Fannie Mae 2010 Annual Report Download - page 154

and Ethics personnel are compensated on objectives set for the group by the Audit Committee of the Board of
Directors rather than corporate financial results or goals. The Chief Compliance Officer may be removed only
upon Board approval. The Chief Compliance Officer is responsible for overseeing our compliance activities;
developing and promoting a code of ethical conduct; evaluating and investigating any allegations of
misconduct; and overseeing and coordinating regulatory reporting and examinations.
Credit Risk Management
We are generally subject to two types of credit risk: mortgage credit risk and institutional counterparty credit
risk. Continuing adverse market conditions have resulted in significant exposure to mortgage and institutional
counterparty credit risk. The metrics used to measure credit risk are generated using internal models. Our
internal models require numerous assumptions and there are inherent limitations in any methodology used to
estimate macro-economic factors such as home prices, unemployment and interest rates and their impact on
borrower behavior. When market conditions change rapidly and dramatically the assumptions of our models
may no longer accurately capture or reflect the changing conditions. On a continuous basis, management
makes judgments about the appropriateness of the risk assessments indicated by the models. See “Risk
Factors” for a discussion of the risks associated with our use of models.
Mortgage Credit Risk Management
Mortgage credit risk is the risk that a borrower will fail to make required mortgage payments. We are exposed
to credit risk on our mortgage credit book of business because we either hold mortgage assets, have issued a
guaranty in connection with the creation of Fannie Mae MBS backed by mortgage assets or provided other
credit enhancements on mortgage assets. While our mortgage credit book of business includes all of our
mortgage-related assets, both on- and off-balance sheet, our guaranty book of business excludes non-Fannie
Mae mortgage-related securities held in our portfolio for which we do not provide a guaranty.
Mortgage Credit Book of Business
Table 39 displays the composition of our entire mortgage credit book of business as of the periods indicated.
Our total single-family mortgage credit book of business accounted for 93% of our total mortgage credit book
of business as of both December 31, 2010 and 2009. As a result of our adoption of the new accounting
standards, we reflect a substantial majority of our Fannie Mae MBS as mortgage loans, which are reported on
an actual unpaid principal balance basis and include the recognition of unscheduled payments made by
borrowers in the month received. Previously, we recorded these Fannie Mae MBS in our mortgage credit book
of business on a scheduled basis and recognized these payments when we remitted payment to the MBS trusts
one month after the unscheduled payments were received. As a result of this timing difference, our mortgage
credit book of business decreased upon adoption of the new accounting standards.
The total mortgage credit book of business is not impacted by our repurchase of delinquent loans as this
activity is a reclassification from loans of consolidated trusts to loans of Fannie Mae.
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