Fannie Mae 2013 Annual Report Download - page 147

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financial capacity to satisfy repurchase requests. See “Risk Factors” for more information on the impact to our business due
to changes in the mortgage industry.
Risk management steps we have taken or may take to mitigate our risk to mortgage sellers and servicers with whom we have
material counterparty exposure include guaranty of obligations by higher-rated entities, reduction or elimination of
exposures, reduction or elimination of certain business activities, transfer of exposures to third parties, receipt of collateral
and suspension or termination of the selling and servicing relationship.
We are exposed to the risk that a mortgage seller and servicer or another party involved in a mortgage loan transaction will
engage in mortgage fraud by misrepresenting the facts about the loan. We have experienced significant financial losses in the
past and may experience significant financial losses and reputational damage in the future as a result of mortgage fraud. See
“Risk Factors” for additional discussion on risks of mortgage fraud to which we are exposed.
If we determine that a mortgage loan did not meet our underwriting or eligibility requirements, loan representations or
warranties were violated, or a mortgage insurer rescinded coverage, then our mortgage sellers and/or servicers are obligated
to either repurchase the loan or foreclosed property, or reimburse us for our losses. If the collateral property relating to such a
loan has been foreclosed upon and we have accepted an offer from a third party to purchase the property, or if a loan is in the
process of being liquidated or has been liquidated, we require the mortgage seller or servicer to reimburse us for our losses.
We may consider additional facts and circumstances when determining whether to require a mortgage seller or servicer to
reimburse us for our losses instead of repurchasing the related loan or foreclosed property. On an economic basis, we are
made whole for our losses regardless of whether the mortgage seller or servicer repurchases the loan or reimburses us for our
losses. We consider the anticipated benefits from these types of recoveries when we establish our allowance for loan losses.
We refer to our demands that mortgage sellers and servicers meet these obligations collectively as “repurchase requests.” In
addition, we charge our primary mortgage servicers a compensatory fee for servicing delays within their control when they
fail to comply with established loss mitigation and foreclosure timelines in our Servicing Guide. Compensatory fees are
intended to compensate us for damages attributed to such servicing delays and to emphasize the importance of the mortgage
servicer’s performance.
Mortgage sellers and servicers may not meet the terms of their repurchase obligations, and we may be unable to recover on
all outstanding loan repurchase obligations resulting from their breaches of contractual obligations. Failure by a significant
mortgage seller or servicer, or a number of mortgage sellers or servicers, to fulfill repurchase obligations to us could result in
a significant increase in our credit losses and credit-related expense, and have a material adverse effect on our results of
operations and financial condition. In addition, actions we take to pursue our contractual remedies could increase our costs,
reduce our revenues, or otherwise have an adverse effect on our results of operations or financial condition. As of
December 31, 2013 and 2012, in estimating our allowance for loan losses, we assumed no benefit from repurchase demands
due to us from mortgage sellers or servicers that, in our view, lacked the financial capacity to honor their contractual
obligations.
As of December 31, 2013, we have completed loan reviews for potential underwriting defects on loans we acquired through
our standard whole loan and MBS acquisitions between 2005 and 2008. We will continue to enforce certain lifetime
representations and warranties such as mortgage insurance rescissions, title, fraud and legal compliance. Throughout the year,
we entered into a number of resolution agreements with some of our largest mortgage sellers and servicers resolving
outstanding repurchase requests and other matters, including agreements with Bank of America, N.A., CitiMortgage, Inc.,
JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. As a result of the agreements, we have collected and/or settled on
significant amounts related primarily to loans in our legacy book that did not meet our underwriting standards or where the
mortgage seller or servicer violated our representations and warranties. As a result of these efforts, the unpaid principal
balance of our outstanding repurchase requests declined substantially to $1.5 billion as of December 31, 2013, compared with
$16.0 billion as of December 31, 2012. These efforts also satisfied FHFA’s 2013 conservatorship scorecard objective for us to
complete our demands for remedies for breaches of representations and warranties related to pre-conservatorship loan
activity.
Table 55 displays repurchase request activity, measured by unpaid principal balance, during 2013 and 2012. The dollar
amounts of our outstanding repurchase requests provided below are based on the unpaid principal balance of the loans
underlying the repurchase request issued, not the actual amount we have requested from the lenders. In some cases, we allow
lenders to remit payment equal to our loss, including imputed interest, on the loan after we have disposed of the REO, which
is less than the unpaid principal balance of the loan. As a result, we expect our actual cash receipts relating to these
outstanding repurchase requests to be significantly lower than the unpaid principal balance of the loan. Amounts relating to
repurchase requests originating from missing documentation or loan files are excluded from the total requests outstanding
until we receive the missing documentation or loan files and a full underwriting review is completed.