Fannie Mae 2013 Annual Report Download - page 60

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mortgage loans from several large mortgage lenders, with our top five lender customers in terms of single-family business
acquisition volume, in the aggregate, accounting for approximately 42% of our single-family business acquisition volume in
2013. Accordingly, maintaining our current business relationships and business volumes with our top lender customers is
important to our business. To the extent a key lender customer significantly reduces the volume or quality of mortgage loans
that the lender delivers to us or that we are willing to buy from them, we could lose significant business volume that we
might be unable to replace, which could adversely affect our business and result in a decrease in our revenues. In addition, a
significant reduction in the volume of mortgage loans that we securitize could reduce the liquidity of Fannie Mae MBS,
which in turn could have an adverse effect on their market value.
Our reliance on third parties to service our mortgage loans may impede our efforts to keep people in their homes and
adversely affect the re-performance rate of loans we modify.
Mortgage servicers, or their agents and contractors, typically are the primary point of contact for borrowers on our loans. We
rely on these mortgage servicers to identify and contact troubled borrowers as early as possible, to assess the situation and
offer appropriate options for resolving the problem and to successfully implement a solution. Over the past few years, the
demands placed on experienced mortgage loan servicers to service delinquent loans have increased significantly across the
industry, straining servicer capacity. To the extent that mortgage servicers are hampered by limited resources or other factors,
they may not be successful in conducting their servicing activities in a manner that fully accomplishes our objectives within
the timeframe we desire. Further, our servicers have advised us that they have not been able to reach many of the borrowers
who may need help with their mortgage loans even when repeated efforts have been made to contact the borrower.
For these reasons, our ability to actively manage the troubled loans that we own or guarantee, and to implement our
homeownership assistance and foreclosure prevention efforts quickly and effectively, is limited by our reliance on our
mortgage servicers. This reliance could have a material adverse effect on our business, results of operations and financial
condition.
Changes in the foreclosure environment and our reliance on servicers and their counsel and other service providers to
complete foreclosures could continue to have a material adverse effect on our business, results of operations, financial
condition and net worth.
The processing of foreclosures continues to be slow in a number of states, primarily as a result of the elevated level of
foreclosures caused by the housing market downturn that began in 2006, changes in state foreclosure laws, new federal and
state servicing requirements imposed by regulatory actions and legal settlements, and the need for servicers to adapt to these
changes.
The slow pace of foreclosures has negatively affected our foreclosure timelines, credit-related income (expense) and single-
family serious delinquency rates, and we expect they will continue to do so. We believe the slow pace of foreclosures in
certain areas of the country is contributing to a slower recovery of those housing markets. It may also negatively affect the
value of the private-label securities we hold and result in additional impairments on these securities. Moreover, the failure of
our servicers or their service providers to apply prudent and effective process controls and to comply with legal and other
requirements in the foreclosure process poses operational, reputational and legal risks for us.
In addition, in response to a directive from FHFA, we phased out the practice of requiring mortgage servicers to use our
network of retained attorneys to perform default- and foreclosure-related legal services for our loans. This may make it more
difficult for us to oversee the performance of default- and foreclosure-related legal services for our loans, which may
adversely impact our efforts to reduce our credit losses.
Challenges to the MERS® company, system and processes could pose operational, reputational and legal risks for us.
MERSCORP Holdings, Inc. (“MERSCORP”) is a privately held company that maintains an electronic registry (the “MERS
System”) that tracks servicing rights and ownership of loans in the United States. Mortgage Electronic Registration Systems,
Inc. (“MERS”), a wholly owned subsidiary of MERSCORP, can serve as a nominee for the owner of a mortgage loan and, in
that role, become the mortgagee of record for the loan in local land records. Fannie Mae sellers/servicers may choose to use
MERS as a nominee; however, we have prohibited servicers from initiating foreclosures on Fannie Mae loans in MERS’s
name. A large portion of the loans we own or guarantee are registered in MERS’s name and the related servicing rights are
tracked in the MERS System. The MERS System is widely used by participants in the mortgage finance industry. Along with
a number of other organizations in the mortgage finance industry, we are a shareholder of MERSCORP.
Several legal challenges have been made disputing MERS’s ability to initiate foreclosures, act as nominee in local land
records, and/or assign mortgages or take other action on behalf of the loan owner. These challenges seek judicial relief
ranging from money damages to injunctive/declaratory relief seeking the prevention of mortgage assignments by MERS and/