Fannie Mae 2009 Annual Report Download - page 27

Mortgage Servicing
Servicing
Generally, the servicing of the mortgage loans held in our mortgage portfolio or that back our Fannie Mae
MBS is performed by mortgage servicers on our behalf. Typically, lenders who sell single-family mortgage
loans to us service these loans for us. For loans we own or guarantee, the lender or servicer must obtain our
approval before selling servicing rights to another servicer.
Our mortgage servicers typically collect and deliver principal and interest payments, administer escrow
accounts, monitor and report delinquencies, perform default prevention activities, evaluate transfers of
ownership interests, respond to requests for partial releases of security, and handle proceeds from casualty and
condemnation losses. Our mortgage servicers are the primary point of contact for borrowers and perform a key
role in the effective implementation of our homeownership assistance initiatives, negotiation of workouts of
troubled loans, and loss mitigation activities. If necessary, mortgage servicers inspect and preserve properties
and process foreclosures and bankruptcies. Because we delegate the servicing of our mortgage loans to
mortgage servicers and do not have our own servicing function, our ability to actively manage troubled loans
that we own or guarantee may be limited. For more information on the risks of our reliance on servicers, refer
to “Risk Factors” and “MD&A—Risk Management—Credit Risk Management—Institutional Counterparty
Credit Risk Management.”
We compensate servicers primarily by permitting them to retain a specified portion of each interest payment
on a serviced mortgage loan as a servicing fee. Servicers also generally retain prepayment premiums,
assumption fees, late payment charges and other similar charges, to the extent they are collected from
borrowers, as additional servicing compensation. We also compensate servicers for negotiating workouts on
problem loans.
REO Management and Lender Repurchase Evaluations
In the event a loan defaults and we acquire a home through foreclosure or a deed-in-lieu of foreclosure, we
focus on selling the home through a national network of real estate agents. Our primary objectives are both to
minimize the severity of loss to Fannie Mae by maximizing sales prices and also to stabilize neighborhoods—
to prevent empty homes from depressing home values. We also continue to seek non-traditional ways to sell
properties, including by selling homes to cities, municipalities and other public entities, and by selling
properties in bulk or through public auctions.
We also conduct post-purchase quality control file reviews to ensure that loans sold to and serviced for us
meet our guidelines. If we discover violations through reviews, we issue repurchase demands to the seller and
seek to collect on our repurchase claims.
Housing and Community Development Business
Our HCD business works with our lender customers to provide funds to the mortgage market by securitizing
multifamily mortgage loans into Fannie Mae MBS. Our HCD business also works with our Capital Markets
group to facilitate the purchase of multifamily mortgage loans for our mortgage portfolio. Multifamily
mortgage loans relate to properties with five or more residential units, which may be apartment communities,
cooperative properties or manufactured housing communities. Our HCD business also makes LIHTC
partnership, debt and equity investments to increase the supply of affordable housing. Our HCD business has
primary responsibility for pricing and managing the credit risk on our multifamily guaranty book of business,
which consists of multifamily mortgage loans underlying Fannie Mae MBS and multifamily loans held in our
mortgage portfolio.
Revenues for our HCD business are derived from a variety of sources, including: (1) guaranty fees received as
compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS
and on the multifamily mortgage loans held in our portfolio and on other mortgage-related securities;
(2) transaction fees associated with the multifamily business and (3) other bond credit enhancement related
fees. HCD’s investments in rental housing projects eligible for LIHTC and other investments generate both tax
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