Fannie Mae 2014 Annual Report Download - page 141

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to do business with Fannie Mae and Freddie Mac, and include net worth, capital ratio and liquidity criteria for our mortgage
sellers and servicers. These proposed eligibility requirements were published on January 30, 2015 with a request for industry
feedback. FHFA has indicated that it anticipates the proposed minimum financial requirements will be finalized in the second
quarter of 2015, and will be effective six months after they are finalized.
Our five largest single-family mortgage servicers, including their affiliates, serviced approximately 46% of our single-family
guaranty book of business as of December 31, 2014, compared with approximately 49% as of December 31, 2013. Our
largest mortgage servicer is Wells Fargo Bank, N.A., which, together with its affiliates, serviced approximately 18% of our
single-family guaranty book of business as of December 31, 2014, compared with approximately 19% as of December 31,
2013. As of December 31, 2014 and 2013, one additional mortgage servicer, JPMorgan Chase Bank, N.A., with its affiliates,
serviced over 10% of our single-family guaranty book of business.
Our ten largest multifamily mortgage servicers, including their affiliates, serviced approximately 67% of our multifamily
guaranty book of business as of December 31, 2014, compared with approximately 65% as of December 31, 2013. Wells
Fargo Bank, N.A. serviced over 10% of our multifamily guaranty book of business as of December 31, 2014 and 2013. As of
December 31, 2014, one additional mortgage servicer, Walker & Dunlop, LLC, serviced over 10% of our multifamily
guaranty book of business.
We have seen an increasing shift in our servicing book from depository financial institution servicers to non-depository
servicers. As of December 31, 2014, 13% of our total single-family guaranty book of business, including 32% of our
delinquent single-family loans, were serviced by our three largest non-depository servicers, compared with 12% of our total
single-family guaranty book of business, including 31% of our delinquent single-family loans, as of December 31, 2013.
These three servicers’ growth in recent years is due to acquisitions from both depository and other non-depository servicers.
The shift from depository to non-depository servicers poses additional risks to us because non-depository servicers may have
a greater reliance on third-party sources of liquidity and may, in the event of significant increases in delinquent loan volumes,
have less financial capacity to advance funds on our behalf or satisfy repurchase requests or compensatory fee obligations. In
addition, the rapid expansion of these servicers’ servicing portfolios results in increased operational risk, which could
negatively impact their ability to effectively manage their servicing portfolios. In addition, regulatory bodies have been
reviewing the activities of some of our largest non-depository servicers. See “Risk Factors” for a discussion of the risks of
our reliance on servicers.
Because we delegate the servicing of our mortgage loans to mortgage servicers and do not have our own servicing function,
mortgage servicers’ lack of appropriate process controls or the loss of business from a significant mortgage servicer
counterparty could pose significant risks to our ability to conduct our business effectively. Many of our largest mortgage
servicer counterparties continue to reevaluate the effectiveness of their process controls. Many mortgage servicers are also
subject to federal and state regulatory actions and legal settlements that require the mortgage servicers to correct foreclosure
process deficiencies and improve their servicing and foreclosure practices. This has contributed to extended foreclosure
timelines and, therefore, additional holding costs for us, such as property taxes and insurance, repairs and maintenance, and
valuation adjustments due to home price changes. See “Risk Factors” for a discussion of risks relating to the slow pace of
foreclosures in some states.
Our five largest single-family mortgage sellers, including their affiliates, accounted for approximately 33% of our single-
family business acquisition volume in 2014, compared with approximately 42% in 2013. Our largest mortgage seller is Wells
Fargo Bank, N.A., which, together with its affiliates, accounted for approximately 12% of our single-family business
acquisition volume in 2014, compared with approximately 20% in 2013. A number of our largest single-family mortgage
seller counterparties have reduced or eliminated their purchases of mortgage loans from mortgage brokers and correspondent
lenders in recent years, resulting in a decline in our single-family mortgage seller concentration. As a result, we are acquiring
a greater portion of our business volume directly from non-depository and smaller depository financial institutions that may
not have the same financial strength or operational capacity as our largest mortgage seller counterparties. We could be
required to absorb losses on defaulted loans that a failed mortgage seller is obligated to repurchase from us if we determine
there was an underwriting eligibility breach. See “Risk Factors” for a discussion of the risks 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
significant 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