Fannie Mae 2012 Annual Report Download - page 22

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from sustained rental demand coupled with ongoing job growth and new household formation. Although vacancy rates
declined through most of 2012, the national vacancy level for the fourth quarter of 2012 is estimated to have remained at
5.50%, based on third-party data, which is the same level that was estimated for the third quarter of 2012, but down from an
estimated 6.25% in the fourth quarter of 2011. While vacancy levels are expected to have remained the same, average asking
rents are expected to have increased once again, by an estimated 0.5% on a national basis in the fourth quarter of 2012,
continuing a trend over nearly three years. The increase in overall rental demand was also reflected in an estimated increase
of approximately 47,000 units in the net number of occupied rental units during the fourth quarter of 2012, according to data
from Reis, Inc. That brings the total estimated net absorption for the year (that is, the net change in the number of units
occupied over the year) to approximately 140,000 units.
Vacancy rates and rents are important to loan performance because multifamily loans are generally repaid from the cash
flows generated by the underlying property. Several years of improvement in these fundamentals, followed by a leveling off
in the second half of 2012, have helped boost property values in most metropolitan areas in 2012, as well as new construction
development. As a result, over-supply may occur over the next 24 months in some localized areas. Nevertheless, the overall
national rental market supply and demand is expected to remain in balance over the longer term, based on expected
construction completions, expected obsolescence, positive household formation trends and expected increases in the
population of 20- to 34-year olds, which as a group rents multifamily housing at a higher rate than other groups.
MORTGAGE SECURITIZATIONS
We support market liquidity by securitizing mortgage loans, which means we place loans in a trust and Fannie Mae MBS
backed by the mortgage loans are then issued. We guarantee to the MBS trust that we will supplement amounts received by
the MBS trust as required to permit timely payment of principal and interest on the trust certificates. In return for this
guaranty, we receive guaranty fees.
Below we discuss (1) two broad categories of securitization transactions: lender swaps and portfolio securitizations;
(2) features of our MBS trusts; (3) circumstances under which we purchase loans from MBS trusts; and (4) single-class and
multi-class Fannie Mae MBS.
Lender Swaps and Portfolio Securitizations
We currently securitize a majority of the single-family and multifamily mortgage loans we acquire. Our securitization
transactions primarily fall within two broad categories: lender swap transactions and portfolio securitizations.
Our most common type of securitization transaction is our “lender swap transaction.” Mortgage lenders that operate in the
primary mortgage market generally deliver pools of mortgage loans to us in exchange for Fannie Mae MBS backed by these
mortgage loans. A pool of mortgage loans is a group of mortgage loans with similar characteristics. After receiving the
mortgage loans in a lender swap transaction, we place them in a trust that is established for the sole purpose of holding the
mortgage loans separate and apart from our assets. We deliver to the lender (or its designee) Fannie Mae MBS that are backed
by the pool of mortgage loans in the trust and that represent an undivided beneficial ownership interest in each of the
mortgage loans. We guarantee to each MBS trust that we will supplement amounts received by the MBS trust as required to
permit timely payment of principal and interest on the related Fannie Mae MBS. We retain a portion of the interest payment
as the fee for providing our guaranty. Then, on behalf of the trust, we make monthly distributions to the Fannie Mae MBS
certificateholders from the principal and interest payments and other collections on the underlying mortgage loans.
In contrast to our lender swap securitizations, in which lenders deliver pools of mortgage loans to us that we immediately
place in a trust for securitization, our “portfolio securitization transactions” involve creating and issuing Fannie Mae MBS
using mortgage loans and mortgage-related securities that we hold in our mortgage portfolio.
Features of Our MBS Trusts
We serve as trustee for our MBS trusts, each of which is established for the sole purpose of holding mortgage loans separate
and apart from our assets. Our MBS trusts hold either single-family or multifamily mortgage loans or mortgage-related
securities. Each trust operates in accordance with a trust agreement or a trust indenture. Each MBS trust is also governed by
an issue supplement documenting the formation of that MBS trust, the identification of its related assets and the issuance of
the related Fannie Mae MBS. The trust agreement or the trust indenture, together with the issue supplement and any
amendments, are considered the “trust documents” that govern an individual MBS trust.