Fannie Mae 2013 Annual Report Download - page 153

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all counterparties. See “Note 5, Investments in Securities” for a further discussion of our model methodology and key inputs
used to determine other-than-temporary impairments.
We are also the beneficiary of financial guarantees included in securities issued by Freddie Mac, the federal government and
its agencies that totaled $22.5 billion as of December 31, 2013 and $27.3 billion as of December 31, 2012.
Lenders with Risk Sharing
We enter into risk sharing agreements with lenders pursuant to which the lenders agree to bear all or some portion of the
credit losses on the covered loans. Our maximum potential loss recovery from lenders under these risk sharing agreements on
single-family loans was $10.7 billion as of December 31, 2013, compared with $11.9 billion as of December 31, 2012. As of
December 31, 2013, 52% of our maximum potential loss recovery on single-family loans was from three lenders, compared
with 55% as of December 31, 2012. Our maximum potential loss recovery from lenders under risk sharing agreements on
DUS and non-DUS multifamily loans was $39.4 billion as of December 31, 2013, compared with $36.4 billion as of
December 31, 2012. As of December 31, 2013, 32% of our maximum potential loss recovery on multifamily loans was from
three DUS lenders, compared with 35% as of December 31, 2012.
Although market conditions have improved, unfavorable market conditions prior to 2012 adversely affected the liquidity and
financial condition of our lender counterparties. The percentage of single-family recourse obligations from lenders with
investment grade credit ratings (based on the lower of S&P, Moody’s and Fitch ratings) was 55% as of December 31, 2013,
compared with 51% as of December 31, 2012. The recourse obligations from lender counterparties rated below investment
grade was 21% as of December 31, 2013, compared with 22% as of December 31, 2012. The remaining recourse obligations
were from lender counterparties that were not rated by rating agencies, which was 24% as of December 31, 2013, compared
with 27% as of December 31, 2012. Given the stressed financial condition of some of our single-family lenders, we expect in
some cases we will recover less than the amount the lender is obligated to provide us under our risk sharing arrangement with
them. Depending on the financial strength of the counterparty, we may require a lender to pledge collateral to secure its
recourse obligations.
As noted above in “Mortgage Credit Risk Management—Multifamily Mortgage Credit Risk Management,” our primary
multifamily delivery channel is our DUS program, which is comprised of lenders that range from large depositories to
independent non-bank financial institutions. As of December 31, 2013, approximately 37% of the unpaid principal balance of
loans in our multifamily guaranty book of business serviced by our DUS lenders was from institutions with an external
investment grade credit rating or a guaranty from an affiliate with an external investment grade credit rating, compared with
approximately 40% as of December 31, 2012. Given the recourse nature of the DUS program, the lenders are bound by
eligibility standards that dictate, among other items, minimum capital and liquidity levels, and the posting of collateral at a
highly rated custodian to secure a portion of the lenders’ future obligations. We actively monitor the financial condition of
these lenders to help ensure the level of risk remains within our standards and to ensure required capital levels are maintained
and are in alignment with actual and modeled loss projections.
Custodial Depository Institutions
A total of $34.6 billion in deposits for single-family payments were received and held by 284 institutions during the month of
December 2013 and a total of $74.0 billion in deposits for single-family payments were received and held by 292 institutions
during the month of December 2012. Of these total deposits, 94% as of December 31, 2013, compared with 93% as of
December 31, 2012, were held by institutions rated as investment grade by S&P, Moody’s and Fitch. Our transactions with
custodial depository institutions are concentrated. Our six largest custodial depository institutions held 86% of these deposits
as of December 31, 2013, compared with 87% as of December 31, 2012.
We evaluate our custodial depository institutions to determine whether they are eligible to hold deposits on our behalf based
on requirements specified in our Servicing Guide. If a custodial depository institution were to fail while holding remittances
of borrower payments of principal and interest due to us in our custodial account, we would be an unsecured creditor of the
depository for balances in excess of the deposit insurance protection and might not be able to recover all of the principal and
interest payments being held by the depository on our behalf, or there might be a substantial delay in receiving these
amounts. If this were to occur, we would be required to replace these amounts with our own funds to make payments that are
due to Fannie Mae MBS certificateholders. Accordingly, the insolvency of one of our principal custodial depository
counterparties could result in significant financial losses to us. During the month of December 2013, approximately $1.7
billion, or 5%, of our total deposits for single-family payments received and held by these institutions was in excess of the
deposit insurance protection limit compared with approximately $7.2 billion, or 10%, during the month of December 2012.
These amounts can vary as they are calculated based on individual payments of mortgage borrowers and we must estimate
which borrowers are paying their regular principal and interest payments and other types of payments, such as prepayments
from refinancing or sales.