June 9, 2004

The Guam Housing Corporation (GHC) issued its audited financial statements for fiscal year ending September 30, 2002 eleven months after the June 30, 2003 deadline.

In 2001, the audited statements issued by CPA firm J. Scott Magliari and Co. expressed warning on the viability of the GHC as a “going concern,” meaning GHC’s ability to continue operations and remain in business was doubtful. The GHC was also in default on its $13.65 million loan to the Government of Guam.

In 2002, GHC emerged from the verge of bankruptcy due to several factors: the recall of certain mortgaged revenue bonds, the forgiveness of the government loan and significant reduction in staff personnel.

In 1998, GHC issued $50 million in tax-exempt mortgage revenue bonds in conjunction with the proposed 400-unit Lada Estates housing project. For a variety of economic reasons, GHC was only able to issue $6.6 million in mortgage loans. During 2002, the Trustees exercised its special mandatory redemption and recalled $44.2 million of the remaining bonds due to non-issuance of mortgage loans.

Public Law 26-123, passed by the 26 th Guam Legislature in August 2002, forgave the GHC’s outstanding loan to the Government of Guam of $13.65 million plus accrued interest of $517,000 for a total forgiveness of $14.2 million.

Expenses from operations dramatically decreased by 58% or $4.8 million from $8.2 million in 2001 to $3.4 million in 2002. Interest and bond amortization expenses declined by $1.7 million mainly due to the recall of the revenue bonds and total personnel declined from 30 employees to 13 employees with a corresponding reduction of $900,875 in salaries and benefits. With more aggressive collection on loans, bad debt expense dropped by $2.1 million.

Of the $6.2 million in delinquent loans at the end of FY 2002, $700,000 has been foreclosed while $3.6 million remain delinquent and were referred to legal counsel as of May 2004.

GHC has a liability of $10.5 million associated with the design of Lada Estates. The contractor is also suing for $4 million in interest. The resolution of this matter is unknown at this time. For further discussion of GHC initiatives see Management’s Discussion and Analysis.

The GHC report on compliance and internal controls had 11 findings, four from FY 2002 and seven repeat findings from prior years. Many of these findings include non-performing and delinquent employee loans, deferred loans that exceeded the maximum three-month extension, and loans with property subject to another mortgage, which were not documented.

Detailed descriptions of the findings can be found in the compliance report at www.guamopa.org.