Federal National Mortgage Association (Fannie Mae)

Yale University

Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents Browse by Media Type 7-19-2005 Interim Chief Risk Officer Report Fannie Mae Board of Directors Meeting Federal National Mortgage Association (Fannie Mae) Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation Federal National Mortgage Association (Fannie Mae), "Interim Chief Risk Officer Report Fannie Mae Board of Directors Meeting" (2005). YPFS Documents. 5649. https://elischolar.library.yale.edu/ypfs-documents/5649 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. Confidential Proprietary Business Information Produced Pursuant to House Rules CONFlDENTIAL --PROPRIETARY AND MENT REQUESTED rONFlDENTIAL TREAT E - BY FANNIE MA Confidential Treatment Requested By Fannie Mae FMSE 510917 Fannie Mae FM-COGR 00143464 >-c:In (3 0 §"~ o 0.-(1) (1) o.-:::l ~ 0-. .: e:.. ~ >-c:I .: ..... ~ 0 :::l"C ............ ....... ..... o ~ g:~ .: IJ:j i!6 ~ :;0 ..... .: :::l ...... (1) (1) en en en "TI § (ii' ~ ~ n o a 1:;0 o o ...... +-w +-0\ Vl ~ ~ o· :::l ;:0 .£(j C 0 '" = ~::i '" 0. 0.'" ce~ '< ;;;. ..".,-., -l = .., = '" (;. ~::::~ ., = '" .... ~ ~ r:n tr1 u-. ...... o \&) ...... 00 Interest Rate Risk • Key interest rate risk measures well-contained. I Duration Gap and Rebalancing Market Value of Equity Sensitivity (Pre-tax) (rronths) ($ in billions) ($ in billions) ItJIIII!IIIUP50 !·······IDn50 --10-YrLibOf] % 4 , , $75 3 2 (1) (2) (3) $50 $25 I, ... IN" ,\l1li 1Zi"I!!',¥ ""''"',''',,,,(,..,,,,,,,,,,,,,,\ 1J!l,l.. .... Il!JI $0 ($25) ($50) $1.5 , 6.0 $1.0 $0.5 $0.0 I~_'I~ ,I, .. ", .. ,1""1,,, ,1M ,1,.,-,.-, .. , 'I~ 5.0 ($0.5) ($1.0) ($1.5) 4.0 (4) I I ($75) ($2.0) \l O~ Z;:o '"110 --0 ~~ Z~ :j~ ~~~ ""rl-l~ ';I>;:OZ Z tr'. 0 Z~ m~(j tTl~ 3:. Z ""rl ~-'-tTl '0 ;r.Im tTl Z c.-l e_ rr, » r:..J)r .-) I :11 n g g g C: .6 .:. ro a> ro ..., lJ... ::;; • ($2.5) .,. .,. ...,. .... g .,. .... .... .,. '" L!) L{) '" '" '" 9 0 9 9 0 9 0 9 9 9 0 ~ 9 >. c :; 0, 6. " c c ($3.0) , 3.0 ~ ~ U ~ '" ~ ro " ..., " '" Q) ro '" ::J ::;; ..., <t VJ 0 Z Cl ..., lJ... ::;; ::;; ..., [~ DurationGap -- Rebalancing (5-yr Swap) I Apr-04 Jun-04 Aug-04 Oct-04 Dec-04 Mir-05 Apr-OS Most concerning risk is strategic pressures on the business Lack of attractive spreads on "plain-vanilla" mortgage assets Legislative/regulatory uncertainty Confidential and Proprietary - Confidential Treatment Requested by Fannie Mae Jun-05 1 >-c:In (3 0 §"~ o 0.-(1) (1) o.-:::l ~ 0-. .: ~ ........... en >-c:I .: ..... §-8 ............ ............ o ~ g:~ .: IJ:j ~ .: :;0 i!J . .: :::l ...... (1) (1) en en en ...... §, § ~ o· :::l ~ ,21"') c 0 ... ::: ~!:'i ... eo eo'" eo~ '-< ;;:;. ~-"TI I» >-l ~ ::: ., :::l ::: '" :::l _. I» (ii' i~ ~ I» ::: '" ..... ~ (1) (") 0"" Z';1O ;!10 0-0 m';1O z-~'::l o;l;;>--<:r';C '1'1-1-<: >;0>-ZtTl Z ~~O \'r\~(j ~ "3:.rn O >7.7. ~ tTl-1:!! ;;Cd rJJ tTl tTl M 07. c:::-1 (Jl tTl> - ~ ". 0 tTl '-t:) " -'-t:) "TI ~ I n 0 a 1:;0 0 0 ...... +-w +-0\ 0\ Credit Risk • Current credit performance indicators generally positive - but we do have key risks to watch closely . 1. 2. 3. 4. Single-family portfolio Multifamily portfolio Counterparty Private Label Securities & Other Exposures ...... ",.. ...... Jill"'" ...... Jill"'" 0 0 0 ...... Jill"'" 102005 102004 MIMLTV 56.1% 60.6% SDQ Rate 0.59% 0.58% REO Acquired 8,403 8,113 Key Risks 'Housing Bubble", Intense competition 102005 102004 Watchlist (in billions) $12.3 $8.6 % Red 2.2% 6.8% SDQ Rate 0.09% 0.17% REO Acquired 6 10 Key Risks Property cash flows, Intense competition $2.5 billion exposure to GMiGMAC closed down in May. LIP portfolio sold all impaired aircraft ABS. No material counterparty exposures of concern. 0 No material risk developments 0 RP&CC approved revised risk limits at May meeting. - All exposures within established limits as of 5/3112005 o Key Risks: MH portfolio, subprime loan performance -Confidential and Proprietary - Confidential Treatment Requested by Fannie Mae 2 I >-c:In (3 0 §"~ o 0.-(1) (1) o.-:::l ~ 0-. .: ~ ........... en >-c:I .: ..... ~ 0 :::l"C ............ ....... ..... o ~ ::r::~ o~ .: IJ:j ~ .: :;0 i!J. .: :::l ...... (1) (1) en en en "TI § :::l (ii' ~ "TI ~ I n 0 a 1:;0 0 0 ...... +-w +-0\ -.l ~ ~ o· :::l :;0 ,3(') c: 0 '" :: ~::1 '" Co Co'" co~ '< ;. ..,,-:.0 -I :: ., :: '" _. :.0 '" .... ;::~ '" C r> .... "'!'j ~ rJ). M Ul ..... 0 \Q N 0 (i 0"tl Z;;c "t10 S"tl me! z~ ...,"'" co .... > -<~;;c "t1...,><:: iz",> zmZ ~o ms:(i ~mo ZZ -I:!l :;00 m~ /:)-1 c_ ~> -Ir' m' t::l Single Family Housing and Mortgage Market • Home price appreciation remains very robust, some local markets are a concern. Mortgage products focused on low initial payments are expanding and pose risk of "payment shock" . US & Regional Home Price Trend Region Annualized HP G-owth from TB·RTI* UD to 2005Q1 Last 1 yr Last 2 yrs Last 5 yrs West South Central West North Central East North Central East South Central New England Middle Atlantic South Atlantic Mountain '>:~'(~gi~~:J '.6,Wo , ;' 7.iO~/o. 11<10/0 '15.60/0 21\50/6 '~::{S~X; 4.0% 6.3% 5.9% 5.3% 11.0% 14.5% 16.8% 16.7% Pacific,??,1?i~;j 21.4% US 14.6% 12.6% 'TB-RTI: A new home price index es tim ation methodology that uses data only from purchase transactions. Local Market Assessment Economy,com's "Over-priced" MSAs Stretch Mortgage Rank t Rank MSA I Las Vegas Top 15 2 Washington DC W. Pahn Beach 4 Riverside Top 15 5 Sacramento Top 15 6 San Diego Top 15 7 Anaheim Top 15 Miami 9 Los Angeles Top 15 10 Morunouth 3.5% 7.3% 5.4% 3.7% 12.3% 12.5% 11.4% 9.4% 15.5% 9.9% US Income Growth, Home Price Growth and Mortgage Rate 'BY. 1 -+- us Medi.n Household Income Growth (1976Q1 .2004Q3) r 16'"/. I f ..... 30-Yr Fixed R.te Mot1gag. (1976Q1·2005Q2) WI. I fI-"\J ), At ~. It> r 'if 12% +- ~ • 1\ - \; I ,. \ 6%1} ... lJ\"",~ r_ w\ ,.. 'l-l!:-~ 4% I-" \;: ..-)( ......... 2% 0% -2'"10 ~ ~ ~ ~ i i ~ ~ g ! ~ ~ g ~ ~ : ~ ::: :g § ~ * ~ ~ ~ ~ ~ ~ 51 g 51 ~ 51 ~ 51 51 51 51 g 51 51 51 51 51 51 ~ § Monthly Mortgage Payments 1 by Mortgage Type $2,000 ,I -------------------, $1,BOO I I :: :::" 1··_.------$1,2001========================t=====J $::::1 ".: -~"- .dU, ,,' $400+1 __________________________________________________ ~ $200+---------------------------------------------------------1 .O+r~TrnnTrrnTrrn~rnTr~~rnTr~~~Trrn~~~~~rn~~~ .... '> "\ ... t:l ,,~ .... (Q .... ~ .ty ~ r'j,~ ~... ..J' <9- ",Q '>~ ~ IoCb ,,'l- ~':l "fb ~.... '(:)'> .c- ",C> Months Since Origlnallon -2128 ARM --5/1 Hybnd ARM .. - .. ···511 VO ARM -Option ARM __ 30·Year FAM 4O-Year FRM ~ ~ ~ ~ 2 51 51 I. Stretch Mot1gage Rank indexed to ARM sbare. Investor sbare. NegAm &10 sbare. 1. Monthly mot1gage paymeots based 00 original balaDce of $200,000. Borrowers are assumed to make the minimum required payment Confidential and Proprietary· Confidential Treatment Requested by Fannie Mae 3 I >-c:In (3 0 §"~ o 0.-(1) (1) o.-:::l ~ 0-. .: ~ ........... en >-c:I .: ..... ~ 0 :::l"C ............ ............ o ~ g:~ .: IJ:j ~ .: :;0 i!J . .: :::l ...... (1) (1) en en en "TI ~ § (ii' ~ ~ I n 0 ~ 0 0 ...... +-w +-0\ 00 ~ ~ o· :::l ;::l ,8(") c 0 '" ::s ~~ '" Co 0.'" c:o::; y. ;" "!'l-~ -l == ., ::s '" _. ~ '" -~~ ~ :::I '" .... \) 0-0 Z;::l ';!lo 0-0 m::>:l z--j~ c:o-> ><:~~ 'Tl-l~ ;1>-7';1>-zmz z>o --l I".fj tTl:!:\) ~ =:mo ;l>-Zz rJ) tTl-l!! t:1 ;00 tTl rn til ,oz ,..... c:-l 0 m:; \CI (.11-N -l' m l ~ M Operational Risk • Remains high, no fast fixes . • Efforts that will make a difference: • Clear management focus, which we have SOX Restatement Operational Discipline Proj ect Targeted Efforts CEDC, Document Retention, Anti-fraud) Magnitude of simultaneous challenges on small leadership team a concern. Confidential and Proprietary - Confidential Treatment Requested by Fannie Mae 4 >-c:In (3 0 §"~ o 0.-(1) (1) o.-:::l ~ 0-. .: ~ ........... en >-c:I .: ..... ~ 0 :::l"C ............ ............ o ~ g:~ .: IJ:j ~ .: :;0 i!J . .: :::l ...... (1) (1) en en en "TI § (ii' ~ ~ n o a 1:;0 o o ...... +-w +-0\ '-0 ~ ~ o· :::l ::0 .2Q ; = '" :::l "eo eo'" = ~g. ~=i = .., = '" _0 ~'" s ~'" .. = '" -~ ~ rJJ t'!"j !Jl ,. 0 '..a N N (j 0"'0 Zt::! :!10 0"'0 mt::! z-::l~ ~:l>:l> ,';0 'tl-l"": :l>t::!:l> Zm z z~o @-l(j ~s:o ~~z -l:!l t::!v tTl tTl ,oz c:::l tTl» Vlr' ;11 " Conclusion • Interest rate and credit risk currently in solid shape. • • Worrisome trends in mortgage market and intense competitive pressure and legislative/regulatory uncertainty present strategic risk. Operational risk remains high, numerous efforts underway to remediate and build more robust platform for the future. Confidential and Proprietary - Confidential Treatment Requested by Fannie Mae 5 

Interim Chief Risk Officer Report Fannie Mae Board of Directors Meeting

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Interim Chief Risk Officer Report Fannie Mae Board of Directors Meeting

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