Fannie Mae Multifamily Mortgage Business Information October 2014 © 2014 Fannie Mae Table of Contents Multifamily Debt Market 3 Fannie Mae Acquisitions - Consistent Provider of Liquidity and Affordability to the Multifamily Debt Market 7 Fannie Mae Multifamily Guaranty Book of Business - Diversification and Balance 11 Fannie Mae Mortgage Backed Securities - Capital Markets Liquidity and Stability 15 Fannie Mae Multifamily Delegated Underwriting and Servicing (DUS®) 20 Fannie Mae Multifamily Financial Results 26 Additional Fannie Mae Resources 30 Fannie Mae / August 2014 2 Multifamily Debt Market Fannie Mae / August 2014 3 Multifamily Debt Outstanding (MDO) by Holders of Credit Risk Total $ in Billions 1,000 900 $797 800 800 700 $606 600 500 400 $857 $848 $854 $851 $881 $917 $939 $669 $710 $556 $402 $444 $483 300 300 GSE GSEs Guarantee 33% of MF MDO FNM: 20% FRE: 13% 200 100 ‐ Oh Other 39 40 39 40 40 42 44 47 45 41 43 41 40 38 Q1 2014 38 Life Insurance Companies 34 36 37 39 40 42 46 52 52 49 47 49 51 53 54 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 State & Local Credit Agencies 52 52 50 52 58 64 70 77 75 77 81 79 75 75 84 139 149 163 182 206 237 253 261 280 271 258 251 255 285 298 CMBS 47 53 59 66 73 89 102 124 113 107 98 91 81 75 74 Ginnie Mae Ginnie Mae 19 19 22 22 26 26 29 29 32 32 34 34 36 36 38 38 39 39 44 44 52 52 60 60 71 71 82 82 84 84 Banks & Thrifts Freddie Mac 22 30 37 49 53 56 53 67 88 98 99 106 118 124 123 Fannie Mae 50 63 73 99 103 105 105 132 156 168 172 179 190 185 184 17% 16% 15% 17% 19% 20% 21% 21% 22% 20% 20% Fannie Mae’s Share of MDO 13% 15% 16% 18% Fannie Mae has continued to guarantee about 20% of MDO over recent years Source: Federal Reserve Note: Numbers may not sum due to rounding Fannie Mae / August 2014 4 MDO Growth Rates – All Market Participants Total 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1 2014 9% 10% 6% 12% 6% 1% 0% 1% 3% 4% 2% Fannie Mae 4% 2% 0% 26% 19% 8% 2% 4% 6% -2% -1% Freddie Banks & Mac Ginnie Mae CMBS Thrifts 9% 4% -4% 25% 32% 12% 1% 8% 11% 5% 0% 11% 5% 7% 4% 5% 10% 20% 16% 17% 15% 2% 10% 22% 15% 21% -9% -5% -8% -8% -11% -7% -2% 13% 15% 7% 3% 7% -3% -5% -3% 1% 12% 5% State & Local Credit Agencies Life Insurance Companies 12% 10% 10% 10% -3% 3% 5% -2% -5% 0% 12% FNM’ MDO contracted FNM’s t t d compared d to t a 2% growth th in i the th market k t in i Q1 2014 Source: Federal Reserve Fannie Mae / August 2014 5 5% 5% 9% 12% 0% -6% -3% 5% 3% 4% 2% Other 1% 4% 6% 6% -5% -9% 4% -5% -1% -5% -1% Estimated Competitive Multifamily Debt Market Acquisitions by Participant1 Total $ in Billions $149 4% $124 2% $119 Non-GSE MBS issuances dropped by 92% from 2007 to 2009 $101 30% 8% $88 35% $64 8% 8% 5% 2% 4% 6% 4% 6% 8% 4% 12% 7% 12% 14% 30% 27% 2006 $20 $49 1% 2007 $32 Fannie Mae2 0% 4% 8% 8% 10% 14% Freddie Mac 18% 17% 19% $30 23% 8% 12% 27% 28% 40% 30% 2009 $20 2010 $17 3 Ginnie Mae 14% 23% 49% 2008 $31 13% 7% 9% 8% 17% 23% 34% 20% Fannie Mae ($ in Billions) $56 18% 13% 2% 8% 11% Other 4 27% 30% 17% 2011 2012 $24 $34 Depository Institutions 19% Life Insurers 2013 $29 12% 10% 12% YTD Q1 2014 $4 Conduits Diversified participation exists in the multifamily market today and competition is increasing Source: Fannie Mae and Freddie Mac 10-K and 10-Q financial statements, ACLI, FDIC, Trepp & Mortgage Bankers Association, Fannie Mae Multifamily Economic Research Notes: 1 Estimated competitive market size is an estimated subset of MF originations activity. It is not meant to be all-inclusive of total MF originations during a specific timeframe. 2 Excludes purchases of loans from others’ portfolios and Treasury HFA New Issue Bond program volume in 2009 and 2010. 3 Loans securitized by Ginnie Mae include non-dedicated multifamily housing e.g. healthcare and new construction 4 Other includes state and local credit agencies, FHLB and other financial institutions. Fannie Mae / August 2014 6 Fannie Mae Acquisitions – Consistent Provider of Liquidity and Affordability to the Multifamily Debt Market Fannie Mae / August 2014 7 Fannie Mae Multifamily Acquisitions by Asset Class Total in Billions 2009 2010 2011 2012 M Manufactured f d Housing H i $1.0 $1.1 $0.5 $0.5 $0.9 $1.0 $0.1 Seniors Housing $2.1 $1.0 $0.6 $1.4 $1.2 $1.6 $0.3 Student Housing $0.4 $0.6 $0.2 $0.5 $0.7 $0.5 90% $0.3 $25.7 $7.4 86% 2013 YTD Q2 2014 2008 93% $22.0 $30.9 Conventional & Coop $31.5 $17.2 $15.5 Total Acquisitions1 $35 $20 $17 $24 $34 $29 $8 Additional Loan Segments Included in Total Acquisitions Multifamily Affordable Housing2 $1.1 $0.8 3 Small Loans $2.2 $2.4 $2.3 $2.4 $3.8 $3.0 $2.3 $1.0 $2.3 $0.5 Fannie Mae serves many segments of the multifamily housing market Source: Fannie Mae 10-K and press releases Notes: 1 Excludes $1 billion and $391 million from the Treasury HFA New Issue Bond program for 2010 and 2009, respectively. 2 Financing for rent-restricted properties and properties receiving other federal and state subsidies. Excludes Treasury HFA New Issue Bond Program. 3 Loans up to $3 million; or $5 million in high cost areas. Fannie Mae / August 2014 8 Fannie Mae Multifamily Acquisitions by Loan Size (Based on Loan Count) <=$5M $5M<=$25M >$25M 5% 5% 32% 33% 63% 2009 62% 2010 7% 8% 9% 7% 38% 39% 39% 40% 55% 54% 53% 53% 2011 2012 2013 YTD Q2 2014 Fannie Mae has consistently provided financing to all market segments Source: Fannie Mae Fannie Mae / August 2014 9 Fannie Mae Multifamily Acquisitions by Area Median Income (AMI) Fannie Mae’s ability to serve a variety of income segments is a key component of serving the entire multifamily market 60% AMI or less 6% 5% 5% 4% 5% 5% 47% % 46% 45% >60%-100% AMI (workforce housing) 6% 5% 7% 6% 7% 4% 49% 49% 50% 35% 40% 38% 39% 9% 5% 51% Units 000s >100%-120% AMI >120% AMI 8% 5% 7% 5% 45% 42% 46% 44% 45% 42% 46% YTD Q2 2014 42% 45% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 436 473 426 666 652 344 286 390 500 430 44% 4% 5% 6% 5% 44% 134 Throughout g Fannie Mae’s recent history, y over 85% of units financed have been affordable at or below 100% of AMI Note: Units presented differ from total units financed because they exclude units financed by certain types of loans, primarily additional loans on properties for which we have already provided financing and loans for manufactured housing Source: Fannie Mae, based on Housing Goals methodology Fannie Mae / August 2014 10 Fannie Mae Multifamily Guaranty Book of Business - Diversification and Balance Fannie Mae / August 2014 11 Fannie Mae Multifamily Guaranty Book of Business Geographical Distribution by UPB As of June 2014 (Total UPB $196B) >$5B $1B $5B $1B-$5B <$1B Fannie Mae supports multifamily financing in all 50 states Source: Fannie Mae Credit Supplement Fannie Mae / August 2014 12 Fannie Mae Multifamily Guaranty Book of Business – Geographical Distribution by Loan Size As of June 2014 (Total UPB $196B) >$10M $5M-$10M <$5M Fannie Mae’s average multifamily loan size nationwide is $5.8M Source: Fannie Mae Fannie Mae / August 2014 13 Fannie Mae Guaranty Book of Business – Inventory Financed by Market Type As of March 2014 (B Number (By N b off Units U it in i each h Market M k t Type) T ) Fannie Mae finances units in over 250 MSA’s in tertiary markets 15% 16% 13% 15% Primary Secondary Tertiary Overall Fannie Mae does not dominate any section of the market, but consistently serves primary, secondary and tertiary markets Source: Nielsen and Fannie Mae Note: Data provided by Nielsen and Fannie Mae is at the MSA level. The units in each MSA are grouped into primary, secondary, or tertiary based on the population of each MSA. Units financed by Fannie Mae in each market are divided by the total multifamily units in the same corresponding market to get to Fannie Mae’s share. Excludes manufactured housing units. Fannie Mae / August 2014 14 Fannie Mae Mortgage Backed Securities – Capital Markets Liquidity and Stability Fannie Mae / August 2014 15 Fannie Mae Multifamily Acquisitions by Execution Type (1994 – Q2 2014) Total $ in Billions Fannie Mae Multifamily Acquisitions by Execution Type (2006 – YTD Q2 2013) 45 MBS Mortgage Loans and Other Guarantees 40 35 30 25 85% 20 83% 15 76% 10 5 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD Q2 2014 Multifamily shifted from mortgage loan purchases to MBS issuances supporting investor demand while continuing to provide market liquidity Note: Total Multifamily Fannie Mae MBS issuances less portfolio securitization transactions and conversions of adjustable rate loans to fixed-rate loans and discount MBS (“DMBS”) to MBS Source: Fannie Mae Fannie Mae / August 2014 16 Fannie Mae Multifamily Book of Business by Execution Type (2006 – Q2 2014) Total $ in Billions 250 Other Credit Guarantees 200 3rd Party MBS y Portfolio MBS $189 $185 $195 $173 50 - 39% 59% $201 $198 19% 15% 11% 50% $121 100 $206 30% $149 150 Mortgage loans g g 9% 14% 62% 55% 14% 50% 62% 11% 68% 49% 5% 5% 4% 30% 29% 24% 14% 11% 10% 9% 9% 8% 8% 8% 8% 2006 2007 2008 2009 2010 2011 2012 2013 Q2 2014 7% 27% 27% 30% 38% Fannie Mae transitions from investor to market maker as retained portfolio shrinks with continued strong demand for Multifamily MBS and structured products Source: Fannie Mae 10-K 10 K and 10-Q 10 Q financial statements Note: Numbers may not sum due to rounding Fannie Mae / August 2014 17 Retained Portfolio Fannie Mae Multifamily Guaranteed Securities (GeMS™) Issuance Total $ in Billions REMICs Megas $10.0B $0.04 $10.2B $0.5 $6.4B $4.8B $6.4B $2.0 $9.5 $0.7 $10.1 $6.4 $4.1 $4.4 2010 2011 2012 2013 Structured MF Securities created by collateral selected by Fannie Mae Executed via REMIC or Mega Structures Monthly Issuance Collateral Diversification Customizable Cash Flows Block Size & Par Pricing Dealer Syndicate Distribution GeMS issuance iss ance has facilitated market making activity acti it Source: Fannie Mae 10-K and Fannie Mae Press Releases Fannie Mae / August 2014 18 YTD Q2 2014 Multifamily Market Spreads Trailing 6 Quarters Legacy & New Issue AAA CMBS, MBS/DUS®, GNMA, GeMS and Freddie K Spreads bps Legacy AAA Super Senior CMBS MBS/DUS® 10 yr New Issue AAA CMBS Ginnie Mae Freddie K A2 10 yr FNMA GeMS A2 10 yr 160 140 120 Spread vvs. swaps 100 80 60 40 20 0 12/31/2012 3/31/2013 6/30/2013 9/30/2013 12/31/2013 3/31/2014 6/30/2014 Investor demand and increased borrower activity have bolstered the multifamily market as evidenced by tight spreads Source: Fannie Mae and JPMorgan Markit Partners Fannie Mae / August 2014 19 Fannie Mae Multifamily Delegated Underwriting and Servicing (DUS®) Fannie Mae / August 2014 20 Fannie Mae Supports the Market – Private Capital in Fannie Mae’s DUS Model Loan Note DUS lenders Borrower Fannie Mae Risk-Sharing Servicing Fee (with fee for credit risk) $ If loan defaults Fannie Mae securitizes loan as MBS MBS Fannie Mae Capital Markets Sell MBS to 3rd party investor Market Making Activity Package MBS into structured security Sell security to 3rd party investor Sell MBS to 3rd party Investor FNM 2/3 credit loss Private capital is part of every Fannie Mae Multifamily transaction Note: Blue indicates presence of private capital Source: Fannie Mae Multifamily Fannie Mae / August 2014 21 DUS lender 1/3 credit loss Fannie Mae Multifamily DUS® Risk-Sharing and Delegation Model $ Borrower Loan $ DUS® Lender Mortgage $ Multifamily Origination Applies for loan Originates the loans Sets loan documentation and delivery protocol Underwriting & servicing Borrower and property evaluated as part of underwriting Underwrites and services the loans in accordance with Fannie Mae standards and requirements Sets underwriting standards and servicing requirements MBS Performs quality control on underwriting and servicing MBS Investors Rely on standard underwriting Require periodic property performance information Creates Mortgage Backed Securities Risk sharing Risk-sharing C t ib t Contributes (private 20%+ equity capital at risk) Sh Shares in i 1/3 off the credit losses1 Sh Shares in i 2/3 off th the credit losses1 A Are protected t t d from f credit losses by FNM guarantee but have interest risk Fannie Mae Multifamily Multifamily’s s success has been achieved through its unique risk risk-sharing sharing model and alignment of interests Note: 1 Example illustrates pari passu loss sharing Source: Fannie Mae Multifamily Fannie Mae / August 2014 22 Fannie Mae Multifamily DUS® Features and Benefits Features Feature Industry Continuity Benefits Benefit Countercyclical stability – consistently provides access to credit throughout economic cycles Promotes confidence that funding and liquidity will be accessible Published Underwriting and Servicing Guidelines and Loan Documents Sets industry standards for multifamily underwriting and servicing best practices D l Delegation ti and dS Scalability l bilit Enables Fannie Mae to scale the business as industry conditions change Promotes standardization and transparency across all industry participants Facilitates reliable securities disclosures Improves efficiency and, therefore, lender responsiveness to customers Network of Approved Lenders/ Servicers Maintains a select group of business relationships based on: g Financial strength Extensive multifamily underwriting and servicing experience Strong portfolio performance Creation of quality branded product Risk-Sharing Originators, Lenders and Fannie Mae have “skin in the game” throughout the life of the loan Awareness of risk potential improves processes and performance of all parties Optimizes outcomes (e.g., profitability and loss mitigation) for all participants DUS Mortgage-Backed Security (DUS/MBS ) Transforms a mortgage loan into a more liquid asset, which increases available funds in the financial system Offers investors highly-rated credit strength due to Fannie Mae’s guarantee of timely payment of principal and interest The delegated model allows Fannie Mae to be more responsive to customers Source: Fannie Mae Multifamily release titled DUS® – The Role of Risk Retention in Multifamily Finance, Fourth Quarter 2011 Fannie Mae / August 2014 23 Fannie Mae Multifamily DUS® Lenders DUS® Lenders service over 90% of Multifamily Book 1. ACRE 9. Citibank 17. M&T 2. AmeriSphere 10. Dougherty 18. Oak Grove 3 3. Ab Arbor 11 Grandbridge 11. G db id 19 Pillar 19. Pill 4. Berkadia 12. Greystone 20. PNC 5 5. Berkeley Point 13 HomeStreet 13. 21 Prudential 21. 6. Capital One 14. HSBC 22. Red 7. CBRE 15. JPMorgan Chase 23. Walker & Dunlop 8. Centerline 16. KeyBank 24. Wells Fargo The Multifamily lender base includes both large and small institutions Source: Fannie Mae Fannie Mae / August 2014 24 Fannie Mae Multifamily DUS® Risk-Sharing % of Guaranty Book of Business with DUS & Other Lender Risk-Sharing 85% 86% 81% 79% 78% 2010 2011 2012 2013 Q2 2014 Lenders have increasingly shared in the risk of the loans delivered to Fannie Mae Source: Fannie Mae 10-K and 10-Q financial statements Fannie Mae / August 2014 25 Fannie Mae Multifamily Financial Results Fannie Mae / August 2014 26 Market Performance – Credit Risk Management SDQ as of Q1 20141 Credit Losses to Book as of Q1 20141 16% 1.4% 14% 1.2% 12% 1.0% 10% 9.36% 8% 0.8% 6% 0.6% 0.43% 4% 0.4% 2% 0.74% 0.10% 0 04% 0.04% 0.00% 0% 2006 2007 2008 2009 2010 2011 Fannie Mae Freddie Mac CMBS with Foreclosures & REO Market Participant Fannie Mae Freddie Mac All FDIC Insured Institutions Life Insurers CMBS with Foreclosures & REO 2006 0.08% 0.05% 0.53% 0.02% 0.70% 2007 0.08% 0.02% 0.76% 0.01% 1.06% 2012 2013 0.2% 2006 All FDIC Insured Institutions Lif e Insurers 2008 0.30% 0.01% 1.77% 0.07% 2.37% 2009 0.63% 0.20% 4.43% 0.19% 8.21% 2010 2011 2012 0.71% 0.26% 3.74% 0.19% 14.41% 0.59% 0.22% 2.53% 0.13% 14.36% 0.24% 0.19% 1.56% 0.06% 13.21% 2013 0.01% 0.0% YTD Q1 2014 2007 2008 Fannie Mae YTD Q1 2014 0.10% 0.09% 0.83% 0.00% 10.18% 0.10% 0.04% 0.74% 0.00% 9.36% Market Participant Fannie Mae Freddie Mac All FDIC Insured Institutions CMBS 1Note: 2009 2010 2011 All FDIC Insured Institutions 2006 0.01% 0.01% 0.05% 0.10% 2007 0.01% 0.01% 0.12% 0.07% 2008 0.03% 0.01% 0.36% 0.11% 2009 0.12% 0.04% 1.09% 0.30% 2012 2013 Freddie Mac 2010 0.27% 0.09% 1.23% 0.80% 2011 0.20% 0.06% 0.72% 1.30% 2012 0.13% 0.03% 0.30% 1.12% Prepared by MF Finance. FDIC bank data reflects net charge-offs to book. 1Note: Prepared by MF Finance. Not all delinquency rates are comparable between investor groups. FDIC bank data reflects 90 d 90+ day d delinquency li rates. t CMBS iincludes l d fforeclosures l & REO REO. Fannie Mae has served the market broadly, while maintaining sound credit performance Sources: Fannie Mae, FRE Volumes Summary, FDIC, ACLI , Trepp Fannie Mae / August 2014 27 YTD Q1 2014 CMBS 2013 0.03% 0.01% 0.13% 0.84% YTD Q1 2014 0.01% 0.00% 0.01% 0.43% Fannie Mae Multifamily Credit Losses by Loan Size Total $ in Millions $25M+ $5M <= 25M <=$5m $498 $410 35% 32% $257 48% 34% 34% 50% 55% $52 17% 79% 18% % 11% 2010 1 2011 2012 55% 79% ($22) -34% -80% 2013 YTD Q2 2014 -20% Reflects g gains on sale of foreclosed properties in the $5M <= $25M and $25M+ loan sizes Diversification by loan size helps drive strong credit performance 1Excludes $19 million of credit-related income from other Multifamily Mortgage Business Investments Source: Fannie Mae 10-K and 10-Q financial statements, Quarterly Credit Supplement Fannie Mae / August 2014 28 Historical Multifamily Credit Guaranty Financials (2004 – Q2 2014) (Total $ in millions) YTD Q2 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 449 (49) 400 572 (29) 543 562 (7) 555 470 (8) 462 633 (52) 581 675 (220) 455 791 (498) 293 884 (391) 493 1,040 (257) 783 1,217 (52) 1,165 628 22 650 204 (391) 266 (409) 279 (596) 359 (548) 186 (404) 100 (363) 146 (384) 218 (264) 207 (269) 182 (280) 55 (148) 213 400 238 273 363 192 55 447 721 1,067 557 9 (68) 38 (109) 2 (149) (1) (236) (32) (133) (1,996) (38) 304 (59) 111 5 444 19 635 19 84 29 154 329 91 36 198 (1,842) 300 563 1,184 1,721 670 LIHTC/equity/income tax income (expense) 271 174 247 121 (2,387) (7,186) (84) 20 327 8,348 36 Total MMB net income as reported 425 503 338 157 (2,189) (9,028) 216 583 1,511 10,069 706 Estimated Multifamily Credit Guaranty Financials Guaranty fees Credit losses 1 MF margin Fee and other income Administrative expenses MF operating income 1 Other credit income (expenses) Other revenue (expenses) MF income 1 Additional estimated net interest income 2 Average Multifamily guaranty book of business 3 114,349 118,874 118,537 4,967 6,347 4,059 565 785 865 873 827 709 257 161,722 179,315 186,867 191,984 199,797 204,284 199,074 (2,050) (58,707) (71,969) (14,014) (16,855) 17,224 83,963 8,991 Cumulative Total 2008 2009 2010 2011 (116.1) (15.2) (60.0) (15.0) (25.9) - - - 2.5 7.7 9.6 11.6 82.5 12.9 131,375 Total Fannie Mae Net Income (Loss) Net income (loss) attributable to Fannie Mae Treasury Draws and Senior Preferred Stock Dividend Payments ($B) Treasury Draws Senior Preferred stock dividends 4 126.8 - 2012 2013 YTD Q2 2014 Notes 1MF margin, MF operating income and MF income are Non-GAAP measures that exclude low income housing tax credits (LIHTC) and multifamily equity investment related amounts and income tax income (expense) 2Earned on Fannie Mae Multifamily mortgage loans and MBS included in Capital Markets Group’s results 32004 average based on beginning and end of year book balances 4Dividend payment in Q2 2014 was $5.7B, $5 7B which was calculated based on Fannie Mae Mae’s s net worth of $8.1B $8 1B as of March 31 2014 2014, less the applicable capital reserve amount of $2.4B. $2 4B As of June 30 2014 2014, Fannie Mae has paid a total of $126.8B in dividends to Treasury Fannie Mae Multifamily has performed soundly Source: Fannie Mae 10-K and 10-Q financial statements Fannie Mae / August 2014 29 Additional Fannie Mae Multifamily Resources Quarterly/Annual Financial Results and Credit Supplement http://www.fanniemae.com/portal/about-us/investor-relations/quarterly-annual-results.html Fannie Mae Progress g Report p http://www.fanniemaeprogress.com/ Fannie Mae Mortgage Market and Programs: “MBSenger” http://www.fanniemae.com/portal/funding-the-market/mbs/news/mbsenger/index.html Fannie Mae Commentary http://www.fanniemae.com/portal/about-us/media/commentary/index.html Monthly y Summaryy Report http://www.fanniemae.com/portal/about-us/investor-relations/monthly-summary.html Fannie Mae Multifamily New Business Volumes https://www.fanniemae.com/content/fact_sheet/multifamily-monthly-business-volumes.pdf Multifamily Market Commentary, Research and Analysis (“White Papers”), and General Information https://www.fanniemae.com/multifamily/index Multifamily DUS Prepayment History Report http://www.fanniemae.com/portal/funding-the-market/mbs/multifamily/dusprepayment-history.html Fannie Mae / August 2014 30
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