Fannie Mae 2007 Annual Report Download - page 150

(4)
The original LTV ratio generally is based on the appraised property value reported to us at the time of acquisition of
the loan and the original unpaid principal balance of the loan. Excludes loans for which this information is not readily
available.
(5)
The aggregate estimated mark-to-market LTV ratio is based on the estimated current value of the property, calculated
using an internal valuation model that estimates periodic changes in home value, and the unpaid principal balance of
the loan as of the date of each reported period. Excludes loans for which this information is not readily available.
(6)
Long-term fixed-rate consists of mortgage loans with maturities greater than 15 years, while intermediate-term fixed-
rate have maturities equal to or less than 15 years.
(7)
Reflects Fair Isaac Corporation credit score, referred to as FICO»score, which is a commonly used credit score that
ranges from a low of 300 to a high of 850. We obtain borrower credit scores on the majority of single-family
mortgage loans that we purchase or that back Fannie Mae MBS.
(8)
Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast includes CT, DE, ME, MA, NH, NJ,
NY, PA, PR, RI, VT and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV.
Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT,
NV, OR, WA and WY.
Our conventional single-family mortgage credit book of business continues to consist mostly of traditional
fixed-rate mortgage loans and loans secured by one-unit properties. Approximately 89% of our conventional
single-family mortgage credit book of business consisted of fixed-rate loans, and approximately 96% consisted
of loans secured by one-unit properties as of December 31, 2007. The weighted average credit score within
our single-family mortgage credit book of business remained high at 721, and the estimated mark-to-market
LTV ratio was 61% as of December 31, 2007.
Approximately 20% of our conventional single-family mortgage credit book of business had an estimated
mark-to-market LTV ratio greater than 80% as of December 31, 2007. Of that 20% portion, over 62% of the
loans were covered by credit enhancement. The remainder of these loans, which would have required credit
enhancement at acquisition if the original LTV ratios had been above 80%, was not covered by credit
enhancement as of December 31, 2007. While the LTV ratios of these loans were at or below 80% at the time
of acquisition, they increased above 80% subsequent to acquisition due to declines in home prices over time.
There was no metropolitan statistical area with more than 4% of these high LTV loans; the three largest
metropolitan statistical area concentrations of these high LTV loans were in New York, Detroit and
Washington, DC.
The most significant change in the risk characteristics of our conventional single-family business volume for
2007, relative to 2006 and 2005, was an increase in the percentage of fixed-rate mortgages acquired and a
decrease in the percentage of adjustable rate mortgages acquired, driven in part by the shift in the primary
mortgage market to a greater share of originations of fixed-rate loans. Fixed-rate mortgages represented 90%
of our conventional single-family business volume in 2007, compared with 83% in 2006. Additionally, based
on the higher risk nature of interest-only and negative amortizing ARMs, we significantly reduced our
acquisition of these loans to less than 7% of our business volume in 2007, from 12% in each of 2006 and
2005. We anticipate relatively few negative amortizing ARM loan acquisitions in 2008.
The most significant change in the risk characteristics of our conventional single-family book of business as of
the end of 2007, relative to the end of 2006, was an increase in the weighted average mark-to-market LTV to
61% as of December 31, 2007, from 55% as of the end of 2006. This increase was driven by a decline in
home prices across the country, particularly in states such as California and Florida, which had previously
experienced rapidly rising rates of home price appreciation and are now experiencing sharp declines in home
prices.
In recent years there has been an increased percentage of borrowers obtaining second lien financing to
purchase a home as a means of avoiding paying primary mortgage insurance. Although only 10% of our
conventional single-family mortgage credit book of business had an original average LTV ratio greater than
90% as of December 31, 2007, we estimate that 15% of our conventional single-family mortgage credit book
of business had an original combined average LTV ratio greater than 90%. The combined LTV ratio takes into
account the combined amount of both the primary and second lien financing on the property. Second lien
financing on a property increases the level of credit risk because it reduces the borrower’s equity in the
property and may make it more difficult for a borrower to refinance. Our original combined average LTV ratio
128