Fannie Mae 2013 Annual Report Download - page 43

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being deemed to be uncollectible at the date of foreclosure or other liquidation event (such as a deed-in-lieu of foreclosure or
a short sale).
In the period in which we adopt the Advisory Bulletin, our allowance for loan losses on the impacted loans will be eliminated
and the corresponding recorded investment in the loan will be reduced by the amounts that are charged off. Under our
existing accounting practices and upon adoption of the Advisory Bulletin, the ultimate amount of losses we realize on our
loan portfolio will be the same over time; however, the timing of when we recognize the losses in our financial statements
will differ.
We are working with FHFA to consider how the Advisory Bulletin may impact our credit risk management practices. At
present, approximately 50% of our modifications are initiated after loans become 180 days delinquent. This is a result of a
number of factors, including servicer backlogs, lack of borrower responsiveness to loss mitigation efforts, and extended
foreclosure timelines, which affect the willingness of borrowers to engage regarding loss mitigation options. Given the
current rate of modification activity after loans become 180 days delinquent, the benefit we expect from borrower re-
performance is significant in estimating the losses for this population of loans. In July 2013, we introduced a streamlined
modification program which may accelerate the timing of our modifications; however, we still expect a meaningful amount
of modifications to be initiated after our loans become 180 days past due. As we obtain incremental information on the
performance of this program, we will enhance our loss estimates, as necessary, to reflect the change in the expected timing
and volume of modifications.
We are working with FHFA to resolve certain implementation issues related to our adoption of the Advisory Bulletin. We do
not expect that the adoption of the Advisory Bulletin will have a material impact on our financial position or results of
operations.
See “Risk Factors” for information on the risks presented by our adoption of the Advisory Bulletin.
OUR CUSTOMERS
Our principal customers are lenders that operate within the primary mortgage market where mortgage loans are originated
and funds are loaned to borrowers. Our customers include mortgage banking companies, savings and loan associations,
savings banks, commercial banks, credit unions, community banks, specialty servicers, insurance companies, and state and
local housing finance agencies. Lenders originating mortgages in the primary mortgage market often sell them in the
secondary mortgage market in the form of whole loans or in the form of mortgage-related securities.
We have a diversified funding base of domestic and international investors. Purchasers of our Fannie Mae MBS and debt
securities include fund managers, commercial banks, pension funds, insurance companies, Treasury, foreign central banks,
corporations, state and local governments and other municipal authorities.
During 2013, approximately 1,200 lenders delivered single-family mortgage loans to us, either for securitization or for
purchase. We acquire a significant portion of our single-family mortgage loans from several large mortgage lenders. During
2013, our top five lender customers, in the aggregate, accounted for approximately 42% of our single-family business
volume, down from approximately 46% in 2012. Wells Fargo Bank, N.A., together with its affiliates, was the only customer
that accounted for 10% or more of our single-family business volume in 2013, with approximately 20%.
A number of factors impacted our customers in 2013 and affected the volume of business and mix of customers with whom
we and our competitors do business. We obtained a smaller portion of our single-family loan acquisitions from large
mortgage lenders in 2012 and 2013 than in prior years as a result of (1) exits from correspondent or broker lending by several
large lenders who are focusing instead on lending through their retail channels, and (2) a number of large mortgage lenders
having gone out of business since 2006. At the same time, we sought and continue to seek to provide liquidity to a broader,
more diverse set of mortgage lenders. In addition to the decrease in single-family mortgage seller concentration, we are
acquiring an increasing portion of our business volume from non-depository sellers rather than depository financial
institutions. Doing more business with a more diverse set of mortgage lenders has lowered to a degree the significant
exposure concentration we have built up with a few large institutions. However, the potentially lower financial strength,
liquidity and operational capacity of many of these smaller or non-depository mortgage sellers and servicers may negatively
affect their ability to satisfy their repurchase or compensatory fee obligations or to service the loans on our behalf. The
decrease in the concentration of our business with large depository financial institutions could increase both our institutional
counterparty credit risk and our mortgage credit risk and, as a result, could have a material adverse effect on our business,
results of operations, financial condition, liquidity and net worth.
See “Risk Factors” for a discussion of risks relating to our institutional counterparties, changes in the mortgage industry and
our acquisition of a significant portion of our mortgage loans from several large mortgage lenders.