Fannie Mae 2014 Annual Report Download - page 89

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Foreclosed Property (Expense) Income
We recognized foreclosed property expense in 2014 compared with foreclosed property income in 2013 primarily due to a
decrease in the amount of compensatory fee income recognized related to servicing matters and a decrease in the gains
resulting from resolution agreements reached related to representation and warranty matters. Compensatory fees are amounts
we charge our primary servicers to reimburse us for damages and losses related to certain violations of our Servicing Guide,
which sets forth our policies and procedures related to servicing our single-family mortgages.
We recognized foreclosed property income in 2013 compared with foreclosed property expense in 2012 primarily due to the
recognition of compensatory fee income in 2013 related to servicing matters, gains resulting from resolution agreements
reached in 2013 related to representation and warranty matters, and an improvement in sales prices of dispositions of our
REO properties.
Credit Loss Performance Metrics
Our credit-related (income) expense should be considered in conjunction with our credit loss performance metrics. Our credit
loss performance metrics, however, are not defined terms within GAAP and may not be calculated in the same manner as
similarly titled measures reported by other companies. Because management does not view changes in the fair value of our
mortgage loans as credit losses, we adjust our credit loss performance metrics for the impact associated with our acquisition
of credit-impaired loans from unconsolidated MBS trusts. We also exclude interest forgone on nonaccrual loans and TDRs,
other-than-temporary impairment losses resulting from deterioration in the credit quality of our mortgage-related securities
and accretion of interest income on acquired credit-impaired loans from credit losses. We believe that credit loss performance
metrics may be useful to investors as the losses are presented as a percentage of our book of business and have historically
been used by analysts, investors and other companies within the financial services industry. Moreover, by presenting credit
losses with and without the effect of fair value losses associated with the acquisition of credit-impaired loans, investors are
able to evaluate our credit performance on a more consistent basis among periods. Table 14 displays the components of our
credit loss performance metrics as well as our single-family and multifamily initial charge-off severity rates.
Table 14: Credit Loss Performance Metrics
For the Year Ended December 31,
2014 2013 2012
Amount Ratio(1) Amount Ratio(1) Amount Ratio(1)
(Dollars in millions)
Charge-offs, net of recoveries . . . . . . . . . . . . . . . . . . . . . . $ 5,153 16.8 bps $ 6,390 20.9 bps $13,457 44.2 bps
Foreclosed property expense (income). . . . . . . . . . . . . . . . 142 0.5 (2,839) (9.3) (254) (0.8)
Credit losses including the effect of fair value losses on
acquired credit-impaired loans. . . . . . . . . . . . . . . . . . . . 5,295 17.3 3,551 11.6 13,203 43.4
Plus: Impact of acquired credit-impaired loans on charge-
offs and foreclosed property expense (income)(2) . . . . . 637 2.1 953 3.1 1,446 4.8
Credit losses and credit loss ratio . . . . . . . . . . . . . . . . . . $ 5,932 19.4 bps $ 4,504 14.7 bps $14,649 48.2 bps
Credit losses attributable to:
Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,978 $ 4,452 $14,392
Multifamily (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) 52 257
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,932 $ 4,504 $14,649
Single-family initial charge-off severity rate (4) . . . . . . . . . 19.60 % 24.22 % 30.71 %
Multifamily initial charge-off severity rate (4) . . . . . . . . . . 25.08 % 23.56 % 37.43 %
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(1) Basis points are based on the amount for each line item presented divided by the average guaranty book of business during the period.
(2) Includes fair value losses from acquired credit-impaired loans.
(3) Negative credit losses are the result of recoveries on previously charged-off amounts.
(4) Single-family and multifamily rates exclude fair value losses on credit-impaired loans acquired from MBS trusts and any costs, gains or
losses associated with REO after initial acquisition through final disposition. Single-family rate excludes charge-offs from short sales
and third-party sales. Multifamily rate is net of risk sharing agreements.
Credit losses increased in 2014 compared with 2013 primarily due to a lower level of recoveries resulting from repurchase
and compensatory fee resolution agreements in 2014 compared with 2013. The amounts we recognized in 2013 pursuant to a