Fannie Mae 2014 Annual Report Download - page 64

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portion of our 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 33% of our single-family business
acquisition volume in 2014. 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.
We expect the slow pace of single-family foreclosures in some states will continue to adversely affect our business, results
of operations, financial condition and net worth.
The processing of foreclosures of single-family loans 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,
and federal and state servicing requirements imposed by regulatory actions and legal settlements in recent years. The slow
pace of foreclosures in some states 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 states is contributing to a slower recovery of those housing markets.
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 and 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.
Numerous 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, fines and penalties to injunctive/declaratory relief seeking the prevention of mortgage
assignments by MERS and/or the voiding of completed foreclosures in which MERS appeared in the chain of title. These
challenges have focused public attention on MERS and on how loans are recorded in local land records. As a result, these
challenges could negatively affect MERS’s ability to serve as the mortgagee of record in some jurisdictions, which could
cause additional costs and time in the recordation process and could negatively impact our interest in the loans. These
challenges also could result in court decisions that substantially delay new or pending foreclosures, or void completed
foreclosures in certain jurisdictions, which would require that we re-foreclose on the affected properties, thereby increasing
our costs and lengthening the time it takes for us to foreclose on and dispose of the properties.
In addition, where MERS is the mortgagee of record, it must execute assignments of mortgages, affidavits and other legal
documents in connection with foreclosure proceedings. In April 2011, federal banking regulators and FHFA announced that
they were taking enforcement action against MERS and MERSCORP to address significant weaknesses in, among other