Fannie Mae 2010 Annual Report Download - page 244

Transactions with PHH Corporation
Terence W. Edwards has been Executive Vice President—Credit Portfolio Management of Fannie Mae since
September 14, 2009, when he joined Fannie Mae. Prior to joining Fannie Mae, Mr. Edwards served as the
President and Chief Executive Officer, as well as a member of the Board of Directors, of PHH Corporation,
until June 17, 2009. Mr. Edwards continued to be employed by PHH Corporation until September 11, 2009.
PHH Mortgage Corporation (“PHH”), a subsidiary of PHH Corporation, is a single-family seller-servicer
customer of Fannie Mae. We regularly enter into transactions with PHH in the ordinary course of this business
relationship. In 2010, PHH delivered approximately $15 billion in mortgage loans to us, which included the
delivery of loans for direct payment and the delivery of pools of mortgage loans in exchange for Fannie Mae
MBS. We acquired most of these mortgage loans pursuant to our early funding programs. This represented
approximately 2.5% of our single-family business volume in 2010 and made PHH our eighth-largest single-
family customer. In addition, as of December 31, 2010, PHH serviced approximately $66 billion of single-
family mortgage loans either owned directly by Fannie Mae or backing Fannie Mae MBS, which represented
approximately 2.4% of our single-family servicing book, making PHH our seventh-largest servicer. PHH also
entered into transactions with us to purchase or sell approximately $16 billion in Fannie Mae, Freddie Mac
and Ginnie Mae mortgage-related securities in 2010. As a single-family seller-servicer customer, PHH also
pays us fees for its use of certain Fannie Mae technology, enters into risk-sharing arrangements with us, and
provides us with collateral to secure some of its obligations. PHH renewed its delivery commitment to us in
November 2010 for a 17-month term.
In December 2010, we entered into a committed purchase facility with PHH, pursuant to which PHH may
have, at any given time during the term of the facility, up to $1.0 billion in outstanding early funding
transactions with us. This agreement is in addition to our existing uncommitted transaction limits with PHH
under our early funding programs. We have also provided PHH with an early reimbursement facility to fund
certain of PHH’s servicing advances. The maximum amount outstanding under this early reimbursement
facility during 2010 was approximately $68 million. PHH is also a participating lender in our HomePath»
Mortgage financing initiative relating to our REO properties.
We believe that Fannie Mae is one of PHH’s largest business partners and that transactions with Fannie Mae
are material to PHH’s business. According to PHH Corporation’s quarterly report on Form 10-Q for the
quarter ended September 30, 2010, 96% of its mortgage loan sales during the first nine months of 2010 were
to Fannie Mae, Freddie Mac or Ginnie Mae, and its business is highly dependent on programs administered by
the GSEs.
Pursuant to a separation agreement with PHH Corporation, Mr. Edwards is entitled to receive additional
compensation from PHH Corporation for his prior services to the company. Some of this additional
compensation is dependent on the performance of PHH Corporation. According to Forms 8-K filed by PHH
Corporation on August 5, 2009 and September 16, 2009, Mr. Edwards’ separation agreement with PHH
Corporation provided that he would receive the following additional compensation from PHH Corporation:
(a) an amount equal to his base salary for a 24-month period beginning on PHH Corporation’s first regular pay
date after March 11, 2010; (b) annual cash bonuses for calendar years 2009, 2010 and 2011 in an amount
equal to the bonus he would have received based on actual performance of the company (except that the 2011
bonus will be prorated to reflect the actual number of months covered by the severance period in 2011), which
bonuses will be paid to Mr. Edwards at the same time bonuses are payable to corporate employees, but no
later than March 15 after the end of the applicable performance year; and (c) a cash transition payment of
$50,000 on PHH Corporation’s first regular pay date after March 11, 2010. In addition, the outstanding
options and restricted stock units that have been previously awarded to him will continue to vest and, on the
last day of the severance period, all remaining unvested options and restricted stock units will become fully
vested, except for the 2009 performance-based restricted stock units which will become vested only to the
extent that performance goals have been satisfied.
Our policies and procedures for the review and approval of related party transactions described above under
“Policies and Procedures Relating to Transactions with Related Persons” did not require the review, approval
or ratification of the above-described transactions with PHH. Our Nominating and Corporate Governance
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