Fannie Mae 2007 Annual Report Download - page 30

transfers. We may at times engage a servicing entity to service loans on our behalf due to termination of a
servicer’s servicing relationship or for other reasons.
Mortgage servicers typically collect and remit principal and interest payments, administer escrow accounts,
monitor and report delinquencies, evaluate transfers of ownership interests, respond to requests for partial
releases of security, and handle proceeds from casualty and condemnation losses. For problem loans, servicing
includes negotiating workouts, engaging in loss mitigation and, if necessary, inspecting and preserving
properties and processing foreclosures and bankruptcies. We have the right to remove servicing responsibilities
from any servicer under criteria established in our contractual arrangements with servicers. We compensate
servicers primarily by permitting them to retain a specified portion of each interest payment on a serviced
mortgage loan, called a “servicing fee.” Servicers also generally retain prepayment premiums, assumption fees,
late payment charges and other similar charges, to the extent they are collected from borrowers, as additional
servicing compensation. We also compensate servicers for negotiating workouts on problem loans.
Refer to “Item 1A—Risk Factors” and “Part II—MD&A—Risk Management—Credit Risk Management—
Institutional Counterparty Credit Risk Management” for a discussion of the risks associated with a default by
a mortgage servicer and how we seek to manage those risks.
Mortgage Credit Risk Management
Our Single-Family business has responsibility for managing our credit risk exposure relating to single-family
Fannie Mae MBS held by third parties, as well as managing and pricing the credit risk of single-family
mortgage loans and single-family Fannie Mae MBS held in our own mortgage portfolio. For a description of
our methods for managing single-family mortgage credit risk, refer to “Part II—Item 7—MD&A—Risk
Management—Credit Risk Management—Mortgage Credit Risk Management.”
Housing and Community Development Business
Our Housing and Community Development (“HCD”) business works with our lender customers to securitize
multifamily mortgage loans into Fannie Mae MBS and to facilitate the purchase of multifamily mortgage
loans for our mortgage portfolio. Our HCD business also makes debt and equity investments to increase the
supply of affordable housing. Revenues in the segment are derived from a variety of sources, including the
guaranty fees received as compensation for assuming the credit risk on the mortgage loans underlying
multifamily Fannie Mae MBS and on the multifamily mortgage loans held in our portfolio, transaction fees
associated with the multifamily business and bond credit enhancement fees. In addition, HCD’s investments in
rental housing projects eligible for the federal low-income housing tax credit and other investments generate
both tax credits and net operating losses that reduce our federal income tax liability. Other investments in
rental and for-sale housing generate revenue and losses from operations and the eventual sale of the assets.
Mortgage Securitizations
Our HCD business securitizes multifamily mortgage loans into Fannie Mae MBS. Multifamily mortgage loans
relate to properties with five or more residential units, which may be apartment communities, cooperative
properties or manufactured housing communities. Our HCD business generally creates multifamily Fannie
Mae MBS in the same manner as our Single-Family business creates single-family Fannie Mae MBS. See
“Single-Family Credit Guaranty Business—Mortgage Securitizations” for a description of a typical lender
swap securitization transaction.
MBS Trusts
Multifamily Master Trust Agreement
Each of our multifamily MBS trusts formed on or after September 1, 2007 is governed by the terms of our
multifamily master trust agreement. Each of our multifamily MBS trusts formed prior to September 1, 2007 is
governed either by our fixed-rate or adjustable-rate trust indenture. In addition, each MBS trust, regardless of
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