Fannie Mae 2005 Annual Report Download - page 130

• 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
use analytical models and work rules to determine which alternative resolution, if any, may be appropriate for
each problem loan.
We track the ultimate performance of alternative resolutions in absolute terms and in relation to estimated
losses in the event of a traditional single-family loan foreclosure. We adjust our loss mitigation policies as
appropriate to be consistent with our risk management objectives. In the case of repayment plans and loan
modifications, we focus in particular on the performance of the loans subsequent to our intervention. Of the
conventional loans that recover through modifications, long-term forbearances and repayment plans, our
performance experience after 36 months following the inception of all such plans, based on the period 1998 to
2002, has been that approximately 65% of these loans remain current or have been paid in full. Approximately
11% have terminated through foreclosure. The remaining loans once again reached a delinquent status.
In those cases when a foreclosure avoidance effort is not successful, we typically foreclose and acquire the
property. Our property management and sales operation employs several strategies designed to shorten our
holding time, minimize the impact on the neighborhood, maximize our recovery and mitigate credit losses.
These strategies include prompt assessment of the property condition and partnering with qualified local real
estate brokers to market and refurbish the property when economically feasible to appeal to the broadest
market of homebuyers, particularly buyers who plan to live in the home.
The table below presents statistics on the resolution of conventional single-family problem loans for the years
ended December 31, 2005, 2004 and 2003.
Table 23: Statistics on Conventional Single-Family Problem Loan Workouts
2005 2004 2003
For the Year Ended December 31,
(Number of loans)
Modifications
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,732 22,591 17,119
Repayment plans and long-term forbearances . . . . . . . . . . . . . . . . . . . . 47,641 39,225 37,271
Pre-foreclosure sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,478 2,575 2,052
Deeds in lieu of foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 330 320
Total number of problem loan workouts
(2)
. . . . . . . . . . . . . . . . . . . . 71,235 64,721 56,762
(1)
Modifications include troubled debt restructurings, which result in concessions to borrowers, and other modifications to
the contractual terms of the loan that do not result in concessions to the borrower.
(2)
Represents approximately 0.5%, 0.4% and 0.4% of the total number of loans in our conventional single-family mort-
gage credit book for the years ended December 31, 2005, 2004 and 2003, respectively.
Housing and Community Development
When a multifamily loan does not perform, we work closely with our loan servicers to minimize the severity
of loss by taking appropriate loss mitigation steps. We permit our multifamily servicers to pursue various
options as an alternative to foreclosure, including modifying the terms of the loan, selling the loan, and
preforeclosure sales. The resolution strategy depends in part on the borrower’s level of cooperation, the
performance of the market or submarket, the value of the property, the condition of the property, any
remaining equity in the property and the borrower’s ability to infuse additional equity into the property. The
unpaid principal balance of modified multifamily loans totaled $165 million, $224 million and $196 million
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