Financial Statements and Accountants’ Review Report

Nevada Housing Division

December 31, 2008
Contents




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Accountants’ Review...
Audit  Tax  Advisory
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Nevada Housing Division

                          MANAGEMENT’S DISCUSSION AND ANALYSIS

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Nevada Housing Division

                 MANAGEMENT’S DISCUSSION AND ANALYSIS - CONTINUED

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COMBINED FINANCIAL STATEMENTS
Nevada Housing Division
                                                            COMBINED BALANCE SHEET
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Nevada Housing Division

                                               COMBINED STATEMENT OF REVENUES, EXPENSES
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Nevada Housing Division

                                                           COMBINED STATEMENT OF CASH FLOWS

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Nevada Housing Division

                                                COMBINED STATEMENT OF CASH FLOWS - CONTINUED

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Nevada Housing Division

                             NOTES TO FINANCIAL STATEMENTS

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                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

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REQUIRED SUPPLEMENTAL INFORMATION
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
Financial statements and report of independent certified ...
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  1. 1. Financial Statements and Accountants’ Review Report Nevada Housing Division December 31, 2008
  2. 2. Contents Page Accountants’ Review Report 3 Management’s Discussion and Analysis 5 Combined Financial Statements Combined Balance Sheet 10 Combined Statement of Revenues, Expenses and Changes in Net Assets 11 Combined Statement of Cash Flows 12 Notes to Combined Financial Statements 14 Required Supplemental Information Statement of Revenues, Expenses and Changes in Net Assets – Budget and Actual – General Fund 34 Supplemental Information Combining Balance Sheet – Single-Family Program Funds 36 Combining Balance Sheet – Multi-Unit Program Funds 40 Combining Statement of Revenues, Expenses and Changes in Net Assets - Single-Family Program Funds 49 Combining Statement of Revenues, Expenses and Changes in Net Assets -Multi-Unit Program Funds 53 Schedule of Investments 61 Schedule of Restricted Assets – Single-Family Program Funds 76
  3. 3. Audit  Tax  Advisory Grant Thornton LLP 100 W Liberty Street, Suite 770 Reno, NV 89501-1965 T 775.786.1520 Accountants’ Review Report F 775.786.7091 www.GrantThornton.com Administrator Nevada Housing Division We have reviewed the accompanying combined balance sheet of Nevada Housing Division (a public agency) as of December 31, 2008, and the related combined statements of revenues, expenses and changes in net assets and cash flows for the six months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Nevada Housing Division. A review consists principally of inquiries of Division personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the December 31, 2008 financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. Our review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The Management’s Discussion and Analysis on pages 5 through 8 and the statement of revenues, expenses and changes in net assets – budget and actual – general fund on page 34 are not a required part of the basic financial statements, but is supplemental information required by the Governmental Accounting Standards Board. The other data accompanying the financial statements are presented only for supplemental analysis purposes. This supplemental information has been subjected to the inquiry and analytical procedures applied in the review of the basic financial statements. We are not aware of any material modifications that should be made to that information. Reno, Nevada April 7, 2009 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd
  4. 4. MANAGEMENT’S DISCUSSION AND ANALYSIS
  5. 5. Nevada Housing Division MANAGEMENT’S DISCUSSION AND ANALYSIS For the six months ended December 31, 2008 Financial Statement Highlights  The change in Net Assets [bottom line] for the Housing Division was $3,290,333.  Results of operations [revenue less operating expenses] were down $1,710,074 or 34.2% versus last year’s $5,000,407. There was an increase in the change in General Funds Net Assets of $1,408,012; a decrease in the change in Net Assets for the Single-Family bond program of $242,955; a decrease in the change in Net Assets for the Multi-family bond program of $59,107. Total revenues decreased $1,500,236 and total operating income decreased $1,729,071.  The five-year trend in declining single-family whole loan first mortgage numbers and dollar balances continued through the December 31, 2008 period. However, total whole loans held as well as securitized loan pools began to increase. The total number of single-family whole loan first mortgages outstanding dropped from 843 at December 31, 2007 to 738 at December 31, 2008 or a reduction of 105 loans or a drop of 12.5%. During the same six-month period, total loans added and pooled into AAA rated mortgage backed securities was 201. The average value of each single-family first mortgage loan in portfolio changed from $41,720 at December 31, 2007 to $42,671 at December 31, 2008. New first mortgage loans entering the portfolio as pooled mortgage backed securities from July 1, 2008 to December 31, 2008 averaged $170,999.  Loan delinquencies on single-family mortgages went up from 2.29% of loans outstanding to 4.88% of whole first mortgage loans outstanding reflecting Nevada’s rapidly deteriorating economy.  Total investment earnings increased from $10,304,748 to $10,459,466 or up 1.5%.  Total salaries and payroll expenses paid went from $920,404 to $1,016,676 or up 10.5% as previously vacant loan officer positions and an internal auditor began to be refilled due to increased loan volume.  The net cash position of the Housing Division increased from $228,911 at December 31, 2007 to $293,389 at December 31, 2008.  Standard & Poor’s reaffirmed the Housing Division’s Issuer Credit Rating at AA- in December with a “positive outlook.” Overview of Financial Statements The combined Balance Sheet and Statement of Revenues and Expenses and Changes in Net Assets reflect the financial position and results of operations from the Housing Division’s four primary programs: General Fund, HOME Program and the Single and Multi-unit bond programs. The HOME Program is in essence a break-even operation. Two other programs of the Housing Division, the Federal Tax Credit Program and the Federal Weatherization Program also have a material operational impact on Housing Division operations [salaries and administrative expenses] but no material financial impact since they are involved in allocation of non-cash items or services. At mid-year, total Housing Division debt outstanding was $905,182,000 versus the Statutory Limit of $5 billion. 5
  6. 6. Nevada Housing Division MANAGEMENT’S DISCUSSION AND ANALYSIS - CONTINUED For the six months ended December 31, 2008 Financial Analysis Total Assets: The total assets at mid-year were $1,104,860,050 up $54,937,232 or 5.2%. This material increase is primarily due to single-family loan program’s resurgence. The five-year trend in mid-year total assets has been: 2008 2007 2006 2005 2004 $1,104,860,050 $1,049,922,818 $957,859,869 $974,872,861 $1,054,673,004 The book value of single-family whole first mortgage loans outstanding at mid-year was $31,235,419. 2008 2007 2006 2005 2004 Value $48,209,594 $53,524,426 $48,051,861 $79,430,610 $150,978,885 # of loans 738 843 1,019 1,345 2,126 % delinquent 4.88% 2.29% 2.16% 2.07% 3.67% Total Liabilities: The total liabilities at mid-year were $926,721,829 up $48,116,619 or 5.5%. The five-year trend in total liabilities has been: 2008 2007 2006 2005 2004 $926,721,829 $878,605,210 $795,943,602 $820,838,247 $907,007,270 The Total Asset: Total Liability ratio trend for the past five years has been: 2008 2007 2006 2005 2004 1.192X 1.195X 1.203X 1.188X 1.163X The Total Bond Liabilities [current and non-current] relative to the $5.0 billion statutory debt limit trend has been: 2008 2007 2006 2005 2004 18.1% 17.2% 15.6% 16.1% 17.8% Net Assets: The net assets of the Housing Division increased to $178,138,221 up $6,820,613 or 3.98%. The five-year trend in net assets has been: 2008 2007 2006 2005 2004 $178,138,221 $171,317,608 $161,916,267 $154,034,614 $147,665,734 6
  7. 7. Nevada Housing Division MANAGEMENT’S DISCUSSION AND ANALYSIS - CONTINUED For the six months ended December 31, 2008 Financial Analysis - Continued In the past five years, combined net assets from the three primary financial programs: general funds, single- family program and multi-unit program have shown the following trend: Net Assets 2008 2007 2006 2005 2004 General Fund $160,807,286 $155,294,164 $142,173,239 $125,058,734 $93,593,077 Single-Family 13,393,120 10,972,457 14,773,408 18,434,524 43,736,975 Multi-Unit 3,937,815 5,050,987 4,969,620 10,541,356 10,335,682 The trend in administrative expenses plus operational charges for salaries, overhead and direct expenses paid by programs were for the past four years: 2008 2007 2006 2005 Net Assets Amount % Amount % Amount % Amount % Single-Family $ 283,988 21.67 $ 105,018 7.54 $ 22,509 1.79 $ 15,864 1.31 Multi-Unit 1,026,502 78.33 1,287,927 92.46 1,237,026 98.21 1,197,001 98.69 Totals $1,310,490 $1,392,945 $1,259,535 $1,212,865 Administrative Budget The Housing Division’s administrative expense budget was approved for fiscal years FY2008 and FY2009 by the 2007 Nevada Legislature, as proposed by the Governor’s Budget Office. The Housing Division’s administrative budget reflects numerous managerial accounting differences from a GAAP revenue and expense statement. Significant differences between financial statements and the legislatively approved administrative budget include but are not limited to:  The Housing Division budgets for revenues and expenditures only to the extent expected to affect funds of the State;  Revenues and expenditures of indentures and bond certificate trusts are not funds of the State, but are included in either the Multi-unit or Single-family bond programs or General Fund in the financial statements and not reflected in the State budget;  The Housing Division budgets for revenues and expenditures of the Federal HOME Program to the extent they are paid to or by the State of Nevada. The HOME Program is not included in the General Fund in the financial statements;  The Division budgets for compensated absences only to the extent expected to be paid, rather than on the modified accrual basis;  All amortizable bond issuance costs are reported as such on the financial statements but reported as current period revenues and expenditures on the State budget;  Income on investments, mortgages and bond interest payments are reflected as such in the financial statements but are not part of the State budget;  Under State budgeting procedures, there is neither an increase nor decrease in net assets. 7
  8. 8. Nevada Housing Division MANAGEMENT’S DISCUSSION AND ANALYSIS - CONTINUED For the six months ended December 31, 2008 Administrative Budget - Continued During the first half of the budget year ended December 31, 2008, the Housing Division:  Had no increase in its administrative budgetary revenue authority amounts. Actual expenditures did not deviate from the original budget.  Budgetary reserves at mid-year were $468,899. This Management Discussion and Analysis along with the accompanying Financial Statements, Notes and Supplementary Information reflect our ongoing commitment to full, fair and honest disclosure at December 31, 2008. For questions regarding the accompanying Financial Statements, Notes and Supplementary Information, please visit our website at nhd@nvhousing.state.nv.us or contact our office at 775-687-2032. CHAS L. HORSEY /S/ LON A. DEWEESE /S/ Chas L. Horsey, Administrator Lon A. DeWeese, Chief Financial Officer 8
  9. 9. COMBINED FINANCIAL STATEMENTS
  10. 10. Nevada Housing Division COMBINED BALANCE SHEET December 31, 2008 (With comparative totals for December 31, 2007) (See accompanying accountants' review report) Home Investment General Partnerships Program Funds Combined Totals ASSETS Funds Program Single-Family Multi-Unit 2008 2007 Current assets: Cash $ 293,389 $ - $ - $ - $ 293,389 $ 228,911 Investments Restricted 111,488,908 - 212,500 - 111,701,408 125,511,942 Unrestricted 44,211 - 8,375,248 56,454,126 64,873,585 78,631,806 Total investments 111,533,119 - 8,587,748 56,454,126 176,574,993 204,143,748 Loans receivable 837,886 - 390,864 4,560,802 5,789,552 5,122,553 Interest and other receivables, net 456,272 5,421,496 1,217,386 1,609,636 8,704,790 9,030,387 Total current assets 113,120,666 5,421,496 10,195,998 62,624,564 191,362,724 218,525,599 Noncurrent assets: Long-term investments Restricted 24,353,002 - 1,534,128 - 25,887,130 8,330,896 Unrestricted - - 175,407,074 135,961,383 311,368,457 248,873,791 Fair value adjustment on investments (39,130) - - - (39,130) (140,414) Total long-term investments 24,313,872 - 176,941,202 135,961,383 337,216,457 257,064,273 Loans receivable, net of current portion 24,588,324 - 30,844,555 518,315,297 573,748,176 572,558,085 Deferred issue costs, net of amortization - - 2,487,070 - 2,487,070 1,758,900 Office furniture and equipment, net of accumulated depreciation of $300,472 45,623 - - - 45,623 15,961 Total noncurrent assets 48,947,819 - 210,272,827 654,276,680 913,497,326 831,397,219 Total assets $ 162,068,485 $ 5,421,496 $ 220,468,825 $ 716,901,244 $ 1,104,860,050 $ 1,049,922,818 LIABILITIES AND NET ASSETS Current liabilities: Bonds payable $ - $ - $ 1,355,000 $ 3,689,000 $ 5,044,000 $ 8,964,000 Interest payable - - 2,709,830 5,638,793 8,348,623 7,842,659 Interfund 119,441 - 134,977 (254,418) - - Accounts payable and other liabilities 1,141,758 5,421,496 675,898 5,952,054 13,191,206 11,663,551 Total current liabilities 1,261,199 5,421,496 4,875,705 15,025,429 26,583,829 28,470,210 Noncurrent liabilities: Bonds payable, net of current portion - - 202,200,000 697,938,000 900,138,000 850,135,000 Total liabilities 1,261,199 5,421,496 207,075,705 712,963,429 926,721,829 878,605,210 Net assets: Invested in capital assets 45,623 - - - 45,623 15,961 Restricted 157,759,212 - 13,393,120 3,937,815 175,090,147 168,177,531 Unrestricted 3,002,451 - - - 3,002,451 3,124,116 Total net assets 160,807,286 - 13,393,120 3,937,815 178,138,221 171,317,608 Total liabilities and net assets $ 162,068,485 $ 5,421,496 $ 220,468,825 $ 716,901,244 $ 1,104,860,050 $ 1,049,922,818 The accompanying notes are an integral part of this statement.
  11. 11. Nevada Housing Division COMBINED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Six months ended December 31, 2008 (With comparative totals for the six months ended December 31, 2007) (See accompanying accountants' review report) Home Investment General Partnerships Program Funds Combined Totals Funds Program Single-Family Multi-Unit 2008 2007 Operating revenues Interest and other investment income $ 2,026,856 $ - $ 4,478,856 $ 3,830,200 $ 10,335,912 $ 10,191,850 Realized and unrealized gains on investments 113,426 - - 10,128 123,554 112,898 Total investment income 2,140,282 - 4,478,856 3,840,328 10,459,466 10,304,748 Interest income on mortgage loans 845,727 - 1,025,000 10,886,207 12,756,934 14,296,328 Other income 615,048 - - 995,657 1,610,705 1,726,265 Total operating revenues 3,601,057 - 5,503,856 15,722,192 24,827,105 26,327,341 Operating expenses Salaries and other payroll costs 944,426 72,250 - - 1,016,676 920,404 Administrative expenses 933,598 9,158 65,185 30,844 1,038,785 973,683 Servicers' fees 26,028 - 45,513 - 71,541 88,034 Interest on bonds payable - - 4,841,720 14,585,794 19,427,514 19,318,189 Amortization of issue costs - - 63,664 - 63,664 89,035 Interfund operating charge (1,214,461) - 218,803 995,658 - - Total operating expenses 689,591 81,408 5,234,885 15,612,296 21,618,180 21,389,345 Total operating income (loss) 2,911,466 (81,408) 268,971 109,896 3,208,925 4,937,996 Non-operating revenues Federal program revenue - 1,926,584 - - 1,926,584 1,001,203 Federal program expenses - (1,845,176) - - (1,845,176) (938,792) Total non-operating revenues - 81,408 - - 81,408 62,411 CHANGE IN NET ASSETS 2,911,466 - 268,971 109,896 3,290,333 5,000,407 Transfers (2,307,771) - 2,307,771 - - - Net assets at beginning of period 160,203,591 - 10,816,378 3,827,919 174,847,888 166,317,201 Net assets at end of period $ 160,807,286 $ - $ 13,393,120 $ 3,937,815 $ 178,138,221 $ 171,317,608 The accompanying notes are an integral part of this statement.
  12. 12. Nevada Housing Division COMBINED STATEMENT OF CASH FLOWS Six months ended December 31, 2008 (With comparative totals for the six months ended December 31, 2007) (See accompanying accountants' review report) Home Investment General Partnerships Program Funds Combined Totals Funds Program Single-Family Multi-Unit 2008 2007 Cash flows from operating activities: Cash received from mortgage loans $ 2,259,721 $ - $ 1,922,992 $ 22,134,526 $ 26,317,239 $ 81,080,704 Cash payments to purchase mortgage loans (1,448,355) - - (15,245,618) (16,693,973) (57,131,649) Cash receipts (payments) for goods and services (4,213) - (227,945) 595,487 363,329 (1,941,550) Interfund (27,236) - 29,401 (2,165) - - Net cash provided by operating activities 779,917 - 1,724,448 7,482,230 9,986,595 22,007,505 Cash flows from noncapital financing activities: Proceeds from sale of bonds - - 25,000,000 11,000,000 36,000,000 92,895,000 Principal payments and purchase of bonds - - (4,735,000) (12,278,000) (17,013,000) (16,103,000) Interest payments on bonds - - (4,376,789) (14,732,417) (19,109,206) (18,792,957) Issue costs - - (394,527) - (394,527) (521,991) Operating transfer (2,307,771) - 2,307,771 - - - Federal grants received - 1,926,584 - - 1,926,584 1,001,203 Cash paid to other governments and organizations - (1,926,584) - - (1,926,584) (1,001,203) Net cash provided by (used in) noncapital financing activities (2,307,771) - 17,801,455 (16,010,417) (516,733) 57,477,052 Cash flows from investing activities: (Purchase) of short-term investments (36,873,192) - (41,846,045) (34,110,867) (112,830,104) (151,905,591) Sale of short-term investments 38,367,888 - 48,096,825 31,131,999 117,596,712 95,543,409 (Purchase) of long-term investments (17,199,901) - (43,296,937) (5,638,310) (66,135,148) (79,680,543) Sale of long-term investments 14,723,073 - 13,173,859 13,220,254 41,117,186 46,458,694 Income received on investments 2,105,430 - 4,346,395 3,925,111 10,376,936 10,065,991 Net cash provided by (used in) investing activities 1,123,298 - (19,525,903) 8,528,187 (9,874,418) (79,518,040) NET DECREASE IN CASH (404,556) - - - (404,556) (33,483) Cash at beginning of period 697,945 - - - 697,945 262,394 Cash at end of period $ 293,389 $ - $ - $ - $ 293,389 $ 228,911
  13. 13. Nevada Housing Division COMBINED STATEMENT OF CASH FLOWS - CONTINUED Six months ended December 31, 2008 (With comparative totals for the six months ended December 31, 2007) (See accompanying accountants' review report) Home Investment General Partnerships Program Funds Combined Totals Funds Program Single-Family Multi-Unit 2008 2007 Reconciliation of change in net assets to net cash provided by operating activities: Change in net assets $ 2,911,466 $ - $ 268,971 $ 109,896 $ 3,290,333 $ 5,000,407 Adjustments to reconcile change in net assets to net cash provided by operating activities: Amortization of issue costs - - 63,664 - 63,664 89,035 Depreciation 11,639 - - - 11,639 6,687 Income on investments (2,026,856) - (4,478,856) (3,830,200) (10,335,912) (10,191,850) Realized and unrealized (gains) losses on investments (113,426) - - (10,128) (123,554) (112,898) Interest on bonds payable - - 4,841,720 14,585,794 19,427,514 19,318,189 Change in assets and liabilities: Loans receivable (2,004) - 1,007,373 (4,107,048) (3,101,679) 8,215,554 Other receivables 80,560 47,725 (109,384) 116,228 135,129 2,290,309 Interfund (27,236) - 29,401 (2,165) - - Accounts payable and other liabilities (54,226) (47,725) 101,559 619,853 619,461 (2,607,928) Net cash provided by operating activities $ 779,917 $ - $ 1,724,448 $ 7,482,230 $ 9,986,595 $ 22,007,505 The accompanying notes are an integral part of this statement.
  14. 14. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS December 31, 2008 (See accompanying accountants’ review report) NOTE A - AUTHORIZING LEGISLATION The Nevada Housing Division (the “Division”) is a separate agency of the Department of Business and Industry of the State of Nevada, pursuant to the Nevada Housing Finance Law, as amended, in Chapter 319 of the Nevada Revised Statutes. The Division was created for the purpose of making available additional funds to assist private enterprise and governmental agencies in providing safe and sanitary housing facilities for low and moderate income households. The Division is currently authorized to issue its bonds, notes, and other obligations in an aggregate amount not to exceed $5,000,000,000, which shall not constitute a debt of the State of Nevada or any political subdivision thereof. These funds may be used to make loans to and purchase mortgage loans from mortgage lenders, and to make temporary loans and advances in anticipation of insured mortgage loans or to finance permanent mortgage loans for the construction or rehabilitation of multi-unit residential housing. NOTE B - THE REPORTING ENTITY AND NATURE OF FUNDS 1. All Funds All funds are treated as proprietary funds. For financial reporting purposes, the Division is a component unit of the State of Nevada. The specified reserve funds and any monies not used for the specific purpose set forth for each program may be used only for the following limited purposes as may be individually set forth in each program’s documents. a. To invest funds as authorized by various bond resolutions and trust agreements. b. To pay interest, principal and redemption premiums at or prior to maturity or redemption. c. To establish and maintain reserves to secure the bonds. d. To pay reasonable and necessary operating expenses of the program. e. After all program requirements are satisfied, excess funds may be used for any lawful purpose of the Division. Substantially all program fund assets are pledged in trust for the benefit of the bondholders. The proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result form providing services in connection with the proprietary funds’ principal ongoing operations. Operating expenses for the proprietary funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following describes the general and program funds maintained by the Division, all of which conform with the authorizing legislation, general bond and note certificates and trust indentures. 14
  15. 15. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE B - THE REPORTING ENTITY AND NATURE OF FUNDS - Continued 2. General Funds A state enterprise fund was authorized by enabling legislation and has been used to account for all transactions required by the state budget and appropriation statutes. It is funded principally from authorized transfers from the various programs and from investment income. The enabling legislation also authorized the Division to maintain such other funds as may be deemed necessary to account for other lawful activities of the Division. Special funds have been established and were funded with authorized transfers from the various programs and other investment income. As of December 31, 2008, the Division had designated certain general fund assets totaling $157,759,212 to a reserve trust fund for the following purposes: to invest in certain securities; to pay interest and principal of certain bonds if there are insufficient funds in the program’s fund; and to pay operating expenses of the fund as specified by the Administrator. 3. Home Investment Partnerships Program HOME Investment Partnerships Program (HOME) is a federally funded grant program for affordable housing. It is designed as a partnership among the federal government, state and local governments, and those in the private sector (profit and non-profit) who build, own, manage, finance, and support low- income housing initiatives. The Division has been designated the administrator of the program for the State of Nevada. The Division distributes monies through grants and loans to local governments, funds projects directly, and monitors compliance with grant guidelines. The program has four components: (1) Homebuyer Assistance, (2) Homeowner Rehabilitation, (3) Rental Rehabilitation, and (4) Tenant- Based Assistance. 4. Single-Family Program Funds There were 26 single-family mortgage purchase programs existing as of December 31, 2008, under 9 general bond certificates. Various funds are prescribed to account for the proceeds from the sale of the bonds and for the debt service requirements established by the bond certificate documents. In addition to providing reserves, the bond sale proceeds must be used to purchase from Nevada lending institutions mortgage loans originated under the program which are made on single-family residences, or to purchase existing mortgage loans from the portfolios of lending institutions under circumstances requiring the lending institutions to reinvest the proceeds from such purchase in new mortgage loans on single-family residences to persons or families of low and moderate income in the State of Nevada. 5. Multi-Unit Program Funds There were 70 multi-unit programs existing as of December 31, 2008, under 70 general bond certificates or trust indenture documents. In addition to providing reserves, the bond sale proceeds must be used to provide financing and purchase mortgage loans or mortgage backed securities for various multi-unit rental housing projects located in Nevada to be rented to low to moderate income families, elderly persons, and other special needs groups. 15
  16. 16. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE C - SUMMARY OF ACCOUNTING POLICIES A summary of the Division’s significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. Accrual Accounting for Enterprise Funds Since the Division’s funds are considered to be enterprise funds for financial reporting purposes, the Division follows the accrual basis of accounting, wherein revenues are recorded as earned and expenses are recorded as incurred. 2. Fund Accounting Transactions of the Division, including interfund cash transfers, are recorded in the respective funds based upon their purposes as established by the Nevada legislature and by the certificates and legal documents executed by the Division. Revenue and expenses applicable to each fund are recorded in the respective funds. 3. Mortgages Purchased Mortgages purchased are carried at their unpaid principal balance, less discount when applicable. 4. Investments Investments are carried at fair value. Realized and unrealized gains and losses are reflected in the statement of revenues, expenses and changes in net assets. 5. Bond Costs and Accreted Values Payable Bond and note issue costs are deferred and amortized principally on a bonds outstanding method. Interest is generally payable semiannually. 6. Allowance for Possible Loss on Loans Loans receivable are collateralized by real property; obligations of the United States of America or of certain specified agencies or instrumentalities thereof; or FHA insured, Veterans Administration (VA) guaranteed or certain privately insured mortgages; or letters of credit, or guarantees from AA or AAA rated lenders. Periodic evaluation of loans receivable is made to determine if a charge against operations for possible loan losses will be required. No allowance was considered necessary at December 31, 2008. 7. Operating Expense Allocation General and administrative expenses of operating the Division are allocated among the various programs. The amounts allocated are limited by bond program indentures and certificates. 16
  17. 17. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE C - SUMMARY OF ACCOUNTING POLICIES - Continued 8. Interfund Accounts The general bond certificates or trust indentures, which establish the various programs, provide for certain transfers of cash from one fund to another and from a program to the Division’s general operating accounts. It is frequently not practicable nor possible to affect a transfer as of the balance sheet date. Thus, there are a number of amounts due from or due to the various funds or programs at any given time. 9. Combined Financial Statements All of the various programs are required by documents to have a number of specific funds established to account for transactions. Therefore, each column contains the total amounts for the various funds and accounts required, and the combined financial statements contain the total of all funds of the Division. Since the assets of certain funds are restricted by the legislative authority, the general bond and note certificates or trust indentures, the totaling of the funds and accounts, including assets therein, is for financial reporting purposes in accordance with generally accepted accounting principles and does not indicate that combined assets are available in any manner other than that provided by the legislature or the general bond and note certificates or trust indentures. 10. Comparative Data Comparative total data for the prior year represent summarized totals only and have been presented in the accompanying combined financial statements in order to provide an understanding of changes in the Division’s combined financial position and operations and is not meant to be a complete financial statement presentation. Certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year’s presentation. 11. Cash and Investments For purposes of cash flows, the Division considers all short-term highly liquid investments to be investments regardless of the maturity date. 12. Accrued Interest Receivable Interest is accrued based upon the principal amount outstanding. Accrued interest income is discontinued on loans when, in the opinion of management, collection of such interest income becomes doubtful. When payment of interest is provided for pursuant to the terms of loan insurance or guarantees, accrual of interest on delinquent loans is continued. 17
  18. 18. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE C - SUMMARY OF ACCOUNTING POLICIES - Continued 13. Bond Redemptions During the period ended December 31, 2008, the Division redeemed a total of $17,013,000 of debt, pursuant to provisions of the related agreements, which permit surplus revenues, resulting primarily from mortgage loan payments, to be used to retire the obligations. The accelerated amortization of costs of issuance resulting from these surplus revenue redemptions is included in amortization of issue costs. 14. Arbitrage Rebate Arbitrage rebate to the Internal Revenue Service is recognized in the statement of earnings as a reduction of interest income on investments. 15. Proprietary Accounting and Financial Reporting Governmental Accounting Standards Board (GASB) Statement No. 20 requires the Division to apply all applicable GASB pronouncements and, unless they conflict with or contradict GASB pronouncements, all Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins issued on or before November 30, 1989. As permitted by the Statement, the Division has elected not to apply FASB pronouncements issued after that date. 16. Using Estimates In preparing the financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. 17. Accounting for Compensated Absences Compensated absences are accounted for in accordance with Governmental Accounting Standards Board (GASB) Statement 16, Accounting for Compensated Absences, which requires that a liability for compensated absences relating to services already rendered and that are not contingent on a specified event be accrued as employees earn the rights to the benefits. Compensated absences relating to future services or that are contingent on a specified event will be accounted for in the period those services are rendered or those events take place. 18
  19. 19. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE C - SUMMARY OF ACCOUNTING POLICIES - Continued 18. Accounting and Financial Reporting for Certain Grants Grants are accounted for in accordance with Governmental Accounting Standards Board (GASB) Statement 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, which requires that cash pass through grants received by a governmental entity, be reported as revenues and expenditures in the Division’s financial statements. 19. Interest Rate Swap Agreements The Division enters into interest rate swap agreements with rated swap counterparties in order to provide lower cost fixed rate financing for its single-family loan production needs through synthetic fixed rate structures. The interest differentials to be paid or received under such swaps are recognized as an increase or decrease in interest expense of the related bond liabilities. 20. Recent Accounting Pronouncements In June 2008, GASB issued statement number 53, Accounting and Financial Reporting for Derivative Instruments, which addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments. The requirements of this statement are effective for financial statements for periods beginning after June 15, 2009. Management believes the adoption of GASB 53 will not have a material impact on the Division’s basic financial statements. 21. Reclassifications Certain reclassifications have been made to the prior year combined totals to conform to the current year presentation. These reclassifications had no effect on the change in net assets. 19
  20. 20. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE D - INVESTMENTS Investments at fair value consist of the following at December 31, 2008: General Funds Single-Family Multi-Unit Total Short-term investments $111,466,253 $ 3,652,125 $ 55,278,330 $170,396,708 U.S. Treasury bonds 2,407,219 - - 2,407,219 Investment agreements - 11,118,064 3,543,095 14,661,159 Federal National Mortgage Association 16,684,568 38,067,076 65,594,335 120,345,979 Federal Home Loan Mortgage Corporation - 10,458,936 - 10,458,936 Government National Mortgage Association 5,288,951 122,232,749 67,999,749 195,521,449 $135,846,991 $185,528,950 $192,415,509 $513,791,450 Each program’s documents and the trust agreements allow the Division to invest funds in (a) direct and general obligations of the United States or any of its states; (b) obligations which are guaranteed by the United States; (c) obligations of various agencies and instrumentalities of the United States; (d) insured or secured certificates of deposit and interest bearing time deposits; (e) repurchase agreements with certain institutions; (f) public housing bonds issued by public agencies or municipalities; (g) certain commercial or finance company paper; (h) interests in short-term investment trust funds restricted to investment obligations described above; or (i) general obligations of investment providers under investment agreements. Investment Risk Factors There are many factors that can affect the value of investments. Some, such as custodial credit risk and concentration of credit risk may affect fixed income securities, which are particularly sensitive to credit risks and changes in interest rates. Credit Risk Fixed income securities are subject to credit risk, which is the chance that a bond issuer will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make these payments will cause security prices to decline. The circumstances may arise due to a variety of factors such as financial weakness, bankruptcy, litigation and/or adverse political developments. A bond’s credit quality is an assessment of the issuer’s ability to pay interest on the bond, and ultimately, to pay the principal. Credit quality is evaluated by one of the independent bond-rating agencies, for example Moody’s Investors Service (Moody’s) or Standard and Poor’s (S&P). The lower the rating, the greater the chance - in the rating agencies opinion – that the bond issuer will default, or fail to meet its payment obligations. Generally, the lower a bond’s credit rating, the higher its yield should be to compensate for the additional risk. 20
  21. 21. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE D – INVESTMENTS - Continued Credit Risk - Continued Certain fixed income securities, including obligations of the U.S. government or those explicitly guaranteed by the U.S. government, are not considered to have credit risk. Investment agreements meet the requirements of the rating agency providing the rating on the related debt issue, and of the Division’s investment policy. Investment agreements generally provide for collateralization of balances in the event of a rating agency downgrade of the institution below certain rating requirements. The credit risk profile for investments at December 31, 2008 is a follows: General Funds Single-Family Multi-Unit Total Investment type Short-term investments Aaa $97,466,252 $ 3,652,125 $55,278,330 $156,396,707 B 14,000,001 - - 14,000,001 Total short-term investments 111,466,253 3,652,125 55,278,330 170,396,708 Investment agreements NR – Aaa - 1,291,638 551,270 1,842,908 NR – Aa3 - 1,354,602 775,181 2,129,783 NR – A2 - 6,705,668 - 6,705,668 NR - A3 - 1,760,656 994,314 2,754,970 NR - Ba1 - - 732,577 732,577 NR – Ca - 5,500 489,753 495,253 Total investment agreements $ - $ 11,118,064 $ 3,543,095 $ 14,661,159 Federal National Mortgage Association Aaa $16,684,568 $ 38,067,076 $65,594,335 $120,345,979 Federal Home Loan Mortgage Corporation Aaa $ - $ 10,458,936 $ - $ 10,458,936 Government National Mortgage Association Aaa $ 5,288,951 $122,232,749 $67,999,749 $195,521,449 21
  22. 22. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE D - INVESTMENTS - Continued Custodial Credit Risk Custodial credit risk is the risk that in the event of the failure of the custodian, the investments may not be returned. The Division’s investments are exposed to custodial credit risk. These investments may be uninsured and unregistered investments for which the securities are held by a counterparty or by its agent or trust department, but not in the Division’s name. Housing Division policy limits money market fund custodial risks by diversifying the number of money market funds utilized. No securities backing money market funds, into which the Housing Division invests, are currently held by the agency’s bond trustee. Concentration of Credit Risk Concentration of credit risk is the risk associated with having too much invested in a few individual issuers, thereby exposing the organization to greater risks resulting from adverse economic, political, regulatory, geographic, or credit developments. The Division currently places no limit on the amount the Division may invest in any one issuer provided their ratings are in the highest two general ratings categories. However, the Division monitors rating changes on all issuers. If warranted, more concentrated investments may have to be diluted to alternative investment providers. As of December 31, 2008, the Division’s investments in the Fannie Mae and Ginnie Mae are 23.42% and 38.05%, respectively, of the Division’s total investments. The Fannie Mae and Ginnie Mae investments are in mortgage backed securities matched to the interest rate and maturity of the underlying bonds. Because such investments are matched to concomitant liabilities, the Division is less concerned about a concentration risk on these investments. 22
  23. 23. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE D - INVESTMENTS - Continued Interest Rate Risk Interest rate risk is the risk that the value of fixed income securities will decline because of rising interest rates. The prices of fixed income securities with a longer time to maturity, measured by duration, tend to be more sensitive to changes in interest rates and, therefore, more volatile than those with shorter durations. As a means of limiting its exposure to fair value losses arising from the recent economic recession, the Division’s management has chosen to overweight its current portfolio balance in favor of money market investments. In addition, current policy limits new U.S. Treasury instruments to durations of two years or less. Maturities in Years Less than More than No Fair Value 1 1-5 6-10 10 Maturity Short-term investments $170,396,708 $ - $ - $ - $ - $170,396,708 U.S. Treasury securities 2,407,219 - - 2,407,219 - - U.S. agencies 326,326,364 - - 9,700,583 316,625,781 - Investment agreements 14,661,159 3,856,052 - - 10,805,107 - $513,791,450 $3,856,052 $ - $12,107,802 $327,430,888 $170,396,708 NOTE E - LOANS RECEIVABLE Under the various single-family mortgage purchase programs and for single-family mortgages purchased from the general funds, mortgage loans receivable have initial terms which may extend to 30 years. The various multi-unit mortgage loans receivable are represented by notes collateralized by deeds of trust and general obligations of lending institutions. Mortgage loans receivable consist of the following: General Combined Interest Rates Funds Single-Family Multi-Unit Total Single-Family Mortgage Programs 4.5%-10.98% $25,468,398 $31,235,419 $ - $ 56,703,817 Multi-Unit Programs 4.125%-11.25% 539,407 - 522,876,099 523,415,506 Less unamortized discount (581,595) - - (581,595) $25,426,210 $31,235,419 $522,876,099 $579,537,728 Due within one year $ 837,886 $ 390,864 $ 4,560,802 $ 5,789,552 23
  24. 24. Nevada Housing Division NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants' review report) NOTE F - BONDS PAYABLE Bonds payable consist of the following: Original Maturity Date Amount Outstanding Single-Family Bonds: 1996 Issue A, 4.80%-6.25% April 1, 2028 $ 25,000,000 $ 60,000 1996 Issue E, 4.35%-6.20% October 1, 2028 25,000,000 485,000 1997 Issue A, 4.30%-6.15% April 1, 2029 23,750,000 85,000 1997 Issue A, 7.00%, Taxable October 1, 2014 1,250,000 25,000 1997 Issue B, 4.70%-6.15% April 1, 2029 23,750,000 45,000 1997 Issue B, 7.07%, Taxable April 1, 2012 1,250,000 70,000 1997 Issue C, 4.10%-5.75% April 1, 2029 29,085,000 1,210,000 1998 Issue A, 4.10%-5.40% April 1, 2030 27,000,000 1,750,000 1998 Issue A, 5.92%, Taxable April 1, 2012 3,000,000 560,000 1998 Issue B, 4.10%-5.50% April 1, 2030 27,000,000 2,225,000 1998 Issue B, 6.09%, Taxable April 1, 2012 3,000,000 250,000 1998 Issue C, 3.80%-5.25% October 1, 2030 14,000,000 1,340,000 1999 Issue A, 3.75%-5.30% April 1, 2030 30,000,000 1,810,000 1999 Issue B, 3.80%-5.25% April 1, 2031 27,000,000 1,915,000 1999 Issue C, 4.30%-5.85% April 1, 2031 25,000,000 1,600,000 1999 Issue D, 4.60%-6.30% October 1, 2031 35,000,000 340,000 2000 Issue A, 4.90%-6.35% April 1, 2032 27,000,000 685,000 2000 Issue A, 7.75%, Taxable October 1, 2020 3,000,000 430,000 2000 Issue B, 5.05%-6.15% April 1, 2032 31,500,000 710,000 2000 Issue B, 7.62%, Taxable October 1, 2020 3,500,000 315,000 2000 Issue C, 4.45%-5.98% April 1, 2032 29,650,000 1,380,000 2000 Issue C, 7.67%, Taxable October 1, 2020 3,295,000 740,000 2000 Issue D, 4.50%-5.875% April 1, 2032 14,525,000 985,000 2000 Issue D, 7.00%, Taxable October 1, 2020 475,000 105,000 2001 Issue A, 3.20%-5.50% October 1, 2032 23,400,000 1,690,000 2001 Issue B, 2.95%-5.65% October 1, 2032 35,000,000 2,580,000 2001 Issue C, 2.60%-5.25% October 1, 2032 15,000,000 1,850,000 2002 Issue A, 3.10% - 5.65% April 1, 2033 30,000,000 175,000 2006 Issue A, 4.95% October 1, 2033 18,000,000 16,955,000 2006 Issue A, Variable April 1, 2037 4,500,000 4,500,000 2006 Issue B, 3.80%-4.65% October 1, 2036 18,000,000 16,665,000 2006 Issue B, Variable October 1, 2041 4,500,000 4,500,000 2007 Issue A, 3.75%-4.90% April 1, 2037 18,000,000 17,545,000 2007 Issue A, Variable April 1, 2042 4,500,000 4,500,000 2007 Issue B, 3.85%-5.30% April 1, 2047 32,000,000 31,475,000 24
  25. 25. Nevada Housing Division NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants' review report) NOTE F - BONDS PAYABLE - Continued Original Maturity Date Amount Outstanding Single-Family Bonds: - Continued 2007 Issue B, Variable April 1, 2042 $ 8,000,000 $ 8,000,000 2008 Issue A, 3.05%-5.875% April 1, 2038 34,300,000 34,300,000 2008 Issue A, Variable October 1, 2039 14,700,000 14,700,000 2008 Issue B, 2.10%-5.55% April 1, 2039 17,500,000 17,500,000 2008 Issue B, Variable April 1, 2039 7,500,000 7,500,000 Total single-family bonds 717,930,000 203,555,000 Multi-Unit Bonds: 1996 B Mesquite Bluffs, Variable May 1, 2028 7,075,000 6,255,000 1996 Oakmont Fort Apache, Variable October 1, 2026 7,800,000 7,800,000 1996 Oakmont Flamingo, Variable October 1, 2026 9,500,000 9,500,000 1997 Fremont Meadows, Variable October 1, 2027 3,350,000 3,060,000 1997 Austin Crest, 5.50%-5.80% April 1, 2031 15,750,000 13,760,000 1997 Maryland Villas, Variable, Taxable October 1, 2030 735,000 50,000 1997 Maryland Villas, Variable October 1, 2030 4,165,000 4,140,000 1997 Judith Villas, Variable, Taxable October 1, 2030 975,000 345,000 1997 Judith Villas, Variable October 1, 2030 5,525,000 5,490,000 1997 Joshua Villas, Variable, Taxable October 1, 2030 1,200,000 800,000 1997 Joshua Villas, Variable October 1, 2030 6,800,000 4,770,000 1998 Cheyenne Pointe, 6.46%, Taxable April 1, 2010 1,545,000 235,000 1998 Cheyenne Pointe, 5.45%-5.50% April 1, 2030 8,755,000 8,755,000 1998 Boulder Creek, 6.44%, Taxable October 1, 2011 2,245,000 540,000 1998 Boulder Creek, 5.375%-5.50% April 1, 2031 12,725,000 12,725,000 1998 Vintage Hills, 7.64%, Taxable October 1, 2010 1,460,000 332,000 1998 Vintage Hills, 5.79% October 1, 2030 7,740,000 7,740,000 1998 Spanish Hills, 6.26%, Taxable April 1, 2014 1,845,000 810,000 1998 Spanish Hills, 5.25%-5.35% October 1, 2031 6,655,000 6,655,000 1998 Autumn Ridge, 5.25%-5.35% October 1, 2026 6,600,000 6,570,000 1998 South Valley, 6.24%, Taxable April 1, 2013 2,620,000 1,070,000 1998 South Valley, 5.25%-5.375% October 1, 2031 11,380,000 11,380,000 1998 Capistrano Pines, 6.29%, Taxable April 1, 2012 1,445,000 380,000 1998 Capistrano Pines, 5.25% October 1, 2031 8,185,000 8,185,000 1998 Casa Sorrento, 6.29%, Taxable October 1, 2011 1,645,000 350,000 1998 Casa Sorrento, 5.25% October 1, 2031 9,335,000 9,335,000 1998 Campaige Place, 4.60%-5.55% October 1, 2028 8,000,000 6,675,000 1998 Hilltop Villas, Variable, Taxable April 1, 2031 570,000 570,000 1998 Hilltop Villas, Variable April 1, 2031 3,220,000 3,200,000 1998 Stewart Villas, Variable, Taxable April 1, 2031 585,000 585,000 1998 Stewart Villas, Variable April 1, 2031 3,310,000 3,290,000 25
  26. 26. Nevada Housing Division NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants' review report) NOTE F - BONDS PAYABLE - Continued Original Maturity Date Amount Outstanding Multi-Unit Bonds: - Continued 1999 Studio Three, Variable October 1, 2030 $ 8,500,000 $ 5,670,000 1999 Diamond Creek, 7.60%, Taxable April 1, 2014 3,250,000 1,620,000 1999 Diamond Creek, 5.90%-6.05% April 1, 2032 16,245,000 16,245,000 1999 Bonanza Gardens, 7.88%, Taxable October 1, 2011 915,000 220,000 1999 Bonanza Gardens, 6.30% April 1, 2030 5,185,000 5,185,000 1999 Parkway Silverado, Variable, Taxable October 15, 2032 2,240,000 1,140,000 1999 Parkway Silverado, Variable October 15, 2032 12,710,000 12,710,000 1999 Apache Pines, Variable, Taxable October 15, 2032 2,085,000 860,000 1999 Apache Pines, Variable October 15, 2032 11,815,000 11,815,000 1999 Palo Verde, 8.02%, Taxable April 1, 2011 1,050,000 345,000 1999 Palo Verde, 7.25% April 1, 2031 5,950,000 5,950,000 2000 Whispering Palms, 6.20% April 1, 2022 4,375,000 3,295,000 2000 Whispering Palms, 6.30% April 1, 2032 5,240,000 4,950,000 2000 Summerhill, 4.50%-6.00% October 1, 2030 10,200,000 9,030,000 2000 City Center Apts., Variable April 1, 2032 9,350,000 7,440,000 2000 Horizon Pines Sr. Apts., Variable April 15, 2033 8,750,000 8,750,000 2000 Banbridge, Variable, Taxable October 1, 2032 700,000 335,000 2000 Banbridge, Variable October 1, 2032 3,960,000 3,960,000 2000 Horizon Sr. Apts., Variable October 15, 2033 10,840,000 10,840,000 2000 Orchard Club, 7.10%, Taxable April 1, 2012 1,835,000 800,000 2000 Orchard Club, 5.85%-5.95% April 1, 2034 16,500,000 16,500,000 2000 Vintage Desert Rose, 5.15%-5.80% April 1, 2033 8,170,000 8,010,000 2000 Rancho Mesa, 5.75% April 1, 2031 11,260,000 11,160,000 2000 CitiVista, 5.45%-5.70% October 1, 2033 8,250,000 7,655,000 2001 Ambrosia Sr. Apts., 5.45% April 1, 2034 9,190,000 9,190,000 2001 Ambrosia Sr. Apts., 6.06% Taxable April 1, 2010 810,000 195,000 2001 Centennial Park, 5.45% October 1, 2036 5,100,000 5,100,000 2001 Centennial Park, 6.47%, Taxable April 1, 2013 800,000 330,000 2001 Lake Vista, 3.35%-5.50% April 1, 2033 2,750,000 2,125,000 2001 Parkside Gardens, 5.48% April 1, 2037 9,580,000 9,580,000 2001 Parkside Gardens, 5.48%-6.43%, Taxable April 1, 2014 1,690,000 880,000 2001 Villanova, 5.40%-5.42% April 15, 2035 18,905,000 18,905,000 2001 Villanova, 5.56%, Taxable April 15, 2009 995,000 100,000 2001 Silver Creek, 5.40%-5.42% April 15, 2035 12,860,000 12,860,000 2001 Silver Creek, 5.56%, Taxable April 15, 2009 680,000 70,000 2002 City Center-Las Vegas, Variable April 15, 2035 14,000,000 13,900,000 2002 Silver Pines, Variable October 15, 2035 11,800,000 11,800,000 2002 Oakmont at Reno, Variable April 15, 2027 4,350,000 4,350,000 2002 St. Rose Seniors, Variable April 15, 2027 14,770,000 14,770,000 26
  27. 27. Nevada Housing Division NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants' review report) NOTE F - BONDS PAYABLE - Continued Original Maturity Date Amount Outstanding Multi-Unit Bonds: - Continued 2002 Bluffs at Reno, Variable October 15, 2035 $ 17,850,000 $ 17,850,000 2002 Bluffs at Reno, Variable, Taxable October 15, 2035 3,150,000 2,150,000 2002 Sunset Canyon, 5.20%-5.61% April 1,2036 10,965,000 10,875,000 2002 Sunset Canyon, 5.11%, Taxable April 1, 2017 1,935,000 1,540,000 2002 Los Pecos, 2.90%-5.15% April 1, 2036 8,800,000 8,450,000 2002 Los Pecos, 5.65%, Taxable April 1, 2036 2,200,000 2,115,000 2002 Whittell Pointe, 5.15% April 1, 2036 7,045,000 7,045,000 2002 Whittell Pointe, 5.25%, Taxable April 1, 2016 1,245,000 900,000 2002 Wood Creek, 5.25% October 1, 2034 7,580,000 7,580,000 2002 Wood Creek, 4.00%-5.41%, Taxable October 1, 2014 1,340,000 845,000 2003 Pinewood, 4.95%-5.05% April 1,2036 26,985,000 26,965,000 2003 Pinewood, 3.83%, Taxable October 1, 2013 4,765,000 2,440,000 2003 Community Gardens, 3.10%-5.10% October 1, 2038 7,435,000 6,970,000 2003 Cedar Village, 3.10%-5.10% October 1, 2038 6,205,000 5,825,000 2003 L'Octaine Urban, Variable April 1, 2036 4,120,000 3,760,000 2003 Whittell Pointe II, 2.60% - 4.85% April 1, 2037 7,500,000 7,225,000 2003 Zephyr Pointe, 2.60%-4.85% April 1, 2037 15,160,000 14,695,000 2004 Glenbrook Terrace, 4.20%-5.33% April 1, 2037 18,000,000 17,620,000 2004 Roman Villas, 4.00%-4.80% April 1, 2040 10,380,000 9,875,000 2004 Sundance Village, Variable October 1, 2035 22,385,000 21,685,000 2005 Sierra Pointe, Variable April 15, 2038 9,985,000 9,465,000 2005 Sonoma Palms, Variable April 15, 2038 16,300,000 16,300,000 2005 Southwest Village, Variable October 15, 2038 19,000,000 17,000,000 2006 Riverwood, 3.90%-4.75% April 1, 2039 9,790,000 4,360,000 2007 Golden Apartments, Variable October 1, 2037 8,200,000 8,200,000 2007 Centennial Park, 4.90% April 1, 2037 2,040,000 2,005,000 2007 Vintage at Laughlin, Variable April 15, 2041 11,000,000 11,000,000 2007 Vista Creek, Variable April 15, 2041 21,000,000 21,000,000 2007 HELP Owens Apartments, Variable October 1, 2042 5,545,000 5,545,000 2007 Arby Road Apartments, 5.35%-6.10% April 1, 2041 15,350,000 15,350,000 2008 Sierra Manor, 6.95% June 1, 2041 11,000,000 11,000,000 Total multi-unit bonds 754,650,000 701,627,000 Combined total $ 1,472,580,000 $ 905,182,000 27
  28. 28. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS December 31, 2008 (See accompanying accountants’ review report) NOTE F - BONDS PAYABLE - Continued A substantial portion of the bonds have serial maturities and/or provisions for early redemption at the option of the Division. Scheduled bond maturities at June 30, 2008, for the following periods, are: Combined Single-Family Multi-Unit Total Periods ending June 30, 2009 $ 2,490,000 $ 11,957,000 $ 14,447,000 2010 3,130,000 6,923,000 10,053,000 2011 3,585,000 11,286,000 14,871,000 2012 3,595,000 8,177,000 11,772,000 2013 3,575,000 8,846,000 12,421,000 2014-2018 19,525,000 58,346,000 77,871,000 2019-2023 25,445,000 116,946,000 142,391,000 2024-2028 32,300,000 122,991,000 155,291,000 2029-2033 37,075,000 139,403,000 176,478,000 2034-2038 38,280,000 157,865,000 196,145,000 2039-2043 11,540,000 60,165,000 71,705,000 2044-2048 2,750,000 - 2,750,000 $183,290,000 $702,905,000 $886,195,000 Total interest expense for the period ended December 31, 2008 was $19,427,514. Many bonds payable have variable rates of interest that are not based on a defined spread. Instead, tax- exempt bonds track the SIFMA Index while the federally taxable debt tracks the one-month LIBOR Index. The single-family bonds are payable from, and secured by, a pledge of: a. The proceeds derived from the sale of bonds. b. The rights and interest of the Division in all mortgage loans purchased by the Division under the various bond certificates. c. Revenues, which primarily include (a) mortgage repayments and the net income, if any, derived by the Division from premises owned by the Division as a result of foreclosure or other action taken in the event of a default on such a mortgage loan; (b) curtailments, consisting generally of all amounts representing monthly principal payments with respect to mortgage loans which are received in advance of the scheduled amortization thereof; and (c) all earnings realized by the investment of monies in all funds and accounts. d. All funds and accounts created by the various bond certificates, including the bond reserve fund, the mortgage loan reserve fund and monies and securities therein. The multi-unit bonds are payable from, and secured by, a pledge of: a. The proceeds derived from the sale of bonds. b. All earnings realized from the investment of bond proceeds. c. After permanent financing: (a) all revenues received from the development including housing assistance payments and rental payments made by tenants; (b) the notes receivable, collateralized by deeds of trust; and (c) the rights of the Division to the FHA insurance, draws on bank letters of credit, private mortgage insurance, hazard insurance and condemnation proceeds. 28
  29. 29. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE G - INTEREST RATE SWAP AGREEMENTS Objective The Division has entered into six pay-fixed, receive-variable interest rate swaps in order to provide lower cost fixed rate financing for its single-family loan production needs. Division policy requires hedging of all variable rate debt issuances through synthetic fixed rate structures. Terms, Fair Values and Credit Risk The terms, fair values, and credit ratings of the outstanding swaps as of December 31, 2008, were as follows. The notional amounts of the swaps match the principal amounts of the associated debt. Except as discussed under rollover risk, the Division’s swap agreements contain scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the associated “bonds payable” category. Associated Current Fixed Termi- Counter- Single-Family Notional Effective Rate Variable Rate nation Party Fair Bond Issue Amount Date Paid Received Date Rating Value 68% of USD- 2006 Issue A $ 4,500,000 9/23/08 4.720% LIBOR-BBA 4/1/37 Aaa ($707,394) 68% of USD- 2006 Issue B 4,500,000 9/23/08 4.230% LIBOR-BBA 10/1/41 Aaa (592,351) 68% of USD- 2007 Issue A 4,500,000 9/23/08 4.246% LIBOR-BBA 4/1/42 Aaa (602,692) 68% of USD- 2007 Issue B 8,000,000 10/9/07 4.340% LIBOR-BBA 4/1/42 Aaa (1,126,767) 68% of USD- 2008 Issue A 14,700,000 4/3/08 3.736% LIBOR-BBA 10/1/39 Aaa (1,476,660) 68% of USD- 2008 Issue B 7,500,000 9/25/08 3.670% LIBOR-BBA 4/1/39 Aaa (752,191) Total single- family $43,700,000 ($5,258,055) Credit Risk All of the Division’s swaps rely upon the performance of the third parties who serve as swap counterparties, and as a result the Division is exposed to credit risk – the risk that a swap counterparty fails to perform according to contractual obligations. The appropriate measurement of this risk at the reporting date is the fair value of the swaps as detailed above. To mitigate the risk, the Division maintains strict credit standards for swap counterparties, and requires the counterparties to be rated in the AA or higher category by either Moody’s or Standard and Poor’s at the time the contract is entered into. The Division has executed its swap transactions with a single counterparty. That counterparty is rated AAA/Aaa. The swap agreements contain a collateral agreement with the counterparty, and require full collateralization of the fair value of the swap should the counterparty’s credit rating fall below the requirement. Eligible collateral on the swaps can include cash or U.S. government securities held by a third-party custodian. 29
  30. 30. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE G - INTEREST RATE SWAP AGREEMENTS - Continued Terms, Fair Values and Credit Risk - Continued Basis Risk The Division is exposed to basis risk when the relationship between LIBOR and BMA converges, changing the synthetic rate on the bonds. As of December 31, 2008, the BMA rate was .90% and 68% of LIBOR was .30%. When exposed to basis risk, the net interest expense incurred on the combination of the swap agreement and the associated variable rate debt may be higher or lower than anticipated. Termination Risk The Division’s swap agreements do not contain any out-of-the-ordinary termination events that would expose it to significant termination risk. In keeping with market standards, the Division or the counterparty may terminate each swap if the other party fails to perform under the terms of the contract. In addition, the swap documents allow either party to terminate in the event of a significant loss of creditworthiness. The Division views the likelihood of such events to be remote at this time. If at the termination a swap has a negative value, the Division would be liable to the counterparty for a payment equal to the fair value of such swap. Rollover Risk The Division is exposed to rollover risk on swaps that mature or may be terminated at the counterparty’s option prior to the maturity of the associated debt. As of December 31, 2008, the Division is not exposed to any rollover risk. Swap Payments and Associated Debt Using interest rates as of June 30, 2008, debt service requirements of the Division’s outstanding variable- rate debt and net swap payments are as follows. As rates vary, variable-rate interest rate payments on the bonds and net sweep payments will change. Swaps, Principal Interest Net Total Years ending June 30, 2009 $ - $ 633,500 $ 884,043 $ 1,517,543 2010 - 633,500 884,043 1,517,543 2011 - 633,500 884,043 1,517,543 2012 - 633,500 884,043 1,517,543 2013 - 633,500 884,043 1,517,543 2014-2018 - 3,167,500 4,420,215 7,587,715 2019-2023 - 3,167,500 4,420,215 7,587,715 2024-2028 - 3,167,500 4,420,215 7,587,715 2029-2033 4,575,000 2,937,375 4,149,128 11,661,503 2034-2038 20,725,000 1,719,987 2,418,624 24,863,611 2039-2043 10,900,000 183,313 270,408 11,353,721 $36,200,000 $17,510,675 $24,519,020 $78,229,695 30
  31. 31. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE H - CHANGES IN LONG-TERM LIABILITIES Long-term liabilities of Division consist of bonds payable to debt holders for the purchase of mortgage loans. Combined Single-Family Multi-Unit Total Bonds payable Balances at July 1, 2008 $183,290,000 $702,905,000 $886,195,000 Increase in debt 25,000,000 11,000,000 36,000,000 Decrease in debt (4,735,000) (12,278,000) (17,013,000) Balances at December 31, 2008 $203,555,000 $701,627,000 $905,182,000 Due within one year $ 1,355,000 $ 3,689,000 $ 5,044,000 NOTE I - RESTRICTED ASSETS Substantially all investments in the Single-Family and Multi-Unit Mortgage Purchase Funds are held by trustees and are restricted as to use as required by the various bond certificates or trust indentures. Such restricted assets are included in funds and accounts within the program funds as established by the bond certificates. Such funds typically include, among others, bond reserve funds, capital reserve funds, debt service funds, and mortgage loan reserve funds. Restricted investments and interest receivable included in the various programs of the Division as of December 31, 2008 are as follows: General Combined Fund Single-Family Multi-Unit Total Investments $135,802,780 $1,746,628 $ - $137,549,408 Interest receivable 264,279 21,291 - 285,570 $136,067,059 $1,767,919 $ - $137,834,978 31
  32. 32. Nevada Housing Division NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2008 (See accompanying accountants’ review report) NOTE J - DEFINED BENEFIT PENSION PLAN 1. Plan Description The Nevada Housing Division contributes to the Public Employees’ Retirement System (PERS), a cost- sharing, multiple-employer, defined benefit pension plan administered by the State of Nevada. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The State of Nevada issues a publicly available financial report that includes financial statements and required supplementary information for PERS. That report may be obtained by writing to the Public Employees’ Retirement System of Nevada, 693 West Nye Lane, Carson City, Nevada 89703 or by calling (775) 687-4200. 2. Funding Policy Under the plan, the Division employees choose to contribute 10.50% of the employee’s gross salary which the employer matches, or the employee may choose to have the employer pay the total contribution which is then 20.50% of the employee’s gross salary. The employee choosing to participate in the employer-paid pension plan is paid a lower salary. The actuarially determined funding requirement contribution rate for the fiscal year was 20.50%. The contribution requirements of plan members and the Division are established and may be amended by the Nevada State Legislature. The Division’s contributions to PERS for the periods ended June 30, 2008, 2007 and 2006 were $201,131 $167,951 and $188,309, respectively, and were equal to the required contributions for each period. NOTE K - OPERATING LEASE The following is a schedule of future minimum rental payments to be made under non-cancelable operating leases for the Division’s office facilities. The Carson City lease will expire in April 2011; the Las Vegas office lease will expire September 30, 2010. Periods ending June 30, 2009 $172,083 2010 118,848 2011 85,379 $376,310 Total rent expense for the period ended December 31, 2008 was $77,640. 32
  33. 33. REQUIRED SUPPLEMENTAL INFORMATION

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