Fannie Mae 2009 Annual Report Download - page 13

Credit Overview
We discuss below in this section a number of steps we have taken to minimize our credit losses from
delinquent mortgages in our guaranty book of business. Under the heading “Homeowner Assistance
Initiatives” below, we provide more detailed information on our work to expand refinance opportunities for
borrowers and to help homeowners keep their homes, or at least avoid foreclosure.
2009 Acquisitions
In addition to our efforts, discussed below, to minimize credit losses on loans already in our book, during
2008 and early 2009 we made changes in our pricing and eligibility standards that helped to improve the risk
profile of our new single-family business in 2009 and support sustainable homeownership. In 2009, we
purchased or guaranteed an estimated $823.6 billion in new business, measured by unpaid principal balance.
Compared to our 2008 acquisitions, the composition of our 2009 acquisitions experienced a decline in the
average original loan-to-value (“LTV”) ratio from 72% to 67%, an increase in the average FICO credit score
from 738 to 761, and a shift in product mix to more fully amortizing fixed-rate mortgage loans. The early
performance of the single-family loans we acquired in 2009 appears stronger than loans acquired in any other
year in the past decade. While this early performance is strong, we cannot yet predict how these loans will
ultimately perform. Moreover, we expect the ultimate performance of these loans will be affected by
macroeconomic trends, including unemployment, the economy, interest rates, and house prices. As of
December 31, 2009, loans acquired in 2009 represented 23.6% of our total single family guaranty-book of
business. We expect that these loans may have relatively slow prepayment speeds, and therefore may remain
in our book of business for a relatively long time, due to the historically low interest rates available
throughout 2009, which resulted in our 2009 acquisitions overall having an average interest rate of 4.9%. In
addition to changes in our pricing and eligibility standards, our 2009 acquisitions reflect changes in the
eligibility standards of mortgage insurers, which further reduced our acquisition of loans with higher LTV
ratios. Also, the Federal Housing Administration (“FHA”) has become the lower-cost option, or in some cases
the only option, for loans with higher LTV ratios, which further reduced our acquisition of these loans. Our
2009 acquisitions profile was further enhanced by a significant increase in our acquisition of refinanced loans,
which generally have a stronger credit profile as the act of refinancing indicates the borrower’s ability and
desire to maintain homeownership. Whether our 2010 acquisitions exhibit the same credit profile as our 2009
acquisitions will depend on many factors, including our future pricing and eligibility standards, our future
objectives, mortgage insurer’s eligibility standards, and future activity by our competitors, including FHA.
Loss Mitigation Efforts
The performance of loans in our guaranty book of business deteriorated significantly during 2009 as a result
of the sustained decline in home prices, the weakened economy, and the rise in unemployment and
underemployment during the year. In order to minimize our credit losses, we believe we must (1) keep more
borrowers current on their loan payments through outreach programs to identify and assist borrowers on the
verge of delinquency; (2) prevent borrowers from defaulting on their loans through home retention strategies,
including loan modifications, repayment plans and forbearances; (3) reduce the costs associated with
foreclosures by promoting foreclosure alternatives, including preforeclosure sales and deeds-in-lieu of
foreclosure; (4) move to foreclosure expeditiously where there is no available, lower-cost alternative;
(5) expedite the sales of “REO” properties, or real-estate owned by Fannie Mae because we have obtained it
through foreclosure or a deed-in-lieu of foreclosure, and transform stagnant properties into cash generating
assets through rental and leasing programs; and (6) aggressively pursue collections on repurchase and
compensation claims due from lenders and mortgage insurers. It will be through these strong asset
management initiatives that we will achieve our stated goal of decreasing our credit losses and stabilizing
markets. We are pursuing a reduction in our credit losses through the following key activities.
• In support of homeowners who were current on their loans, we began offering expanded refinance options
through Refi Plus
TM
, which permitted over 300,000 borrowers to reduce their monthly mortgage payments
by an average of $153, and we began offering borrowers refinancing under the Home Affordable
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