Fannie Mae 2011 Annual Report Download - page 21

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changes in the foreclosure environment discussed above will continue to negatively affect our single-family
serious delinquency rates, foreclosure timelines and credit-related expenses. Moreover, we believe these
conditions will delay the recovery of the housing market because it will take longer to clear the market’s supply
of distressed homes. Distressed homes typically sell at a discount compared to non-distressed homes and,
therefore, a lingering population of distressed homes will continue to negatively affect overall home prices. See
“Risk Factors” for further information about the potential impact of the foreclosure process deficiencies and
resulting changes in the foreclosure environment on our business, results of operations, financial condition and
net worth.
Improving Servicing Standards and Execution. The performance of our mortgage servicers is critical to our
success in reducing defaults, completing foreclosure alternatives and managing workout and foreclosure
timelines efficiently, because servicers are the primary point of contact with borrowers. Improving servicing
standards is therefore a key aspect of our strategy to reduce our credit losses. We are taking a number of steps to
improve the servicing of our delinquent loans.
In June 2011, we issued new standards for mortgage servicers under FHFA’s Servicing Alignment
Initiative. The initiative is aimed at establishing consistency in the servicing of delinquent loans owned or
guaranteed by Fannie Mae and Freddie Mac. Among other things, the new servicing standards, which
became effective October 1, 2011, are designed to result in earlier, more frequent and more effective contact
with borrowers and to improve servicer performance by providing servicers monetary incentives for
exceeding loan workout benchmarks and by imposing fees on servicers for failing to meet loan workout
benchmarks or foreclosure timelines.
In some cases, we transfer servicing on loan populations that include loans with higher-risk characteristics
to special servicers with whom we have worked to develop high-touch protocols for servicing these loans.
These protocols include lowering the ratio of loans per servicer employee, prescribing borrower outreach
strategies to be used at early stages of delinquency, and providing distressed borrowers a single point of
contact to resolve issues. Transferring servicing on higher-risk loans enables the borrowers (and loans) to
benefit from these high-touch protocols while increasing the original servicer’s capacity to service the
remaining loans, creating an opportunity to improve service to the remaining borrowers.
In September 2011, we issued our first ratings of servicers’ performance under our Servicer Total
Achievement and Rewards (“STAR”) program. The STAR program is designed to encourage improvements
in customer service and foreclosure prevention outcomes for homeowners by rating servicers on their
performance in these areas.
While we believe these steps will improve the servicing of our loans, ultimately we are dependent on servicers’
willingness, efficiency and ability to implement our home retention solutions and foreclosure alternatives, and to
manage timelines for workouts and foreclosures.
Managing Our REO Inventory. Efficient management of our REO inventory of homes acquired through
deed-in-lieu of foreclosure or foreclosure is another critical element of our strategy for reducing credit losses.
Since January 2009, we have strengthened our REO sales capabilities by increasing resources, as we continue to
manage our REO inventory to minimize costs and maximize sales proceeds. As Table 4 shows, the volume of our
property dispositions increased in 2010 and 2011.
Neighborhood stabilization is a core principle in our approach to managing our REO inventory. As a result, we seek
to keep properties in good condition and, in some cases, repair them to make them more marketable. Our goal is to
obtain the highest price possible for the properties we sell. In 2011, we completed repairs to approximately 89,800
properties sold from our single-family REO inventory, at an average cost of approximately $6,200 per property.
Repairing REO properties increases sales to owner occupants and increases financing options for REO buyers. In
addition, we encourage homeownership through our “First Look” marketing period. During this “First Look”
period, owner occupants, some nonprofit organizations and public entities may submit offers and purchase
properties without competition from investors. Approximately 145,000 of the 244,000 single-family properties we
sold in 2011 were purchased by owner occupants, nonprofit organizations or public entities.
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