Fannie Mae 2001 Annual Report Download - page 49

Fannie Mae also issues Real Estate Mortgage Investment
Conduits (REMICs) backed by MBS, Stripped MBS
(SMBS), Government National Mortgage Association
(Ginnie Mae) mortgage-backed securities, other REMIC
securities, or whole loans. REMICs backed by MBS or
SMBS provide an additional source of fee income from
issuances that do not subject Fannie Mae to added credit risk.
REMIC issuances totaled $124 billion in 2001, up from
$34 billion in 2000. Fannie Mae REMIC issuances
rebounded in 2001 with the rest of the REMIC market.
REMIC market volumes increased primarily because of the
steeper yield curve, which made the REMIC market more
attractive. In addition, lower interest rates contributed to
higher MBS issuances and increased collateral available for
REMICs. The outstanding balance of REMICs at
December 31, 2001 was $346 billion, compared with
$292 billion at December 31, 2000. REMICs are not assets
of Fannie Mae except when acquired for investment
purposes, nor are they recorded as liabilities.
Housing Goals
The 1992 Act gives the Secretary of the U.S. Department
of Housing and Urban Development (HUD) the authority
to establish low- and moderate-income, underserved areas,
and special affordable housing goals for Fannie Mae. By
regulation, HUD has established the low- and moderate-
income housing goal at 50 percent of Fannie Mae’s
conventional mortgage business, the underserved areas
housing goal at 31 percent, and the special affordable
housing goal, a more targeted measure, at 20 percent. In
addition, HUD has established Fannie Mae’s targeted
multifamily subgoal at $2.85 billion. Each of these goals
applies annually during 2001 through 2003. The goals also
include certain provisions that reduce penalties for missing
data and provide incentive points for serving small
multifamily and owner-occupied rental housing.
Although the 2001 goals represent a significant increase
above Fannie Mae’s historic level of performance,
Fannie Mae achieved these goals in 2001. Table 22 shows
Fannie Mae’s housing goals and results for 2001 and 2000.
TABLE 22: HOUSING GOALS
Year Ended December 31,
2001 2000
Dollars in billions Goal1Result Goal1Result
Low- and moderate-income
housing . . . . . . . . . . . . . . . . . . 50.0% 51.6% 42.0% 49.5%
Underserved areas . . . . . . . . . . . . 31.0 32.5 24.0 31.0
Special affordable housing . . . . . 20.0 21.6 14.0 22.3
Ta rgeted multifamily . . . . . . . . . $2.85 $7.40 $1.30 $3.78
1Goals are expressed as a percentage of the units financed through Fannie Mae’s conventional
mortgage business during the period, except for the targeted multifamily goal.
Performance Outlook
Fannie Mae is optimistic in its outlook for future
performance because of anticipated growth in the housing
market, Fannie Mae’s disciplined interest rate risk and credit
risk management strategies, and the strong credit quality of
the current book of business. With operating EPS growth of
21 percent in 2001, Fannie Mae is on track to achieve its
five-year goal of doubling operating EPS to $6.46 by the
end of 2003. Management expects the company’s exceptional
financial performance to continue in 2002 with operating
EPS growth to be significantly above the very positive
long-term EPS trend projected for the company for the
following reasons:
•The carryover effects of the very high levels of
business activity during the second half of 2001
are expected to have a beneficial impact on 2002.
–Fannie Mae ended 2001 with $55 billion in
outstanding commitments to purchase mortgages,
an increase of $39 billion over the prior year-end.
The settlement of these additional commitments
will add over 5 percentage points to portfolio
growth in 2002.
–With outstanding MBS at year-end 2001 up
10 percent over the average outstanding MBS
balance for 2001, Fannie Mae is positioned to
produce double-digit growth in guaranty fee
income in 2002.
•The recent sharp rebound in long-term interest rates
is expected to significantly lower the volume of
liquidations over the first half of 2002. As a result,
management anticipates that Fannie Mae’s net
interest margin—which benefited from the call and
refunding of a large volume of debt during 2001—will
remain at elevated levels for a longer period than
previously anticipated.
•Management expects that weaker economic
conditions will result in only modest increases in
credit-related expenses and Fannie Mae’s credit loss
ratio. Fannie Mae believes its current book of business
is better positioned to withstand the effects of an
economic slowdown than in prior slowdowns because
of improved loan underwriting through the
automated Desktop Underwriter, lower loan-to-value
ratios, less geographic concentration, more third-
party credit enhancements, and superior credit loss
mitigation efforts.
{ 47 } Fannie Mae 2001 Annual Report