Fannie Mae 2010 Annual Report Download - page 45

charter. The Charter Act sets forth the activities that we are permitted to conduct, authorizes us to issue debt
and equity securities, and describes our general corporate powers. The Charter Act states that our purposes are
to:
• provide stability in the secondary market for residential mortgages;
• respond appropriately to the private capital market;
• provide ongoing assistance to the secondary market for residential mortgages (including activities relating
to mortgages on housing for low- and moderate-income families involving a reasonable economic return
that may be less than the return earned on other activities) by increasing the liquidity of mortgage
investments and improving the distribution of investment capital available for residential mortgage
financing; and
• promote access to mortgage credit throughout the nation (including central cities, rural areas and
underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of
investment capital available for residential mortgage financing.
It is from these sections of the Charter Act that we derive our mission of providing liquidity, increasing
stability and promoting affordability in the residential mortgage market. In addition to the alignment of our
overall strategy with these purposes, all of our business activities must be permissible under the Charter Act.
Our charter authorizes us to: purchase, service, sell, lend on the security of, and otherwise deal in certain
mortgage loans; issue debt obligations and mortgage-related securities; and “do all things as are necessary or
incidental to the proper management of [our] affairs and the proper conduct of [our] business.”
Loan Standards
Mortgage loans we purchase or securitize must meet the following standards required by the Charter Act.
•Principal Balance Limitations. Our charter permits us to purchase and securitize mortgage loans secured
by either a single-family or multifamily property. Single-family conventional mortgage loans are subject
to maximum original principal balance limits, known as “conforming loan limits.” The conforming loan
limits are established each year based on the average prices of one-family residences.
In 2010, the national conforming loan limit for mortgages that finance one-family residences was
$417,000, with higher limits for mortgages secured by two- to four-family residences and in four
statutorily-designated states and territories (Alaska, Hawaii, Guam and the U.S. Virgin Islands). Higher
loan limits also apply in high-cost areas (counties or county-equivalent areas) that are designated by
FHFA annually. Our charter sets permanent loan limits for high-cost areas up to 150% of the national
loan limit ($625,500 for a one-family residence; higher for two- to four-family residences and in the four
statutorily-designated states and territories). Since early 2008, however, a series of legislative acts have
increased our loan limits for loans originated during a designated time period in high-cost areas, to up to
175% of the national loan limit ($729,750 for a one-family residence; higher for two- to four-family
residences and in the four statutorily-designated states and territories). These loan limits are currently in
effect for mortgages originated through September 30, 2011.
No statutory limits apply to the maximum original principal balance of multifamily mortgage loans that
we purchase or securitize. In addition, the Charter Act imposes no maximum original principal balance
limits on loans we purchase or securitize that are insured by FHA or guaranteed by the VA.
•Loan-to-Value and Credit Enhancement Requirements. The Charter Act generally requires credit
enhancement on any conventional single-family mortgage loan that we purchase or securitize if it has a
loan-to-value ratio over 80% at the time of purchase. We also do not purchase or securitize second lien
single-family mortgage loans when the combined loan-to-value ratio exceeds 80%, unless the second lien
mortgage loan has credit enhancement in accordance with the requirements of the Charter Act. The credit
enhancement required by our charter may take the form of one or more of the following: (1) insurance or
a guaranty by a qualified insurer of the over-80% portion of the unpaid principal balance of the mortgage;
(2) a seller’s agreement to repurchase or replace the mortgage in the event of default (for such period and
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