Fannie Mae 2009 Annual Report Download - page 166

Table 47: Loan Modification Profile
2009 2008 2007
Term extension, interest rate reduction, or combination of both
(1)
......................... 93% 57% 52%
Initial reduction in the monthly payment
(2)
......................................... 87 38 9
Estimated mark-to-market LTV ratio ⬎100%....................................... 47 22 8
Troubled debt restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 60 43
(1)
Reported statistics for term extension, interest rate reduction or the combination of both for 2009 and 2008 include
subprime adjustable-rate mortgage loans that have been modified to a fixed-rate loan.
(2)
These modification statistics do not include subprime adjustable-rate mortgage loans that were modified to a fixed-rate
loan and were current at the time of the modification.
The vast majority of our 2009 and 2008 loan modifications were designed to help distressed borrowers by
reducing the borrower’s monthly principal and interest payment through an extension of the loan term, a
reduction in the interest rate, or a combination of both. Prior to 2008, the majority of our loan modifications
did not result in economic concessions to the borrower.
A significant portion of our modifications pertain to loans with a mark-to-market LTV ratio greater than
100%, because the average serious delinquency rate for these loans has been substantially higher than our
overall average single-family serious delinquency rate and because these borrowers are unable to sell their
homes as their mortgage obligation is greater than the value of their homes. As of December 31, 2009, the
serious delinquency rate for loans with a mark-to-market LTV ratio greater than 100% was 22%, compared
with our overall average single-family serious delinquency rate of 5.38%. These loans represented
approximately 47% of the modifications that we made during 2009, compared with 22% for 2008 and 8% for
2007.
Approximately 48% of loans modified during the first and second quarters of 2009 were current or had paid
off as of six months following the loan modification date. Approximately 37% of loans modified during 2008
were current or had paid off as of six months following the loan modification date. As we have focused our
efforts on distressed borrowers, who are experiencing current economic hardship, the short term performance
of our workouts may not be indicative of long term performance. We believe the performance of our 2008 and
2009 workouts will be highly dependent on economic factors, such as unemployment rates and home prices.
There is significant uncertainty regarding the ultimate long-term success of our current modification efforts
because of the pressures on borrowers and household wealth caused by declines in home values and the stock
market and high unemployment. Modifications may also not be sufficient to help borrowers with second liens
and significant non-mortgage debt obligations. However, as we complete an increasing number of loan
modifications, we are able to reduce the current stress on our servicers by reducing the number of seriously
delinquent loans they are required to manage. If a borrower defaults on a loan modification, we require our
servicer to work with the borrower to cure the modified loan, or if that is not feasible, evaluate the borrower
for any other available foreclosure prevention alternatives prior to commencing foreclosure proceedings. If a
borrower defaults on a loan modification executed under HAMP, they are not eligible for another HAMP
modification. FHFA, other agencies of the U.S. government or Congress may ask us to undertake new
initiatives to support the housing and mortgage markets should our current modification efforts ultimately not
perform in a manner that results in the stabilization of these markets.
REO Management
Foreclosure and REO activity affect the level of credit losses. Table 48 compares our foreclosure activity, by
region, for the periods indicated. Regional REO acquisition and charge-off trends generally follow a pattern
that is similar to, but lags, that of regional delinquency trends.
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