Perspectives

Sharing More Information on Fannie Mae's Unique Approach to Managing Credit Risk

Andrew Bon SalleFannie Mae is the leading manager of single-family residential credit risk in the industry. As the largest guarantor of mortgages in the U.S., we have focused on developing and deploying innovative ways to minimize our losses and control risk through the entire lifecycle of a loan. We focus on consistent underwriting standards and strong loan and lender quality, use cutting-edge quality control tools, have strong servicer oversight, and employ first-rate loss mitigation practices to reduce credit losses.

All of these steps ultimately lead to stronger, safer loans on our book. Investors that participate in our credit risk sharing opportunities and Connecticut Avenue Securities transactions benefit from Fannie Mae's comprehensive, robust credit risk management processes. Because we are actively involved from pre-delivery through property disposition, investors have greater confidence in these loans and their opportunity to invest in them. As our Connecticut Avenue Securities deals move to an actual loss structure later in Q4 2015, this understanding of our credit risk management approach is particularly important.

In July, we released a significant enhancement to our historical credit performance data, currently the largest and most robust data set of its kind in the industry, to increase transparency to the market into Fannie Mae's credit performance. Recently, through the publication of a detailed presentation, we are sharing more information on how Fannie Mae manages credit risk. Making this information public will give the market even further transparency into our premier practices as the leading manager of single-family credit risk.

A few highlights from the presentation:

  • Fannie Mae has developed and employed several proprietary underwriting and quality control tools that are unique to the industry, including Desktop Underwriter®, EarlyCheck, and Collateral Underwriter, which give us the ability to further manage loan quality through the delivery process. These tools increase transparency to enable parties to evaluate risk early in the loan origination process, while Collateral Underwriter gives us unique oversight of appraisal quality and is helping reshape the industry.
  • We have strong oversight of our servicers and uphold high servicing standards. Since 2011 we have set clear expectations with servicers to communicate with borrowers who are in trouble and do everything they can to work with them to prevent foreclosure, including the use of another innovative tool, the Servicing Management Default Underwriter, which is designed to help servicers choose the right modification for a borrower based on each borrower’s unique circumstance.
  • When a foreclosure can't be prevented and a property comes into our real estate owned, or REO inventory, our strategy is focused on selling the property at non-distressed prices to owner occupant buyers instead of the industry practice of selling quickly at a distressed or lower price. To reduce our losses we repair many properties which maximizes sales proceeds and increases opportunities for owner occupants to purchase. We have developed a unique property management and disposition platform, another area of innovation for Fannie Mae.

We are committed to reducing credit risk throughout the loan lifecycle, transferring risk away from the taxpayer, and providing private capital with attractive investment opportunities.

Andrew Bon Salle
Executive Vice President
Single-Family Business

September 29, 2015