Fannie Mae 2008 Annual Report Download - page 119

Table 14 below details the components of our credit loss performance metrics, which exclude the effect of
SOP 03-3 and HomeSaver Advance fair value losses, for 2008, 2007 and 2006.
Table 14: Credit Loss Performance Metrics
Amount Ratio
(1)
Amount Ratio
(1)
Amount Ratio
(1)
2008 2007 2006
For the Year Ended December 31,
(Dollars in millions)
Charge-offs, net of recoveries . . . . . . . . . . . . . . . . . . . . $ 6,589 22.9 bp $ 2,032 8.0 bp $ 454 2.0 bp
Foreclosed property expense . . . . . . . . . . . . . . . . . . . . . 1,858 6.5 448 1.8 194 0.8
Less: SOP 03-3 and HomeSaver Advance fair value
losses
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,429) (8.4) (1,364) (5.4) (204) (0.9)
Plus: Impact of SOP 03-3 on charge-offs and foreclosed
property expense
(3)
.......................... 501 1.7 223 0.9 73 0.3
Credit losses
(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,519 22.7 bp $ 1,339 5.3 bp $ 517 2.2 bp
(1)
Based on the annualized amount for each line item presented divided by the average guaranty book of business during
the period. We previously calculated our credit loss ratio based on annualized credit losses as a percentage of our
mortgage credit book of business, which includes non-Fannie Mae mortgage-related securities held in our mortgage
investment portfolio that we do not guarantee. In 2007, we revised the calculation of our credit loss ratio to reflect
credit losses as a percentage of our guaranty book of business. We made this revision because losses related to non-
Fannie Mae mortgage-related securities are not reflected in our credit losses. We revised the presentation of our credit
loss ratio for 2006 to conform to our current presentation.
(2)
Represents the amount recorded as a loss when the acquisition cost of a delinquent loan purchased from an MBS trust
that is subject to SOP 03-3 exceeds the fair value of the loan at acquisition. Also includes the difference between the
unpaid principal balance of unsecured HomeSaver Advance loans at origination and the estimated fair value of these
loans that we record in our consolidated balance sheets.
(3)
For seriously delinquent loans purchased from MBS trusts that are recorded at a fair value amount at acquisition that
is lower than the acquisition cost, any loss recorded at foreclosure would be less than it would have been if we had
recorded the loan at its acquisition cost instead of at fair value. Accordingly, we have added back to our credit losses
the amount of charge-offs and foreclosed property expense that we would have recorded if we had calculated these
amounts based on the purchase price.
(4)
Interest forgone on nonperforming loans in our mortgage portfolio, which is presented in Table 48, reduces our net
interest income but is not reflected in our credit losses total. In addition, other-than-temporary impairment losses
resulting from deterioration in the credit quality of our mortgage-related securities and accretion of interest income on
loans subject to SOP 03-3 are excluded from credit losses.
Our credit loss ratio increased to 22.7 basis points in 2008, from 5.3 basis points in 2007 and 2.2 basis points
in 2006. Our credit loss ratio including the effect of SOP 03-3 and HomeSaver Advance fair value losses
would have been 29.4 basis points, 9.8 basis points and 2.8 basis points for 2008, 2007 and 2006, respectively.
The substantial increase in our credit losses in 2008 and 2007 also reflected the impact of the continued and
dramatic national decline in home prices, as well as the deepening economic downturn. These conditions have
resulted in higher default rates and loss severities, particularly for certain higher risk loan categories, loan
vintages and loans within certain states that have had the greatest home price depreciation from their recent
peaks. The suspension of foreclosure sales on occupied single-family properties scheduled to occur between
November 26, 2008 through January 31, 2009 reduced our foreclosure activity in the fourth quarter of 2008,
which resulted in a reduction in our credit losses during the quarter. If we are unable to modify a loan during
the foreclosure suspension period and the property goes to foreclosure, we will record a charge-off upon
foreclosure.
Specific credit loss statistics related to certain higher risk loan categories and loan vintages; loans within
certain states that have had the greatest home price depreciation from their recent peaks; and loans within
states in the Midwest, which has experienced prolonged economic weakness, include the following:
• Certain higher risk loan types, including Alt-A loans, interest-only loans, loans to borrowers with low
credit scores and loans with high loan-to-value ratios, many of which were originated in 2006 and 2007,
represented approximately 28% and 29% of our single-family conventional mortgage credit book of
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