Fannie Mae 2009 Annual Report Download - page 26

Single-Family Credit Guaranty Business
Our Single-Family business works with our lender customers to provide funds to the mortgage market by
securitizing single-family mortgage loans into Fannie Mae MBS. Our Single-Family business issues single-
class Fannie Mae MBS from pools of loans delivered to us by mortgage lenders that are placed immediately
in a trust. Unlike MBS securitization transactions engaged in by our Capital Markets group, our Single-Family
business securitizations are not comprised of loans from our portfolio. Our Single-Family business also works
with our Capital Markets group to facilitate the purchase of single-family mortgage loans for our mortgage
portfolio. Our Single-Family business has primary responsibility for pricing and managing the credit risk on
our single-family guaranty book of business, which consists of single-family mortgage loans underlying Fannie
Mae MBS and single-family loans held in our mortgage portfolio.
A single-family loan is secured by a property with four or fewer residential units. Our Single-Family business
and Capital Markets group securitize and purchase primarily conventional (not federally insured or guaranteed)
single-family fixed-rate or adjustable-rate, first lien mortgage loans, or mortgage-related securities backed by
these types of loans. We also securitize or purchase loans insured by FHA, loans guaranteed by the
Department of Veterans Affairs (“VA”), and loans guaranteed by the Rural Development Housing and
Community Facilities Program of the Department of Agriculture, manufactured housing loans, reverse
mortgage loans, multifamily mortgage loans, subordinate lien mortgage loans (for example, loans secured by
second liens) and other mortgage-related securities.
Revenues for our Single-Family business are derived primarily from guaranty fees received as compensation
for assuming the credit risk on the mortgage loans underlying single-family Fannie Mae MBS. We also
allocate guaranty fee revenues to the Single-Family business for assuming and managing the credit risk on the
single-family mortgage loans held in our portfolio. The aggregate amount of single-family guaranty fees we
receive or that are allocated to our Single-Family business in any period depends on the amount of single-
family Fannie Mae MBS outstanding and loans held in our mortgage portfolio during the period and the
applicable guaranty fee rates. The amount of Fannie Mae MBS outstanding at any time is primarily
determined by the rate at which we issue new Fannie Mae MBS and by the repayment rate for the loans
underlying our outstanding Fannie Mae MBS. Other factors affecting the amount of Fannie Mae MBS
outstanding are the extent to which we purchase loans from our MBS trusts because of borrower defaults (with
the amount of these purchases affected by the rate of borrower defaults on the loans and the extent of loan
modification programs in which we engage) and the extent to which sellers and servicers repurchase loans
from us upon our demand because there was a breach in the selling representations and warranties provided
upon delivery of the loans. Our Single-Family business accounted for approximately 39% of our net revenues
in 2009, compared with 54% in 2008 and 63% in 2007.
We describe the credit risk management process employed by our Single-Family business, including its key
strategies in managing credit risk and key metrics used in measuring and evaluating our single-family credit
risk in “MD&A—Risk Management—Credit Risk Management.”
Mortgage Securitizations and Acquisitions
Our Single-Family business securitizes single-family mortgage loans and issues single-class Fannie Mae MBS,
which are described above in “Mortgage Securitizations—Single-Class and Multi-Class Fannie Mae MBS,” for
our lender customers. Unlike MBS securitization transactions engaged in by our Capital Markets group, our
Single-Family business engages solely in lender swap transactions, in which lenders deliver pools of mortgage
loans to us in exchange for Fannie Mae MBS backed by these loans. We describe lender swap transactions,
and how they differ from portfolio securitizations, in “Mortgage Securitizations—Lender Swaps and Portfolio
Securitizations.”
Loans from our lender customers are delivered to us through either our “flow” or “bulk” transaction channels.
In our flow business, we enter into agreements that generally set agreed-upon guaranty fee prices for a
lender’s future delivery of individual loans to us over a specified time period. Our bulk business generally
consists of transactions in which a set of loans are delivered to us in bulk, typically with guaranty fees and
other contract terms negotiated individually for each transaction.
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