Fannie Mae 2013 Annual Report Download - page 143

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Table 51: Multifamily Lender Risk-Sharing
As of December 31,
2013 2012
Lender risk-sharing
DUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80% 73%
Non-DUS negotiated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 8
No recourse to the lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 19
At the time of our purchase or guarantee of multifamily mortgage loans, we and our lenders rely on sound underwriting
standards, which often include third-party appraisals and cash flow analysis. Our standards for multifamily loans specify
maximum original LTV ratio and minimum original debt service coverage ratio (“DSCR”) values that vary based on loan
characteristics. Our experience has been that original LTV ratio and DSCR values have been reliable indicators of future
credit performance.
Table 52 displays original LTV ratio and DSCR metrics for our multifamily guaranty book of business as of the dates
indicated.
Table 52: Multifamily Guaranty Book of Business Key Risk Characteristics
As of December 31,
2013 2012 2011
Weighted average original LTV ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 % 66 % 66 %
Original LTV ratio greater than 80%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 5
Original DSCR less than or equal to 1.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8 8
Multifamily Portfolio Diversification and Monitoring
Diversification within our multifamily mortgage credit book of business by geographic concentration, term to maturity,
interest rate structure, borrower concentration, and credit enhancement coverage are important factors that influence credit
performance and help reduce our credit risk.
We and our lenders monitor the performance and risk concentrations of our multifamily loans and the underlying properties
on an ongoing basis throughout the life of the loan: at the loan, property and portfolio levels. We track credit risk
characteristics to determine the loan credit quality indicator, which are the internal risk categories and are further discussed in
“Note 3, Mortgage Loans.” The credit risk characteristics we use to help determine the internal risk categories include the
physical condition of the property, delinquency status, the relevant local market and economic conditions that may signal
changing risk or return profiles, and other risk factors. For example, in addition to capitalization rates, we closely monitor the
rental payment trends and vacancy levels in local markets to identify loans that merit closer attention or loss mitigation
actions. We are managing our exposure to refinancing risk for multifamily loans maturing in the next several years. We have
a team that proactively manages upcoming loan maturities to minimize losses on maturing loans. This team assists lenders
and borrowers with timely and appropriate refinancing of maturing loans with the goal of reducing defaults and foreclosures
related to loans maturing in the near term. The primary asset management responsibilities for our multifamily loans are
performed by our DUS and other multifamily lenders. We periodically evaluate these lenders’ and our other third party
service providers’ performance for compliance with our asset management criteria.
As part of our ongoing credit risk management process, we require lenders to provide quarterly and annual financial updates
for the loans where we are contractually entitled to receive such information. We closely monitor loans with an estimated
current DSCR below 1.0, as that is an indicator of heightened default risk. The percentage of loans in our multifamily
guaranty book of business with a current DSCR less than 1.0 was approximately 4% as of December 31, 2013 and 5% as of
December 31, 2012. Our estimates of current DSCRs are based on the latest available income information for these
properties. Although we use the most recently available results from our multifamily borrowers, there is a lag in reporting,
which typically can range from 3 to 6 months.
Multifamily Problem Loan Management and Foreclosure Prevention
In general the number of multifamily loans at risk of becoming seriously delinquent has continued to decrease as early-stage
delinquencies have declined significantly since the housing crisis. Since delinquency rates are a lagging indicator, we expect
to continue to incur additional credit losses. We periodically refine our underwriting standards in response to market