Fannie Mae 2008 Annual Report Download - page 37

• promote access to mortgage credit throughout the nation (including central cities, rural areas and
underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of
investment capital available for residential mortgage financing.
In addition to the alignment of our overall strategy with these purposes, all of our business activities must be
permissible under the Charter Act. Our charter authorizes us to, among other things, purchase, service, sell,
lend on the security of, and otherwise deal in certain mortgage loans; issue debt obligations and mortgage-
related securities; and “do all things as are necessary or incidental to the proper management of [our] affairs
and the proper conduct of [our] business.”
Loan Standards
Mortgage loans we purchase or securitize must meet the following standards required by the Charter Act.
•Principal Balance Limitations. Our charter permits us to purchase and securitize conventional mortgage
loans secured by either a single-family or multifamily property. Single-family conventional mortgage loans
are generally subject to maximum original principal balance limits. The principal balance limits are often
referred to as “conforming loan limits” and are established each year based on the national average price of
a one-family residence. The conforming loan limit for a one-family residence was $417,000 for 2008.
The Economic Stimulus Act of 2008 temporarily increased our conforming loan limits in high-cost areas
for loans originated between July 1, 2007 and December 31, 2008, which we refer to as jumbo-conforming
loans. For a one-family residence, the loan limit increased to 125% of the area’s median house price, up to
a maximum of $729,750. Higher original principal balance limits apply to mortgage loans secured by two-
to four-family residences and also to loans in Alaska, Hawaii, Guam and the Virgin Islands. In July 2008,
HERA was signed into law. This legislation provided permanent authority for the GSEs to use higher loan
limits in high-cost areas effective January 1, 2009. These limits will be set annually by FHFA.
In November 2008, FHFA announced that the conforming loan limit for a one-unit property would
remain $417,000 for 2009 for most areas in the United States, but specified higher limits in certain cities
and counties. Loan limits for two-, three-, and four-unit properties in 2009 also remain at 2008 levels.
Following the provisions of HERA, FHFA has set loan limits for high-cost areas in 2009. These limits are
set equal to 115% of local median house prices and cannot exceed 150% of the standard limit, which is
$625,500 for one-unit homes in the contiguous United States. The 2009 maximum conforming limits
remain higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. No statutory limits apply to the
maximum original principal balance of multifamily mortgage loans that we purchase or securitize. In
addition, the Charter Act imposes no maximum original principal balance limits on loans we purchase or
securitize that are insured by the FHA or guaranteed by the VA, home improvement loans, and loans
secured by manufactured housing.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of
2009, which included a provision that returns the conforming loan limits for loans originated in 2009 to
those limits established in the Economic Stimulus Act of 2008 (except in a limited number of areas
where the limits established by HERA were greater).
•Loan-to-Value and Credit Enhancement Requirements. The Charter Act generally requires credit
enhancement on any conventional single-family mortgage loan that we purchase or securitize if it has a
loan-to-value ratio over 80% at the time of purchase. We also do not purchase or securitize second lien
single-family mortgage loans when the combined loan-to-value ratio exceeds 80%, unless the second lien
mortgage loan has credit enhancement in accordance with the requirements of the Charter Act. The credit
enhancement required by our charter may take the form of one or more of the following: (i) insurance or
a guaranty by a qualified insurer; (ii) a seller’s agreement to repurchase or replace any mortgage loan in
default (for such period and under such circumstances as we may require); or (iii) retention by the seller
of at least a 10% participation interest in the mortgage loans. We do not adjust the loan-to-value ratio of
loans bearing credit enhancement to reflect that credit enhancement. On February 19, 2009, in
conjunction with the announcement of HASP, FHFA determined that, until June 10, 2010, we may
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