Fannie Mae 2006 Annual Report Download - page 19

We operate in the secondary mortgage market where mortgages are bought and sold. We securitize mortgage
loans originated by lenders in the primary mortgage market into Fannie Mae MBS, which can then be readily
bought and sold in the secondary mortgage market. We also participate in the secondary mortgage market by
purchasing mortgage loans (often referred to as “whole loans”) and mortgage-related securities, including
Fannie Mae MBS, for our mortgage portfolio. By delivering loans to us in exchange for Fannie Mae MBS,
lenders gain the advantage of holding a highly liquid instrument that offers them the flexibility to determine
under what conditions they will hold or sell the MBS. By selling loans and mortgage-related securities to us,
lenders replenish their funds and, consequently, are able to make additional loans. Under our charter, we may
not lend money directly to consumers in the primary mortgage market.
OUR CUSTOMERS
Our principal customers are lenders that operate within the primary mortgage market where mortgage loans
are originated and funds are loaned to borrowers. Our customers include mortgage banking companies,
investment banks, savings and loan associations, savings banks, commercial banks, credit unions, community
banks, and state and local housing finance agencies. Lenders originating mortgages in the primary mortgage
market often sell them in the secondary mortgage market in the form of loans or in the form of mortgage-
related securities.
Our lender customers supply mortgage loans both for securitization into Fannie Mae MBS and for purchase
for our mortgage portfolio. During 2006, over 1,000 lenders delivered mortgage loans to us, either for
securitization or for purchase. We acquire a significant portion of our single-family mortgage loans from
several large mortgage lenders. During 2006, our top five lender customers, in the aggregate, accounted for
approximately 51% of our single-family business volume compared with 49% in 2005. Our top customer,
Countrywide Financial Corporation (through its subsidiaries), accounted for approximately 26% of our single-
family business volume in 2006 compared with 25% in 2005. Due to increasing consolidation within the
mortgage industry, we, as well as our competitors, seek business from a decreasing number of large mortgage
lenders. See “Item 1A—Risk Factors” for a discussion of the risks that this customer concentration poses to
our business.
BUSINESS SEGMENTS
We operate an integrated business that contributes to providing liquidity to the mortgage market and
increasing the availability and affordability of housing in the U.S. We are organized in three complementary
business segments:
• Our Single-Family Credit Guaranty (“Single-Family”) business works with our lender customers to
securitize single-family mortgage loans into Fannie Mae MBS and to facilitate the purchase of single-
family mortgage loans for our mortgage portfolio. Our Single-Family business has responsibility for
managing our credit risk exposure relating to the single-family Fannie Mae MBS held by third parties, as
well as managing and pricing the credit risk of the single-family mortgage loans and single-family Fannie
Mae MBS held in our own mortgage portfolio. Revenues in the segment are derived primarily from the
guaranty fees the segment receives as compensation for assuming the credit risk on the mortgage loans
underlying single-family Fannie Mae MBS and on the single-family mortgage loans held in our portfolio.
• Our Housing and Community Development (“HCD”) business works with our lender customers to
securitize multifamily mortgage loans into Fannie Mae MBS and to facilitate the purchase of multifamily
mortgage loans for our mortgage portfolio. Our HCD business also helps to expand the supply of
affordable housing by investing in rental and for-sale housing projects, including rental housing that is
eligible for federal low-income housing tax credits. Our HCD business has responsibility for managing
our credit risk exposure relating to the multifamily Fannie Mae MBS held by third parties, as well as
managing and pricing the credit risk of the multifamily mortgage loans and multifamily Fannie Mae MBS
held in our mortgage portfolio. Revenues in the segment are derived from a variety of sources, including
the guaranty fees the segment receives as compensation for assuming the credit risk on the mortgage
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