Fannie Mae 2007 Annual Report Download - page 154

Our risk exposure related to our partnership investments is limited to the amount of our investment and, in the
case of a LIHTC investment, the possible recapture of the tax benefits we have received from the investment.
When a non-guaranteed LIHTC or other partnership investment does not perform, we work with our
syndicator partner to develop a resolution strategy. The resolution depends on the local controlling entity’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 return provided for in the guaranty contract. Our risk in this situation is that the guarantor
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 of Business Performance
Key statistical metrics that we use to measure credit risk in our mortgage credit book of business and evaluate
credit performance include: (1) the serious delinquency rate; (2) nonperforming loans; and (3) foreclosure
activity. We provide information below on these metrics. We provide information on our credit loss
performance, another key metric we use to evaluate credit performance, in “Consolidated Results of
Operations—Credit-Related Expenses—Credit Loss Performance.”
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 because a borrower with enough equity in a
home generally can sell the home or draw on equity in the home to avoid foreclosure. 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 classify multifamily loans as seriously delinquent when
payment is 60 days or more past due.
Table 43 below presents by geographic region the serious delinquency rates for all conventional single-family
loans. We also provide a comparison of the serious delinquency rates, with credit enhancements and without
credit enhancements, for all conventional single-family loans and for multifamily loans.
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