Fannie Mae 2009 Annual Report Download - page 178

obligations. In addition, in September 2008 we began requiring that single-family lenders taking on recourse
obligations to us have a minimum credit rating of AA- or provide us with equivalent credit enhancement.
Our primary multifamily delivery channel is the Delegated Underwriting and Servicing, or DUS»program,
which is comprised of multiple lenders that span the spectrum from large sophisticated banks to smaller
independent multifamily lenders. Given the recourse nature of the DUS program, these lenders are bound by
higher eligibility standards that dictate, among other items, minimum capital and liquidity levels, and the
posting of collateral with us to support a portion of the lenders’ loss sharing obligations. To help ensure the
level of risk that is being taken with these lenders remains appropriate, we actively monitor the financial
condition of these lenders.
Several of our DUS lenders and their parent companies have come under stress due to overall market
conditions, including Capmark Finance Inc. (“Capmark”). Capmark along with its parent and various other
affiliates, filed for Chapter 11 bankruptcy protection on October 25, 2009. On December 11, 2009, via the
bankruptcy Section 363 auction process, Capmark’s mortgage origination and servicing assets, including its
Fannie Mae portfolio, were acquired by Berkadia Commercial Mortgage LLC. While the Capmark debt
portfolio will continue with an active DUS lender, we continue to have exposure to at least one other bankrupt
Capmark affiliated entity which manages our investment in several LIHTC funds. At this time, it is too early
to determine what, if any, impact the bankruptcy may have on us but any action taken, including a sale, that
affects our investment requires our consent.
Custodial Depository Institutions
A total of $51.0 billion in deposits for single-family payments were received and held by 284 institutions in
the month of December 2009 and a total of $28.8 billion in deposits for single-family payments were received
and held by 298 institutions in the month of December 2008. Of these total deposits, 95% as of December 31,
2009 and 96% as of December 31, 2008 were held by institutions rated as investment grade by Standard &
Poor’s, Moody’s and Fitch. Our ten largest custodial depository institutions held 93% of these deposits as of
both December 31, 2009 and 2008.
If a custodial depository institution were to fail while holding remittances of borrower payments of principal
and interest due to us in our custodial account, we would be an unsecured creditor of the depository for
balances in excess of the deposit insurance protection and might not be able to recover all of the principal and
interest payments being held by the depository on our behalf, or there might be a substantial delay in
receiving these amounts. If this were to occur, we would be required to replace these amounts with our own
funds to make payments that are due to Fannie Mae MBS certificateholders. Accordingly, the insolvency of
one of our principal custodial depository counterparties could result in significant financial losses to us.
Due to the challenging market conditions, several of our custodial depository counterparties experienced
ratings downgrades and liquidity constraints. In response, during 2008 we began reducing the aggregate
amount of our funds permitted to be held with these counterparties, requiring more frequent remittances of
funds, and moving funds held with our largest counterparties from custodial accounts to trust accounts that
would provide more protection to us in the event of the insolvency of a depository or servicer. In late 2008
and 2009, changes in FDIC rules substantially lowered our counterparty exposure relating to principal and
interest payments held on our behalf in custodial depository accounts. These rules are effective through
December 2013.
Issuers of Securities Held in our Cash and Other Investments Portfolio
Our cash and other investments portfolio consists of cash and cash equivalents, federal funds sold and
securities purchased under agreements to resell, asset-backed securities, corporate debt securities, and other
non-mortgage related securities. See “Liquidity and Capital Management—Liquidity Management—Liquidity
Contingency Planning” for more detailed information on our cash and other investments portfolio. Our
counterparty risk is primarily with the issuers of unsecured corporate debt and financial institutions with short-
term deposits.
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