Fannie Mae 2001 Annual Report Download - page 34

{ 32 } Fannie Mae 2001 Annual Report
insurance, and recourse. The decline in the proportion of
loans with primary mortgage insurance is attributable to an
increase in loans with loan-to-value ratios below 80 percent.
In 2001, Fannie Mae had more refinance loan acquisitions,
which traditionally have a greater proportion of loans with
loan-to-value ratios below 80 percent. Fannie Mae does not
require primary mortgage insurance on loans with loan-to-
value ratios below 80 percent. In addition, rising property
values enabled some borrowers with Fannie Mae loans to
cancel their outstanding mortgage insurance subject to
Fannie Mae’s mortgage insurance cancellation requirements.
The proportion of loans with pool insurance and recourse
credit enhancements declined in 2001 because these
transactions were less prevalent in the market in 2001
than in prior periods. Credit enhancements, however,
absorbed a higher percentage of single-family credit losses
in 2001 than in 2000. During 2001, credit enhancements
absorbed $435 million, or 85 percent, of $512 million
in gross single-family losses. In comparison, credit
enhancements absorbed $349 million, or 80 percent, of
$435 million in gross single-family credit losses during 2000.
The application of various credit risk management strategies
throughout a loan’s life helped reduce credit-related losses in 2001
despite deteriorating economic conditions.
As shown in Table 6, single family credit-related losses
decreased $9 million, and Fannie Mae’s credit loss ratio
(the ratio of credit-related losses to the average amount of
mortgages owned or guaranteed) on its single-family book of
business decreased by .1 basis point in 2001 to .6 basis points
despite weaker economic conditions.
TABLE 6: SINGLE-FAMILY CREDIT-RELATED LOSSES
Year Ended December 31,
Dollars in millions 2001 2000 1999
Recoveries, net . . . . . . . . . . . . . . . . . . $(112) $(127) $(126)
Foreclosed property expenses . . . . . . 189 213 244
Credit-related losses . . . . . . . . . . . . . $77 $86 $118
Credit loss ratio . . . . . . . . . . . . . . . . . .006% .007% .011%
The reduction in single-family credit-related losses in 2001
was mainly due to an 11 percent or $24 million decline in
foreclosed property expenses. Although the number of
acquired properties increased slightly to 14,486 from
14,351 in 2000, average credit-related losses per foreclosed
single-family property acquisition fell to $3,500 from
$3,800 in 2000.
As part of its voluntary safety and soundness initiatives,
Fannie Mae discloses on a quarterly basis the sensitivity of
its future credit losses to an immediate 5 percent decline in
home prices. At September 30, 2001, the present value of
Fannie Mae’s sensitivity of net future credit losses to an
immediate 5 percent decline in home prices was $467 million,
taking into account the beneficial effect of third-party credit
enhancements. This amount reflects a gross credit loss
sensitivity of $1.349 billion before the effect of credit
enhancements, and is net of projected credit risk-sharing
proceeds of $882 million. The sensitivity of future credit
losses is calculated based on the present value of the
difference between credit losses in a baseline scenario and
credit losses assuming an immediate 5 percent decline in
home prices, followed by an increase in home prices at the
rate projected by Fannie Mae’s credit pricing models.
The risk profile for conventional single-family mortgages in
Fannie Mae’s portfolio and underlying MBS at the end of 2001
suggests Fannie Mae is well-positioned to manage through an
economic slowdown.
Fannie Mae tracks various trends in its total book of business
to monitor credit risk, including delinquencies, geographical
concentrations, loan-to-value ratios, mortgage product mix,
and loan age. Fannie Mae’s conventional single-family
serious delinquency rate increased to .49 percent at
December 31, 2001 from .45 percent at December 31, 2000.
The serious delinquency rate is based on the number of
single-family mortgages in Fannie Mae’s net portfolio or
mortgages underlying MBS for which it retains the primary
risk of loss and that are 90 or more days delinquent or in
foreclosure. The comparable serious delinquency rate for all
commercial banks was .79 percent and for Federal Housing
Administration loans was 2.83 percent. Table 7 summarizes
the single-family serious delinquency rates by region on
loans where Fannie Mae bears the primary risk.
TABLE 7: SINGLE-FAMILY SERIOUS DELINQUENCIES1
December 31,
2001 2000 1999
Northeast . . . . . . . . . . . . . . . . . . . . . . .58% .57% .67%
Southeast . . . . . . . . . . . . . . . . . . . . . . . .54 .49 .50
Midwest . . . . . . . . . . . . . . . . . . . . . . . . .49 .39 .37
Southwest . . . . . . . . . . . . . . . . . . . . . . .47 .40 .41
West . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 .38 .46
Total . . . . . . . . . . . . . . . . . . . . . . . .49% .45% .48%
1Single-family loans where Fannie Mae bears the primary risk.
The average current loan-to-value ratio on loans owned or
guaranteed by Fannie Mae was estimated at 59 percent at
year-end 2001, compared with 58 percent at year-end 2000.
Fannie Mae derived this estimate by using the current
outstanding loan balance on 11.7 million loans and
estimating the value of the underlying homes based on
Fannie Mae’s proprietary home price indices. The greater
the excess of property values over Fannie Mae’s outstanding