Fannie Mae 2010 Annual Report Download - page 162

family conventional guaranty book of business as of December 31, 2010, 2009 and 2008. Second lien mortgage loans held by third
parties are not reflected in the original LTV or mark-to-market LTV ratios in this table.
(2)
Percentages calculated based on unpaid principal balance of loans at time of acquisition. Single-family business volume refers to both
single-family mortgage loans we purchase for our mortgage portfolio and single-family mortgage loans we securitize into Fannie Mae
MBS.
(3)
Percentages calculated based on unpaid principal balance of loans as of the end of each period.
(4)
Our single-family conventional guaranty book of business includes jumbo-conforming and high-balance loans that represented
approximately 3.9% of our single-family conventional guaranty book of business as of December 31, 2010 and 2.4% as of
December 31, 2009. See “Business—Our Charter and Regulation of Our Activities—Charter Act-Loan Standards” for additional
information on loan limits.
(5)
The original LTV ratio generally is based on the original unpaid principal balance of the loan divided by the appraised property value
reported to us at the time of acquisition of the loan. Excludes loans for which this information is not readily available.
(6)
We purchase loans with original LTV ratios above 80% to fulfill our mission to serve the primary mortgage market and provide
liquidity to the housing system. Except as permitted under Refi Plus, our charter generally requires primary mortgage insurance or
other credit enhancement for loans that we acquire that have a LTV ratio over 80%.
(7)
The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each reported
period divided by the estimated current value of the property, which we calculate using an internal valuation model that estimates
periodic changes in home value. Excludes loans for which this information is not readily available.
(8)
Long-term fixed-rate consists of mortgage loans with maturities greater than 15 years, while intermediate-term fixed-rate has
maturities equal to or less than 15 years. Loans with interest-only terms are included in the interest-only category regardless of their
maturities.
(9)
Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast includes CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI,
VT and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS,
LA, MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.
Credit Profile Summary
In 2009, we began to see the positive effects of actions we took, beginning in 2008, to significantly restrict
our underwriting and eligibility standards and change our pricing to promote sustainable homeownership and
stability in the housing market. As a result of these changes and other market conditions, we reduced our
acquisition of loans with higher-risk loan attributes. The single-family loans we purchased or guaranteed in
2010 have had a strong credit profile with a weighted average original LTV ratio of 68%, a weighted average
FICO credit score of 762, and a product mix with a significant percentage of fully amortizing fixed-rate
mortgage loans. Due to the relatively high volume of Refi Plus loans (including HARP), the LTV ratios at
origination for our 2010 acquisitions to date are higher than for our 2009 acquisitions.
Improvements in the credit profile of our acquisitions since January 1, 2009 reflect changes we made in our
pricing and eligibility standards, as well as changes our mortgage insurers made in their eligibility standards.
Whether our acquisitions in 2011 will exhibit the same credit profile as our recent acquisitions depends on
many factors, including our future pricing and eligibility standards, our future objectives, mortgage insurers’
eligibility standards, our future volume of Refi Plus acquisitions, which typically include higher LTV ratios
and lower FICO credit scores, and future market conditions. In addition, FHA’s role as the lower-cost option
for some consumers, or in some cases the only option, for loans with higher LTV ratios further reduced our
acquisition of these types of loans. However, in October 2010, changes to FHA’s pricing structure became
effective, which may reduce its cost advantage to some consumers. We expect the ultimate performance of all
our loans will be affected by macroeconomic trends, including unemployment, the economy, and home prices.
The credit profile of our acquisitions in 2010 was further influenced by a significant percentage of our
acquisitions representing refinanced loans, which generally have a strong credit profile because refinancing
indicates the borrower’s ability to make their mortgage payment and desire to maintain homeownership.
Refinancings represented 78% of our single-family acquisitions in 2010. While refinanced loans have
historically tended to perform better than loans used for initial home purchase, Refi Plus loans may not
ultimately perform as strongly as traditional refinanced loans because these loans, which relate to non-
delinquent Fannie Mae mortgages that were refinanced, may have original LTV ratios as high as 125% and
lower FICO credit scores than traditional refinanced loans. Our regulator granted our request for an extension
of these flexibilities for loans originated through June 2011. Approximately 10% of our single-family
157