Fannie Mae 2009 Annual Report Download - page 244

losses of principal that are attributable to our own portion of the temporary credit and liquidity facilities and
the securities that we have issued. Treasury will bear all losses of unpaid interest under the two programs.
Accordingly, Fannie Mae’s maximum potential risk of loss under these programs, assuming a 100% loss of
principal, is approximately $7.4 billion.
FHFA, as conservator, approved the senior preferred stock purchase agreement and the amendments to the
agreement, the Treasury credit facility, our role as HAMP program administrator and the HFA transactions
described above. The Treasury GSE MBS purchase program did not require review and approval under any of
our policies and procedures relating to transactions with related persons.
Transactions with PHH Corporation
Terence W. Edwards has been Executive Vice President—Credit Portfolio Management of Fannie Mae since
September 14, 2009, when he joined Fannie Mae. Prior to joining Fannie Mae, Mr. Edwards served as the
President and Chief Executive Officer, as well as a member of the Board of Directors, of PHH Corporation,
until June 17, 2009. Mr. Edwards continued to be employed by PHH Corporation until September 11, 2009.
PHH Mortgage Corporation (“PHH”), a subsidiary of PHH Corporation, is a single-family seller-servicer
customer of Fannie Mae. We regularly enter into transactions with PHH in the ordinary course of this business
relationship. In 2009, PHH delivered approximately $16 billion in mortgage loans to us, which included the
delivery of loans for direct payment and the delivery of pools of mortgage loans in exchange for Fannie Mae
MBS. We acquired most of these mortgage loans pursuant to our early funding programs. This represented
approximately 2% of our single-family business volume in 2009 and made PHH our seventh-largest single-
family customer. In addition, as of December 31, 2009, PHH serviced approximately $64 billion of single-
family mortgage loans either owned directly by Fannie Mae or backing Fannie Mae MBS, which represented
approximately 2% of our single-family servicing book, making PHH our seventh-largest servicer. PHH also
entered into transactions with us to purchase or sell approximately $13 billion in Fannie Mae, Freddie Mac
and Ginnie Mae mortgage-related securities in 2009. As a single-family seller-servicer customer, PHH also
pays us fees for its use of Fannie Mae technology, enters into risk-sharing arrangements with us, and provides
us with collateral to secure some of its obligations. Our servicers are typically required to advance funds to
pay Fannie Mae MBS investors or to pay taxes and insurance on a property if a payment is not received from
a borrower or the borrower does not pay taxes or insurance, and we subsequently reimburse servicers for these
advances. We have provided PHH with an early reimbursement facility to fund PHH’s servicing advances
relating to taxes, insurance and certain other advances to preserve the value of the property, and the maximum
amount outstanding under this facility during 2009 was $50 million. PHH is also a participating lender in our
HomePath»Mortgage financing initiative relating to our REO properties.
We believe that Fannie Mae is one of PHH’s largest business partners and that transactions with Fannie Mae
are material to PHH’s business. According to PHH Corporation’s 2008 Form 10-K, 87% of its mortgage loan
sales in 2008 were to Fannie Mae, Freddie Mac or Ginnie Mae, and its business is highly dependent on
programs administered by the GSEs.
Pursuant to a separation agreement with PHH Corporation, Mr. Edwards is entitled to receive additional
compensation from PHH Corporation for his prior services to the company. Some of this additional
compensation is dependent on the performance of PHH Corporation. According to Forms 8-K filed by PHH
Corporation on August 5, 2009 and September 16, 2009, Mr. Edwards’ separation agreement with PHH
Corporation provides that he will receive the following additional compensation from PHH Corporation: (a) an
amount equal to his base salary for a 24-month period beginning on PHH Corporation’s first regular pay date
after March 11, 2010; (b) annual cash bonuses for calendar years 2009, 2010 and 2011 in an amount equal to
the bonus he would have received based on actual performance of the company (except that the 2011 bonus
will be prorated to reflect the actual number of months covered by the severance period in 2011), which
bonuses will be paid to Mr. Edwards at the same time bonuses are payable to corporate employees, but no
later than March 15 after the end of the applicable performance year; and (c) a cash transition payment of
$50,000 on PHH Corporation’s first regular pay date after March 11, 2010. In addition, the outstanding
options and restricted stock units that have been previously awarded to him will continue to vest and, on the
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