Fannie Mae 2005 Annual Report Download - page 135

Table 27: Single-Family Credit Loss Sensitivity
(1)
2005 2004
As of December 31,
(Dollars in millions)
Gross credit loss sensitivity
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,310 $ 2,266
Less: Projected credit risk sharing proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,167) (1,179)
Net credit loss sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,143 $ 1,087
Single-family whole loans and Fannie Mae MBS . . . . . . . . . . . . . . . . . . . . . . . . . . $2,035,704 $1,980,789
Single-family net credit loss sensitivity as a percentage of single-family whole loans
and Fannie Mae MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.06% 0.05%
(1)
Represents total economic credit losses, which include net charge-offs/recoveries, foreclosed property expenses, for-
gone interest and the cost of carrying foreclosed properties.
(2)
Measures the gross sensitivity of our expected future credit losses to an immediate 5% decline in home values for first
lien single-family whole loans we own or that back Fannie Mae MBS. After the initial shock, we estimate home price
growth rates return to the rate projected by our credit pricing models.
The estimates in the preceding paragraphs are based on approximately 92% and 90% of our total single-family
mortgage credit book of business as of December 31, 2005 and 2004, respectively. The mortgage loans and
mortgage-related securities that are included in these estimates consist of single-family single-class Fannie
Mae MBS (whether held in our portfolio or held by third parties) and single-family mortgage loans, excluding
mortgages secured only by second liens and reverse mortgages. We expect the inclusion in our estimates of
these excluded products may impact the estimated sensitivities set forth in the preceding paragraphs. The
above estimated credit loss sensitivities are generated using the same models that we use to estimate fair value
and impairment. We have made certain modifications to our models from those used to report previous credit
loss sensitivities.
Foreclosure and REO activity affects the level of credit losses. The table below provides information on
foreclosures for the years ended December 31, 2005, 2004 and 2003. In light of the continued weakness of
economic fundamentals, such as employment levels and lack of home price appreciation in the Midwestern
states, we expect increasing foreclosure and REO incidence and credit losses in that region. REO acquisitions
in the Midwest increased to 16,000 units in 2006 from less than 12,000 units in 2005.
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