Fannie Mae 2010 Annual Report Download - page 20

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the future (for loans that eventually involve charge-offs or foreclosure), yet these fair value losses have already
reduced the mortgage loan balances reflected in our consolidated balance sheets and have effectively been
recognized in our consolidated statements of operations through our provision for guaranty losses. We consider
these fair value losses as an “effective reserve,” apart from our total loss reserves, to the extent that we expect
to realize them as credit losses in the future.
As a result of the substantial reserving for and realizing of our credit losses to date, we have drawn a
significant amount of funds from Treasury through December 31, 2010. As our draws from Treasury for credit
losses abate, we expect our draws instead to be driven increasingly by dividend payments to Treasury.
Our Strategies and Actions to Reduce Credit Losses on Loans in our Single-Family Guaranty Book of
Business
To reduce the credit losses we ultimately incur on our single-family guaranty book of business, we are
focusing our efforts on the following strategies:
Reducing defaults to avoid losses that otherwise would occur;
Efficiently managing timelines for home retention solutions, foreclosure alternatives, and foreclosures;
Pursuing foreclosure alternatives to reduce the severity of the losses we incur;
Managing our REO inventory to reduce costs and maximize sales proceeds; and
Pursuing contractual remedies from lenders and providers of credit enhancement, including mortgage
insurers.
We refer to actions taken by our servicers with borrowers to resolve the problem of existing or potential
delinquent loan payments as “workouts,” which include our home retention solutions and foreclosure
alternatives discussed below. As “Table 4: Credit Statistics, Single-Family Guaranty Book of Business”
illustrates, our single-family serious delinquency rate decreased to 4.48% as of December 31, 2010 from
5.38% as of December 31, 2009. This decrease is primarily the result of workouts and foreclosed property
acquisitions completed during the year and reflects our work with servicers to reduce delays in determining
and executing the appropriate approach for a given loan. During 2010, we completed approximately 772,000
workouts and foreclosed property acquisitions. The decrease is also attributable to our acquisition of loans
with stronger credit profiles in 2010. Serious delinquency rates declined in 2010 and, as of September 30,
2010, we experienced the first year-over-year decline in our serious delinquency rate since 2007. This
year-over-year decline continued as of December 31, 2010. We expect serious delinquency rates will continue
to be affected in the future by home price changes, changes in other macroeconomic conditions, and the extent
to which borrowers with modified loans again become delinquent in their payments.
Reducing Defaults. We are working to reduce defaults through improved servicing, refinancing initiatives and
solutions that help borrowers retain their homes, such as modifications.
Improved Servicing. Our mortgage servicers are the primary point of contact for borrowers and perform
a vital role in our efforts to reduce defaults and pursue foreclosure alternatives. We seek to improve the
servicing of our delinquent loans through a variety of means, including increasing our resources for
managing the oversight of servicers, increasing our communications with servicers, and holding servicers
accountable for following our requirements. We are also working with some of our servicers to test and
implement high-touch protocols for servicing our higher risk loans, including lowering the ratio of loans
per servicer employee, prescribing borrower outreach strategies to be used at earlier stages of delinquency,
and providing distressed borrowers a single point of contact to resolve issues.
Refinancing Initiatives. Through our Refi Plus
TM
initiative, which provides expanded refinance
opportunities for eligible Fannie Mae borrowers, we acquired or guaranteed approximately 659,000 loans
in 2010 that helped borrowers obtain more affordable monthly payments now and in the future or a more
stable mortgage product (for example, by moving from an adjustable-rate mortgage to a fixed-rate
mortgage). These refinancing activities may help prevent future delinquencies and defaults. Loans
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