Fannie Mae 2006 Annual Report Download - page 148

Foreclosure and REO Activity
Foreclosure and real estate owned (“REO”) activity affect the level of credit losses. The table below provides
information, by region, on our foreclosure activity for the years ended December 31, 2006, 2005 and 2004.
Regional REO acquisition and charge-off trends generally follow a pattern that is similar to, but lags, that of
regional delinquency trends.
Table 39: Single-Family and Multifamily Foreclosed Properties
2006 2005 2004
For the Year Ended December 31,
Single-family foreclosed properties (number of properties):
Beginning inventory of single-family foreclosed properties (REO)
(1)
. . . . . . . . . . . . 20,943 18,361 13,749
Acquisitions by geographic area:
(2)
Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,128 11,777 10,149
Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,638 2,405 2,318
Southeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,280 9,470 10,275
Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,958 8,099 8,422
West..................................................... 576 809 1,739
Total properties acquired through foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 36,580 32,560 32,903
Dispositions of REO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,398) (29,978) (28,291)
Ending inventory of single-family foreclosed properties (REO)
(1)
. . . . . . . . . . . . . . 25,125 20,943 18,361
Carrying value of single-family foreclosed properties (dollars in millions)
(3)
. . . . . . . $ 1,999 $ 1,642 $ 1,493
Single-family foreclosure rate
(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2% 0.2% 0.2%
Multifamily foreclosed properties:
Ending inventory of multifamily foreclosed properties (REO) . . . . . . . . . . . . . . . . . 8 8 18
Carrying value of multifamily foreclosed properties (dollars in millions)
(3)
........ $ 49 $ 51 $ 131
(1)
Includes deeds in lieu of foreclosure.
(2)
See footnote 8 to Table 35 for states included in each geographic region.
(3)
Excludes foreclosed property claims receivables, which are reported in our consolidated balance sheets as a component
of “Acquired property, net.”
(4)
Estimated based on the total number of properties acquired through foreclosure as a percentage of the total number of
loans in our conventional single-family mortgage credit book as of the end of each respective year.
While our single-family foreclosure rate remained relatively stable over the period 2004 to 2006, averaging
approximately 0.2% of our conventional single-family mortgage credit book of business, the number of single-
family properties acquired through foreclosure rose by 12% in 2006, following a decline of 1% in 2005. The
increase in foreclosures in 2006 was driven partly by the general overall slowing of the housing market, as
well as weak economic conditions in the Midwest, particularly Ohio, Indiana and Michigan. The Midwest
accounted for approximately 20% of the loans in our conventional single-family mortgage credit book of
business during the three-year period ended December 31, 2006; however, this region accounted for
approximately 44%, 36% and 31% of the single-family properties acquired through foreclosure in 2006, 2005
and 2004, respectively.
In light of the continued weakness of economic fundamentals in the Midwest, such as employment levels and
lack of home price appreciation, we expect an increase in foreclosure and REO incidence and credit losses in
that region in 2007 for both our single-family and multifamily mortgage credit book of business. In addition,
the disruption in the subprime market, the overall erosion of property values and near record levels of unsold
properties, together are likely to slow the sale of and reduce the sales price of our foreclosed properties. As a
result, we expect an increase in our overall level of foreclosures and credit losses for 2007.
133