Fannie Mae 2014 Annual Report Download - page 29

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This delay may limit lenders’ ability to originate new loans. Under our early lender funding programs, we purchase
whole loans or pools of loans on an accelerated basis, allowing lenders to receive quicker payment for the whole
loans and pools, which replenishes their funds and allows them to originate more mortgage loans.
• REMICs and Other Structured Securitizations. We issue structured Fannie Mae MBS (including REMICs), typically
for our lender customers or securities dealer customers, in exchange for a transaction fee.
• MBS Trading. We regularly enter into purchase and sale transactions with other market participants involving
mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae, which we refer to as “agency
MBS.” These transactions can provide for the future delivery of mortgage-backed securities with underlying single-
family loans that share certain general characteristics (often referred to as the “TBA market”). These purchase and
sale transactions also can provide for the future delivery of specifically identified mortgage-backed securities with
underlying loans that have other characteristics considered desirable by some investors (often referred to as the
“Specified Pools market”). Through our trading activity in the TBA and Specified Pools markets, we provide
significant liquidity to the agency MBS markets.
Securitization Activities
Our Capital Markets group is engaged in issuing both single-class and multi-class Fannie Mae MBS through both portfolio
securitizations and structured securitizations involving third-party assets.
• Portfolio securitizations. Our Capital Markets group creates single-class and multi-class Fannie Mae MBS from
mortgage-related assets held in our retained mortgage portfolio. Our Capital Markets group may sell these Fannie
Mae MBS into the secondary market or may retain the Fannie Mae MBS in our retained mortgage portfolio.
• Structured securitizations. Our Capital Markets group creates single-class and multi-class structured Fannie Mae
MBS, typically for our lender customers or securities dealer customers, in exchange for a transaction fee. In these
transactions, the customer “swaps” a mortgage-related asset that it owns (typically a mortgage security) in exchange
for a structured Fannie Mae MBS we issue. The process for issuing Fannie Mae MBS in a structured securitization
is similar to the process involved in our lender swap securitizations. For more information about that process and
how it differs from portfolio securitizations, see “Mortgage Securitizations—Lender Swaps and Portfolio
Securitizations.”
For a description of single-class Fannie Mae MBS, see “Mortgage Securitizations—Single-Class and Multi-Class Fannie
Mae MBS.”
Other Customer Services
Our Capital Markets group provides our lender customers with services that include offering to purchase mortgage assets;
segregating customer portfolios to obtain optimal pricing for their mortgage loans; and assisting customers with hedging their
mortgage business. These activities help to create a broader market for our customers and enhance liquidity in the secondary
mortgage market.
Retained Mortgage Portfolio
Revenue from our Capital Markets group is derived primarily from the difference, or spread, between the interest we earn on
our mortgage and non-mortgage investments and the interest we incur on the debt we issue to fund these assets. Our Capital
Markets revenues are primarily derived from our retained mortgage portfolio. We expect these revenues to continue to
decrease over time as the maximum allowable amount of mortgage assets we may own continues to decrease each year under
our senior preferred stock purchase agreement with Treasury and pursuant to FHFA’s additional request that we cap our
mortgage portfolio at 90% of the annual limit under the senior preferred stock purchase agreement. See “Conservatorship and
Treasury Agreements—Treasury Agreements—Covenants under Treasury Agreements” for more information on the
decreasing limits on the amount of mortgage assets we are permitted to hold.
We describe the interest rate risk management process employed by our Capital Markets group, including its key strategies in
managing interest rate risk and key metrics used in measuring and evaluating our interest rate risk, in “MD&A—Risk
Management—Market Risk Management, Including Interest Rate Risk Management.”
Liquidity Support and Financing Activities
Our Capital Markets group seeks to increase the liquidity of the mortgage market by maintaining a presence as an active
aggregator of mortgage loans and supports the liquidity of Fannie Mae MBS in a variety of market conditions.