Fannie Mae 2007 Annual Report Download - page 9

7
2007 ANNUAL REPORT
rates and short resets see their payments
spike. Mortgage lending has pulled
back signifi cantly, especially in the
non-conforming market.
Home sales have also stalled.
In February, the nation had over
10 months’ supply of unsold homes,
and the overhang is worse in places
like Las Vegas (25 months); Anaheim,
California (26 months); and Miami
(49 months’ supply — and 80 months’
supply of condos).
Fannie Mae’s Strategy
As I said in my opening, in times
of market disruptions and panic,
companies that protect against current
risk while prudently building for the
future tend to do well after the crisis
passes. That is our strategy for 2008:
protect and build. Underlying the
strategy is a keen focus on capital —
on ensuring we have the capital
necessary to protect our business, while
investing that capital for long-term
value creation.
Protect
Working through a credit downturn
begins and ends with “loss mitigation.”
In plain English, that means
minimizing losses when homeowners
fall behind, preferably by helping them
work out their loans and avoid default.
As of January 2008, Fannie Mae had
roughly 190,000 seriously delinquent
borrowers out of nearly 18 million
loans we own or guarantee. Preventing
delinquencies from falling into
foreclosure is a top priority for 2008.
We want to minimize the harm to
homeowners, their fi nances and
their neighborhoods, and minimize
the impact on our company and our
capital. The math proves the point:
on average, working out a loan has
historically cost about 90 percent less
than a foreclosure.
We have increased some of our
incentive fees for loan servicers to
offer workout solutions instead
of foreclosure, and last year we
began offering foreclosure attorneys
incentives to do workouts instead
of executing a foreclosure. We’ve
also just launched a new option for
our loan servicers to help delinquent
homeowners catch up. It’s called
HomeSaver Advance™, and it’s aimed
at homeowners who’ve fallen behind
because of a temporary life event or
hardship. This effort is part of our
comprehensive HomeStay™ initiative,
aimed at promoting and enabling the
best solutions for at-risk borrowers
through loan workouts, counseling,
loan servicing enhancements and,
especially, refi nancing subprime
borrowers into prime loans.
Many of these initiatives cost money,
and their tangible results are not
refl ected in revenue, but in loss
reduction. Yet that is the nature of
credit cycles. These loss mitigation
efforts will have tangible effects on our
bottom line now, in the same manner
that our efforts to grow the business
will in the future.
Build
While we protect against the risk in
our current book, we are also building
a solid business going forward. For
our new business acquisitions, we
have implemented tighter underwriting
guidelines and we are requiring higher
down payments, higher credit scores
and more documents proving ability
to pay. Further, in markets where
home prices are falling, we’re requiring
lower loan-to-value ratios so that new
homeowners don’t start their fi rst year
“upside down” — owing more than
the house is worth. Better guidelines
protect both us and the homeowner.
Companies that protect against current
risk while prudently building for the
future tend to do well when the crisis
passes. That is our strategy for 2008:
protect and build.