Fannie Mae 2009 Annual Report Download - page 168

(2)
Calculated based on number of properties acquired through foreclosure during the year divided by total number of
properties acquired through foreclosure.
Although we have expanded our loan workout initiatives to keep borrowers in their homes, we expect our
foreclosures to increase in 2010 as a result of the adverse impact that the weak economy and high
unemployment have had and are expected to have on the financial condition of borrowers.
Multifamily Mortgage Credit Risk Management
The credit risk profile of our multifamily mortgage credit book of business is influenced by, among other
things, the structure of the financing; the type and location of the property; the condition and value of the
property; the financial strength of the borrower and lender; market and sub-market trends and growth; and the
current and anticipated cash flows from the property. These and other factors affect both the amount of
expected credit loss on a given loan and the sensitivity of that loss to changes in the economic environment.
We provide information on our credit-related expenses and credit losses in “Consolidated Results of
Operations—Credit-Related Expenses.”
While our multifamily mortgage credit book of business includes all of our multifamily mortgage-related
assets, both on- and off-balance sheet, our guaranty book of business excludes non-Fannie Mae multifamily
mortgage-related securities held in our portfolio for which we do not provide a guaranty. Our multifamily
guaranty book of business consists of multifamily mortgage loans held in our mortgage portfolio; Fannie Mae
MBS held in our portfolio or by third parties; and other credit enhancements that we provide on mortgage
assets. The following credit risk management discussion pertains to our multifamily guaranty book of
business.
The credit statistics reported below, unless otherwise noted, pertain only to a specific portion of our
multifamily guaranty book of business—generally the portion for which we have access to detailed loan-level
information. We typically obtain this data from the sellers or servicers of the mortgage loans in our guaranty
book of business and receive representations and warranties from them as to the accuracy of the information.
While we perform various quality assurance checks by sampling loans to assess compliance with our
underwriting and eligibility criteria, we do not independently verify all reported information. The portion of
our multifamily guaranty book of business for which we have detailed loan level-information constituted over
98% and 99% of our total multifamily guaranty book as of December 31, 2009 and 2008, respectively. See
“Risk Factors” where we discuss the additional risks to us if one or more parties in a mortgage transaction
engages in fraud by misrepresenting facts about a mortgage loan.
Multifamily Acquisition Policy and Underwriting Standards
Our HCD business, in conjunction with our Enterprise Risk Management division, is responsible for pricing
and managing the credit risk on multifamily mortgage loans we purchase and on Fannie Mae MBS backed by
multifamily loans (whether held in our portfolio or held by third parties). Multifamily loans that we purchase
or that back Fannie Mae MBS are either underwritten by a Fannie Mae-approved lender or subject to our
underwriting review prior to closing. Many of our agreements delegate the underwriting decisions to the
lender, principally through our Delegated Underwriting and Servicing, or DUS», program. Loans delivered to
us by DUS lenders and their affiliates represented approximately 81% of our multifamily guaranty book of
business as of December 31, 2009 compared with 87% as of December 31, 2008.
We use various types of credit enhancement arrangements for our multifamily loans, including lender risk
sharing, lender repurchase agreements, pool insurance, subordinated participations in mortgage loans or
structured pools, cash and letter of credit collateral agreements, and cross-collateralization/cross-default
provisions. The most prevalent form of credit enhancement on multifamily loans is lender risk sharing.
Lenders in the DUS program typically share in loan-level credit losses in one of two ways: either (1) they bear
losses up to the first 5% of unpaid principal balance of the loan and share in remaining losses up to a
prescribed limit or (2) they agree to share with us up to one-third of the credit losses on an equal basis. Other
lenders typically share or absorb credit losses up to a negotiated percentage of the loan or the pool balance.
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