Fannie Mae 2007 Annual Report Download - page 29

Consolidated Results of Operations” for a description of our accounting for delinquent loans purchased from
MBS trusts and the effect of these purchases on our 2007 financial results.
Required Purchases
Under our single-family trust documents, we generally are required to purchase a mortgage loan from an MBS
trust if:
• a mortgage loan becomes and remains delinquent for 24 consecutive months (excluding months during
which the borrower is complying with a loss mitigation remedy);
• for an adjustable-rate mortgage loan, the interest rate converts from an adjustable rate to a fixed rate, the
index by which the interest rate is determined changes, or the mortgage margin or minimum and
maximum interest rates are changed in connection with an assumption of the loan;
• the borrower exercises a conditional modification option on the maturity date of a loan requiring a final
balloon payment or agrees to modify the loan instead of refinancing the loan in connection with the direct
servicer’s strategy for retaining borrowers;
• we determine, or our regulator or a court determines, that our original acquisition of the mortgage loan
was not permitted;
• a court or governmental entity requires us to purchase the mortgage loan;
• a mortgage insurer or guarantor requires us, after a default under a mortgage loan, to delay the exercise of
loss mitigation remedies beyond any applicable period of time otherwise permitted by the trust
documents; or
• a mortgage insurer or mortgage guarantor requires the trust to transfer a mortgage loan or related REO
property in connection with an insurance or guaranty payment.
Mortgage Acquisitions
We acquire single-family mortgage loans for securitization or for our investment portfolio through either our
flow or bulk transaction channels. In our flow business, we enter into agreements that generally set
agreed-upon guaranty fee prices for a lender’s future delivery of individual loans to us over a specified time
period. Because these agreements establish guaranty fee prices for an extended period of time, we may be
limited in our ability to renegotiate the pricing on our flow transactions with individual lenders to reflect
changes in market conditions and the credit risk of mortgage loans that meet our eligibility standards. These
agreements permit us, however, to charge risk-based price adjustments that apply to all loans delivered to us
with certain risk characteristics. Flow business represents the majority of our mortgage acquisition volumes.
Our bulk business consists of transactions in which a defined set of loans are to be delivered to us in bulk, and
we have the opportunity to review the loans for eligibility and pricing prior to delivery in accordance with the
terms of the applicable contracts. Guaranty fees and other contract terms for our bulk mortgage acquisitions
are negotiated on an individual transaction basis. As a result, we generally have a greater ability to adjust our
pricing more rapidly than in our flow transaction channel to reflect changes in market conditions and the
credit risk of the specific transactions.
Mortgage Servicing
We do not perform the day-to-day servicing of the mortgage loans that are held in our mortgage portfolio or
that back our Fannie Mae MBS (referred to as “primary servicing”). However, if a primary servicer defaults,
we have ultimate responsibility for servicing the loans we purchase or guarantee until a new primary servicer
can be put in place. We also have certain ongoing administrative functions in connection with the mortgage
loans we securitize into Fannie Mae MBS. Typically, lenders who sell single-family mortgage loans to us
initially service the mortgage loans they sell to us. There is an active market in which lenders sell servicing
rights and obligations to other servicers. Our agreement with lenders requires our approval for all servicing
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