Fannie Mae 2014 Annual Report Download - page 15

10
Helping to Build a Sustainable Housing Finance System
We have invested significant resources towards helping to build a safer and sustainable housing finance system, primarily
through pursuing the strategic goals identified by our conservator. FHFA’s current strategic goals are to:
• Maintain, in a safe and sound manner, credit availability and foreclosure prevention activities for new and
refinanced mortgages to foster liquid, efficient, competitive and resilient national housing finance markets.
• Reduce taxpayer risk through increasing the role of private capital in the mortgage market.
• Build a new single-family securitization infrastructure for use by Fannie Mae and Freddie Mac and adaptable for
use by other participants in the secondary market in the future.
Beginning in 2012, FHFA has released annual corporate performance objectives for Fannie Mae and Freddie Mac, referred to
as the conservatorship scorecard, which detail specific priorities for implementing FHFA’s strategic goals. FHFA released its
2014 conservatorship scorecard in May 2014, and its 2015 conservatorship scorecard in January 2015. Both FHFA’s 2014 and
2015 conservatorship scorecards include objectives designed to further the goal of reforming the housing finance system. We
describe below some of the initiatives we are undertaking pursuant to the mandates of the scorecards in order to build the
policies and infrastructure for a sustainable housing finance system.
Representation and Warranty Framework. FHFA’s 2014 and 2015 conservatorship scorecards include an objective relating to
improving the representation and warranty framework for mortgage originations. We discuss actions we have taken to
improve this framework and reduce lenders’ repurchase risk relating to loans they deliver to us under “Serving Customer
Needs and Improving Our Business Efficiency” above.
Credit Risk Transfer Transactions. FHFA’s 2014 and 2015 conservatorship scorecards include objectives relating to credit
risk transfer transactions. The goal of these transactions is, to the extent economically sensible, to transfer a limited portion of
the existing credit risk on a portion of our single-family guaranty book of business in order to reduce the risk to taxpayers of
future borrower defaults. We completed a total of five Connecticut Avenue SecuritiesTM (“CAS”) credit risk transfer
transactions in 2013 and 2014, which transferred some of the credit risk on single-family mortgages with an unpaid principal
balance of $249.0 billion. While these transactions have been relatively small compared to our overall mortgage credit risk
exposure, we believe they have attracted broad interest in the private market. We currently intend to complete additional CAS
transactions in 2015. In addition to our CAS transactions, we executed additional types of risk sharing transactions in 2014.
We expect to continue engaging in economically sensible ways to expand our offerings of credit risk transfer transactions in
the future. See “Business Segments—Single-Family Business—Single-Family Credit Risk Transfer Transactions” and
“MD&A—Risk Management—Credit Risk Management” for more information on these transactions.
Mortgage Insurance. FHFA’s 2014 conservatorship scorecard includes an objective relating to finalizing mortgage insurance
master policies and enhanced mortgage insurer eligibility requirements. FHFA’s 2015 conservatorship scorecard includes an
objective relating to implementing final mortgage insurer eligibility requirements. These reforms are intended to strengthen
our mortgage insurer counterparties and reduce the risk to taxpayers of future defaults by mortgage insurers on their
obligations to the GSEs. See “MD&A—Risk Management—Credit Risk Management—Institutional Counterparty Credit
Risk Management” for a description of these new policies and requirements.
Common Securitization Platform. FHFA’s 2014 and 2015 conservatorship scorecards include objectives relating to the
development of a common securitization platform that is intended to replace certain elements of Fannie Mae’s and Freddie
Mac’s proprietary systems for securitizing mortgages and performing associated back office and administrative functions. In
October 2013, Fannie Mae and Freddie Mac established Common Securitization Solutions, LLC (“CSS”), a jointly owned
limited liability company formed to design, develop, build and ultimately operate the platform. We continue to work with
FHFA, Freddie Mac and CSS on building and testing the common securitization platform, as well as on implementing
required changes to our systems and operations to integrate with the common securitization platform. We expect it will be a
number of years before CSS will have sufficient operational capabilities to serve its intended purpose as a common
securitization platform for us and Freddie Mac. See “Housing Finance Reform—Conservator Developments” for more
information on the progress of the common securitization platform initiative.
Single Common Security. FHFA’s 2014 and 2015 conservatorship scorecards include objectives relating to the development
of a single common mortgage-backed security for Fannie Mae and Freddie Mac. FHFA believes a single common security
would increase liquidity in the housing finance market. The development of the single common security is expected to be a
multi-year initiative. See “Housing Finance Reform—Conservator Developments” for information on FHFA’s single security
proposal and “Risk Factors” for a discussion of the risks to our business associated with a single common security for Fannie
Mae and Freddie Mac.