Fannie Mae 2004 Annual Report Download - page 152

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submissions and may require the servicer to take certain actions to mitigate the likelihood of delinquency or
default. For our investments in multifamily loans and properties, the primary asset management responsibilities
are performed by our DUS lenders. For our LIHTC investments, the primary asset management responsibilities
are performed by our LIHTC syndicator partners or third parties. These partners provide us with periodic
construction status updates and property operating information. We compare the information received to our
construction schedules, tax delivery schedules and industry standards to measure and grade project
performance.
We use proprietary models and analytical tools to periodically re-evaluate our multifamily mortgage credit
book of business, establish forecasts of credit performance and estimate future potential credit losses.
Information derived from our analyses is used to identify changes in risks and provide the basis for revising
policies, standards, pricing and credit enhancements.
We also have data on and manage multifamily mortgage credit risk at the loan level. We have data at the loan
level on approximately 90% of our multifamily mortgage credit book as of December 31, 2004, 2003 and
2002. Unless otherwise noted, the credit statistics provided for our multifamily mortgage credit book generally
include only mortgage loans in our portfolio, outstanding Fannie Mae MBS (excluding Fannie Mae MBS
backed by non-Fannie Mae mortgage-related securities) and credit enhancements that we provide, where we
have more detailed loan-level information.
Credit Loss Management
Single-Family
We manage problem loans to mitigate credit losses. If a mortgage loan does not perform, we work closely in
partnership with the servicers of our loans to minimize the frequency of foreclosure as well as the severity of
loss. We have developed detailed servicing guidelines and work closely with the loan servicers to ensure that
they take appropriate loss mitigation steps on a timely basis. Our loan management strategy begins with
payment collection and work-out guidelines designed to minimize the number of borrowers who fall behind on
their obligations and to help borrowers who are delinquent from falling further behind on their payments. We
seek alternative resolutions of problem loans to reduce the legal and management expenses associated with
foreclosing on a home.
In our experience, early intervention is critical to controlling credit losses. We offer Risk Profiler
SM
,an
internally-developed default prediction model, to our single-family servicers to monitor the performance and
risk of each loan and identify those loans that are most likely to default and require the most attention. Risk
Profiler uses credit risk indicators such as mortgage payment records, updated borrower credit data, current
property values and mortgage product characteristics to evaluate the risk of each loan. Most of the lenders that
service loans we buy or that back Fannie Mae MBS use Risk Profiler or a similar default prediction model.
We require our single-family servicers to pursue various resolutions of problem loans as an alternative to
foreclosure, including:
repayment plans in which borrowers repay past due principal and interest over a reasonable period of time
through a temporarily higher monthly payment;
loan modifications in which past due interest amounts, net of any borrower contributions, are added to the
loan principal amount and recovered over the remaining life of the loan, and other loan adjustments;
accepting deeds in lieu of foreclosure whereby the borrower signs over title to the property without the
added expense of a foreclosure proceeding; and
preforeclosure sales in which the borrower, working with the servicer, sells the home and pays off all or
part of the outstanding loan, accrued interest and other expenses from the sale proceeds.
The objective of the repayment plan and loan modification strategies is to allow borrowers who have
experienced temporary financial distress to remain in their homes and to avoid the losses associated with
foreclosure. The objective of the deed in lieu and preforeclosure sale strategies is to minimize the extra costs
associated with a traditional foreclosure by obtaining the borrower’s cooperation in resolving the default. We
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