The HUD Housing Goals · The policy initiatives are policy offense. Now I want to turn to policy defense. Policy defense is about risk management - defending against adverse policy actions and protecting our good name against those who would seek to tarnish it. The first issue I want to talk about is the HUD housing goals. 1 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172206
>:~;~;~;i; x~o:.-.-.-.- Goals are Set by HUD /1+ Through Regulation . :i:i:i:i:::: ••••••••••••••••••••••••••• ••••••••••••··············· • Current goals published in October 2000 and are effective through the end of 2003 GOALS 50 0 /0 Low/Mod 31 0 /0 Underserved Special Affordable 20 0 /0 Multifamily $2.85 billion Special Affordable 2 · At the risk of telling you stuff you already know, let me begin the story by reminding ourselves that we have three housing goals - Low mod, underserved and special affordable. 2 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172207
• Goals must be met as percent of mortgage financings everyyear • Only mortgage financings count • LIHTC investments donlcount • Community development investments through ACF donlcount 3 · The goals are unique in the financial services industry: They are quantitative, measured in units as a percentage of our business measured in units. Units in both Single family and multifamily mortgages count. But equity - tax credits or ACF does not. 3 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172208
I'" Goals Have Increased Substantially .•••• :::::::: '''w.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.....·.·.· ..................... . 60% ..,------------------, 50% 01993-1995 45%+-----=...:..c.. 01996 [l 1997 -2000 30% [l2001-2003 15% Special Affordable MF Subgoal: $2.85 billion per year versus the 0% prior subgoal of $1.29 billion for the 1996-2000 Low Mod Underserved Special period. Affordable *In 1993 and 1994, this goal covered lending in central cities. 4 · As you can see from this next table, HUD has increased the goals several times over the years and significantly increased Fannie Mae's affordable housing goals in October 2000. • The low- and moderate-income goal increased from 42 percent to 50 percent. The underserved areas goal increased from 24 percent to 31 percent. The special affordable housing goal increased from 14 percent to 20 percent. • The new goals represented a stretch based on our historical performance. Fannie Mae agreed to the new goals and agreed to step up to the challenge. 4 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172209
~ :~;~;~;~; ~;~;~;~;~: ~w.-.-.-.-.-.-.-.-.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.· anie Mae Exceeded All Goals in >:>u() 2002 Despite Significant Challenges . ............... -.-.-.-.- ................. . 60% -,------------------, • 2002 market produced the most difficult goals 50% environment yet 40% • Low interest rates were 30% positive for housing 20% • But, resultant SF volumes made goals more difficult 10% • Goals challenge ran right up 0% Low Mod Underserved Special against liquidity mission Affordable 10 Goal rn Result I 5 In 2002, Fannie Mae exceeded all our goals for the 9 th straight year. But it was probably the most challenging environment we've ever faced. Meeting the goals required heroic 4th quarter efforts on the part of many across the company. Vacations were cancelled. The midnight oil was burned. Moreover the challenge freaked out the business side of the house. Especially because the tenseness around meeting the goals meant that we considered not doing deals - not fulfilling our liquidity function - and did deals at risks and prices we would not have otherwise done. 5 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172210
~ ingle-FamiIY, }:~ ~.~.~.~.~.~.~ :~:~i ~w Multifamily, and Bonuses Required to Meet the Goals iiiiiii:iii:: ............. ••••••••••••••••••••••••••••••••••••••••••••• •••••••.•.•.•.•.•.•.•.•..................................... Percent Low- and Moderate-Income Units, 2002 60% 51.8% 49.0% 45.5% 50 0 /0 ------------------ 40 0 /0 30% 20% +--- Total, wI SF Only SF and MF Bonuses 6 • We cannot meet the current goals without efforts of both single-family and multifamily. • And last year, we would not have made the goals if it were not for the bonuses. 6 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172211
~ ;~;~;~;: ~-.-.-.-.-.- .:;~;~ -= Record Single-Family Volumes, }), Record Challenges ................................... . Annual Average Interest Rate 8.4% 8.0% 7.8% 7.6% 6.9% 7.4% 8.1% 7.0% 6.5% 5.8% 8,000 7,000 6,000 5,000 4,000 3,000 1,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 est. D Refinance Units I PMM Units I Proprietary and Confidential Information -This chart shows why these significant efforts are necessary. - Historically low interest rates are driving the third record originations year in a row. -Record SF originations projected to be more than $1 trillion dollars in business. - 7 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172212
~ ot :~;~;i; x~o:o-.-.-.- All Loan Types Reach }':rJ the Market to the Same Depth ;i;i;i;i> ••••••••••••••••••••••••••• ••••••••••••· ............. . Low-Mod Share of Single-Family Units 50 0 /0 48 0 /0 47 0 /0 .---'48 0 /0 45 0 /0 40 0 /0 1 0 /0 39 0 /0 40 0 /0 38 0 /0 38 0 /0 38 0 /0 37 0 /0 38 0 /0 37 0 /0 37 0 /0 35 0 /0 30 0 /0 +---r-------,------,------,------,---------,------,-----,---------,-------, 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1st Q 1- PMM Low-Mod Percentage - Refinance Low-Mod Percentage 1 8 Source: FMIS Total SF Units, Standard Business. Treats all missing data as not affordable and excludes bonus. · The good news is a refinance boom means record business. The bad news is that it makes the goals much harder. • First, this is because refinances tend to run below PMMs. Yellow PMMS in the first quarter were rich. Refinaces were not. 8 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172213
~ ecord \~ ~» ·;:~;~;i ~w".·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.· SF Volumes are Driven by Rate and Term Refinances . iiiiiiiii::;: ........................................................... . Share of SF Units 60% ,----------------------------, 50% I-=:;~-_=_:~:;:;-j 40% +-"~-.£.-.-~-'=-I Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- 02 02 02 02 02 02 02 02 02 02 02 02 03 03 03 I--PMM --Cash-Out Refi --Rate/Term Refi I Proprietary and Confidential 9 • As you can see, our PMM share has decreased from about a 30% share in December 2002 to 20% in March 2003. ·Our cash out refis have shown a slight trend upward. • But rate and term refinances are currently about 50% of our SF units. This is the highest share over the previous 15 months. • This business mix is a drag on our performance because these units penetrate the markets at differential rates. 9 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172214
~ ultifamilY }:~ ~.~.~.~.~.~.~ :~:~i ~w Business is Projected to Decline Slightly from Record Levels iiiiiii:iii:: ............. ••••••••••••••••••••••••••••••••••••••••••••• •••••••.•.•.•.•.•.•.•.•..................................... Total Multifamily Units 600,000 504,000 400,000 !II :!:! c :::l 200,000 o 2001 2002 2003 est Proprietary Information Confidential Treatment Requested by Fannie Mae 10 • While SF is growing MF is going down. • Different market: yield maintenance agreements. • 2001 and 2002 were our biggest MF years ever. This strong MF volume helped offset some of the SF refinance volume. ·Our current MF forecast suggest another strong year. However, in 2003, SF is projected to increase by approximately 27% while MF is projected to decline. 10 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172215
~ ~w".·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.· trong O%+-~-~-~-~-~-~-~-~-~-~ ·:;~;~i MF Levels Will Not Prevent a \P? Decline in the MF Share of Units iiiiiiiiii::: ........................................................... . Multifamily Share of Total Units 20 0 /0 15.2% 13.8% 13.4% 15 0 /0 10 0 /0 5010 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 est. Proprietary Information Confidential Treatment Requested by Fannie Mae 11 • Historically low percentage. • NOTE: Standard MF terms are 10 year term, 5 year lock out, and 9.5 yield maintenance. 11 CONFIDENTIAL AND PROPRIETARY BUSINESS INFORMATION CONFIDENTIAL TREATMENT REQUESTED FM-FCIC 00172216
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