Fannie Mae 2007 Annual Report Download - page 269

December 14, 2007, we issued an additional 1.2 million shares of Series R Preferred Stock. On December 11,
2007, we issued 280 million shares of Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series S.
Redemptions
On February 28, 2007, and April 2, 2007, we redeemed all of the shares of our Variable Rate Non-Cumulative
Preferred Stock, Series J, with an aggregate stated value of $700 million, and our Variable Rate Non-
Cumulative Preferred Stock Series K, with an aggregate stated value of $400 million, respectively. For the
year ended December 31, 2007, we recorded $10 million of issuance costs as a reduction of net income
attributable to common stockholders as “Preferred stock dividends and issuance costs at redemption” in our
consolidated statement of operations.
18. Concentrations of Credit Risk
Concentrations of credit risk arise when a number of customers and counterparties engage in similar activities
or have similar economic characteristics that make them susceptible to similar changes in industry conditions,
which could affect their ability to meet their contractual obligations. Based on our assessment of business
conditions that could impact our financial results, including those conditions arising through February 26,
2008, we have determined that concentrations of credit risk exist among single-family and multifamily
borrowers (including geographic concentrations and loans with certain non-traditional features), mortgage
insurers, mortgage servicers, derivative counterparties and parties associated with our off-balance sheet
transactions. Concentrations for each of these groups are discussed below.
Single-Family Loan Borrowers. Regional economic conditions affect a borrower’s ability to repay his or her
mortgage loan and the property value underlying the loan. Geographic concentrations increase the exposure of
our portfolio to changes in credit risk. Single-family borrowers are primarily affected by home prices and
interest rates. The geographic dispersion of our Single-Family business has been consistently diversified over
the two years ended December 31, 2007, with our largest exposures in the Southeast region of the United
States, which represented 25% of our single-family conventional mortgage credit book of business as of
December 31, 2007. Except for California, where 15% and 16% of the gross unpaid principal balance of our
conventional single-family mortgage loans held or securitized in Fannie Mae MBS as of December 31, 2007
and 2006, respectively, were located, no other significant concentrations existed in any state.
To manage credit risk and comply with legal requirements, we typically require primary mortgage insurance
or other credit enhancements if the current LTV ratio (i.e., the ratio of the unpaid principal balance of a loan
to the current value of the property that serves as collateral) of a single-family conventional mortgage loan is
greater than 80% when the loan is delivered to us. We may also require credit enhancements if the original
LTV ratio of a single-family conventional mortgage loan is less than 80% when the loan is delivered to us.
Multifamily Loan Borrowers. Numerous factors affect a multifamily borrower’s ability to repay his or her
loan and the property value underlying the loan. The most significant factor affecting credit risk is rental
vacancy rates for the mortgaged property. Vacancy rates vary among geographic regions of the United States.
The average mortgage values for multifamily loans are significantly larger than those for single-family
borrowers and therefore individual defaults for multifamily borrowers can be more significant to us. However,
these loans, while individually large, represent a small percentage of our total loan portfolio. Our multifamily
geographic concentrations have been consistently diversified over the three years ended December 31, 2007,
with our largest exposure in the Western region of the United States, which represented 35% of our
multifamily mortgage credit book of business. Except for California, where 28% and 26%, and New York,
where 16% and 14%, of the gross unpaid principal balance of our multifamily mortgage loans held or
securitized in Fannie Mae MBS as of December 31, 2007 and 2006, respectively, were located, no other
significant concentrations existed in any state.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)