Fannie Mae 2008 Annual Report Download - page 22

Refer to “Item 1A—Risk Factors” and “Part II—Item 7—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.
Housing and Community Development Business
Our Housing and Community Development, or 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. 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 also makes federal low-income housing tax credit (“LIHTC”) partnership, debt and equity
investments to increase the supply of affordable housing. Revenues in the segment are derived from a variety
of sources, including the (1) 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, (2) transaction fees associated with the multifamily business and (3) bond credit enhancement fees.
HCD’s investments in rental housing projects eligible for LIHTC and other investments generate both tax
credits and net operating losses that may 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. As
described in “Part II—Item 7—MD&A—Critical Accounting Policies and Estimates—Deferred Tax Assets,”
we concluded that it is more likely than not that we would not generate sufficient taxable income in the
foreseeable future to realize all of our deferred tax assets. As a result, we are not currently making new
LIHTC investments other than pursuant to commitments existing prior to 2008.
Mortgage Securitizations
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
Each of our multifamily MBS trusts operates in accordance with a trust agreement or an indenture. In most
instances, a multifamily MBS trust is also governed by an issue supplement documenting the formation of that
MBS trust and the issuance of the Fannie Mae MBS by that trust. In January 2009, we established a new
multifamily master trust agreement that governs our multifamily MBS trusts formed on or after February 1,
2009 and amended and restated our previous 2007 master trust agreement to (i) establish specific criteria for
the segregation and maintenance by our loan servicers of collateral reserve accounts, (ii) provide greater
flexibility in dealing with defaulted loans held in a MBS trust, and (iii) make changes to our multifamily MBS
trusts to conform with our single-family MBS trusts.
In accordance with the terms of our multifamily MBS trust documents, we have the option or, in some
instances, the obligation, to purchase specified mortgage loans from an MBS trust. Our acquisition cost for
these loans is the unpaid principal balance of the loan plus accrued interest. We generally purchase from the
MBS trust any loan that we intend to modify prior to the time that the modification becomes effective. We
typically exercise our option to purchase a loan from a multifamily MBS trust if the loan is delinquent, in
whole or in part, as to four or more consecutive monthly payments. After we purchase the loan, we generally
work with the borrower to modify the loan.
Mortgage Acquisitions
Our HCD business acquires multifamily mortgage loans for securitization or for our investment portfolio
through either our flow or bulk transaction channels, in substantially the same manner as described under
“Single-Family Credit Guaranty Business—Mortgage Acquisitions.”
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