Those goals have increased substantially over the past ten years, and we have consistently met those goals, even as they have become more demanding.

While we consistently meet the HUD affordable housing goals, we carry out a mission that is broader than specific governmental mandates. We are dramatically increasing our impact in underserved communities; we are responding to President Bush's challenge to expand minority homeownership; and we are providing leadership in the market in both qualitative and quantitative ways. We work every day to innovate and develop creative ways to bring homeownership opportunities to all corners of the nation.

Expanding Fannie Mae's Impact

Fannie Mae is the largest single provider of mortgage credit to low- and moderate-income and minority families. In 2002 alone, Fannie Mae provided more than $279 billion in credit serving low- and moderate-income households. Further, as the chart below demonstrates, a greater share of Fannie Mae's business serves households with incomes below 100 percent of Area Median Income (AMI) than the conventional conforming market.

Fannie Mae Leads the Market in Serving
Lower-Income Borrowers

In fact, since Congress enacted the 1992 Act, we have steadily increased the share of our mortgage purchases that are loans to low- and moderate-income families. Over the past decade, the percentage of low-and moderate-income Americans we serve has grown substantially, from 35 percent to over 50 percent.

Percent of Units

Low-Mod Borrowers Represent Greater
Share of Business Over Time

And within that population of borrowers, we have steadily increased the share of mortgage purchases that are loans to borrowers earning between 60 percent and 80 percent of area median income, and the share of borrowers earning less than 60 percent of area median income.

Expanding Minority Homeownership

Last year, President Bush challenged the housing industry to work with the Administration to create 5.5 million new minority homeowners by the end of the decade. Fannie Mae made a 10-point commitment to President Bush's Minority Homeownership Initiative, including a pledge to invest at least $700 billion to finance mortgages for minority families between 2000 and 2009. As of the end of June 2003, we had invested $381 billion toward that commitment, while we worked to solve difficult problems through innovative partnerships with lenders, faith-based institutions, counseling agencies, and state and local housing finance agencies.

In 2002 alone, Fannie Mae invested $136.2 billion in mortgages to minority families, exceeding that of any other private financial services institution and even greatly exceeding the Federal Housing Administration's $46.4 billion in minority loan originations that year. Our growth in minority lending over time has been extraordinary. Comparing 1993 to 2002, purchases of loans to African Americans increased 226 percent and purchases of loans to Hispanics increased 243 percent, while our purchases of loans to non-minorities increased by only 64 percent.

We are determined to lead in minority lending, not just because it's the right thing to do, but also because it is what the market demands. We know that the biggest growth markets in the mortgage business are the same markets that have not been served very well in the past. By the year 2020, while the white population is projected to grow by about 5 percent, the African-American population will grow by 24 percent, the Hispanic American population by 70 percent, and the Asian American population by 75 percent.

In some places, Hispanic families are fast becoming a majority. By the end of this decade, Hispanics will contribute nearly half of the nation's population growth. We expect the US population, as a whole,

to grow by about 30 million during this decade alone, driven in large part by a healthy influx of new Americans. And that population growth will create 13-15 million new households.

Meanwhile, fewer than half of minorities own their homes, versus almost three-quarters of white families. That means there is an untapped market of millions of minority families right now waiting to be served.

In other words, the so-called emerging markets are the surging markets. If we are to grow as a company and continue to achieve our mission to expand affordable housing, we must find better ways to reach and serve these markets. Emerging markets are the future of Fannie Mae.

Innovation

Innovation has been critical in our efforts to reach new markets and underserved communities. Harnessing the powers of technology, Fannie Mae has made it possible for more people to access mortgage credit and to have more choices at better prices.

Since 1992, Fannie Mae and the mortgage finance industry have created a revolution in underwriting, product innovation, and streamlined technology processes, to produce significant gains in lending to low- and moderate-income, minority, and other traditionally underserved borrowers.

For example, a downpayment is often the single largest obstacle preventing a family from purchasing a home. Fannie Mae was at the forefront of the mortgage industry expansion into low-downpayment lending and created the first standardized 3-percent-down mortgage. Fannie Mae financing for low down payment loans (5 percent or less) has grown from $109 million in 1993 to $17 billion in 2002.

We've also used technology to expand our underwriting criteria, so that we can reach underserved communities. For example, our Expanded Approval products make it possible for people with blemished credit to obtain a conforming mortgage loan. And we've added a Timely Payments Reward feature to those loans, enabling borrowers to lower their mortgage payment by making their payments on time. These mortgage features have been crucial tools in reaching into communities that were previously underserved. The mortgage market today has a wider variety of products available than ever before, and therefore is better poised to meet the individual financing needs of a broader range of home buyers.

Not only has innovation created a wider variety of mortgage products targeted to individual borrowers' needs, it has also streamlined the cost of processing a new mortgage loan. Our system has brilliantly harnessed the power of information technology to make the process of financing or refinancing a home faster, cheaper and easier for consumers, and more efficient for the industry.

The highly liquid and efficient mortgage market laid the foundation for the refinance boom of the last two years. This has enabled borrowers to take advantage of the lowest interest rates in decades and thereby save billions of dollars in interest costs. In a speech delivered on March 4, 2003 to the Independent Community Bankers of America, Federal Reserve Chairman Alan Greenspan reported that in 2002, close to 10 million mortgages were refinanced, and that households “cashed out" almost $200 billion of their accumulated home equity, likely using as much as half of that amount to modernize their homes and for personal consumption -- spending that directly affected GDP and jobs. He went on to say that approximately half of that cashed out equity went to consumption - consumption spending that provided much needed support to an otherwise flagging economy.

Greenspan acknowledged the significance of record low mortgage rates in the refinancing wave. He also pointed out that the relative ease in the process of refinancing, compared to ten years ago, played a significant role in prompting these additional household expenditures.

"Even as recently as the late 1980s, a family that wanted to use housing wealth to finance consumption would have faced an expensive and time-consuming process...Although substantial home equity wealth has existed for many years, only in the last decade or so has secured borrowing against home equity become a cost-effective source of credit in a wide variety of circumstances.

"

He concluded his remarks by noting, "Home equity extraction may be the household sector's realization of the benefit of a rapidly evolving financial intermediation system."

Fannie Mae has played an integral role in standardizing the mortgage process through technology, to make it faster and less expensive for lenders and for consumers to refinance into lower cost mortgages and to cash out some of the equity in their homes.

From the inception of our technology efforts, Fannie Mae's vision has always been to create technology that was scalable through economic ups and downs. Through our technology, our underwriting flexibilities and our access to capital, Fannie Mae has been able to work with lenders across the country to insure that, no matter the size of the market, lenders are able to service their borrowers effectively and efficiently. Without that technological progress, the industry may well have been overwhelmed and unable to accommodate the refinance wave of the last two years.