CalHFA Mortgage Assistance Corporation

Transcription

1 CalHFA Mortgage Assistance Corporation Financial Statements as of and for the Years Ended September 30, 2014 and 2013, and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT To the Board of CalHFA Mortgage Assistance Corporation: We have audited the accompanying financial statements of the CalHFA Mortgage Assistance Corporation ( CalHFA MAC or the Corporation ), which comprise the statements of financial position as of September 30, 2014 and 2013, and the related statements of activities and changes in net assets and of cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

3 Opinion In our opinion, such financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of September 30, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. December 22,

4 CalHFA MORTGAGE ASSISTANCE CORPORATION STATEMENTS OF FINANCIAL POSITION AS OF SEPTEMBER 30, 2014 AND 2013 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 87,601,222 $ 197,295,622 Accounts receivable 848 1,763 Prepaid expenses 40, ,905 Other current assets 12,564 12,564 Total current assets 87,654, ,990,854 PROPERTY, PLANT, AND EQUIPMENT Net of accumulated depreciation 452, ,224 TOTAL ASSETS $ 88,107,304 $ 198,612,078 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable and accrued expenses $ 4,758,685 $ 3,668,693 Deferred revenue 83,348, ,940,665 Other liabilities 2,720 Total current liabilities 88,107, ,612,078 UNRESTRICTED NET ASSETS TOTAL LIABILITIES AND NET ASSETS $ 88,107,304 $ 198,612,078 See notes to financial statements

5 CalHFA MORTGAGE ASSISTANCE CORPORATION STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND REVENUE: Government contract $ 361,592,046 $ 328,921,739 Return of homeowner assistance 11,416,076 4,746,894 Interest income 15,363 21,844 Total revenue 373,023, ,690,477 EXPENSES: Program transaction-related expenses: Recording fees 1,391,113 1,017,241 Multilanguage services 24,112 25,587 Processing expenses 3,058,323 2,229,799 Program disbursements 345,145, ,017,228 Total program transaction-related expenses 349,619, ,289,855 Operating administrative expenses: Program administrative fees 1,371,827 1,306,044 Salaries and wages 13,560,056 12,696,226 Accounting fees 75,000 75,000 Selling, general, and administrative expenses 8,194,579 7,986,063 Depreciation expense 202, ,212 Total operating administrative expense 23,404,286 22,426,545 Total expenses 373,023, ,716,400 CHANGE IN NET ASSETS $ - $ (25,923) NET ASSETS: Beginning unrestricted net assets $ - $ 25,923 Ending unrestricted net assets $ - $ - See notes to financial statements

6 CalHFA MORTGAGE ASSISTANCE CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND OPERATING ACTIVITIES: Decrease in net assets $ - $ (25,923) Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation 202, ,212 Changes in assets and liabilities: Accounts receivable Prepaid expenses 640, ,633 Accounts payable and accrued expenses 1,086,992 (714,274) Deferred revenue (111,592,046) (78,921,738) Net cash used by operating activities (109,660,592) (79,084,427) INVESTING ACTIVITIES Purchase of property, plant, and equipment (31,088) (65,070) FINANCING ACTIVITIES Payments of capital leases (2,720) (32,640) NET DECREASE IN CASH (109,694,400) (79,182,137) CASH AND CASH EQUIVALENTS Beginning of year 197,295, ,477,759 CASH AND CASH EQUIVALENTS End of year $ 87,601,222 $ 197,295,622 SUPPLEMENTAL INFORMATION Purchases of property, plant, and equipment through accounts payable and accrued expenses $ 3,000 $ 6,520 See notes to financial statements

7 CalHFA MORTGAGE ASSISTANCE CORPORATION NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND ORGANIZATION CalHFA Mortgage Assistance Corporation ( CalHFA MAC ) was created on May 21, 2010, as a California not-for-profit corporation to implement programs utilizing $1.97 billion dollars in Hardest Hit Fund (HHF) Program Assistance from the U.S. Department of Treasury. Programs established to utilize HHF assistance will be available to provide assistance to struggling low-to-moderate income California homeowners to prevent avoidable foreclosures and stabilize the California housing markets. In June 2010, CalHFA MAC entered into a housing finance agency participation agreement (HPA) between the U.S. Department of Treasury, California Housing Finance Agency (CalHFA) and CalHFA MAC. The agreement calls for the HHF to end no later than December 31, 2017, depending on the expenditure of program funds, at which time any remaining funds from the program would be returned to the U.S. Department of Treasury. To date the program has funded $807,871,925 in assistance to distressed homeowners. The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ( generally accepted accounting principles ). Management has evaluated subsequent events during the period from September 30, 2014, to December 22, 2014, the date the financial statements were available to be issued. 2. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and 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. Basis of Accounting The financial statements are prepared on the accrual basis of accounting, whereby revenue is recognized when earned and expenses are recognized when incurred. Cash and Cash Equivalents CalHFA MAC considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. Property, Plant, and Equipment Property, plant, and equipment consists of office furniture, office equipment, and computers. Property, plant, and equipment are stated at cost. Depreciation on property, plant, and equipment is calculated using a straight-line basis over estimated useful lives of three to five years. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. In the opinion of management, no impairment existed at September 30, 2014 or Return of the property, plant, and equipment at the end of the HPA to the U.S. Department of Treasury is not required

8 Revenue Recognition Federal revenue received is deferred until expenses are incurred against it. Expenses are incurred when the program assistance is disbursed or when administrative expenses are incurred. CalHFA MAC utilizes a third-party service provider, Springboard Solutions, LLC, for processing, approving, and disbursement of program expenses. CalHFA MAC directly manages four separate programs under the HPA to provide assistance to homeowners. It also oversees three additional programs that are managed by outside vendors under its Local Innovation fund agreements. The four programs it directly manages are: Unemployment Mortgage Assistance Program (UMA) UMA provides mortgage payment assistance to eligible homeowners who have experienced an involuntary job loss and are receiving California EDD unemployment benefits. Benefit assistance through UMA can be up to $3,000 per month and can last up to twelve months. The maximum assistance per household is $36,000. The following are the primary UMA program changes that occurred between October 1, 2013 and September 30, 2014: As of February 27, 2014 (Amendment 12 to the HPA) o Allocation of HHF funds was readjusted from $874,995,915 to $715,595,915. o Added exclusion for property that is subject to a first priority lien securing a Home Equity Line of Credit ( HELOC ). As of April 11, 2014 (Amendment 13 to the HPA) o Added exclusion for homeowners being reviewed for a short sale or a deed in lieu. Mortgage Reinstatement Assistance Program (MRAP) MRAP provides assistance to eligible homeowners who, because of a prior financial hardship from which they have recovered, have fallen behind on their payments and need help to reinstate their past-due first-mortgage loan. Homeowners must be able to demonstrate the ability to sustain mortgage payments if assistance is awarded. Benefit assistance through MRAP can be a one-time payment of up to $25,000 to cover principal, interest, taxes and insurance, as well as any homeowner s association dues. The following are the primary MRAP changes that occurred between October 1, 2013 and September 30, 2014: As of February 27, 2014 (Amendment 12 to the HPA) o Allocation of HHF funds was readjusted from $159,400,000 to $165,900,000. o Added exclusion for property that is subject to a first priority lien securing a Home Equity Line of Credit ( HELOC ). Principal Reduction Program (PRP) PRP provides assistance to eligible homeowners who have experienced an economic hardship coupled with a severe decline in the home s value. Homeowners who qualify for the PRP could be eligible for up to $50,000 in assistance. The PRP requires a dollar-fordollar match from the homeowner s lender, for a total amount of reduced principal up to $100,000. On June 4, 2012, the PRP was amended to eliminate the requirement that investors match program assistance as long as a rate and/or term loan modification is made. Additionally, the PRP homeowner benefit increased to $100,000 and will be paid in one year rather than incrementally over three years. The program was amended again on June 4, 2012, to allow servicers to accept PRP funds without any modification to the term and rate as long the loan-to-value ratio, after the funds are applied, is below 140%, and the borrower has an affordable payment, as defined. In this situation, the servicer will be required to recast the loan to reflect the lower principal balance, resulting in a lower, more sustainable payment for the homeowners. If those benchmark thresholds cannot be hit, the lender must consider the - 7 -

9 homeowner for a more robust modification, beginning with a reduction in the interest rate and potentially extending the repayment term. The following are the primary PRP changes that occurred between October 1, 2013 and September 30, 2014: As of February 27, 2014 (Amendment 12 to the HPA) o Allocation of HHF funds was readjusted from $776,742,793 to $931,442,793. o Added exclusion for property that is subject to a first priority lien securing a Home Equity Line of Credit ( HELOC ). As of April 11, 2014 (Amendment 13 to the HPA) o Added language to indicate that severe negative equity is considered a hardship in and of itself ("A pre-assistance loan-to-value ( LTV ) ratio of greater than 120% is considered a hardship indicative of imminent default.") o Added the utility that the Servicer may apply PRP monies as a stand-alone curtailment to reduce the homeowner s unpaid principal balance ( UPB ) in order to help the homeowner establish an appropriate level of debt as determined by CalHFA MAC only when certain conditions exist. o Added clarifying language that indicated that loans in foreclosure may be eligible. As of September 3, 2014 (Amendment 14 to the HPA) o Allocation of HHF funds was readjusted from $931,442,793 to $903,942,793. o Clarified that a pre-assistance LTV ratio of 120% or greater is considered a hardship indicative of imminent default. Transition Assistance Program (TAP) TAP provides one-time funds to help eligible homeowners relocate into a new housing situation after executing a short sale or deed-in-lieu of foreclosure program. The TAP can provide up to $5,000 in transition assistance per household. The following are the primary TAP changes that occurred between October 1, 2013 and September 30, 2014: As of February 27, 2014 (Amendment 12 to the HPA) o Allocation of HHF funds was readjusted from $2,300,000 to $5,000,000. As of September 3, 2014 (Amendment 14 to the HPA) o Allocation of HHF funds was readjusted from $5,000,000 to $7,500,000. o FHA HECM borrowers are now eligible for consideration provided the Property Expenses are in default as substantiated by the homeowner and servicer documentation and approved by CalHFA MAC. CalHFA MAC issues a noninterest bearing subordinate note receivable secured by a lien recorded against the homeowner s property in the amount of the total benefit received for each of the UMA, MRAP, and PRP programs. At the conclusion of three years for the UMA and MRAP programs, if the homeowner maintains his or her mortgage payments as required, the subordinate loan will be forgiven. Subordinate notes relating to PRP assistance will be forgiven after five years. Due to the unlikely collection of these notes, management has determined that the entire amount is uncollectible and as such has fully allowed for the $758,121,627 and $455,710,821 in note receivables as of September 30, 2014 and 2013, respectively. CalHFA MAC receives revenue in the form of returns of homeowner assistance for liens placed on the UMA, MRAP and PRP programs. Payoffs revenue is added back to the pool of funds available for program assistance and increases the amount CalHFA MAC may fund towards foreclosure prevention over the life of the program. CalHFA MAC has received $16,538,488 from inception of the program - 8 -

10 through September 30, Breakdown of payoff revenue by program for UMA, MRAP, PRP, respectively is $14,927,685, $1,467,667, and $143,136. In addition, CalHFA MAC oversees three programs administered by outside agencies through its Local Innovation Fund. These programs were chosen through a competitive process that was designed to allow local governments, nonprofits and other entities across California the opportunity to present other foreclosure prevention opportunities throughout the state. The three programs that were selected are: The Community 2nd Mortgage Principal Reduction Program is being offered by Community Housing Works of San Diego, CA. This program provides capital on a 35/65 matching basis to participating nonprofit, credit union and small community lenders to reduce the outstanding principal balances of amortizing subordinate loans. This program was amended on December 14, 2012, to increase the matching payment to a 40/60 split, to increase the number of lenders that could be eligible to participate, and to make the program available to junior liens that need to be extinguished to avoid foreclosure via short sale. To date, program fundings have totaled $589,210 and a total of $114,960 has been expended in administrative expenses relating to this program. The Short Sale Gateway Program is being offered by NeighborWorks Sacramento. This program is intended to assist homeowners who have exhausted options to modify loans to remain in the homes through a short sale coupled with a lease-purchase agreement between the homeowners and NeighborWorks Sacramento. This program is intended to offer a homeowner the possibility of returning to homeownership at the conclusion of a successful predetermined period. To date, no transactions have been completed under this program. As of September 20, 2013 this program was unfunded and is no longer active. The Los Angeles Mortgage Modification Program is being offered by the Los Angeles Housing Department. This program is intended to assist low and moderate-income homeowners in those neighborhoods most impacted by foreclosures and sub-prime lending in the City of Los Angeles. To date, no transactions have been completed under this program. As of February 27, 2014 this program was unfunded and is no longer active. Income Taxes The Internal Revenue Services has granted CalHFA MAC an exemption from income taxes under Section 501(c)(3) of the Internal Revenue Code. Net Assets CalHFA MAC classifies its net assets as unrestricted as they are expendable resources used to support CalHFA MAC s core activities, to provide support through the HHF program, and to perform all things incidental to or appropriate for the achievement of this program. 3. RELATED-PARTY TRANSACTIONS CalHFA MAC entered into an administrative agreement with CalHFA for support services, which include an allocation of CalHFA staff to provide program oversight, administrative and legal support, and direct reimbursement for goods and services of outside vendors. Due to its status as a state governmental agency, CalHFA enjoys the benefit of discounts for goods and services with strategic business partners. The administrative agreement enables CalHFA MAC to leverage these discounts by providing for CalHFA to purchase goods and services during program implementation and ongoing operations. CalHFA MAC reimburses CalHFA for these items at the actual cost expended. CalHFA MAC had liabilities to CalHFA of $147,164 and $151,121 for the years ended September 30, 2014 and 2013, respectively. These amounts were composed of accounts payable and accrued expenses resulting from unbilled vendor invoices for materials and services. Additionally, actual cash reimbursements paid - 9 -

11 to CalHFA totaled $604,378 and $2,895,948 for the years ended September 30, 2014 and 2013, respectively. CalHFA MAC also leases office space from the CalHFA under an operating lease with a term of four years and five months that expires April 31, A schedule of the lease payments is available in Note PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION Property, equipment, and accumulated depreciation at September 30, 2014, are as follows: Computers and equipment $ 634,102 $ 614,407 Furniture and fixtures 172, ,592 Leasehold improvements 76,128 70,048 Software 730, ,300 Gross property, plant, and equipment 1,613,435 1,579,347 Less accumulated depreciation (1,160,947) (958,123) Property, plant, and equipment net $ 452,488 $ 621, COMMITMENTS As of September 30, 2013 and 2012, CalHFA MAC has reserved $1,219,446 of deferred revenue for post-program funding administrative support. It is estimated these funds will be utilized for continued program compliance and reporting. The unused portion of these funds will be returned to the U.S. Department of Treasury no later than December 31, Program reservations for homeowner assistance as of September 30, 2014 and 2013, are as follows: Administrative reservation post program funding $ 1,219,446 $ 1,219,446 Program reservation UMA 54,776,665 68,205,278 Program reservation MRAP 74,775,000 71,275,000 Program reservation PRP 216,006, ,618,053 Program reservation TAP 525, ,000 Total program reservations $ 347,302,939 $ 385,917,777 Reservations for homeowner assistance may change if the homeowner s circumstances change or the homeowner fails to perform as stated in the agreement

12 6. LEASES CalHFA MAC entered into a sublease for office space from CalHFA in October Total rental expense recorded for period ending September 30, 2014 and 2013, was $97,830 and $99,657, respectively. The future minimum lease payments for the operating leases are as follows: Years Ending September $ 89, , , ,616 $ 266,394 CalHFA MAC entered into a capital lease for office equipment in November Total lease expense recorded for period ending September 30, 2014 and 2013, was $2,720 and $32,640. ******