 

Strategic Plan, covering a 5-year period, sets overall strategic goals for the agency. Two 

annual reports illustrate the ways the agency is directing its resources to achieve and 

measure its progress in achieving its strategic goals. First, the agency produces an 

Annual Performance Budget, which describes how it will allocate its resources in the 

upcoming fiscal year to achieve the strategic priorities outlined in the Strategic Plan. 

Second, the agency produces a Performance and Accountability Report annually, which 

summarizes the agency’s success during the fiscal year in meeting its goals and 

objectives as set forth in the Annual Performance Budget for that fiscal year. The 

Performance and Accountability Report also provides Finance Board financial and 

program performance information. 

In its fiscal year 2007-2012 Strategic Plan, the Finance Board established two strategic 

goals that guide its operation. The Strategic Plan is available on the agency’s website 

(www.fhfb.gov). The two strategic goals are: 

● The FHLBanks operate safely and soundly; and 

● The affordable housing and community investment programs of the FHLBanks 

operate effectively and efficiently. 

For each strategic goal, the agency established strategic outcomes that it expects to 

achieve. The Finance Board developed annual performance goals to provide indicators 

of progress by the Finance Board and the FHLBanks. Finally, in recognition of the fact 

that the goals the Finance Board has set depend not only on the actions of the Finance 

Board but also on the actions of each of the FHLBanks, the Finance Board has adopted 

annual performance measures for Finance Board actions to ensure that the agency is 

doing the most it can to ensure that it meets the strategic goals and outcomes. The 

relationship between strategic goals, outcomes, annual performance goals, and measures 

is depicted below. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 8

STRATEGIC 

GOALS

STRATEGIC 

OUTCOMES

ANNUAL 

PERFORMANCE 

GOALS

ANNUAL 

PERFORMANCE 

MEASURES

1. The FHLBanks 

operate safely and 

soundly. 

1. The FHLBanks 

effectively identify 

and manage risk. 

2. The FHLBanks 

remain adequately 

capitalized, and able 

to raise funds in the 

capital markets. 

1. The FHLBanks 

address principal 

safety and soundness 

examination findings 

to the satisfaction of 

the Finance Board 

prior to the next 

examination. 

2. The FHLBanks 

correct supervisory 

or compliance issues 

within required 

timeframes. 

3. The FHLBanks’ 

combined financial 

statements comply 

with applicable laws, 

rules, and 

regulations. 

1. Conduct all safety and 

soundness activities, 

including annual 

examinations, quarterly 

visitations, and off-site 

monitoring. 

2. Review safety and 

soundness examination 

findings with the 

FHLBanks semi-annually to 

ensure the FHLBanks are 

making progress to remedy 

identified shortcomings. 

3. Conduct on-site 

examination of the Office of 

Finance and review annual 

and quarterly combined 

statements issued by the 

Office of Finance for 

compliance with disclosure 

requirements. 

2. The FHLBanks’ 

affordable housing 

and community 

investment programs 

operate effectively 

and efficiently. 

1. The FHLBanks 

foster the 

development of 

owner-occupied and 

affordable rental 

housing for eligible 

very low-, low-, and 

moderate-income 

households. 

1. The FHLBanks 

address principal 

affordable housing 

examination findings 

to the satisfaction of 

the Finance Board 

prior to the next 

examination. 

2. The FHLBanks 

distribute affordable 

housing funds as 

approved in the AHP 

application. 

1. Conduct all affordable 

housing activities, including 

annual examinations and 

off-site monitoring. 

2. Review affordable 

housing and community 

investment examination 

findings with the 

FHLBanks semi-annually to 

ensure the FHLBanks are 

making progress to remedy 

identified shortcomings. 

3. Use examinations to 

review program 

effectiveness as well as 

compliance with the Bank 

Act, Finance Board 

regulations, and FHLBank 

policies. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 9

Strategic Goal 1. The Finance Board established two strategic outcomes to indicate the 

degree to which it is achieving its first strategic goal that the FHLBanks operate safely 

and soundly. To the extent that the FHLBanks are able to identify and manage risk, to 

remain adequately capitalized and to raise funds in the capital markets, they are more 

likely to operate safely and soundly. To provide even more precision, the Finance Board 

established annual performance goals to determine the degree to which the FHLBanks are 

acting promptly to correct deficiencies identified by the Finance Board, and to determine 

the degree to which the FHLBanks’ combined financial statements comply with 

applicable laws and regulations. Finally, annual performance measures were established 

as indictors of how well the Finance Board is carrying out its mission to ensure the safe 

and sound operations of the FHLBanks. 

Strategic Goal 2. The Finance Board has established a strategic outcome to indicate the 

degree to which it is meeting its second strategic goal that the affordable housing and 

community investment programs of the FHLBanks operate effectively and efficiently. 

The strategic outcome requires the FHLBanks to foster the development of owneroccupied and affordable rental housing for eligible very low-, low-, and moderate-income 

households. The Finance Board established two annual performance goals to reveal the 

degree to which the FHLBanks are acting promptly to correct deficiencies identified by 

the Finance Board, and whether each FHLBank is distributing its affordable housing 

funds as approved in the AHP application. Finally, annual performance measures were 

established as indictors that the Finance Board is meeting its mandate to ensure the 

effective and efficient operations of the FHLBanks’ affordable housing and community 

investment programs. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 10

PROGRAM PERFORMANCE OVERVIEW

The Finance Board achieved all of its performance goals in FY2007. The agency 

strengthened its supervisory program through the implementation of risk-based 

examinations and additional monitoring programs and tools. It also issued several final 

rules to 1) enhance board governance at the FHLBanks; 2) improve the quality and 

timeliness of data collected; 3) limit the use of excess stock at each FHLBank; and 4) 

enhance the effectiveness of the AHP. The following list summarizes key Finance Board 

achievements during FY2007. 

MAJOR ACCOMPLISHMENTS

• Conducted safety and soundness examinations at all 12 FHLBanks and the Office 

of Finance; 

• Reviewed the affordable housing program at 11 FHLBanks (FHLBank of Chicago 

was removed from the schedule); 

• Introduced new FHLBank (Examination) risk rating system; 

• Issued excess stock final rulemaking; 

• Issued AHP final rulemaking; 

• Issued financial interests of directors final rulemaking; 

• Issued public interest director final rulemaking; 

• Introduced new process for the appointment of public interest directors; 

• Appointed full slate of public interest directors at each FHLBank; 

• Completed safety and soundness examination manual; 

• Prepared examiner workpaper guidance; 

• Conducted examiner training on examination manual and workpaper guidance; 

• Issued first cease and desist order in agency history (FHLBank of Chicago); 

• Lifted written agreement with FHLBank of Seattle; 

• Prepared preliminary draft of AHP examination manual; 

• Enhanced data management and information systems (CRS.net); 

• Formalized responsibility for quality assurance; 

• Instituted weekly reporting of advance levels to monitor credit conditions; 

• Prepared advisory bulletins on a range of issues; 

• Responded to new business notices and capital plan amendments; 

• Issued the semi-annual FHLBank profile books; 

• Issued quarterly and monthly risk monitoring reports; 

• Issued quarterly market risk monitoring reports; 

• Enhanced the “Model Bank” application; 

• Expanded the use of “Model Bank” in examinations and in support of 

enforcement actions; and 

• Conducted AHP examiner training on assessing FHLBanks’ implementation 

plans. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 11

 

THE YEAR IN REVIEW

The Finance Board’s accomplishments in FY2007 were concentrated in the following 

areas: 

Risk-Focused Supervision. In FY2007, the Finance Board implemented the FHLBank 

(Examination) Risk Rating System under which the Finance Board assigns each 

FHLBank and the Office of Finance a composite rating based on evaluation of various 

aspects of its operations. 

The Finance Board also redesigned the risk-focused examination process. Under this 

redesign, the examination team develops the supervisory strategy immediately after 

finalizing an examination to ensure that salient matters are addressed in a timely manner. 

Examiners also make periodic visits to the FHLBanks and the Office of Finance during 

the year. They develop the examination scope based upon results from the previous 

year’s examination, a review of events during periodic visits, and preplanning meetings 

held with all areas of the Office of Supervision and Office of the General Counsel. They 

may expand the scope as an examination unfolds and they identify new areas of concern. 

The Finance Board also released a revised risk management (safety and soundness) 

examination manual and work programs to guide examiners in performing risk-focused 

examinations. The manual documents examination objectives and procedures, addresses 

subjects that examiners most often encounter when conducting an examination, provides 

guidance on new examination work paper requirements, and promotes examination 

consistency. 

The Finance Board completed all safety and soundness and AHP examinations scheduled 

for the year and assigned component and composite ratings to each FHLBank based on 

the rating system. Two examinations led to the amendment and the termination of 

outstanding formal agreements and the issuance of the first cease and desist order (by 

consent of the board of directors of the FHLBank Chicago) in the Finance Board’s 

history. 

Economic and Financial Analysis. Economists and financial analysts supported the 

examination of the FHLBanks, provided analytical support in the evaluation of FHLBank 

programs, and provided analysis and input into the development of regulatory and policy 

initiatives at the Finance Board. The Finance Board relies on this research and analysis to 

produce the semi-annual profile book and quarterly market risk monitoring reports. The 

principal means for providing this support to examinations is through evaluations of the 

quality of risk modeling at the FHLBanks and analysis of the FHLBanks’ financial 

condition and performance and of systemic trends affecting the FHLBanks and the 

FHLBank System. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 12

As part of each examination, staff in the market risk modeling area closely reviewed and 

evaluated the Bank’s own market risk model results and compared those results, for 

selected instruments, against results from modeling within the Finance Board. To ensure 

the quality of these modeling results, the Finance Board assessed the FHLBanks’ 

modeling procedures and risk-related analysis as part of the annual examinations. Finance 

Board analysts reviewed FHLBank activities, financial condition, fiscal and operating 

performance, and regulatory compliance, and assessed market developments that may 

affect the FHLBank System. Economists, modelers, and analysts worked closely with 

examination staff to contribute to the establishment of the scope of examination. In 

FY2007, the Finance Board expanded and formalized the use of financial analysts, 

economists, and accountants as part of the on-site examination. 

Off-Site FHLBank Monitoring and Analysis. In addition to the ongoing off-site 

monitoring of the FHLBanks described above, in FY2007, the Finance Board conducted 

a survey of the FHLBanks to assess their exposures to subprime and nontraditional 

mortgage loans. The survey results indicated that the FHLBanks are able to reasonably 

estimate their exposures and that the level of those exposures is manageable. In August 

2007, in response to financial market difficulties stemming from the subprime and 

nontraditional mortgage loan segments, the Finance Board started weekly monitoring of 

trends at the FHLBanks, particularly their advance volumes. 

Policy and Regulations In FY2007, the Office of Supervision created a Supervisory and 

Regulatory Policy Division, responsible for safety and soundness, accounting policy, and 

AHP and community investment policy. This division also took the lead on regulatory 

proposals, such as proposed rulemakings, and in the development of supervisory and 

examiner guidance, such as Advisory Bulletins, Examiner Guidance Bulletins, and 

Examination Procedures. This group provided technical support for examinations, 

particularly with respect to examination standards, technical accounting matters, and 

interpretations of AHP requirements. 

During the year, the Finance Board finalized rules regarding appointment of FHLBank 

directors and permissible financial interests for those directors. After issuing those final 

rules, the Finance Board appointed public interest directors at each of the 12 FHLBanks. 

The Finance Board also issued a final rule limiting the amount of “excess” stock at each 

FHLBank to one percent of the FHLBank’s total assets to ensure the FHLBanks have a 

strong and permanent capital base to support their operations. FHLBanks exceeding the 

one percent limit may not issue stock dividends or otherwise issue additional excess 

stock. The rule also required FHLBanks to base dividend declarations on actual rather 

than expected or projected dividends. 

The Finance Board issued advisory bulletins and examiner guidance in several areas in 

FY2007. Advisory bulletins adopted the Federal Home Loan Bank Rating System and 

addressed the management of risks on nontraditional and subprime residential 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 13

mortgage loans. The Finance Board also developed guidance on examination reports to 

ensure that examiners’ conclusions are supported, documented, and presented in a logical 

and orderly fashion. 

Affordable Housing and Community Investment. The Finance Board completed 

AHP/Community Investment Cash Advance (CICA) examinations in FY2007 for 11 

FHLBanks. For one FHLBank, AHP/CICA was excluded from the examination scope 

based on risk considerations. In addition, the Finance Board provided training to AHP 

examiners following the adoption of a revised AHP final rule and completed a draft of 

the AHP and CICA Program Examination Manual. Final publication of this manual will 

occur in FY2008. 

Accounting. In FY2007, accountants at the Finance Board reviewed the FHLBank 

System’s external auditor’s workpapers for annual audits of the 12 FHLBanks’ financial 

statements and the FHLBank System’s combined financial statements - for both the 2005 

and 2006 reporting periods. These reviews provide the Finance Board with information 

related to supervisory programs that could affect the scope of examinations and other 

supervisory actions. 

Finance Board accountants also provided consultative services on accounting issues and 

questions identified at several FHLBanks, identified issues and answered inquiries 

regarding the financial information collected by the Finance Board in the CRS system, 

and analyzed new accounting and auditing standards and other guidance, and assessed 

and responded appropriately to their likely impact on the FHLBanks and the FHLBank 

System. 

Risk Monitoring and Information Technology Support. The Finance Board made 

substantial progress in FY2007 toward updating its data management and information 

systems. New versions of the Call Report System (CRS.net) and AHP database were 

released, and the Data Reporting Manual was updated to include all current FHLBank 

reporting obligations. In FY2008, the agency plans to begin re-specifying and rebuilding 

the Membership system database as well as reviewing and augmenting policies and 

procedures for capture, maintenance, and distribution of information. In addition, the 

Finance Board will continue to develop off-site risk monitoring and reporting functions to 

build upon the information collected from the FHLBanks. 

Quality Assurance. In FY2007, the Office of Supervision established a Quality 

Assurance Unit to provide objective assessments of the Office’s supervisory and 

regulatory operations and to add value by identifying potential opportunities to improve 

or enhance existing practices. In FY2008, the Quality Assurance Unit will conduct its 

first formal review of Finance Board examinations to assess their quality, accuracy, 

completeness, organization, and conformance with agency policies. The Quality 

Assurance Unit will also finalize procedures for its future reviews of other Office of 

Supervision functions. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 14

Training. In FY2007, the Finance Board developed and presented new staff orientation, 

AHP examiner training, and supervisory training. The new staff orientation sessions 

provided an overview of the history and functions of the Finance Board and the 

FHLBank System for those who joined the Finance Board within the past year. The 

primary intent of the AHP training was to give AHP examiners the tools to review the 

AHP implementation plans as part of their overall review of the program at each 

FHLBank. The supervisory training emphasized risk-focused supervision and included 

segments on market risk and market risk management and modeling, risk-focused 

examination methodologies and strategies, and the revised call report system (CRS.net). 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 15

KEY EXTERNAL FACTORS

External conditions beyond the control of the organization can affect the 

performance of the Finance Board and the FHLBanks. These factors include 

developments in capital and housing markets, broader macroeconomic forces 

affecting interest rates or national or regional activity, and regulatory and legislative 

initiatives that can change the environment in which the FHLBanks operate. 

Regardless of the source of the influences on FHLBank performance, the Finance 

Board must respond promptly to ensure that the FHLBanks meet these challenges. 

Significant events, influences, and risks that may affect the Finance Board are: 

Legislation. The House of Representatives has passed legislation to establish a single 

agency as the regulator for the government-sponsored enterprises that support the 

national housing market. This new agency would oversee the safety, soundness, and 

housing mission achievement of the FHLBanks, Fannie Mae, and Freddie Mac. 

Developments in Banking and Financial Markets. Financial markets continue to evolve 

with new products and services, particularly hedging activities and their associated 

accounting. These developments have the potential to influence the demand for 

FHLBank products and services as well as the FHLBanks’ financial performance. As the 

industry changes, the supervisory focus of the Finance Board must also change to ensure 

continuous effective supervision of the FHLBanks. Recent supervisory initiatives have 

included reviewing the FHLBanks’ anti-predatory lending policies; requiring increased 

accountability of FHLBank officers and directors as called for by the Sarbanes-Oxley Act 

of 2002; monitoring housing prices and foreclosure activity, particularly in areas affected 

by natural disasters and economic downturns; monitoring consolidation of the financial 

services industry and its potential effects on the FHLBanks’ membership and business; and 

reviewing the composition of FHLBank capital and adequacy of retained earnings. 

In addition, the rapid pace of technological innovation, especially in telecommunications 

and electronic data processing, continues to have a substantial effect on U.S. financial 

services. Harnessing technological innovations will create opportunities to improve the 

Finance Board’s efficiency across organizational units and functions. 

Economic Variables. Adverse economic conditions such as high unemployment, 

softening real estate markets, and sharp or prolonged changes in interest rates have the 

potential to affect the financial condition of the FHLBanks. The Finance Board is 

responding by directing the FHLBanks to review and strengthen their risk management 

practices and business operations vulnerabilities. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 16

Staffing. In the competitive financial services environment, highly skilled personnel are 

in great demand. This makes recruiting and retaining a highly skilled workforce a 

continuing challenge. The Finance Board’s recruitment and retention efforts have 

focused on attracting and retaining examiners, economists, accountants, analysts, and 

attorneys with the requisite financial, legal, and technological skills to model, monitor, 

and assess the risks undertaken by the FHLBanks and the Office of Finance. 

Continuity of Operations. Financial institutions must maintain the capability to resume 

business during and after a crisis. Ensuring preparedness for a crisis continues to be a 

priority for the Finance Board both for its own operations and those of the FHLBanks and 

the Office of Finance. 

The Finance Board maintains an Emergency Operations Center that provides essential 

personnel with the necessary resources to continue agency operations. During a crisis, 

Finance Board employees can securely access the agency’s information technology 

systems remotely. Secure remote access to IT systems was tested in FY2007 as part of 

the agency’s implementation of a plan to address a pandemic flu emergency. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 17

MANAGEMENT CHALLENGES 

In accordance with Office of Management and Budget (OMB) Circular A-136, The 

Office of Inspector General has determined the most serious management and 

performance challenges facing the Finance Board and made an assessment of the 

agency's progress in addressing those challenges. The Office of Inspector General’s 

position is based on the audit work that has been performed to date, which is listed below. 

1. Ensuring Safe and Sound Operations at the FHLBanks and Office of Finance 

The primary mission of the Finance Board is to ensure that the FHLBanks are safe and 

sound so they can serve as a reliable source of liquidity and funding for the nation’s 

housing finance and community investment needs. 

The agency's examination and supervisory function serves a critical role in helping to 

ensure the success of the Finance Board's mission. However, as noted last year, there 

continue to be questions as to whether the examination and supervisory function: 1) has 

an adequate number of staff, 2) has staff that possess the appropriate knowledge, skills, 

and abilities, 3) has staff that are provided with adequate guidance, and 4) has adequate 

monitoring capability. 

Agency Progress: The Finance Board took very positive steps to enhance the examination 

and supervision functions. The Finance Board is committed to achieving a risk-based 

examination approach and made commendable strides to provide better guidance to 

examiners. The Finance Board also took commendable steps to hire more examination 

and supervisory staff and developed a strategic plan for fully staffing the examination and 

supervision functions. 

Management Response: Significant changes included the creation of explicit performance 

standards for Office of Supervision employees, development of a supervisory training 

program, and publication of a revised Safety and Soundness Examination Manual that is 

more risk-focused and includes detailed guidance for, among other things, workpaper 

documentation standards. Examination procedures now require the completion of 

summary memoranda to support examiner evaluations, analyses, and conclusions. 

Employee performance standards for managers and examiners include complying with 

the standards for and the timely completion of workpapers that will be factored into an 

employee’s annual rating and merit pay increase. Two modules of an employee training 

program were developed and held for supervisory staff, with additional modules currently 

being developed for delivery in FY 2008. In addition, a Quality Assurance Unit was 

established to provide ongoing assessments of operating practices and internal controls, 

including revised standards for collecting, transmitting, storing, and protecting personally 

identifiable information. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 18

The Finance Board also took substantive steps to hire more examination and supervisory 

staff, including the development of a strategic plan for fully staffing the examination and 

supervision functions. At the close of FY2007, the Office of Supervision filled 97 of 99 

authorized positions. 

2. Developing, Documenting and Communicating Agency Policies and Procedures 

Essential to effective and consistent agency operations is the communication of 

management ideas to all stakeholders - especially agency employees. The most effective 

method of communicating management ideas is through the development, 

documentation, and communication of agency policies and procedures. Our experience 

in reviewing Finance Board operations is that, too frequently, we have concluded that 

written policies are needed or existing policies are outdated or have not been properly 

vetted to receive stakeholders' input. 

Agency Progress: Finance Board managers have generally been very responsive to the 

Office of Inspector General’s audit recommendations to develop written policies and 

procedures and have taken a more proactive posture in developing and implementing 

written policies and procedures. However, more needs to be done to: 1) initiate the 

development or update of written policies and procedures, 2) consistently vet policies and 

procedures through the Office of General Counsel and other stakeholders, and 3) 

effectively communicate agency-wide policies and procedures to Finance Board staff. 

Management Response: For the past few years, the Director of Office of Management 

met monthly with Office of Management staff to review the status of the agency’s 

administrative policies, establish the priorities for updates, assign staff to tasks, and 

establish timeframes for completion. 

Approximately two years ago, the Office of Management implemented a review process 

to include the Office of Supervision, the Office of General Counsel, and the Office of 

Board of Directors the opportunity to provide feedback that Office of Management 

reviews and incorporates into the draft as appropriate. Upon final approval, the Office of 

Management communicates the policy updates to all Finance Board employees via 

electronic mail and posting on the intranet. 

The Information Services and Technology Support division has developed an action item 

to review and update existing information technology policies as part of their process to 

comply with annual requirements in the Federal Information Security Management Act. 

Currently, the division is reviewing the existing policies and governing regulations to 

identify the policies that require updates. In addition, the division is assessing the overall 

framework for managing the documentation and use of information technology policies 

at the Finance Board. 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 REPRESENTATIVE ACCOMPLISHMENTS 

STRATEGIC GOAL 1: THE FEDERAL HOME LOAN BANKS OPERATE SAFELY AND SOUNDLY. 

Strategic Outcomes Accomplishments 

1. The FHLBanks effectively identify and 

manage risk 

• Completed all annual examinations and 

periodic visitations 

• Implemented a program to assign an overall 

examination rating that summarizes the level 

of supervisory concern 

• Replaced a written agreement with an 

FHLBank with a cease and desist order (by 

consent) and terminated a written agreement 

with another FHLBank 

2. The FHLBanks remain adequately 

capitalized and able to raise funds in the 

capital markets 

• Each FHLBank exceeded its minimum 

regulatory capital requirements 

• Approved capital plan amendments 

submitted by two FHLBanks 

• Each FHLBank registered a class of equity 

securities with the U.S. Securities and 

Exchange Commission and is now subject to 

the reporting requirements of the Securities 

Exchange Act of 1934 

STRATEGIC GOAL 2: The affordable housing and community investment programs of the 

FHLBanks operate effectively and efficiently. 

Strategic Outcomes Accomplishments 

1. The FHLBanks foster the development of 

owner-occupied and affordable rental 

housing for eligible very low-, low-, and 

moderate-income households 

• Reviewed advance and mortgage portfolios 

at each FHLBank for compliance with the 

Bank Act and Finance Board regulations 

• Completed annual examinations of the AHP 

at 11 of the 12 FHLBanks 

• As of June 30, 2007, the FHLBanks have 

awarded more than $143 million in subsidies 

to assist 18,424 housing units 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 19 
MANAGEMENT DISCUSSION AND ANALYSIS 

ALLOCATING RESOURCES TO MEET OUR GOALS

The Finance Board prepared its FY2007 Annual Performance Budget to link the agency’s 

strategic and performance goals to the costs of achieving those goals. To achieve these 

goals, the Finance Board identifies and resolves safety and soundness issues, promulgates 

regulations to enhance the safety and soundness of the FHLBanks, monitors the 

FHLBanks’ activities to serve the nation’s housing finance and community investment 

needs, and aligns the agency’s human capital and information technology initiatives to the 

Finance Board’s mission, goals, and outcomes. 

The tables below show that the agency continues to allocate the preponderance of 

available resources -- in both full-time equivalents and budgeted dollars -- to Strategic 

Goal 1, which reflects the primary duty of the Finance Board. 

STRATEGIC GOAL 1 

THE FEDERAL HOME LOAN BANKS OPERATE SAFELY AND SOUNDLY

Summary 

FY2006 

Actual 

FY2007 

Actual 

FY2008 

Budget 

Change 

from 

FY2007

Program FTE 86.4 87.8 95.1 6.5% 

Infrastructure & Support FTE 20.2 20.6 23.8 12.8% 

 Total FTE 106.6 108.4 118.9 7.7% 

Program Expenses ($M) $19.6 $21.7 $24.6 13.4% 

Infrastructure & Support Expenses $4.6 $5.1 $6.2 19.2% 

 Total Budget $24.2 $26.8 $30.8 14.5% 

STRATEGIC GOAL 2 

THE AFFORDABLE HOUSING AND COMMUNITY INVESTMENT PROGRAMS OF 

THE FEDERAL HOME LOAN BANKS OPERATE EFFECTIVELY AND EFFICIENTLY

Summary 

FY2006 

Actual 

FY2007 

Actual 

FY2008 

Budget 

Change 

from 

FY2007 

Program FTE 21.0 20.1 24.5 9.6% 

Infrastructure & Support FTE 4.9 4.7 6.1 17.3% 

 Total FTE 25.9 25.1 30.6 12.9% 

Program Expenses ($M) $4.8 $5.3 $6.3 18.9% 

Infrastructure & Support Expenses $1.1 $1.2 $1.6 23.1% 

 Total Budget $5.9 $6.5 $7.9 19.7% 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 20 
MANAGEMENT DISCUSSION AND ANALYSIS 

FINANCIAL PERFORMANCE OVERVIEW 

As of September 30, 2007, the financial condition of the Finance Board was sound. There 

are sufficient funds to meet program needs and adequate controls in place to ensure that 

obligations do not exceed budget authority. 

FINANCIAL HIGHLIGHTS 

The Finance Board draws its financial resources from assessments levied upon the 12 

FHLBanks. It receives no appropriations, and its funds are not Government funds or 

appropriated monies, or subject to appropriations. 

The Finance Board’s budget for FY2007 was approximately $35.9 million with 143.5 fulltime equivalent budgeted staff. The FY2007 budget represented a decrease from FY2006 

budget authority of $21,505. 

Actual expenditures in FY2007 were $33.3 million with 133.5 full-time equivalent staff. 

As in the past, in FY2007, approximately 80 percent of the agency’s budget was allocated 

to supervision of the FHLBanks. 

Financial Statement Key Comparison of FY2007 to FY2006 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 21 

In US $ millions 2007 2006

Total Assets $7.93 $10.47

Total Liabilities $4.32 $3.47

Total Net Position $3.60 $7.00

Net Cost of Operations $4.46 $0.62

Total Budgetary Resources $36.44 $36.19
MANAGEMENT DISCUSSION AND ANALYSIS 

FINANCIAL STATEMENT MAJOR CHANGES 

Major changes in the financial operations from FY2006 to FY2007 were caused by an 

increase in overall expenditures. This increase from FY2006 expenditures included the 

hiring of additional staff, an increase in the use of outside contractors, and net rent 

expenses. FY2006 net rent expenses were lower due to the application of tenant 

allowance to gross rent expenses. These higher expenditures are reflected in the increase 

in the Net Cost of Operations from FY2006 to FY2007. 

The principal financial statements have been prepared to report the financial position and 

results of operations of the entity, pursuant to the requirements of 31 U.S.C. § 3515(b). 

While the statements have been prepared from the books and records of the Finance Board 

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 that are prepared from the same books and records. 

MANAGEMENT ASSURANCES 

The Finance Board provides reasonable assurance that its systems of internal accounting 

and administrative control fully comply with the requirements of the Federal Managers' 

Financial Integrity Act of 1982 (FMFIA) and OMB Circular A-123 (rev. December 21, 

2004). The Finance Board provides this statement of reasonable assurance that the 

agency’s management accountability and internal controls are adequate and effective, and 

there are no material weaknesses to report. The objectives of the system of internal 

control of the Finance Board are to provide reasonable assurance that: 

• Programs achieve their intended results; 

• Financial reporting is reliable; 

• Resources are used consistent with the agency mission; 

• Programs and resources are protected from waste, fraud, and mismanagement; 

• Laws and regulations are followed; and 

• Reliable and timely information is obtained, maintained, reported, and used for 

decision making. 

The concept of reasonable assurance recognizes that the cost of management control 

should not exceed the benefits expected to be gained, and that the benefits consist of 

reductions in the risks of failing to achieve the stated objectives. Estimates and judgments 

are required to assess the expected benefits and related costs of control procedures. 

Furthermore, errors or irregularities may occur and not be detected because of inherent 

limitations in any system of management accountability and control, including those 

limitations resulting from resource constraints and other factors. The statement of 

assurance and determination are based on the following: 

• An independent outside audit of the Finance Board’s financial statements, which 

provided an unqualified opinion and found no weaknesses involving the Finance 

Board’s internal control structure determined to be material. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 22 
MANAGEMENT DISCUSSION AND ANALYSIS 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 23

• An internal evaluation of the internal controls covering the period from October 1, 

2006, through September 30, 2007, was completed by the agency’s senior program 

management and reviewed by the Office of the Inspector General. The evaluation 

found no material weaknesses and concluded that the Finance Board’s internal 

controls are achieving their intended objectives. 

The Finance Board is committed to a strong internal control program. The agency 

employs sound financial management techniques, has developed oversight procedures, 

and emphasizes the importance of a strong risk management and internal control program 

to meet its statutory, regulatory, and fiduciary responsibilities. 

Since July 2005, the Finance Board outsourced the Finance Board accounting processes 

and related financial systems with the Bureau of Public Debt, an OMB designated Center 

of Excellence. The Bureau of Public Debt’s financial management system was certified 

by the Financial Systems Integration Office and conforms to applicable accounting 

principles, standards, and other related requirements. In addition, the Finance Board’s 

financial management system is integrated with the agency’s travel and payroll system to 

maintain data integrity and improve process efficiencies. 
PROGRAM PERFORMANCE 

PROGRAM PERFORMANCE

MEASURING AND REPORTING PERFORMANCE

This section presents information on the Finance Board’s FY2007 key initiatives, major 

accomplishments, outcomes for established goals and measures, and evaluation results from 

completed studies. 

PERFORMANCE MEASUREMENT SYSTEM

The Finance Board’s planning, budgeting, and performance management process sets the 

strategic direction, determines planned activities and resources, measures and monitors 

performance throughout the year, and performs an annual performance assessment. These 

components reflect a continuous cycle of performance management centered on outcomes. 

The agency uses annual performance assessments to analyze performance and improve 

effectiveness and efficiency. 

The Finance Board completed a triennial update of its Strategic Plan and review of its 

performance measures in 2006. The Finance Board continually seeks effective means to 

measure, report, and ultimately improve its performance. The update of the Strategic Plan for 

FY2007-2012 provided an opportunity to develop and implement effective practices in 

performance measurement, reporting, and management. 

ALIGNING RESOURCES TO GOALS

Collectively, the outcome-based performance goals are the key indicators for successful 

progress in achieving the agency’s strategic goals. The Finance Board plans, manages, and 

monitors programs and activities based on contributions to the achievement of these goals 

with the safety and soundness of the FHLBank System as the primary consideration. Ongoing 

program evaluations identify Finance Board success in achieving goals and indicate if revised 

or new initiatives are appropriate. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 24
PROGRAM PERFORMANCE 

GOALS, OUTCOMES AND ANNUAL PERFORMANCE MEASURES

For each strategic goal, the agency established strategic outcomes that it expects to 

achieve and annual performance goals to provide indicators of progress by the Finance 

Board and the FHLBanks. Finally, in recognition of the fact that the goals the Finance 

Board set depend not only on the actions of the Finance Board but also on the actions of 

each of the FHLBanks, the Finance Board has adopted annual performance measures for 

Finance Board actions to ensure that the agency is doing the most it can to ensure that it 

meets the strategic goals and outcomes. The relationship between strategic goals, 

outcomes, annual performance goals, and measures is depicted on page 8 of this report. 

STRATEGIC GOAL 1

THE FEDERAL HOME LOAN BANKS OPERATE SAFELY AND SOUNDLY

OUTCOMES 

The following strategic outcomes serve as indicators of the degree to which the FHLBanks 

operate safely and soundly. To the extent that the FHLBanks are able to identify and 

manage risk, remain adequately capitalized, and raise funds in the capital markets, they are 

more likely to operate safely and soundly. 

STRATEGIC OUTCOME 1: THE FHLBANKS EFFECTIVELY IDENTIFY AND MANAGE RISK.

2003 2004 2005 2006 2007 

Achieved Achieved Achieved Achieved Achieved 

The Finance Board has a risk-based supervisory program that focuses on programs, 

activities, and operations that present the highest risk to the safety and soundness of the 

FHLBanks. The following processes are central to the agency’s application of a riskbased supervisory approach: (1) identification of market, credit, and operational risks; (2) 

use of common methods of evaluation to measure these risks; and (3) assessment of 

governance, e.g., the policies, systems, and processes employed by each FHLBank and the 

Office of Finance in managing existing and prospective levels of risk. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 25
PROGRAM PERFORMANCE 

STRATEGIC OUTCOME 2: THE FHLBANKS REMAIN ADEQUATELY CAPITALIZED AND ABLE TO 

RAISE FUNDS IN THE CAPITAL MARKETS.

2003 2004 2005 2006 2007 

Achieved Achieved Achieved Achieved Achieved 

By regulation the FHLBanks are required to establish risk-based capital structures that 

address minimum capital standards and establish the amount of FHLBank stock members 

must hold. Eleven of the 12 FHLBanks have implemented their Finance Board approved 

capital structure plans. In FY2007, the Finance Board approved two capital plan 

amendments submitted by two FHLBanks. 

STRATEGIC GOAL 1- ANNUAL PERFORMANCE MEASURES

ANNUAL PERFORMANCE MEASURE 1: CONDUCT ALL SAFETY AND SOUNDNESS 

ACTIVITIES, INCLUDING ANNUAL EXAMINATIONS, QUARTERLY VISITATIONS, AND OFF-SITE 

MONITORING. BASIS.

2003 2004 2005 2006 2007 

Achieved Achieved Achieved Achieved Achieved 

 

DESCRIPTION: The FHLBanks provide wholesale credit to members and certain 

nonmembers for mortgage lending and related activities such as advances and mortgage 

purchase programs. As a result of these activities, the FHLBanks assume market, credit, 

and operational risks. The FHLBanks must evaluate and manage these varied and 

complex risks in accordance with their condition and earnings. The Finance Board’s 

supervisory program evaluates and monitors whether the risk management processes at 

each FHLBank effectively reflect and control the level of risk undertaken. 

RESULTS: The Finance Board completed on-site safety and soundness examinations at all 

12 FHLBanks using the FHLBank (Examination) Risk Rating System implemented in 

FY2007. Using this system, the Finance Board assigned each FHLBank a composite 

rating based on evaluation of various aspects of its operations. This rating is based upon 

the level of credit, market, and operational risk undertaken, the adequacy of the 

FHLBank’s risk management practices, its financial condition and operating performance, 

the adequacy of its capitalization, the quality of its corporate governance, and the 

administration of its affordable housing and community investment programs. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 26
PROGRAM PERFORMANCE 

STRATEGIC GOAL 1- ANNUAL PERFORMANCE MEASURES

ANNUAL PERFORMANCE MEASURE 2: REVIEW SAFETY AND SOUNDNESS EXAMINATION 

FINDINGS WITH THE FHLBANKS SEMI-ANNUALLY TO ENSURE THE FHLBANKS ARE 

MAKING PROGRESS TO REMEDY IDENTIFIED SHORTCOMINGS.

2003 2004 2005 2006 2007 

New Metric Achieved 

 

DESCRIPTION: Finance Board staff monitors the FHLBanks on an ongoing basis through 

the analysis of CRS data, audited financial statements, strategic business plans, and other 

reports. It monitors FHLBank operations, financial condition, and performance, legal 

compliance, and actions taken in response to previously identified deficiencies through 

off-site monitoring and system-wide or “horizontal” reviews that focus on a specific 

FHLBank activity, function, or program. 

RESULTS: The agency strengthened its supervisory program through the implementation 

of risk-based examinations and with additional monitoring programs and tools. Under this 

redesign, the examination team develops the supervisory strategy immediately after 

finalizing an examination to ensure that salient matters are addressed in a timely manner. 

In addition, Finance Board financial analysts and economists analyze the results of safety 

and soundness examinations by evaluating the quality of risk modeling at the FHLBanks 

and analyzing the financial condition, performance, and systemic trends affecting the 

FHLBanks and FHLBank System. In August 2007, in response to financial market 

difficulties stemming from the subprime and non-traditional loan segments, the Finance 

Board started weekly monitoring of trends at the FHLBanks, particularly their advance 

volumes. 

In response to emerging issues in the mortgage industry, the Finance Board conducted a 

survey of the FHLBanks to assess their exposures to subprime and nontraditional 

mortgage loans. Survey results indicated that the FHLBanks are able to reasonably 

estimate their exposures and that the level of those exposures is manageable. 

 

In FY2007, the Finance Board amended and terminated outstanding formal agreements 

and issued the first cease and desist order (by consent of the board of directors of the 

FHLBank of Chicago) in the Finance Board’s history. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 27
PROGRAM PERFORMANCE 

STRATEGIC GOAL 1- ANNUAL PERFORMANCE MEASURES

ANNUAL PERFORMANCE MEASURE 3: CONDUCT ON-SITE EXAMINATION OF THE 

OFFICE OF FINANCE AND REVIEW ANNUAL AND QUARTERLY COMBINED STATEMENTS 

ISSUED BY THE OFFICE OF FINANCE FOR COMPLIANCE WITH DISCLOSURE REQUIREMENTS.

2003 2004 2005 2006 2007 

New Metric Achieved 

 

DESCRIPTION: The Finance Board conducts an annual on-site examination of the Office of 

Finance to (1) follow up on issues identified through pre-examination analysis and 

planning; (2) test systems, controls, and reports for adequacy and accuracy, including the 

internal audit function; (3) assess the risk profile and operational soundness; (4) identify 

issues that may affect the risk or operating profile; (5) evaluate the quality of corporate 

governance; and (6) test for compliance with laws, regulations, and policies, including 

sales suitability practices by participating underwriters and broker-dealers. 

RESULTS: The Finance Board completed an on-site examination of the Office of Finance, 

assigning a composite rating based on the risk rating system implemented in FY2007. In 

addition, the Finance Board reviewed each of the FHLBank System’s combined financial 

statements, which are prepared by the Office of Finance, both for the 2005 and 2006 

reporting periods. These reviews provide the Finance Board with information related to 

supervisory programs that could affect the scope of examinations and other supervisory 

actions. 

In November 2005, the Office of Finance issued an audited 2005 annual combined 

financial report, thereby making their annual filings current for the first time since mid2004. Subsequently, the Office of Finance issued the 2006 annual combined financial 

report on time, and has resumed timely filing. The Finance Board reviewed and provided 

comments to the Office of Finance on both of these reports. Final comments on the 2006 

report were issued in October 2007. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 28
PROGRAM PERFORMANCE 

STRATEGIC GOAL 2

THE FEDERAL HOME LOAN BANKS’ AFFORDABLE HOUSING AND 

COMMUNITY INVESTMENT PROGRAMS OPERATE 

EFFECTIVELY AND EFFICIENTLY

OUTCOMES

STRATEGIC OUTCOME 1: THE FHLBANKS FOSTER THE DEVELOPMENT OF OWNEROCCUPIED AND AFFORDABLE RENTAL HOUSING FOR ELIGIBLE VERY LOW-, LOW-, AND 

MODERATE-INCOME HOUSEHOLDS.

2003 2004 2005 2006 2007 

Achieved Achieved Achieved Achieved Achieved 

Congress established the FHLBank System in 1932 to restore confidence in the nation’s 

financial institutions and to improve the supply of funds to local lenders to finance loans 

for home purchases. In 1989, Congress established the AHP and CIP through which the 

FHLBanks provide funding to support the affordable housing and community investment 

activities of their members. 

The AHP subsidizes the cost of affordable owner-occupied and rental housing. The 

subsidy may be in the form of a grant or a below-cost or subsidized interest rate on an 

FHLBank advance to a member. The Bank Act requires each FHLBank to contribute at 

least 10 percent of its net earnings from the previous year to the AHP, subject to a 

minimum annual combined contribution by all 12 FHLBanks of $100 million. 

STRATEGIC GOAL 2 – ANNUAL PERFORMANCE MEASURES

ANNUAL PERFORMANCE MEASURE 1: CONDUCT ALL AFFORDABLE HOUSING 

ACTIVITIES, INCLUDING ANNUAL EXAMINATIONS AND OFF-SITE MONITORING.

2003 2004 2005 2006 2007 

New Metric Achieved 

 

DESCRIPTION: The Bank Act requires each FHLBank to establish an AHP, the purpose of 

which is to enable members to provide long-term subsidized financing for very-low, low- and 

moderate-income, owner-occupied and affordable housing. The Finance Board supports the 

Bank Act’s affordable housing and community investment objectives by maintaining an 

effective program of annual on-site examinations for the AHP, CIP, and, as applicable, other 

CICA programs. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 29
PROGRAM PERFORMANCE 

RESULTS: In FY2007, the Finance Board updated and enhanced its collection of AHP data 

from the 12 FHLBanks, monitored the level of AHP awards at the 12 FHLBanks, 

reviewed the Advisory Committee reports and analyses of the low- and moderate-income 

housing and community lending activity of the 12 FHLBanks, and conducted 

examinations at 11 of the 12 FHLBanks. The AHP examination of the 12th FHLBank was 

deferred in order to focus examination resources on areas of heightened supervisory 

concern. At the end of each examination, the Finance Board assigned a composite rating 

based on the FHLBank (Examination) Risk Rating System the Finance Board 

implemented in FY2007. Under this System, each FHLBank is assigned a composite 

rating based on evaluation of various aspects of its operations including analysis of the 

overall condition and effectiveness of its AHP activities. 

In FY2007, the Office of Supervision conducted AHP training as part of its goal to 

improve the supervision of the FHLBanks’ AHP and community investment activities 

through more transparent, consistent, and better documented processes. In particular, the 

supervisory training was developed to give AHP examiners the tools to review the AHP 

implementation plans as part of their overall review of the program at each FHLBank. 

The implementation plan is the pivotal document ensuring that the FHLBanks operate a 

compliant and effective AHP. As such, a key element of the examiner’s job is to be able 

to perform a reasonably comprehensive assessment of the implementation plan. 

The agency uses the AHP data collection system to conduct off-site monitoring of AHP 

activities; however, until recently, the system had serious limitations. In FY2006, the 

agency adopted a new AHP data collection system, which was incorporated into the 

agency’s Data Reporting Manual. In FY2007, the agency collected reliable data in the 

new AHP Competitive Program database, as well as the aggregate AHP and CICA 

databases. In FY2008, the agency will begin to collect data for the AHP set-aside 

program and the CICA member-level projects. 

 STRATEGIC GOAL 2 – ANNUAL PERFORMANCE MEASURES

ANNUAL PERFORMANCE MEASURE 2: REVIEW AFFORDABLE HOUSING AND COMMUNITY 

INVESTMENT EXAMINATION FINDINGS WITH THE FHLBANKS SEMI-ANNUALLY TO ENSURE 

THE FHLBANKS ARE MAKING PROGRESS TO REMEDY IDENTIFIED SHORTCOMINGS.

2003 2004 2005 2006 2007 

New Metric Achieved 

 

DESCRIPTION: The Finance Board’s FY2007 operating budget included $6.6 million to 

perform the AHP and community investment supervisory program. The examiners 

conducted on-site reviews of the AHP, CIP, and other CICA programs. Examiners 

reviewed policies, procedures, and controls that address board of directors and 

management oversight, the subsidy award process, uses of funds, and recipient eligibility. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 30
PROGRAM PERFORMANCE 

RESULTS: The AHP examiners resolved concerns identified during the examination of the 

AHP, CIP, and other CICA programs through discussion with FHLBank management and 

the board of directors. On a regular basis, the agency will monitor an FHLBank’s 

progress in resolving such concerns and will confirm that the issues have been corrected. 

Where warranted, the Finance Board can require an FHLBank to take additional remedial 

action, such as suspending or debarring a member, project sponsor, or project owner from 

participation in the program. In the case of an FHLBank’s CIP and other CICA programs, 

an examiner may require an FHLBank to reclassify advances not adhering to applicable 

statutory and regulatory requirements. 

 STRATEGIC GOAL 2 – ANNUAL PERFORMANCE MEASURES

ANNUAL PERFORMANCE MEASURE 3: USE EXAMINATIONS TO REVIEW PROGRAM 

EFFECTIVENESS AS WELL AS COMPLIANCE WITH THE BANK ACT, FINANCE BOARD 

REGULATIONS, AND FHLBANK POLICIES.

2003 2004 2005 2006 2007 

New Metric Achieved 

 

DESCRIPTION: The Finance Board remains strongly committed to ensuring that the 

FHLBanks carry out effective affordable housing and community investment programs, 

and will continue to monitor program effectiveness in their supervision of the affordable 

housing and community investment programs. 

RESULTS: In 2007, the Finance Board implemented AHP, CIP, and CICA regulatory 

initiatives. These initiatives are designed to enhance the AHP, CIP, and CICA program 

supervisory function. The Finance Board approved amendments to the AHP regulation in 

September 2006. The revised regulation removed certain prescriptive requirements, 

clarified specific operational requirements, provided additional discretionary authority in 

certain areas, and streamlined and reorganized the AHP regulation. The rule was became 

effective January 1, 2007. 

During FY2007, AHP policy analysts began organizing, cataloging, and reassessing policy 

determinations rendered over the years. As these reviews are completed, relevant documents 

will be posted on the agency’s computer network to be shared with examiners as a pertinent 

reference tool to enhance their knowledge of the AHP regulation and their ability to perform 

their supervisory responsibilities. 

In FY2007, the Finance Board completed a preliminary draft of the AHP manual and 

related work programs. The manual reflects the agency’s risk-focused and performancebased approaches to on-site reviews of the AHP, CIP, and CICA programs. The manual 

explains examination objectives and procedures, addresses subjects that examiners most 

often encounter, provides guidance on examination workpaper requirements, and 

promotes examination consistency. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 31
PROGRAM PERFORMANCE 

PROGRAM EVALUATION

The Finance Board uses program evaluations to improve and enhance its mission 

performance and support strategic and performance planning efforts. These evaluations 

take many forms, and are performed by organizations both inside and outside the agency. 

Staff members evaluate and implement recommendations, as appropriate. The principal 

evaluations include: 

SUPERVISORY PROGRAM

Government Accountability Office Evaluations: The Government Accountability Office 

conducts program- and program-support related evaluations of the agency’s supervisory 

program. 

Office of Inspector General Evaluations: The Office of Inspector General evaluates the 

agency’s supervisory program and program support operations.

Quality Assurance: The Office of Supervision established a Quality Assurance Unit to 

provide recommendations to facilitate more efficient and effective operations. The 

Quality Assurance Unit will conduct reviews of all Office of Supervision programs and 

may include ongoing evaluation of work processes, policy development, and decisionmaking processes. 

FINANCIAL MANAGEMENT

Financial Audits: Annually, the Office of Inspector General contracts with a public 

accounting firm to audit the Finance Board’s financial statements. This audit is conducted 

in accordance with generally accepted auditing standards and the standards applicable to 

financial audits contained in Government Auditing Standards. 

INFORMATION TECHNOLOGY

Federal Information Security Management Act: The Office of Inspector General annually 

reviews and evaluates the agency’s information technology systems for compliance with 

the Act. This includes evaluating information technology controls for financial 

management systems.

Network Penetration: The Finance Board annually contracts with an outside company of 

security experts to perform network penetration testing of our information technology 

systems. 

Customer Satisfaction Survey: The Finance Board conducts an annual survey to obtain 

opinions on the quality of the agency’s information technology products and services. 

This provides a better understanding of user needs and results in improved service. 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 32
PROGRAM PERFORMANCE 

FY2007 PERFORMANCE AND ACCOUNTABILITY REPORT 33

HUMAN CAPITAL MANAGEMENT

Human Capital Management Survey: The Finance Board participates in the Office of 

Personnel Management’s Human Capital Management Survey to give employees the 

opportunity to evaluate how well their agencies are managing human capital. . The Federal 

Human Capital Survey results provide valuable insight into the challenges agency leaders 

face in ensuring the Finance Board improves the quality of leadership, sustains a resultsoriented performance culture, and promotes continuous workforce improvement.

Training and Development Program: The Finance Board has approved funding to hire a 

Training Officer in FY 2008. In today’s dynamic working environment, it is imperative 

that our employees have the necessary skills and tools needed to perform their jobs. The 

agency’s training officer will be able to assess the knowledge, skills and abilities needed 

by Finance Board employees and develop a program designed to meet those needs. 

Workplace Improvement Committee: Representatives from offices within the Finance 

Board meet to identify and pursue improvements to the work environment. 

Equal Employment Opportunity: The Finance Board is committed to equal employment 

opportunity and the implementation of a strong program to promote employment and 

advancement opportunities without regard to race, sex, sexual orientation, religion, color, 

national origin, age, or disability. In addition, the Finance Board is committed to 

continuing to take advantage of employment programs that integrate veterans, disabled, 

and other populations into the public-sector workforce. As required by the Notification 

and Federal Anti-Discrimination and Retaliation Act of 2002, the Finance Board provided 

training designed to instruct employees about their rights and remedies available under the 

antidiscrimination, retaliation, and whistleblower protection laws. The Finance Board 

completed this requirement in FY2007 with 100 percent participation. The training was 

conducted via internet using an interactive online course that consisted of a series of 

audio-visual scenarios. 





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

5 

FEDERAL HOUSING FINANCE BOARD 

BALANCE SHEET 

For the Fiscal Years Ended September 30, 2007 and 2006 

(In Dollars) 

2007 2006 

Assets: 

Intragovernmental: 

Fund Balance With Treasury (Note 2) $ 6,727,173 $ 8,942,840 

Total Intragovernmental 6,727,173 8,942,840 

Accounts Receivable (Note 1) 2,189 3,358 

General Property, Plant and Equipment, Net (Note 3) 1,186,745 1,498,423 

Other 10,671 29,030 

Total Assets $ 7,926,778 $ 10,473,651 

Liabilities: 

Intragovernmental: 

Accounts Payable (Note 4) $ 225,033 $ 65,298 

Other (Note 4) 134,627 128,794

Total Intragovernmental 359,660 194,092 

Accounts Payable (Note 4) 1,459,183 778,832 

Other (Note 4) 2,503,516 2,498,611 

Total liabilities $ 4,322,359 $ 3,471,535 

Net Position: 

Cumulative Results of Operations - Other Funds $ 3,604,419 $ 7,002,116 

Total Net Position 3,604,419 7,002,116 

Total Liabilities and Net Position $ 7,926,778 $ 10,473,651 
The accompanying notes are an integral part of these financial statements. 

6 

FEDERAL HOUSING FINANCE BOARD 

STATEMENT OF NET COST 

For the Fiscal Years Ended September 30, 2007 and 2006 

(In Dollars) 

2007 2006 

Program Costs: 

Review of Federal Home Loan Banks 

Gross Costs (Note 6) $ 35,568,057 $ 32,200,748 

Less: Earned Revenue 31,111,239 31,582,813 

Net Program Costs 4,456,818 617,935 

Net Cost of Operations $ 4,456,818 $ 617,935 
The accompanying notes are an integral part of these financial statements. 

7 

FEDERAL HOUSING FINANCE BOARD 

STATEMENT OF CHANGES IN NET POSITION 

For the Fiscal Years Ended September 30, 2007 and 2006 

(In Dollars) 

2007 2006 

Cumulative Results of Operations: 

Beginning Balances $ 7,002,116 $ 6,628,175 

Beginning Balances, as Adjusted $ 7,002,116 $ 6,628,175 

Other Financing Sources (Non-Exchange): 

Imputed Financing Sources (Note 7) $ 1,059,121 $ 991,876 

Total Financing Sources 1,059,121 991,876 

Net Cost of Operations 4,456,818 617,935 

Net Changes $ (3,397,697) $ 373,941 

Cumulative Results of Operations 3,604,419 7,002,116 

Net Position $ 3,604,419 $ 7,002,116 
The accompanying notes are an integral part of these financial statements. 

8 

FEDERAL HOUSING FINANCE BOARD 

STATEMENT OF BUDGETARY RESOURCES 

For the Fiscal Years Ended September 30, 2007 and 2006 

(In Dollars) 

2007 2006 

Budgetary Resources: 

Unobligated Balance Brought Forward, October 1: $ 4,742,569 $ 4,307,516 

Recoveries of Prior Year Unpaid Obligations 589,351 299,492 

Budget Authority –Collected 31,111,239 31,583,288 

Total Budgetary Resources $ 36,443,159 $ 36,190,296 

Status of Budgetary Resources: 

Obligations Incurred 

Reimbursable 

 

$ 34,292,116 $ 31,447,727 

Unobligated Balance 

 Exempt From Apportionment 2,151,043 4,742,569 

Total Status of Budgetary Resources 

 

 $ 36,443,159 $ 36,190,296 

Change in Obligated Balance: 

Obligated Balance, Net 

 Unpaid Obligations, Brought Forward, October 1 $ 4,200,271 $ 3,683,944 

Obligations Incurred Net 34,292,116 31,447,727 

Less: Gross Outlays 33,326,906 30,631,908 

Less: Recoveries of Prior Year Unpaid 

 Obligations, Actual 589,351 299,492 

 Total, Unpaid Obligated Balance, Net, End of Period $ 4,576,130 $ 4,200,271 

Net Outlays: 

Net Outlays: 

 Gross Outlays $ 33,326,906 $ 30,631,908 

 Less: Offsetting Collections 31,111,239 31,583,288 

 Net Outlays $ 2,215,667 $ (951,380)
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006 

9 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

A. Basis of Presentation 

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 the Federal Housing 

Finance Board (Finance Board). The statements are a requirement of the Chief Financial Officers Act of 

1990, the Government Management Reform Act of 1994, the Accountability of Tax Dollars Act of 2002 

and the Office of Management and Budget (OMB) Bulletin Number 07-04, Audit Requirements for 

Federal Financial Statements. They have been prepared from, and are fully supported by, the books and 

records of the Finance Board in accordance with the hierarchy of accounting principles generally 

accepted in the United States of America, standards approved by the principals of the Federal 

Accounting Standards Advisory Board (FASAB), OMB Circular No. A-136, Financial Reporting 

Requirements and the Finance Board accounting policies which are summarized in this note. These 

statements, with the exception of the Statement of Budgetary Resources, are different from financial 

management reports, which are also prepared pursuant to OMB directives that are used to monitor and 

control the Finance Board’s use of budgetary resources. 

The statements consist of the Balance Sheet, Statement of Net Cost, Statement of Changes in Net 

Position, and Statement of Budgetary Resources. In accordance with OMB Circular No. A-136, the 

financial statements and associated notes are presented on a comparative basis. Unless specified 

otherwise, all dollar amounts are presented in dollars. 

B. Reporting Entity 

The Finance Board is an independent non-appropriated funded Agency in the Executive Branch. The 

Finance Board ensures that Federal Home Loan Banks, which are privately capitalized, governmentsponsored enterprises, operate in a safe and sound manner, carry out the housing and community 

development finance mission, and remain adequately capitalized and able to raise funds in the capital 

markets. The Federal Home Loan Bank System raises its money through the Office of Finance that acts 

as the central debt issuance facility for all 12 Federal Home Loan Banks. 

The Federal Home Loan Bank System was created in 1932 to promote home ownership and a strong 

home-finance industry. It is a network of 12 district banks that provide lending, deposit, and other 

services to mortgage-lending institutions. The members of the Federal Home Loan Bank System 

originate and hold a significant portion of the nation's home mortgages. Membership includes the thrift 

institutions, commercial banks, credit unions, and a small number of insurance companies. 

Each Federal Home Loan Bank and the Office of Finance operates with its own staff and funding. 

Accordingly, the accompanying financial statements summarize only the financial activities of the 

Finance Board. 
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

10 

The Finance Board is located in Washington, DC, where it operates with a staff of approximately 130 

employees under the direction of a five member Board of Directors, four of whom are appointed from 

the private sector by the President. The fifth is the Secretary of Housing and Urban Development or 

designee. Operation of the Finance Board is funded by the collection of assessments from each of the 

Federal Home Loan Banks. These assessments are used to fund the salaries and expenses of staff 

engaged in supervision and compliance activities, policy development, strategic planning, and 

administration. These funds are neither appropriated nor subject to apportionment.

C. Basis of Accounting 

Transactions are recorded on both an accrual accounting basis, consistent with accounting principles 

generally accepted in the United States of America, and a budgetary basis. Under the accrual method, 

revenues are recognized when earned, and expenses are recognized when a liability is incurred, without 

regard to receipt or disbursement of cash. Budgetary accounting facilitates compliance with legal 

requirements on the use of federal funds. 

D. Revenues & Other Financing Sources 

Operating revenues of the Finance Board are obtained through assessments of the 12 Federal Home Loan 

Banks. The banks are collectively assessed based on amounts needed to fund the Finance Board's annual 

budget. The agency’s Board of Directors, prior to the start of a new fiscal year, approves the budget. 

Each Federal Home Loan Bank’s share is based upon the dollar value of its capital stock relative to the 

combined dollar value of all Federal Home Loan Banks’ capital stock. The Finance Board's expenses 

are met through assessments paid by the Federal Home Loan Banks, which totaled $31,109,690 and 

$31,224,539 for the fiscal years ended September 30, 2007 and 2006, respectively.

The Finance Board recognizes as an imputed financing source the amount of accrued pension and postretirement benefit expenses for current employees paid on the Finance Board’s behalf by the Office of 

Personnel Management (OPM). 

E. Taxes 

The Finance Board, as a federal entity, is not subject to federal, state, or local income taxes, and, 

accordingly, no provision for income taxes has been recorded in the accompanying financial statements. 

F. Fund Balance with Treasury 

The U.S. Treasury processes cash receipts and disbursements. Funds held at the Treasury are available to 

pay agency liabilities. The Finance Board does not maintain cash in commercial bank accounts or 

foreign currency balances. 

Significant receipts are transmitted to this account monthly by the 12 Federal Home Loan Banks which 

are assessed amounts necessary to cover the Finance Board’s expected operating needs for the fiscal 

year. 
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

11 

Disbursements are made as necessary to fund the biweekly payroll and administrative costs of the 

organization. Due to of the nature of the Finance Board’s program, disbursements do not vary 

significantly from month to month. 

G. Accounts Receivable 

Accounts receivable consists of amounts owed to the Finance Board by other federal agencies and the 

public. Amounts due from federal agencies are considered fully collectible. Accounts receivable from 

the public include reimbursements from employees. An allowance for uncollectible accounts receivable 

from the public is established when either (1) based upon a review of outstanding accounts and the 

failure of all collection efforts, management determines that collection is unlikely to occur considering 

the debtor’s ability to pay, 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. 

As of September 30, 2007 and 2006 the balance in accounts receivable from the public was $2,189 and 

$3,358 respectively. 

H. Property and Equipment, Net 

Equipment acquisitions greater than or equal to $25,000 are capitalized and depreciated using the 

straight-line method over the estimated useful life of the asset. Additionally, for bulk purchases of 

similar items, which individually do not meet the test for capitalization, the acquisition is capitalized and 

depreciated if the depreciated basis of the bulk purchase is $100,000 or more. 

Applicable standard governmental guidelines regulate the disposal and convertibility of agency property, 

plant and equipment. The useful life classifications for capitalized assets are as follows: 

Description Useful Life (years)

Furniture, Fixtures, and Equipment 6 

Electronic Data Processing Systems 3 

Data Handling Equipment (Excluding computers) 6 

Software and Computer Programs 3 

Real Property Improvements 30 

Leasehold Improvement’s useful life is equal to the remaining lease term or the estimated useful life of 

the improvement, whichever is shorter. 
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

12 

I. 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. As of September 30, 2007 

and 2006 prepaid expenses were $10,671 and $29,030, respectively. 

J. Liabilities

Liabilities covered by budgetary or other resources are those liabilities for which funding is available to 

pay amounts due. 

Intragovernmental liabilities are claims against the Finance Board by other federal agencies. 

Additionally, the Government, acting in its sovereign capacity, can abrogate liabilities. 

K. Accounts Payable

Accounts payable consists of amounts owed to other federal agencies and the public. 

L. Employee Leave and Benefits 

Accrued Leave: Finance Board employees are entitled to accrue annual leave and sick leave at a rate 

based on years of federal service. For most employees, annual leave may be accrued up to 240 hours 

each year. Senior employees may accrue annual leave consistent with the rules for SES level employees. 

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 CSRS plan employees is creditable as additional 

time in service for the purpose of calculating an employee's retirement annuity. For FERS plan 

employees, unused sick leave is held indefinitely and may be used if rehired. 

Health Benefits and Life Insurance: The Finance Board, through programs established for all agencies 

by the federal government, offers its employees health and life insurance coverage. The cost of each is 

shared by the Finance Board and its employees. The Finance Board’s fiscal year 2007 contribution to 

health and life insurance coverage was $1,022,594. The fiscal year 2006 contribution was $967,172. In 

addition, all employees have 1.45% of gross earnings withheld to pay for future Medicare coverage. 

M. Accrued Workers’ Compensation 

A liability is recorded for actual and estimated future payments to be made for workers’ compensation 

pursuant to the Federal Employees’ Compensation Act (FECA). The actual costs incurred are reflected 

as a liability because the Finance Board will reimburse the Department of Labor (DOL) two years after 

the actual payment of expenses. The liability consists of (1) the net present value of estimated future 

payments calculated by the DOL, and (2) the unreimbursed cost paid by DOL for compensation to 

recipients under the FECA. 
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

13 

N. Retirement Plans 

 

Finance Board employees participate in either the Civil Service Retirement System (CSRS) or the 

Federal Employees’ Retirement System (FERS). The employees who participate in CSRS are 

beneficiaries of Finance Board’s matching contribution, equal to 7% of pay, distributed to the 

employee’s annuity account in the Civil Service Retirement and Disability Fund. 

FERS went into effect on January 1, 1987. FERS and Social Security automatically cover most 

employees hired after December 31, 1983. Employees hired prior to January 1, 1984 elected to join 

either FERS and Social Security, or remain in CSRS. FERS offers a Thrift Savings Plan to which the 

Finance Board automatically contributes 1% of pay and matches any employee contribution up to an 

additional 4% of pay. For FERS participants, the Finance Board also contributes the employer’s 

matching share of Social Security. 

FERS employees and certain CSRS reinstatement employees are eligible to participate in the Social 

Security program after retirement. In these instances, the Finance Board remits the employer’s share of 

the required contribution. 

The Finance Board recognizes the imputed cost of pension and other retirement benefits during the 

employees’ active years of service. OPM actuaries determine pension cost factors by calculating the 

value of pension benefits expected to be paid in the future and communicates these factors to the Finance 

Board for current period expense reporting. OPM also provides information regarding the full cost of 

health and life insurance benefits. The Finance Board recognized the offsetting revenue as imputed 

financing sources to the extent these expenses will be paid by OPM. 

The Finance board 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 the OPM. 

The Finance Board’s 401(K) is administered by T. Rowe Price. Eligible employees may contribute up to 

10% of salary on a pre-tax basis while the Finance Board will match contributions up to 3% of the 

employee’s salary. Qualified employees may participate in both the Federal Thrift Savings Plan and/or 

the Finance Board’s 401(K) Savings Plan, up to the Internal Revenue Code limitations established for 

salary deferral and annual additions. 

O. Use of Estimates 

Management has made certain estimates when reporting assets, liabilities, revenue, and expenses, and in 

the note disclosures. The preparation of financial statements in conformity with generally accepted 

accounting principles requires management to make assumptions that affect the reported amounts of 

assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial 

statements and the reported amounts of revenues and expenses during the reporting period. Actual results 

could differ from those estimates. 
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

14 

P. Imputed Costs/Financing Sources 

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. The Finance Board recognized 

imputed costs and financing sources in fiscal years 2007 and 2006 to the extent directed by OMB. 

Q. Contingencies 

Liabilities are deemed contingent when the existence or amount of the liability cannot be determined 

with certainty pending the outcome of future events. The Finance Board recognizes contingent liabilities, 

in the accompanying balance sheet and statement of net cost, when it is both probable and can be 

reasonably estimated. The Finance Board discloses contingent liabilities in the notes to the financial 

statements when the conditions for liability recognition are not met or when a loss from the outcome of 

future events is more than remote. 

Equal Employment Opportunity Complaints: 

At the Agency: As of the end of the period beginning on October 1, 2006 and ending on October 10, 

2007, there was no cases pending before the Finance Board. 

At the Equal Employment Opportunity Commission (EEOC): As of the end of the period beginning on 

October 1, 2006 and ending on October 10, 2007, there was one case pending before the EEOC, Agency 

Case Number 2006-01. Case Number 2006-01 was filed on October 13, 2005, and remanded to the 

Finance Board for processing by a decision of the EEOC’s Office of Federal Operations dated June 5, 

2006. On August 17, 2006, the Finance Board’s EEO Director dismissed Case Number 2006-01. The 

Complainant appealed the dismissal to the EEOC by a form dated August 26, 2006. On September 25, 

2006, the Finance Board filed its opposition to the Complainant’s appeal of the dismissal and the EEOC 

has not yet issued a decision. On October 2, 2007, the Finance Board filed a motion to dismiss the appeal 

based on the Complainant’s election to proceed in the U.S. District Court for the District of Columbia. 

This case has a potential loss ranging from $0 to $300,000. An unfavorable outcome is considered highly 

unlikely. 

On June 28, 2007, the EEOC’s Office of Federal Operations upheld the decision issued by an EEOC 

administrative judge granting the Finance Board’s motion for summary judgment. On September 24, 

2007, the Complainant elected to proceed in the U.S. District Court for the District of Columbia. The 

EEOC no longer has jurisdiction over this matter. 
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

15 

At the United States District Court: As of the end of the period beginning on October 1, 2006 and ending 

on October 10, 2007, there were two civil actions pending in the U.S. District Court for the District of 

Columbia, both filed by the same plaintiff who also is the Complainant in the EEOC cases described 

above. In the first case, on September 26, 2005, the court granted in part and denied in part the Finance 

Board’s motion to dismiss the case. The plaintiff filed the second case on September 24, 2007. 

Following a status conference on October 1, 2007, the Finance Board anticipates that the cases will be 

consolidated and that it will file a dispositive motion with regard to all claims that have not already been 

dismissed. Each case has a potential loss ranging from $0 to $300,000. An unfavorable outcome is 

considered unlikely. 

Other Cases: On June 15, 2007, the U.S. Court of Appeals for the District of Columbia Circuit in a per 

curiam decision dismissed the Petition for Review filed by a former employee of a Federal Home Loan 

Bank alleging that the Finance Board had an obligation to act on her complaints against the Bank. The 

appeal period has elapsed. 

R. Reclassification 

Certain fiscal year 2006 balances have been reclassified, retitled, or combined with other financial 

statement line items for consistency with current year presentation. Under SFFAS 7, OMB has 

reclassified the Statement of Financing to be presented in a note as Reconciliation of Net Cost of 

Operations to Budget. 

NOTE 2. FUND BALANCE WITH TREASURY 

Fund balance with Treasury account balances as of September 30, 2007 and 2006 were: 

Fund Balances: 

2007 2006

Total Other Fund Types $6,727,173 $8,942,840

Status of Fund Balance with Treasury:

2007 2006

Unobligated Balance - Available $2,151,043 $4,742,569

Obligated Balance Not Yet Disbursed 4,576,130 4,200,271

Total $6,727,173 $8,942,840
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPETEMBER 30, 2007 and 2006 

NOTE 3. GENERAL PROPERTY AND EQUIPMENT 

16 

Property and equipment account balances as of September 30, 2007 and 2006 were as follows: 

Schedule of Property and Equipment as of September 30, 2007

Acquisition

Cost 

Accumulated

Depreciation

Net 

Book Value

Description

Software $ 3,237,769 $ 2,820,907 $ 416,862

Furniture & Equipment 2,247,170 1,543,342 703,828

Internal-Use Software In Development 66,055 66,055

Total $ 5,550,994 $ 4,364,249 $ 1,186,745 

Schedule of Property and Equipment as of September 30, 2006

Acquisition

Cost 

Accumulated

Depreciation

Net 

Book Value

Description

Software $ 3,325,582 $ 3,107,491 $ 218,091

Furniture & Equipment 2,734,985 1,816,400 918,585

Internal-Use Software In Development 361,747 361,747

Total $ 6,422,314 $ 4,923,891 $ 1,498,423

NOTE 4. LIABILITIES

The accrued liabilities for the Finance Board are comprised of program expense accruals, payroll 

accruals, and funded annual leave earned by employees. Program expense accruals represent expenses 

that were incurred prior to month-end but were not paid. Similarly, payroll accruals represent payroll 

expenses that were incurred prior to month-end but were not paid. 

2007 2006 

Intragovernmental 

 Accounts Payable $ 225,033 $ 65,298

 Payroll Taxes Payable 134,627 128,794

Total Intragovernmental 359,660 194,092

Accounts Payable 1,459,183 778,832

Accrued Payroll and Benefits 803,187 863,074

Capital Lease Obligations 6,097 10,886

Funded Annual Leave 1,694,232 1,624,651

Total Liabilities $ 4,322,359 $ 3,471,535

All liabilities are current liabilities. 
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006 

NOTE 5. LEASES 

17 

Capital Leases

The Finance Board leases a copier under a lease-to-own agreement. The lease term is 60 months. The 

minimum future lease payments and the present value of the net minimum lease payments are as follows: 

Fiscal Year Amount 

2008 $ 5,951 

2009 458

Total Future Minimum Lease Payments 6,409

Less: Imputed Interest 312

Present Value of the Net Minimum Lease Payments 6,097

Less: Current Portion 5,642

Lease Obligation – Long Term $ 455 

Operating Leases

The Finance Board leases office space at 1625 Eye Street, Washington D.C., under a non-cancelable 

long-term lease that expires on June 30, 2015, and requires monthly payments. Total rental payments for 

the fiscal years ended September 30, 2007 and 2006 were $3,290,278 and $1,601,508, respectively. The 

rental payments for the fiscal year ending September 30, 2007 were reduced by a tenant improvement 

allowance in the amount of $166,453. The minimum future payments at 1625 Eye Street, as required by 

the lease, are as follows: 

Fiscal Year Amount

2008 3,322,310

2009 3,388,799

2010 3,475,652

2011 3,602,273

2012 3,674,395

Thereafter 10,480,884

Total $ 27,944,313
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007 and 2006 

NOTE 6. OPERATING/PROGRAM COSTS 

18 

Costs by major budgetary object classification as of September 30, 2007 and 2006 are as follows: 

Budgetary Object Classifications 2007 2006 

Personnel Compensation $17,131,753 $16,197,400

Personnel Benefits 6,221,904 5,844,193

Benefits to Former Employees 3,231 -

Travel 1,157,875 1,586,637

Transportation 20,456 16,521

Rents, Communication & Utilities 4,006,525 2,415,394

Printing and Reproduction 248,930 64,415

Other Services 6,067,179 4,897,619

Supplies and Materials 258,488 313,086

Equipment 451,716 865,483

Total $35,568,057 $32,200,748

NOTE 7. IMPUTED FINANCING SOURCES 

The Finance Board recognizes as imputed financing the amount of accrued pension and post-retirement 

benefit expenses for current employees. The assets and liabilities associated with such benefits are the 

responsibility of the administering agency, OPM. 

For the fiscal years ended September 30, 2007 and 2006, respectively, imputed financing was $1,059,121 

and $991,876. 

NOTE 8. 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 

(SBR) and the actual balances published in the Budget of the United States Government (President’s 

Budget). However, the President’s Budget that will include FY07 actual budgetary execution information 

has not yet been published. The President’s Budget is scheduled for publication in February 2008 and 

can be found at the OMB Web site: http://www.whitehouse.gov/omb. The 2008 Budget of the United 

States Government, with the Actual column completed for 2006, has been reconciled. 
FEDERAL HOUSING FINANCE BOARD 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE FISCAL YEARS SEPTEMBER 30, 2007 and 2006 

 

NOTE 9. UNDELIVERED ORDERS AT THE END OF THE PERIOD 

19 

Beginning with FY 2006, the format of the Statement of Budgetary Resources has changed and the 

amount of the amount of undelivered orders at the end of the period is no longer required to be reported 

on the face of the statement. Statement of Federal Financial Accounting Standards No. 7, Accounting for 

Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial 

Accounting, states that the amount of budgetary resources obligated for undelivered orders at the end of 

the period should be disclosed. For the fiscal years ended September 30, 2007 and 2006, undelivered 

orders amounted to $253,772 and $728,736, respectively. 

NOTE 10. RECONCILIATION OF NET COST OF OPERATIONS TO BUDGET 

The Finance Board has reconciled its budgetary obligations and non-budgetary resources available to its 

net cost of operations. 

2007 2006 

Resources Used to Finance Activities: 

Budgetary Resources Obligated 

Obligations incurred $ 34,292,116 $ 31,447,727 

Less: Spending Authority From Offsetting Collections and Recoveries 31,700,590 31,882,780 

Obligations Net of Offsetting Collections and Recoveries 2,591,526 (435,053)

Net Obligations 2,591,526 (435,053)

Other Resources 

Imputed Financing From Costs Absorbed By Others 1,059,121 991,876 

Net Other Resources Used to Finance Activities 1,059,121 991,876 

Total Resources Used to Finance Activities $ 3,650,647 $ 556,823 

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

Change In Budgetary Resources Obligated For Goods, 

Services and Benefits Ordered But Not Yet Provided $ (493,323) $ 433,114 

Resources That Finance the Acquisition of Assets - (388)

Total Resources Used to Finance Items Not Part of the Net Cost of 

Operations (493,323) 432,726 

Total Resources Used to Finance the Net Cost of Operations $ 4,143,970 $ 124,097 

Components of the Net Cost of Operations That Will Not Require or 

Generate Resources in the Current Period 

Components Not Requiring or Generating Resources: 

Depreciation and Amortization $ 510,838 $ 823,585 

Revaluation of Assets or Liabilities 5,383 33,619 

Other (203,373) (363,366)

Total Components of Net Cost of Operations That Will Not Require or 

Generate Resources 312,848 493,838 

Total Components of Net Cost of Operations That Will Not Require or 

Generate Resources In The Current Period 312,848 493,838 

Net Cost of Operations $ 4,456,818 $ 617,935