Financial Guarantees

9 Months Ended

Sep. 30, 2011

Notes to Consolidated Financial Statements

6. Financial Guarantees

For our guarantees to unconsolidated trusts and other guaranty arrangements, we recognize a guaranty obligation for our obligation to stand ready to perform on these guarantees. For those guarantees recognized in our condensed consolidated balance sheets, our maximum potential exposure under these guarantees is primarily comprised of the unpaid principal balance of the underlying mortgage loans, which totaled $56.5 billion and $52.4 billion as of September 30, 2011 and December 31, 2010, respectively. The maximum amount we could recover through available credit enhancements and recourse with third parties on guarantees recognized in our condensed consolidated balance sheets was $14.0 billion and $12.6 billion as of September 30, 2011 and December 31, 2010, respectively. In addition, we had exposure of $9.5 billion and $10.3 billion for other guarantees not recognized in our condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010, respectively. The maximum amount we could recover through available credit enhancements and recourse with third parties on guarantees not recognized in our condensed consolidated balance sheets was $4.1 billion and $3.9 billion as of September 30, 2011 and December 31, 2010, respectively. Recoverability of such credit enhancements and recourse is subject to, among other factors, our mortgage insurers' and financial guarantors' ability to meet their obligations to us.

The fair value of our guaranty obligations associated with the Fannie Mae MBS included in “Investments in securities” was $2.2 billion and $2.0 billion as of September 30, 2011 and December 31, 2010, respectively.

Risk Characteristics of our Book of Business

We gauge our performance risk under our guaranty based on the delinquency status of the mortgage loans we hold in portfolio, or in the case of mortgage-backed securities, the mortgage loans underlying the related securities. Management also monitors the serious delinquency rate, which is the percentage of single-family loans three or more months past due or in the foreclosure process, and the percentage of multifamily loans 60 days or more past due, of loans that also have higher risk characteristics, such as high mark-to-market loan-to-value ratios on single-family loans and low original debt service coverage ratios on multifamily loans. We use this information, in conjunction with housing market and economic conditions, to structure our pricing and our eligibility and underwriting criteria to reflect the current risk of loans with these higher-risk characteristics, and in some cases we decide to significantly reduce our participation in riskier loan product categories. Management also uses this data together with other credit risk measures to identify key trends that guide the development of our loss mitigation strategies.

The following tables display the current delinquency status and certain higher risk characteristics of our single-family conventional and total multifamily guaranty book of business as of September 30, 2011 and December 31, 2010.

	As of September 30, 2011⁽¹⁾						As of December 31, 2010⁽¹⁾
	30 Days Delinquent		60 Days Delinquent		Seriously Delinquent⁽²⁾		30 Days Delinquent		60 Days Delinquent		Seriously Delinquent⁽²⁾
Percentage of single-family
conventional guaranty book of
business⁽³⁾	2.00	%	0.75	%	4.64	%	2.19	%	0.89	%	5.37	%
Percentage of single-family
conventional loans⁽⁴⁾	2.16		0.75		4.00		2.32		0.87		4.48

				As of September 30, 2011⁽¹⁾				As of December 31, 2010⁽¹⁾
				Percentage of Single-Family Conventional Guaranty Book of Business⁽³⁾		Percentage Seriously Delinquent⁽²⁾⁽⁴⁾		Percentage of Single-Family Conventional Guaranty Book of Business⁽³⁾		Percentage Seriously Delinquent⁽²⁾⁽⁴⁾

Estimated mark-to-market
	loan-to-value ratio:
		Less than 100%		84	%	2.35	%	84	%	2.62	%
		100.01% to 110%		5		9.50		5		11.60
		110.01% to 120%		3		12.16		3		14.74
		120.01% to 125%		1		13.64		1		16.86
		Greater than 125%		7		19.83		7		24.71
Geographical distribution:
		Arizona		2		3.78		2		6.23
		California		19		2.70		18		3.89
		Florida		6		11.90		7		12.31
		Nevada		1		7.53		1		10.66
		Select Midwest states⁽⁵⁾		10		4.55		11		4.80
		All other states		62		3.20		61		3.46
Product distribution (not mutually
	exclusive):⁽⁶⁾
		Alt-A		7		12.71		8		13.87
		Subprime		*		23.91		*		28.20
		Negatively amortizing adjustable rate		*		7.79		*		9.02
		Interest only		5		15.70		6		17.85
		Investor property		6		4.34		6		4.79
		Condo/Coop		9		4.74		9		5.37
		Original loan-to-value ratio >90% ⁽⁷⁾		10		8.42		10		10.04
		FICO credit score <620 ⁽⁷⁾		3		13.56		4		14.63
		Original loan-to-value ratio >90%
			and FICO credit score <620⁽⁷⁾	1		18.99		1		21.41
Vintages:
		2005		7		7.13		9		7.20
		2006		7		11.81		8		12.19
		2007		10		12.63		12		13.24
		2008		8		5.34		9		4.88
		All other vintages		68		1.60		62		1.73

__________

^*		Represents less than 0.5% of the single-family conventional guaranty book of business.
⁽¹⁾		Consists of the portion of our single-family conventional guaranty book of business for which we have detailed loan level information, which constituted approximately 99% of our total single-family conventional guaranty book of business as of both September 30, 2011 and December 31, 2010.
⁽²⁾		Consists of single-family conventional loans that were three months or more past due or in the foreclosure process, as of the periods indicated.
⁽³⁾		Calculated based on the aggregate unpaid principal balance of single-family conventional loans for each category divided by the aggregate unpaid principal balance of loans in our single-family conventional guaranty book of business.
⁽⁴⁾		Calculated based on the number of single-family conventional loans that were delinquent divided by the total number of loans in our single-family conventional guaranty book of business.
⁽⁵⁾		Consists of Illinois, Indiana, Michigan, and Ohio.
⁽⁶⁾		Categories are not mutually exclusive. Loans with multiple product features are included in all applicable categories.
⁽⁷⁾		Includes housing goals-oriented products such as MyCommunityMortgage® and Expanded Approval®.

	As of September 30, 2011^{(1) (2)}				As of December 31, 2010^{(1) (2)}

	30 Days		Seriously		30 Days		Seriously
	Delinquent		Delinquent⁽³⁾		Delinquent		Delinquent⁽³⁾

Percentage of multifamily guaranty book of business	0.20	%	0.57	%	0.21	%	0.71	%

			As of September 30, 2011⁽¹⁾⁽²⁾				As of December 31, 2010⁽¹⁾⁽²⁾

			Percentage of				Percentage of
			Multifamily		Percentage		Multifamily		Percentage
			Guaranty		Seriously		Guaranty		Seriously
			Book of Business		Delinquent⁽³⁾		Book of Business		Delinquent⁽³⁾

Original loan-to-value ratio:
	Greater than 80%		5	%	1.52	%	5	%	0.59	%
	Less than or equal to 80%		95		0.53		95		0.71
Original debt service coverage ratio:
	Less than or equal to 1.10		8		0.17		9		0.27
	Greater than 1.10		92		0.61		91		0.75
Acquisition loan size distribution:
	Less than or equal to $750,000		2		1.37		2		1.61
	Greater than $750,000 and less than
		or equal to $3 million	11		1.11		12		1.17
	Greater than $3 million and less than
		or equal to $5 million	9		0.80		9		0.88
	Greater than $5 million and less than
		or equal to $25 million	42		0.63		42		0.88
	Greater than $25 million		36		0.23		35		0.24
Maturing dates:
	Maturing in 2011		1		3.68		3		0.68
	Maturing in 2012		6		0.41		7		0.42
	Maturing in 2013		10		0.45		11		0.54
	Maturing in 2014		8		0.56		8		0.67
	Maturing in 2015		9		0.45		9		0.57

__________

⁽¹⁾	Consists of the portion of our multifamily guaranty book of business for which we have detailed loan level information, which constituted 99% of our total multifamily guaranty book of business as of both September 30, 2011 and December 31, 2010 excluding loans that have been defeased. Defeasance is a pre-payment of a loan through substitution of collateral.
⁽²⁾	Calculated based on the aggregate unpaid principal balance of multifamily loans for each category divided by the aggregate unpaid principal balance of loans in our multifamily guaranty book of business.
⁽³⁾	Consists of multifamily loans that were 60 days or more past due as of the periods indicated.