Fannie Mae 2010 Annual Report Download - page 178

files are excluded from the total requests outstanding until the completion of a full underwriting review, once
the documents and loan files are received.
On December 31, 2010, we entered into an agreement with Bank of America, N.A., and its affiliates, BAC
Home Loans Servicing, LP, and Countrywide Home Loans, Inc., to address outstanding repurchase requests
for residential mortgage loans with an unpaid principal balance of $3.9 billion delivered to us by affiliates of
Countrywide Financial Corporation. Bank of America agreed, among other things, to a resolution amount of
$1.5 billion, consisting of a cash payment of $1.3 billion made by Bank of America on December 31, 2010,
and other payments recently made or to be made by them.
The agreement substantially resolves or addresses outstanding repurchase requests on loans sold to us by
Countrywide and permits us to bring claims for any additional breaches of our representations and warranties
that are identified with respect to those loans. We continue to work with Bank of America to resolve
repurchase requests that remain outstanding, including requests relating to loans delivered to us by Bank of
America, N.A.
In December 2010, we entered into an agreement with certain wholly-owned subsidiaries of Ally Financial,
Inc. (“Ally”). Under the agreement, we received a cash payment of $462 million in exchange for our release
of specified Ally affiliates from potential liability relating to certain private-label securities sponsored by the
subsidiaries and for certain selling representation and warranty liability related to mortgage loans sold and/or
serviced by one of the subsidiaries as of or prior to June 30, 2010.
We continue to work with our mortgage seller/servicers to fulfill outstanding repurchase requests; however, as
the volume of repurchase requests increases, the risk increases that affected seller/servicers will not be willing
or able to meet the terms of their repurchase obligations and we may be unable to recover on all outstanding
loan repurchase obligations resulting from seller/servicers’ breaches of contractual obligations. If a significant
seller/servicer counterparty, or a number of seller/servicer counterparties, fails to fulfill its repurchase
obligations to us, it could result in a significant increase in our credit losses and have a material adverse effect
on our results of operations and financial condition. We expect that the amount of our outstanding repurchase
requests could remain high in 2011.
We likely would incur costs and potential increases in servicing fees and could also face operational risks if
we decide to replace a mortgage seller/servicer due to its default, our assessment of its financial condition or
for other reasons. If a significant mortgage servicer counterparty fails, and its mortgage servicing obligations
are not transferred to a company with the ability and intent to fulfill all of these obligations, we could incur
penalties for late payment of taxes and insurance on the properties that secure the mortgage loans serviced by
that mortgage seller/servicer. We could also be required to absorb losses on defaulted loans that a failed
servicer is obligated to repurchase from us if we determine there was an underwriting or eligibility breach.
We are exposed to the risk that a mortgage seller/servicer or another party involved in a mortgage loan
transaction will engage in mortgage fraud by misrepresenting the facts about the loan. We have experienced
financial losses in the past and may experience significant financial losses and reputational damage in the
future as a result of mortgage fraud. See “Risk Factors” for additional discussion on risks of mortgage fraud
we are exposed to.
Risk management steps we have taken to mitigate our risk to servicers with whom we have material
counterparty exposure include guaranty of obligations by a higher-rated entity, reduction or elimination of
exposures, reduction or elimination of certain business activities, transfer of exposures to third parties, receipt
of additional collateral and suspension or termination of the servicing relationship.
Mortgage Insurers
We use several types of credit enhancement to manage our single-family mortgage credit risk, including
primary and pool mortgage insurance coverage. Mortgage insurance “risk in force” represents our maximum
potential loss recovery under the applicable mortgage insurance policies. We had total mortgage insurance
coverage risk in force of $95.9 billion on the single-family mortgage loans in our guaranty book of business as
of December 31, 2010, which represented approximately 3% of our single-family guaranty book of business as
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