Fannie Mae 2014 Annual Report Download - page 28

23
in the credit risk, the servicing fee to the lenders includes compensation for credit risk. Delegation permits lenders to respond
to customers more rapidly, as the lender generally has the authority to approve a loan within prescribed parameters, which
provides an important competitive advantage.
Our DUS model aligns the interests of the lender and Fannie Mae. Our current 24-member DUS lender network, which is
comprised of large financial institutions and independent mortgage lenders, continues to be our principal source of
multifamily loan deliveries.
Multifamily Mortgage Servicing
Multifamily mortgage servicing is typically performed by the lenders who sell the mortgages to us. Multifamily mortgage
servicers that are members of our DUS network have agreed to accept loss sharing, which we believe increases the alignment
of interests between us and our multifamily loan servicers. Because of our loss-sharing arrangements with our multifamily
lenders, transfers of multifamily servicing rights are infrequent, and we carefully monitor our servicing relationships and
enforce our right to approve servicing transfers. As a seller-servicer, the lender is responsible for evaluating the financial
condition of properties and property owners, administering various types of agreements (including agreements regarding
replacement reserves, completion or repair, and operations and maintenance), as well as conducting routine property
inspections.
The Multifamily Markets in Which We Operate
In the multifamily mortgage market, we aim to address the rental housing needs of a wide range of the population in all
markets across the country, with the substantial majority of our focus on supporting rental housing that is affordable to
families earning at or below the median income in their area. Our mission requires us to serve the market steadily, rather than
moving in and out depending on market conditions. Through the secondary mortgage market, we support rental housing for
the workforce population, for senior citizens and students, and for families with the greatest economic need. Our Multifamily
business is organized and operated as an integrated commercial real estate finance business, addressing the spectrum of
multifamily housing finance needs, including the needs described below.
• To meet the growing need for smaller multifamily property financing, we focus on the acquisition of multifamily
loans up to $3 million ($5 million in high cost areas). We acquire these loans primarily from DUS lenders; however,
we have also acquired these loans from other financial institutions. Over the years, we have been an active purchaser
of these loans from both DUS and non-DUS lenders, and, as of December 31, 2014, they represented 58% of our
multifamily guaranty book of business by loan count and 11% based on unpaid principal balance.
• To serve low- and very low-income households, we have a team that focuses exclusively on relationships with
lenders financing privately-owned multifamily properties that receive public subsidies in exchange for maintaining
long-term affordable rents. We enable borrowers to leverage housing programs and subsidies provided by local, state
and federal agencies. These public subsidy programs are largely targeted to providing housing to families earning
less than 60% of area median income (as defined by the U.S. Department of Housing and Urban Development
“HUD”)) and are structured to ensure that the low and very low-income households who benefit from the subsidies
pay no more than 30% of their gross monthly income for rent and utilities. As of December 31, 2014, this type of
financing represented approximately 15% of our multifamily guaranty book of business, based on unpaid principal
balance, including $14.3 billion in bond credit enhancements.
Capital Markets
Our Capital Markets group manages our mortgage-related assets and other interest-earning non-mortgage investments. We
fund our purchases primarily through proceeds we receive from the issuance of debt securities in the domestic and
international capital markets. Our Capital Markets group has primary responsibility for managing the interest rate risk
associated with our investments in mortgage assets.
Our Capital Markets group’s business activity is primarily focused on making short-term use of our balance sheet rather than
on long-term investments. As a result, our Capital Markets group works with lender customers to provide funds to the
mortgage market through short-term financing and investing activities. Activities we are undertaking to provide liquidity to
the mortgage market include the following:
• Whole Loan Conduit. Whole loan conduit activities involve our purchase of single-family loans principally for the
purpose of securitizing them. We purchase loans from a large group of lenders and then securitize them as Fannie
Mae MBS, which may then be sold to dealers and investors.
• Early Funding. Lenders who deliver whole loans or pools of whole loans to us in exchange for MBS typically must
wait between 30 and 45 days from the closing and settlement of the loans or pools and the issuance of the MBS.