Federal National Mortgage Association · OTC:FNMA
Federal National Mortgage Association — Federal National Mortgage Association Fannie MAE — Q1 2008 Earnings Presentation
52 slides from Federal National Mortgage Association's earnings presentation, May 6, 2008
Slide 1: Fannie Mae 2008 Q1 10-Q Investor Summary
Exhibit 99.2 May 6, 2008 Fannie Mae 2008 Q1 10-Q Investor Summary
Slide 2: Presentation of materials and reference to Form 10-Q
These materials present tables and other information about Fannie Mae, including information contained in Fannie Mae's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 ("2008 Q1 Form 10-Q"). These materials should be reviewed together with the 2008 Q1 Form 10-Q, copies of which are
Slide 3: Forward Looking Statements/Risk Factors
Forward Looking Statements/Risk Factors This presentation includes forward-looking statements, including statements relating to our future capital position, financial performance and condition, ability to take advantage of business opportunities, market share and credit losses; our strategy; the fai
Slide 4: 2008 Q1 Executive Summary
2008 Q1 Executive Summary Net loss decreased $1.4 billion from ($3.6 billion) in 2007 Q4 to ($2.2 billion) in 2008 Q1. Net revenues grew $0.7 billion or 21.8%, driven by increases in guaranty fee income and net interest income. Fair value losses increased $0.9 billion or 27.3% from $3.4 billion to $
Slide 5: Consolidated Financial Results
Consolidated Financial Results
Slide 6: Tax-Equivalent Net Interest Income and Yield
Redemption of step rate debt added 17 bps, on an annualized basis, to the net interest yield in 2008 Q1. This reflects the reversal of interest accrued on step-rate debt because the debt was called before all the interest was paid. SOP 03-3 accretion increased net interest income by $35 million in 2
Slide 7: Guaranty Fee Income and Effective Guaranty Fee Rate
Accretion of previously recognized losses on certain guaranty contracts (LCGC) increased guaranty fee income by $297 million in 2008 Q1, $276 million in 2007 Q4, $144 million in 2007 Q3, $91 million in 2007 Q2, and $92 million in 2007 Q1. These accretion amounts will be more than the cumulative LCGC
Slide 8: Fair Value Items Effect on 2008 Q1 Results
Fair Value Items Effect on 2008 Q1 Results of Operations of Significant Market-Based Valuation Adjustments Principal reasons for fair value declines: Reduced levels of liquidity in the mortgage and credit markets resulted in wider credit spreads creating significant losses - primarily on our CMBS, s
Slide 9: Significant Market-Based Valuation Adjustments
Effect on 2008 Q1 Results of Operations of Significant Market-Based Valuation Adjustments Actions to reduce future interest rate volatility associated with these items: In connection with adoption of SFAS 159, moved selected agency MBS to MTM accounting to reduce the impact of changing interest rate
Slide 10: Trading Portfolio - Mortgage Securities
Trading Portfolio - Mortgage Securities Numbers may not foot due to rounding Spread changes will still have an impact on income and capital.
Slide 11: Investment Gains (Losses), Net
Investment Gains (Losses), Net 2007 Q4 other-than-temporary impairment ($736 million) was driven by impairment of securities in our liquid investment portfolio. Beginning in 2008 Q1, these securities were re-designated as trading and marked-to-market through fair value gains (losses). Lower impairme
Slide 12: Subprime and Alt-A Private-Label Securities (In Portfolio)
Subprime and Alt-A Private-Label Securities (In Portfolio) (dollars in billions) Numbers may not foot due to rounding Subprime and Alt-A AFS securities continue to perform and are credit-enhanced. Since the beginning of 2007, Fannie Mae has recorded through earnings net losses of $0.9 billion on Alt
Slide 13: Credit-Related Expenses/Credit Loss Performance Metrics
Credit-Related Expenses/Credit Loss Performance Metrics Credit loss ratio (excluding the impact of SOP 03-3) increased to 12.6 bps in 2008 Q1 from 8.1 bps in 2007 Q4. The company expects the 2008 credit loss ratio of 13 to 17 basis points (excluding the impact of SOP 03-3) based on home price declin
Slide 14: Losses on Seriously Delinquent Loans Purchased from Trusts
Despite a reduction in the number of seriously delinquent loans purchased from MBS trusts, SOP 03-3 losses increased in 2008 Q1 as the average fair value of loans purchased fell from 70% in Q4 2007 to 62% in Q1 2008. Going forward, we expect that HomeSaver AdvanceTM, initiated in March 2008, will re
Slide 15: Proactive Credit Management
Proactive Credit Management Tightening underwriting and eligibility standards / reduced participation in riskier segments Stricter eligibility requirements - increasing FICOs, lowering LTVs and increasing documentation requirements Significantly reduced Alt-A acquisitions Increasing loss mitigation
Slide 16: Single-Family Pricing and Credit
Single-Family Pricing and Credit Weighted Average G-Fee 2007 23.18 Q1 2008 25.04 3/1/2008 28.64 Weighted Average FICO 2007 716 Q1 2008 728 3/1/2008 737 Weighted Average Original LTV 2007 0.750000000232827 Q1 2008 0.73 3/1/2008 0.7 G-Fee Rate Credit Score - All Products LTV Ratio - All Products Impro
Slide 17: Change in Estimated After-Tax Fair Value of Net Assets (Non-GAAP)
Change in Estimated After-Tax Fair Value of Net Assets (Non-GAAP) The estimated fair value of our net assets (non-GAAP) represents the estimated fair value of total assets less the estimated fair value of total liabilities. We reconcile the estimated fair value of our net assets (non-GAAP) to total
Slide 18: 2008 Q1 Capital Surplus - Sources and Uses of Excess Capital
2008 Q1 Capital Surplus - Sources and Uses of Excess Capital At March 31, 2008, Fannie Mae had $42.7 billion of core capital and a $5.1 billion capital surplus. Return of Capital Net Investment Note: 2008 Q1 capital surplus is a Fannie Mae estimate, and has not been certified by OFHEO * Includes imp
Slide 19: Appendix I - Credit
FR FannieMae APPENDIX | - Credit
Slide 20: Home Price Growth Rate in the U.S.
Home Price Growth Rate in the U.S. Growth rates are from period-end to period-end. Note: Using the S&P/Case-Shiller weighting method, but excluding the increased impact of foreclosure sales on that index, our 2008 expected home price decline would be 10-13% (vs. 7-9%); our expected peak-to-trough de
Slide 21: Source: Fannie Mae. Based on data as of March 31, 2008. Including subsequent data
Source: Fannie Mae. Based on data as of March 31, 2008. Including subsequent data may lead to materially different results.
Slide 22: Credit Loss Ratio/Delinquency Rates
Credit Loss Ratio/Delinquency Rates Higher credit loss ratio primarily due to worsening decline in home prices, particularly in the Midwest, California, Florida, Nevada, and Arizona, economic weakness in the Midwest, and rising delinquencies in our Alt-A book and 2006-2007 vintages. Our credit loss
Slide 23: Characteristics of Single-Family Conventional Mortgage Credit Book of Business
Characteristics of Fannie Mae Single-Family Conventional Mortgage Credit Book of Business Product Types* Occupancy* * Data as of March 31, 2008 March 31, 2008 March 31, 2008 Single-Family Conventional Mortgage Credit Book of Business $2.7 Trillion Weighted Average FICO 721 Weighted Average Original
Slide 24: Fannie Mae Subprime and Alt-A Exposure
Fannie Mae Subprime and Alt-A Exposure Total Exposure of $51.2 Billion Total Exposure of $344.6 Billion * Data as of March 31, 2008 Subprime Alt-A PLS Portfolio Investment $30.4 B PLS Wrap $12.8 B Purchased or Guaranteed Loans $8.0B Purchased or Guaranteed Loans $313.4 B PLS Portfolio Investment $30
Slide 25: Credit Profile by Key Product Features
Fannie Mae Credit Profile by Key Product Features Note: Categories are not mutually exclusive, so numbers are not additive across columns Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business * Certain data contained in this presentation are based upon information tha
Slide 26: Credit Profile by Vintage and Key Product Features
Fannie Mae Credit Profile by Vintage and Key Product Features Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business by Vintage * Certain data contained in this presentation are based upon information that Fannie Mae receives from third-party sources. Although Fannie M
Slide 27: 2006 and 2007 vintages performing poorly
Data as of March 31, 2008 is not necessarily indicative of the ultimate performance and are likely to change, perhaps materially, in future periods. Consistent with industry trends, 2006 and 2007 vintages performing poorly.
Slide 28: Credit Profile by State
Fannie Mae Credit Profile by State Credit Characteristics of Single-Family Conventional Mortgage Credit Book of Business by State * Certain data contained in this presentation are based upon information that Fannie Mae receives from third-party sources. Although Fannie Mae generally considers this i
Slide 29: Single-Family Delinquency Rates by State and Region
Single-Family Delinquency Rates by State and Region
Slide 30: Home Price Growth/Decline and REO in Key States
Home Price Growth/Decline and Fannie Mae Real Estate Owned (REO) in Key States On a national basis, REO net sales price compared with unpaid principal balance of mortgage loan has decreased from 93% in 2005 to 89% in 2006 to 78% in 2007 to 74% in Q1 2008 driving an increase in loss severity. Single-
Slide 31: Alt-A Credit Profile by Key Product Features
Fannie Mae Alt-A Credit Profile by Key Product Features Credit Characteristics of Single-Family Mortgage Credit Book of Business by Vintage (1) Defined as UPB of Alt-A loans with credit enhancement as a percent of UPB of all Alt-A loans. At 3/31/08, 8.9% of UPB of Alt-A loans carried only primary MI
Slide 32: Alt-A Loans Versus Loans Underlying Private Label Alt-A Securities
Fannie Mae Alt-A Loans Versus Loans Underlying Private Label Alt-A Securities All data and CDRs for Q1:08 are based on Jan-08 data. Private Label Security data are from First American CoreLogic, LoanPerformance. LoanPerformance estimates it captures 96 percent of Alt-A PLS. The PLS data includes som
Slide 33: New Business: Reduction in Alt-A acquisition volume
New Business: Reduction in Alt-A acquisition volume reflects eligibility and pricing changes Eligibility: Deliveries after January 1, 2008: Reduced maximum LTV/CLTV to 90% Deliveries after March 1, 2008: Raised minimum FICO score to 660 regardless of LTV/CLTV Will no longer purchase No Income/No Ass
Slide 34: Subprime and Alt-A Private Label Security Exposure
Fannie Mae Subprime and Alt-A Private Label Security (PLS) Exposure - Securities/Wraps As of April 30, 2008, all of our private-label mortgage-related securities backed by Alt-A mortgage loans were rated AAA and none had been downgraded. However, approximately $4.5 billion or 15% of our Alt-A privat
Slide 35: Investments in Alt-A Mortgage-Related Securities (Option ARM)
Investments in Alt-A Mortgage-Related Securities (Option ARM) Data as of March 31, 2008
Slide 36: Investments in Alt-A Mortgage-Related Securities (Other)
Investments in Alt-A Mortgage-Related Securities (Other) Data as of March 31, 2008
Slide 37: Investments in Subprime Mortgage-Related Securities
Investments in Subprime Mortgage-Related Securities Data as of March 31, 2008
Slide 38: Counterparty Exposure
2 FannieMae Counterparty Exposure Counterparty Type Exposure as of March 31, 2008 Notes‘ Mortgage Insurers $111.5 billon of primary and pool mortgage insurance coverage (isk in force") Financial Guarantors Beneficiary of financial quaranties of $11.1, bilfon on securities held in investment portfoli
Slide 39: Counterparty Exposure - Mortgage Insurers
Counterparty Exposure - Mortgage Insurers
Slide 40: Appendix II - Other
2 FannieMae APPENDIX II - Other
Slide 41: Economic Environment - Interest Rates
Economic Environment - Interest Rates Treasury information: FNM Economic Forecast, March 2008. Swap and Volatility: Capital Markets group. Net interest yield increased due to reduced funding costs and the retirement of step rate debt in 2008 Q1. Swap rate declines triggered net losses on derivatives
Slide 42: Statements of Operations by Segment
Statements of Operations by Segment
Slide 43: Net Revenues and Net Income (Loss) by Segment
Net Revenues and Net Income (Loss) by Segment
Slide 44: Changes in Risk Management Derivative Assets (Liabilities) at Fair Value, Net
Changes in Risk Management Derivative Assets (Liabilities) at Fair Value, Net
Slide 45: Purchased Options Premiums
Purchased Options Premiums Original Weighted Remaining Original Premium Average Life to. Weighted Average (dollars in millions) Payments Expiration Life Outstanding options as of December 31, 2006 s 8,769 9.2 years 5.7 years Purchases 198 Exercises (487) Terminations (212) Expiration (425) Outstandi
Slide 46: Fee and Other Income
Fee and Other Income (otlars in mitions) ‘Technology fees Transaction fees Fee and other income 2o08ai_ _2007a4"") 2007 Q2") S$ @ $ 66 $s 70 42 79 a1 34 7 34 6 52 72 S277 S24 S257 © Certain amounts have been reclassified to conform to the current period presentation.
Slide 47: Selected Financial and Operating Statistics
Selected Financial and Operating Statistics
Slide 48: Income Exposures Due to Changes in Interest Rates
Income Exposures Due to Changes in Interest Rates Overall effect - Addressing market-related volatility impact on capital Anticipate significant reduction in rate driven income statement volatility as a result of adoption of SFAS 159 (Fair Value Option) and implementation of hedge accounting in Apri
Slide 49: Option Adjusted Spreads (OAS) - Lehman
Option Adjusted Spreads (OAS) - Lehman Source: LehmanLive(r)
Slide 50: Reconciliation of Fair Value of Net Assets to Stockholders' Equity
The following sets forth a reconciliation of the estimated fair value of our net assets (non-GAAP) to total stockholders' equity (GAAP). A more detailed reconciliation is contained in Table 32 of the 2008 Q1 Form 10-Q.
Slide 51: Impairment Summary
Impairment Summary Impairments are recorded at fair value and not the value we expect to recover. At current market prices, the value we expect to recover is generally greater than fair value. In 2008 Q1, we recorded $52 million of other-than-temporary impairment on $750.6 million of unpaid principa
Slide 52: Additional Disclosure Items
Additional Disclosure Items For April 2008, Fannie Mae's average duration gap was 2 months. For April 2008, Fannie Mae's net portfolio purchase commitments were approximately $28 billion. The serious delinquency rate in the single family book as of March 31, 2008, increased to 1.15%, from 0.98% as o
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