Fannie Mae 2005 Annual Report Download - page 131

for the years ended December 31, 2005, 2004, and 2003, respectively, which represented 0.13%, 0.18% and
0.16% of our total multifamily mortgage credit book of business as of the end of each respective period.
When a non-guaranteed LIHTC investment does not perform, we work closely with our syndicator partner.
The resolution strategy depends on:
• the local general partner’s ability to meet obligations;
• the value of the property;
• the ability to restructure the debt;
• the financial and workout capacity of the syndicator partner; and
• the strength of the market or submarket.
If a guaranteed LIHTC investment does not perform, the guarantor remits funds to us in an amount that
provides us with the contractual underwritten return. Our risk in this situation is that the counterparty will not
perform. Refer to “Institutional Counterparty Credit Risk Management” below for a discussion of how we
manage the credit risk associated with our counterparties.
Mortgage Credit Book Performance
Key metrics used to measure credit risk in our mortgage credit book of business and evaluate credit
performance include the serious delinquency rate, nonperforming loans and credit losses.
Serious Delinquency
The serious delinquency rate is an indicator of potential future foreclosures, although most loans that become
seriously delinquent do not result in foreclosure. The rate at which new loans become seriously delinquent and
the rate at which existing seriously delinquent loans are resolved significantly affect the level of future credit
losses. Home price appreciation decreases the risk of default. A borrower with enough equity in a home can
sell the home or draw on equity in the home to avoid foreclosure. A decline in home prices increases the risk
of default. The presence of credit enhancements mitigates credit losses caused by defaults.
We classify single-family loans as seriously delinquent when a borrower has missed three or more consecutive
monthly payments, and the loan has not been brought current or extinguished through foreclosure, payoff or
other resolution. A loan referred to foreclosure but not yet foreclosed is also considered seriously delinquent.
Loans that are subject to a repayment plan are classified as seriously delinquent until the borrower has missed
fewer than three consecutive monthly payments. We calculate the single-family serious delinquency rate by
dividing the number of seriously delinquent single-family loans by the total number of single-family loans
outstanding. We include all of the conventional single-family loans that we own and that back Fannie Mae
MBS in our single-family delinquency rate, including those with substantial credit enhancement. We
distinguish between loans on which we have some form of credit enhancement and loans on which we do not
have credit enhancement.
We classify multifamily loans as seriously delinquent when payment is 60 days or more past due. We calculate
the multifamily serious delinquency rate by dividing the unpaid principal balance of seriously delinquent
multifamily loans by the unpaid principal balance of all multifamily loans that we own or that back Fannie
Mae MBS or housing authority bonds for which we provide credit enhancement. The table below compares
the serious delinquency rates for all conventional single-family loans and multifamily loans, in each case with
credit enhancements and without credit enhancements.
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